EPA OIG PODCAST TRANSCRIPT
Associated report: The EPA Needs to Issue Additional Guidance to State Revolving Fund Programs for Implementing the Build America, Buy America Act Requirements


KellyJune: Hello and thank you for joining us today for another podcast by the U.S. Environmental Protection Agency Office of Inspector General. I’m KellyJune, spokesperson for the EPA OIG, and with me today is Anthony, a Social Scientist, to talk about the OIG’s recent report titled, The EPA Needs to Issue Additional Guidance to State Revolving Fund Programs for Implementing the Build America, Buy America Act Requirements. 

Anthony: Thanks for having me, Kelly June!

KellyJune: In this report, your team examined the complexities of the Build America, Buy America Act, which is commonly referred to as BABA, and how insufficient guidance may hinder water infrastructure projects. To put the bottom-line up front, the OIG found that the EPA’s guidance does not adequately define certain BABA requirements, nor does it clearly lay out the waiver process, should a project need to apply for a waiver. Although this seems fairly straightforward, there’s a lot to unpack. First, can you give us a little background on BABA?

Anthony: Of course. BABA is the latest iteration of domestic preference laws that have been in effect for many decades. Its intent is to help ensure that federally funded infrastructure projects use American-made products. BABA aims to help create demand for domestically produced goods, which in turn would help incentivize manufacturing in the United States. 

KellyJune: If BABA is about infrastructure, how does it relate to the EPA? 

Anthony: Infrastructure is more than just roads, highways, and bridges. It also encompasses utilities, like water systems that deliver drinking water to American households and wastewater systems that transport sewage to treatment plants. The EPA provides funding for environmental infrastructure. And with the passage of the Infrastructure Investment and Jobs Act, or the IIJA, in November 2021, environmental infrastructure is receiving historic levels of funding – over 60 billion dollars – for much-needed improvements. 

KellyJune: Since BABA was a part of the IIJA, does that mean it took effect back in November 2021? 

Anthony: Actually, there was a grace period: the IIJA said that agencies had to effectuate BABA requirements by May 14, 2022, which was 180 days after the IIJA became law. The concern is that, more than two years later, people are still having difficulty understanding how to comply with BABA.

KellyJune: Is there guidance that outlines the BABA requirements and how BABA must be implemented?

Anthony: So, there is some guidance. The Office of Management and Budget – the OMB – issued two memorandums, as well as regulations regarding BABA implementation.

KellyJune: Ok but what about the EPA, did the EPA issue guidance to its programs?

Anthony: The EPA Office of Water did, in fact, issue BABA guidance to help its stakeholders implement those requirements. As of today, the EPA issued two memorandums: one in November 2022 that supplemented the OMB’s first BABA guidance, and then another one in May 2023 that addressed questions from its stakeholders since the first memo was issued. When I use the term stakeholders, I am referring to state-administered water programs, manufacturers, and contractors.

KellyJune: Was this guidance not sufficient, then?

Anthony: No, it was not. For example, BABA says that federal funds can’t be used for a covered project unless all its iron and steel, manufactured products, and construction materials are produced in the United States. But the guidance on what counts as a manufactured product is unclear and this has led to a lot of confusion. For example, if construction material is combined with other items during the assembly process, does it then become a manufactured product? 

KellyJune: Interesting. But why does it matter how these things are classified, if everything needs to be produced in the United States?

Anthony: Well, BABA applies differently depending on whether an item is classified as iron or steel, a manufactured product, or construction material. For manufactured products, BABA says that the cost of the components produced in the United States must be greater than 55 percent of the total cost of all components. So not everything in a manufactured product has to be made in the United States. But that was another area that lacked adequate guidance: how to determine the cost of components in manufactured products, which is a complex process. For example, it is unclear if overhead and transportation should be considered as part of component costs.

KellyJune: With all these ambiguities, I understand why stakeholders are concerned about whether they are complying with the BABA requirements. Are there consequences if they are found not to be complying?

Anthony: Good question. And again, it’s one the guidance doesn’t quite answer. There are two parts to this: how to document compliance, and then how to ensure compliance. Manufacturers are responsible for providing documentation, like a certification letter, indicating that their items comply with BABA. But for the stakeholders who are responsible for project oversight, and who ultimately must ensure compliance with federal requirements like BABA, the available guidance doesn’t specify how to determine or document the adequacy of a BABA certification. For example, must manufacturers certify every component of a manufactured product, or is an overall statement of certification adequate? Now, keep in mind that infrastructure projects can have hundreds of manufactured products with thousands of components and subcomponents. 

KellyJune: Assuming that the documentation part is addressed, what about the enforcement part? What are the repercussions of noncompliance?

Anthony: Both EPA regional employees and state employees, who would be responsible for ensuring compliance, told us that they did not understand their options for remedying noncompliance with BABA. Although the available guidance briefly mentions enforcement actions, it is unclear if, and under what conditions, noncompliance would result in the repayment of funds. The guidance does not provide context as to how and when such action should be taken. For example, should a noncompliant product just be removed or could they instead assess a fine or issue a warning?

KellyJune: At the beginning of our conversation, we briefly mentioned waivers. Can you tell us more about those?

Anthony: Sure. Federal agencies have the ability to grant waivers from BABA requirements under three circumstances: first, when compliance would be inconsistent with the public interest; second, when a sufficient quantity or quality of an item is not produced in the United States; or third, when the use of an American-produced item would increase the project cost by more than 25 percent. The EPA used its authority to grant a waiver for infrastructure projects that were in progress or in planning before May 14, 2022. We refer to this as the adjustment period waiver. This waiver provided an additional grace period beyond the 180 days allowed in the IIJA to ensure that already-initiated projects were not delayed by trying to figure out how to comply with the new requirements. 

KellyJune: Does this mean, now that the initial adjustment period is over, that anyone who believes they meet one of the three criteria for a BABA waiver needs to apply for one? And what is the process?

Anthony: At the time of our interviews, most stakeholders had infrastructure projects that were still eligible for the adjustment period waiver, but they expected to soon need other waivers. However, there is no clear guidance as to when they should apply for a waiver or how long the waiver application process will take. I should also mention that the EPA changed the scope of the initial adjustment period waiver in November 2023, limiting it to projects funded only by fiscal year 2022 and 2023 appropriations. In other words, if a project received funds in 2024, the waiver may no longer be valid for that project. This was shocking to some stakeholders, who assumed the waiver would last for the life of their projects, many of which are expected to span multiple years.

KellyJune: Ok, If the waiver has ended for those projects, what would be the effect?

Anthony: If these already-initiated projects must now buy BABA-compliant items, they may face significant challenges that could lead to delays. Really, all the issues we’ve discussed today lead to this: without proper guidance, efforts to properly plan and implement needed infrastructure projects could be hindered.

KellyJune: I have one final question for you, Anthony. What caused these gaps in guidance, and what recommendations were provided to help the EPA address this? 

Anthony: Initially, the Office of Water was waiting for the OMB to update its guidance for federal agencies before releasing its own – this was to prevent any inconsistencies. After the OMB issued its guidance in October 2023, the EPA did not develop new BABA guidance that reflected the OMB’s updates or that provided much-needed clarifications. We are recommending that the Agency develop and issue BABA guidance that specifically addresses item classification, cost determination, compliance documentation, adjustment period waivers, and the waiver request process.

KellyJune: Thank you so much, Anthony. To our listeners, we appreciate your time with us today. For more information on this report or to read other OIG reports, please visit our website at www.epaoig.gov. We urge anyone with information about fraud, waste, abuse, or mismanagement involving an EPA or U.S. Chemical Safety and Hazard Investigation Board operation or program to contact the EPA OIG Hotline by calling 888-546-8740, emailing oig.hotline@EPA.gov, or submitting a complaint form via our website.