[Federal Register Volume 74, Number 202 (Wednesday, October 21, 2009)]
[Notices]
[Pages 54378-54381]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-25217]



[[Page 54377]]

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Part V





Department of Housing and Urban Development





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Buy American Exception Under the American Recovery and Reinvestment Act 
of 2009: Notice of National Exceptions of Section 1605 (Buy American 
Requirement) of the American Recovery and Reinvestment Act of 2009 
Applicable to Community Planning and Development Recovery Act Funds; 
Notice

  Federal Register / Vol. 74 , No. 202 / Wednesday, October 21, 2009 / 
Notices  

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DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

[Docket No. FR-5357-N-01]


Buy American Exception Under the American Recovery and 
Reinvestment Act of 2009: Notice of National Exceptions of Section 1605 
(Buy American Requirement) of the American Recovery and Reinvestment 
Act of 2009 Applicable to Community Planning and Development Recovery 
Act Funds

AGENCY: Office of the Assistant Secretary for Community Planning and 
Development, HUD.

ACTION: Notice.

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SUMMARY: In accordance with the American Recovery and Reinvestment Act 
of 2009, Public Law 111-5, 123 Stat. 115 (2009) (Recovery Act), and 
implementing guidance of the Office of Management and Budget (OMB), 
this notice advises that national exceptions to the Buy American 
requirements of the Recovery Act have been determined applicable for 
projects using Community Development Block Grant-Recovery (CDBG-R) 
funds and Neighborhood Stabilization Program 2 (NSP2) funds.

FOR FURTHER INFORMATION CONTACT: Stanley Gimont, Director, Office of 
Block Grant Assistance, Department of Housing and Urban Development, 
451 Seventh Street, SW., Room 7286, Washington, DC 20410, telephone 
number 202-708-3587. Persons with hearing or speech impairments may 
access this number via TTY by calling the Federal Information Relay 
Service at 800-877-8339. FAX inquiries may be sent to Mr. Gimont at 
202-401-2044. Except for the ``800'' number, these telephone numbers 
are not toll free.

SUPPLEMENTARY INFORMATION: The Recovery Act appropriated $1 billion in 
CDBG-R funds to states and local governments to carry out eligible 
activities on an expedited basis. The Recovery Act also appropriated $2 
billion for the second round of NSP2, ``[f]or the provision of 
emergency assistance for the redevelopment of abandoned and foreclosed 
homes.'' 123 Stat. 217. Section 1605(a) of the Recovery Act imposes a 
Buy American requirement on Recovery Act funds used for a project for 
the construction, alteration, maintenance, or repair of a public 
building or public work. The section provides that all of the iron, 
steel, and manufactured goods used in the project must be produced in 
the United States. Section 1605(b) provides that the Buy American 
requirement shall not apply in any case or category of cases in which 
the head of a federal department or agency finds that: (1) Applying the 
Buy American requirement would be inconsistent with the public 
interest; (2) iron, steel, and the relevant manufactured goods are not 
produced in the United States in sufficient and reasonably available 
quantities and of satisfactory quality; or (3) inclusion of iron, 
steel, and manufactured goods will increase the cost of the overall 
project by more than 25 percent. Section 1605(c) provides that if the 
head of a federal department or agency makes a determination pursuant 
to section 1605(b), the head of the department or agency shall publish 
a detailed written justification in the Federal Register.
    In accordance with section 1605(c) of the Recovery Act and OMB's 
implementing guidance published on April 23, 2009 (74 FR 18449), this 
notice advises the public that the Secretary determined it was 
necessary to approve certain exceptions to the Buy American requirement 
based on findings under section 1605(b) with respect to work using 
CDBG-R or NSP2 funds. Those exceptions are as follows:
    1. If another federal agency (e.g., Department of Commerce, 
Department of Energy, or Environmental Protection Agency) has granted a 
Buy American exception under section 1605(b) for a project, HUD will 
accept that agency's determination and permit the grantee to apply that 
exception for the remainder of CDBG-R or NSP2 funded work in that 
project.
    2. If another HUD Program Office (e.g., Office of Public and Indian 
Housing) has granted a Buy American exception under section 1605(b) for 
a specific project, and a written determination supports its 
application to another request, the grantee may apply that exception 
for the CDBG-R or NSP2 funded work in that project. To use this 
exception, the grantee must submit to CPD a written determination 
justifying the applicability of the previously granted exception to the 
relevant portion of the project. CPD must concur in that determination.
    3. For publicly owned housing \1\ assisted with CDBG-R or NSP2 
funds, when such property contains fewer than 8 units.\2\
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    \1\ For purposes of this exception, ``publicly owned'' housing 
includes, but is not limited to, public housing as defined in 24 CFR 
5.100; residential structures owned by other governmental entities 
listed in 2 CFR 176.140; and public facilities designed to provide 
shelter to persons with special needs and owned by governmental 
entities listed in 2 CFR 176.140.
    \2\ For purposes of this exception, ``such property contains 
fewer than 8 units'' is to be construed in a manner consistent with 
the Davis-Bacon exemption under section 110 of the Housing and 
Community Development Act of 1974. This exemption has been 
interpreted to include property containing 7 or fewer units. 
Typically, single-family properties are excluded under this 
exemption.
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    4. When the size of the CDBG-R grant from HUD to a grantee or (in 
the case of State CDBG-R) from a state to a state grant recipient is 
less than $100,000.
    5. When the size of a contract funded with the CDBG-R or NSP2 grant 
is less than the simplified acquisition threshold described in 24 CFR 
85.36 (currently $100,000), regardless of the size of the grantee.
    6. Any project that is substantially under contract or under 
construction prior to acceptance of the CDBG-R or NSP2 funds.
    The above national exceptions are based on a determination of 
inconsistency with the public interest. In addition to these 
exceptions, a list of items already determined to be domestically 
nonavailable can be found at 48 CFR 25.104(a) (FAR List). HUD does not 
need to provide an exception or any additional justification to allow 
grantees to use items currently on the FAR List of domestically 
nonavailable items at 48 CFR 25.104(a). The procedures to apply if any 
of those articles are manufactured goods needed in a project covered by 
the Buy American requirement are found at 48 CFR 25.103(b)(1). See also 
2 CFR 176.80. At this time, HUD is not adding to the FAR List. If a 
grantee wants to use items on the FAR List or to have items added to 
the FAR List or to a HUD list, the grantee must follow the CPD 
Implementation Guidance for the Buy American requirement.
    Additional information about these exceptions can be found in the 
CPD Implementation Guidance for the Buy American requirement. To review 
the Guidance, visit the CPD page on HUD's Client Information and Policy 
System (HUDCLIPS) at: http://www.hud.gov/offices/adm/hudclips/notices/cpd/.

Background

    HUD generally requires that grantees use American-made iron, steel 
and manufactured goods throughout Recovery Act-assisted projects 
subject to the Buy American requirement. However, there are certain 
circumstances under which exceptions to the Buy American requirement 
will be appropriate in accordance with section 1605(b). In 
administering Recovery Act programs, HUD must also apply the Buy 
American requirement in a manner that does not undermine the broader 
purposes and objectives of the Act, as well as statutory provisions

[[Page 54379]]

specific to CDBG-R and NSP2 funding. First and foremost, the Recovery 
Act was enacted to provide an immediate stimulus to the U.S. economy. 
As stated in section 3 of the Recovery Act:

    GENERAL PRINCIPLES CONCERNING USE OF FUNDS.--The President and 
the heads of Federal departments and agencies shall manage and 
expend the funds made available in this Act so as to achieve the 
[specified] purpose * * * including commencing expenditures and 
activities as quickly as possible consistent with prudent 
management.

    123 Stat. at 116. In addition, the Recovery Act includes quick 
expenditure provisions specific to CDBG-R and NSP2 grants. In 
particular, the statute mandates that, ``in administering the [CDBG-R] 
funds, [HUD] shall establish requirements to expedite the use of the 
funds.'' 123 Stat. at 217. The law also requires that ``in selecting 
projects to be funded, recipients shall give priority to projects that 
can award contracts based on bids within 120 days from the date the 
funds are made available to the recipients.'' Id. The NSP2 
appropriation included another mandate for grantees to ``expend at 
least 50 percent of allocated funds within 2 years of the date funds 
become available to the grantee for obligation, and 100 percent of such 
funds within 3 years of such date.'' Id. Consistent with this intent, 
HUD has already established mechanisms designed to put NSP2 and CDBG-R 
funds to immediate use, including establishing spending/obligation 
deadlines in funding announcements and grant agreements, and expecting 
at least quarterly drawdowns from the grantee's line of credit. In 
order to further expedite grantees' timely use of Recovery Act funds, 
HUD is granting national exceptions that are all supportive and 
essential to carrying out these congressional mandates and balanced 
with the interests and intent of the Buy American requirements.
    The following national exceptions based on the public interest are 
necessary to: (1) Avoid delay in completion and restoration of housing 
for low-income families and the achievement of Recovery Act deadlines; 
(2) avoid delays in the start of construction and completion of public 
facilities and improvements that will jeopardize jobs; (3) avoid the 
possibility of additional funding gaps on termination of certain 
contracts and price differentials caused by reprocurement of goods and 
equipment; (4) avoid loss of funding for critical projects; and (5) 
address current and emerging situations presented by states and local 
governments.

Publicly Owned Housing Fewer Than 8 Units

    To expedite grantees' timely use of Recovery Act funds, HUD 
believes it is in the public interest to provide an exception to the 
Buy American requirement, to the extent that it applies to publicly 
owned housing projects developed with CDBG-R and NSP2 funds, when such 
property contains fewer than 8 units. This 8-unit threshold ensures 
that CDBG-R and NSP2 funds are employed in a prudent manner consistent 
with applicable program requirements.
    Funding available under the Recovery Act has clear purposes--to 
stimulate the economy through measures that modernize the Nation's 
infrastructure, improve energy efficiency, and expand educational 
opportunities and access to health care. Congress clearly intends that 
CDBG-R funds should be invested in housing, infrastructure, and other 
public facilities activities that will quickly spur further economic 
investment, increase energy efficiency, and job creation or retention. 
To this end, HUD has strongly urged grantees to use CDBG-R funds for 
hard development costs associated with infrastructure activities that 
provide basic services to residents or activities that promote energy 
efficiency and conservation through rehabilitation or retrofitting of 
existing buildings. However, in the CDBG program, while HUD awards 
financial assistance to state and local governments, the decision 
concerning how the financial assistance will be expended and in what 
combination, if any, is left to the state or local government. Grantees 
may use CDBG-R funds for stimulus activities that involve publicly or 
privately owned structures. Buy American coverage, however, is limited 
to public works and public buildings. The requirement does not apply to 
the development of privately owned housing. This distinction may have 
the unintended effect of grantees moving CDBG-R funds away from 
publicly owned housing in favor of privately owned housing. The 
resulting loss of federal funding could restrict affordable housing 
opportunities for our Nation's most vulnerable citizens, including the 
elderly, disabled, or other special needs populations.
    Similar unintended consequences may also affect the progress of 
other housing activities in the CDBG-R and NSP2 programs. NSP2 funding, 
in particular, is intended ``to assist states, local governments, and 
nonprofits in the purchase and rehabilitation of foreclosed, vacant 
properties in order to create more affordable housing and reduce 
neighborhood blight.'' H.R. Conf. Rep. No. 111-16, at 472. After 
acquiring abandoned and foreclosed-upon residential properties, 
governmental entities may still hold title to the homes during the 
renovation process. It is anticipated that many of these homes will be 
single-family homes and other small residential properties with fewer 
than 8 units. In small renovations, it would be impractical to research 
the origins of every potential manufactured good under the time 
constraints. A typical housing renovation uses countless materials that 
could be construed as ``manufactured goods.'' Grantees have brought to 
HUD's attention that every housing project involves the use of 
literally thousands of miscellaneous, generally low-cost components 
that are essential, but incidental, to the construction and 
modernization, and are incorporated into the physical structure of the 
project, such as nails, hinges, or other hardware, and electrical, 
plumbing, and finishing components. These components are subject to the 
Buy American requirement, but the country of manufacture and the 
availability of alternatives are not readily or reasonably identifiable 
prior to procurement in the normal course of construction and 
modernization of publicly owned housing. Under the requirements of the 
Recovery Act, it would be laborious, likely unproductive to find 
feasible alternatives, and disproportionate to the costs and time 
involved for the grantee or its contractor to pursue such inquiries.
    Given the magnitude of the foreclosure crisis and the unprecedented 
numbers of families facing homelessness, returning abandoned and 
foreclosed-upon residential properties to the affordable housing stock 
is of critical importance. As a result, HUD has looked to identify the 
scope of components within the construction and development of small 
publicly owned housing projects. HUD has considered the 
disproportionate cost and delay that would be imposed on small publicly 
owned housing projects if HUD did not issue certain exceptions to the 
Buy American requirement.

De Minimis Exceptions

    The national exception for jurisdictions with a CDBG-R grant of 
less than $100,000 will cover about 10 percent of CDBG-R grantees and 
will amount to a relatively small impact (approximately $11.5 million 
of the nearly $1 billion in CDBG-R grant awards). This exception also 
covers State CDBG-R grants for less than $100,000 from states to units 
of general

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local government (state grant recipients). Another reason that Recovery 
Act funds have been provided to state and local governments is the 
recognition that state and local governments are suffering from serious 
budgetary constraints due to simultaneous revenue shortfalls and 
increased demand for services. CDBG-R funding, in particular, reaches 
small and rural communities. HUD understands that such communities 
often have to search further in order to procure American-made items 
and to find contractors familiar with the Buy American requirement. For 
these communities, it takes additional time to procure and there are 
increased costs associated with bringing materials and contractors in 
from a great distance. The additional time and allocation of scarce 
staff resources to finding American-made materials for relatively small 
grants works against state and local governments' fiscal constraints, 
as well as the Recovery Act's expenditure deadlines. In many cases, the 
administrative time and cost involved in undertaking such searches 
would be overly burdensome given the nature of the projects. 
Recognition of the lack of availability and access to resources and as 
relief from administrative burdens are critical to the success of small 
grantees and is consistent with Recovery Act objectives. As with any 
new requirement, implementation of the Buy American requirement will 
take analysis and resources that are not readily available to small 
grantees. The need for the expeditious and efficient use of the CDBG-R 
funds, balanced with the long established recognition of decreased 
availability of resources available to small grantees, clearly supports 
exception 4 above. Because the NSP2 program has a minimum grant amount 
of $5 million, there is no national exception for small grant size.
    HUD has decided to grant an exception when a contract assisted with 
CDBG-R or NSP2 funds is less than the simplified acquisition threshold 
fixed at 41 U.S.C. 403(11) (currently $100,000). This tracks the 
standard applied to small purchases described in 24 CFR part 85. Under 
24 CFR 85.36(d)(1), small purchase procedures are relatively simple and 
informal methods for securing goods that do not cost more than the 
simplified acquisition threshold. Imposing the Buy American requirement 
on these small-scale projects would result in an unreasonable delay in 
affordable housing and infrastructure development. Therefore, HUD 
hereby provides notice that it is granting a limited nationwide 
exception of the Buy American requirement to allow the use of 
nondomestic iron, steel, and manufactured goods when they occur in such 
de minimis contracts assisted with CDBG-R or NSP2 funds.

Projects That Are Substantially Under Contract or Under Construction

    HUD is granting an exception to the Buy American requirement for 
any project substantially under contract or underway prior to 
acceptance of the CDBG-R or NSP2 funds. Delaying these ``shovel ready'' 
projects, by requiring grantees to restart the design and bidding 
process again, would pose substantial obstacles to compliance with the 
above obligation and expenditure deadlines. HUD finds that impeding 
projects already substantially under contract or underway would be 
inconsistent with the public interest.
    In order to be substantially under contract, a project must have 
the following characteristics prior to the date that HUD executes the 
Grant Agreement:
    1. The HUD grantee has secured financial commitments for the 
project;
    2. The HUD grantee has solicited bids for the project's 
construction and selected a general contractor. The general contractor 
has provided a price or estimate, which does not include the use of all 
American-made products. The HUD grantee must maintain documentation of 
the bid solicitation process and the bid in its files;
    3. The project is in the HUD grantee's consolidated plan/annual 
action plan, amended consolidated plan/annual action plan, or NSP2 
application (including any amendments thereto);
    4. The project is ready to begin construction and will have all 
required zoning, building, and other necessary permits to start 
construction;
    5. The HUD grantee can show that it is in the public interest to 
move ahead with the project and not rebid the construction work to 
ensure that all products are American-made. To support its public 
interest determination, the HUD grantee must maintain documentation 
demonstrating that rebidding will result in one or more of the 
following:
    a. A substantial delay in the construction and completion of the 
project;
    b. a substantial increase in a project's cost, which renders the 
project infeasible given the financial resources that have already been 
committed to it;
    c. one or more lenders or funding partners or the construction 
contractor rescinding their commitment to the project, resulting in the 
project being significantly delayed or rendering it infeasible;
    d. a HUD grantee missing the obligation and expenditure deadlines 
specified in the Recovery Act (CDBG-R funds must be expended by 
September 30, 2012, and for NSP2 funds, 50 percent expended within 2 
years of obligation availability and100 percent within 3 years of 
obligation availability);
    e. jobs not being created or retained;
    f. negative economic consequences to a neighborhood or locality if 
a project is delayed or cannot be built; or
    g. other compelling negative hardships related to the above; and
    6. The costs and activities comply with all applicable program 
requirements, including environmental, labor standards, and (where 
applicable for CDBG-R activities) pre-award cost limitations.
    Due to the national economic crisis, a HUD grantee may find that a 
project that was previously under construction has lost one or more of 
its funding commitment(s) and is now halted due to the loss of this 
funding commitment(s). In seeking additional funding sources, the HUD 
grantee may decide that the commitment of CDBG-R or NSP2 Recovery Act 
funds to the project is the best way to get the project back on track 
and to resume construction. The project's existing construction 
contract may include the use of materials that do not meet the Buy 
American requirement. The HUD grantee may take advantage of this 
exception in order to complete the project. To be considered as a 
project under construction, a project must have the following 
characteristics prior to the date that HUD executes the Grant 
Agreement:
    1. The HUD grantee has secured the remaining financial commitments 
for the project and these sources are currently available to the 
project;
    2. The HUD grantee has an existing construction contract and 
general contractor. The general contractor contract does not include 
the use of all American-made products. The HUD grantee has 
documentation of the bid solicitation process and the bid in its files;
    3. The project is in the HUD grantee's consolidated plan/annual 
action plan, amended consolidated plan/annual action plan, or NSP2 
application (including any amendments thereto);
    4. The project is ready to resume construction and has received the 
required zoning, building, and other necessary permits to start 
construction;
    5. The HUD grantee can show that it is in the public interest to 
resume construction and not rebid the construction work to ensure that 
all

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products are American-made. To support its public interest 
determination, the HUD grantee must maintain documentation 
demonstrating that rebidding will result in one or more of the 
following:
    a. A substantial delay of the construction and completion of the 
project;
    b. a substantial increase in a project's cost, which renders the 
project infeasible given the financial resources that have already been 
committed to it;
    c. one or more lenders or funding partners or the construction 
contractor rescinding their commitment to the project, resulting in the 
project being significantly delayed or rendering it infeasible;
    d. a HUD grantee missing the obligation and expenditure deadlines 
specified in the Recovery Act (CDBG-R funds must be expended by 
September 30, 2012, and for NSP2 funds, 50 percent expended within 2 
years of obligation availability and 100 percent within 3 years of 
obligation availability);
    e. jobs not being created or retained;
    f. negative economic consequences to a neighborhood or locality if 
a project is delayed or cannot be built; or
    g. other compelling negative hardships related to the above; and
    6. The costs and activities, including the initial construction, 
comply with all applicable program requirements, including 
environmental, labor standards, and (where applicable for CDBG-R 
projects) pre-award cost limitations.
    In conclusion, HUD has determined that these exceptions are 
appropriate because compliance with the Buy American requirement would 
be disproportionate to the cost and time involved for grantees and 
contractors delaying work on critical Recovery Act projects and the 
jobs associated with those projects. In accordance with section 1605(c) 
of the Recovery Act, HUD hereby provides notice that it is granting 
limited nationwide exceptions of the Buy American requirement for the 
above categories of cases. For the above reasons, HUD has determined 
that applying the Buy American requirement to these categories of cases 
would be inconsistent with the public interest. This supplementary 
information constitutes the detailed written justification required by 
section 1605(c) for exceptions ``based on a finding under subsection 
(b).'' The exception applies only to the CDBG-R and NSP2 grant funds 
and not to the use of other Recovery Act funding, even if such other 
funds are used in conjunction with CDBG-R and NSP2 funds for a project. 
Any HUD grantee who wishes to use the above exceptions must maintain 
sufficient documentation to demonstrate the applicability of the 
exception and compliance with any terms or conditions set forth in the 
exception.
    This public-interest justification does not reach the conclusion 
that the inclusion of iron, steel, and manufactured goods produced in 
the United States will automatically increase the cost of the overall 
project by more than 25 percent. Cost is a factor in all procurements 
and must be considered in accordance with 24 CFR part 85 and the cost 
principles at 2 CFR part 225. Cost is a factor in all of HUD's public-
interest national exceptions. HUD has decided that cost-based 
exceptions must be made on a case-by-case basis and submitted to HUD 
for review under CPD Implementation Guidance for the Buy American 
Requirement. For additional information, visit the CPD page on HUD's 
Client Information and Policy System (HUDCLIPS) at: http://www.hud.gov/offices/adm/hudclips/notices/cpd/. Questions may be submitted to 
[email protected].

    Dated: October 14, 2009.
Mercedes M. M[aacute]rquez,
Assistant Secretary for Community Planning and Development.
[FR Doc. E9-25217 Filed 10-20-09; 8:45 am]
BILLING CODE 4210-67-P