Buy American and Build America rules for contractors
Federal agencies buying construction directly follow the Buy American statute in FAR Part 25. Grant-funded infrastructure built by states, cities, and utilities follows the Build America, Buy America Act. The tests, percentages, and waiver routes are different, so start by knowing which one your contract carries.
Plan reviews connect field conditions, drawings, and the next decisions on a job. AI-generated illustration.
There are two separate domestic content rules on public construction. The Buy American statute applies when a federal agency contracts directly for construction: you must use domestic construction materials, and a manufactured material counts as domestic only if it is made in the U.S. and its domestic components exceed 65 percent of component cost for items delivered from 2024 through 2028. The Build America, Buy America Act (BABA) applies to infrastructure paid for with federal grants and loans: iron, steel, manufactured products, and listed construction materials must be produced in the U.S., with a 55 percent component test for manufactured products. Check the contract clause to see which applies.
Buy American vs. BABA at a glance
How the two domestic preference rules compare
Question
Buy American statute (FAR 25.2)
Build America, Buy America (2 CFR 184)
Which jobs
Federal contracts for construction, alteration, or repair of public buildings and works in the U.S.
Infrastructure projects funded by federal financial assistance, flowed down to contracts and purchase orders
Manufactured items
Made in U.S. and domestic components over 65 percent of cost (2024 to 2028), 75 percent starting 2029
Made in U.S. and domestic components over 55 percent of cost
Iron and steel
For materials wholly or predominantly iron or steel, foreign iron and steel under 5 percent of component cost
All manufacturing from initial melting through coating in the U.S.
Other construction materials
Unmanufactured materials mined or produced in the U.S.
Specific standards for non-ferrous metals, plastics, glass, fiber optic cable, optical fiber, lumber, drywall, and engineered wood
Cement, stone, sand, gravel
Unmanufactured materials must be mined or produced in the U.S.
Not covered by the BABA categories
Exceptions or waivers
Nonavailability, unreasonable cost, public interest, commercial IT
Public interest, nonavailability, or cost increase over 25 percent of the overall project
How the Buy American statute works on federal construction
FAR 25.201 says to use only domestic construction materials on construction contracts performed in the U.S., except as allowed in 25.202. For a manufactured material, there is a two-part test: it must be manufactured in the U.S., and domestic components must exceed the threshold. The threshold depends on the delivery year, so a long job can cross into the 75 percent rule in 2029 unless the agency approves an alternate test.
Commercially available off-the-shelf (COTS) items are waived from the component test, though they still need to be manufactured in the U.S. Iron and steel items are measured differently: foreign iron and steel must be under 5 percent of component cost.
Getting an exception for foreign material
If you want to use a foreign material, ask with your offer and give the information the clause requires. When the request is based on unreasonable cost of domestic material, the contracting officer adds 20 percent of the foreign material's cost to your price for evaluation, or more for critical items. Any approved exception is listed in the contract. Larger contracts, at or above $6,683,000, may also fall under trade agreements, which change the rules.
How BABA works on grant-funded infrastructure
BABA applies when federal financial assistance pays for an infrastructure project: roads, bridges, transit, water and wastewater, broadband, energy, and public buildings, read broadly. The owner (a city, state, utility, or authority) gets the grant, and the requirement must be included in every subaward, contract, and purchase order for the work. That is how it reaches the general contractor and subs.
Each item falls into one category based on its status when it arrives at the job site: iron or steel product, manufactured product, construction material, or the excluded group of cement, cementitious materials, aggregates, and binding agents. Classify each item once and apply only that category's test.
Waivers come from the federal agency, not from your owner, and there is a public comment period of at least 15 days before a final waiver. Transportation programs often have their own older Buy America requirements, which BABA does not replace where they meet or exceed it, so read the specific grant terms.
Timing also matters. The OMB rule in 2 CFR Part 184 took effect October 23, 2023, for awards obligated on or after that date. Awards obligated from May 14, 2022, up to that date fall under earlier OMB guidance (Memorandum M-22-11). On an older grant, ask the owner which version its award carries.
How to comply in 6 steps
Identify the rule. Look for the Buy American clause (FAR 52.225-9 or 52.225-11 on federal contracts) or BABA language in the grant-funded owner's specs.
Build a material list. List every permanent material and manufactured item on the job and assign each to a category.
Collect certifications at bid time. Ask suppliers for written origin statements and component cost breakdowns before you lock prices, not after delivery.
Price the domestic option. Quote domestic and foreign versions where it matters so you know the cost of compliance.
Flow it down. Put the same requirement in every subcontract and purchase order.
Keep the file. Store certifications with submittals and the delivery records that show which year items were delivered.
Worked examples
Say an electrical contractor on a direct federal contract plans a light fixture assembled in Ohio. Delivery is in 2027. The manufacturer's component costs are $10,000 per lot, with $6,200 of domestic components. That is 62 percent, below the 65 percent threshold for 2027, so the fixture is not domestic. The contractor either finds a fixture that passes or requests an exception with the offer.
Now say a mechanical contractor on a city water plant upgrade, funded by a federal grant, buys a pump skid made in Texas. Component cost is $200,000, with $118,000 domestic. That is 59 percent, above the BABA 55 percent test, so the skid passes. The concrete and gravel for the pads fall in the excluded group, while any lumber incorporated into the plant must meet the BABA lumber standard.
Mistakes to avoid
Applying the BABA 55 percent test to a direct federal contract, or the FAR test to a grant-funded job.
Accepting a supplier's "made in USA" sticker without a component cost certification.
Asking for a foreign material exception after award instead of with the offer.
Forgetting that the delivery year sets the threshold under the Buy American statute.
Leaving the requirement out of purchase orders, so a supplier substitutes an import.
Smart Business Automator can pull data out of supplier certifications and store them against each submittal and delivery, so the domestic content file builds itself as the job runs. See subcontractor compliance automation.
Frequently asked questions
Is Buy American the same as Build America, Buy America?+
No. The Buy American statute applies to direct federal procurement under FAR Part 25. BABA applies to infrastructure funded by federal financial assistance under 2 CFR Part 184. They use different tests and waiver processes.
What percentage of domestic content is required under the Buy American statute?+
For manufactured construction material other than iron or steel, domestic components must exceed 65 percent of component cost for items delivered in 2024 through 2028 and 75 percent starting in 2029, under FAR 25.201.
Does BABA apply to cement and gravel?+
BABA's categories exclude cement and cementitious materials, aggregates such as stone, sand, and gravel, and aggregate binding agents or additives. Check the grant terms for any other program rules.
Who grants a BABA waiver?+
The federal agency that made the award. Under 2 CFR 184.7, it can waive for public interest, nonavailability, or when domestic items would raise the overall project cost by more than 25 percent, after posting the proposed waiver for public comment.
Maurice Francois writes and edits construction operations guides for Smart Business Automator. More from Maurice on the Scaling Legends podcast.
Related listening · Scaling Legends
Ohio's E-Verify Workforce Integrity Act 2026: The New Compliance Clock Every Construction Employer Just Started — and the Steps to Take Before It Bites
Ohio's 'E-Verify Workforce Integrity Act' will impose new requirements on construction employers, part of a wave of state E-Verify mandates drawing business pushback. With immigration enforcement already tightening craft labor, here's the compliance checklist contractors need now — separate from the labor-shortage headlines.
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Read the full episode transcript
Published transcript from Scaling Legends. It may contain transcription errors. View the source transcript.
As always, this content is for educational and informational purposes, only it is not legal, financial, or professional advice. Welcome to Scaling Legends, the go -to deep dive for contractors and construction business owners who are looking to, well, build smarter, scale faster, and protect what they've built. Yeah, absolutely. Great to be here. And before we really get going, we're currently accepting beta testers for Smart Business Automator. Sign up at smartbusinessautomator .com. Beta testers get first access to new features and updates before public rollout. Which is honestly super relevant to what we're talking about. 100%. So I want you to picture this. It's Tuesday morning. You're trying to get this massive commercial concrete pour finished before a storm rolls in. Oh, the worst possible timing. Exactly. Your
site superintendent is stressed out, the mixed trucks are all lined up, and suddenly a state auditor walks right into your site trailer. Just zero regard for your schedule. Right. They do not care about the weather. They don't care about your deadlines at all. They just want to see the immediate e -verify confirmation for, let's say, the three guys your framing sub just hired yesterday. And if you don't have it. If you don't have that digital paperwork perfectly in order. Your entire week is basically over. I mean, your profit margin on that poor just evaporates into state fines. Yeah, it's brutal. So today, we're zeroing in on a critical target that is fundamentally changing how you run your sites. We're talking about Ohio's E -Verify Workforce Integrity Act. 2026. It's a massive shift. It really is. Yeah.
The state of Ohio just placed this massive, completely unavoidable compliance clock on the desk of every single construction employer in the state. And that clock officially started ticking. Yep. The timer is going. So the mission of this deep dive is to break down the actual mechanics of this mandate and, you know, map out the exact steps you need to take this week before it really bites you. And just to set the stage for you, the contractor listening right now, we are moving far, far beyond the realm of theoretical policy here. Right. This isn't just a debate in the Capitol. Exactly. I mean, the era of a state agency mailing you a polite warning letter, that is completely over. The implementation of this act brings immediate... compounding financial penalties. Wow. Okay. Compounding penalties. Yeah. So if you wait until that auditor
is physically standing in your trailer, it is already way too late to build your defense. Okay. Let's unpack this. The Ohio E -Verify Workforce Integrity Act, 2026. What are the actual mechanics we're dealing with here? Well, let's look at the operational workflow. Sure. Like when an employer hires someone under this new framework, what is the state explicitly demanding they do differently than they did? say, five years ago. Right. So in the past, a new hire filled out a form I -9, they handed over their ID, and then that piece of paper went into a manila folder somewhere. And it just sat there. Exactly. Unless you were hit with a random audit, that folder just gathered dust. But E -Verify takes that static piece of paper and turns it into a live wire. Live wire. I like that. Yeah, because the act requires that within three business days
of a worker's start date, the employer must electronically enter that I -9 data into the federal E -Verify internet portal. Okay, three days. Right. And then the system instantly pings that data against the Department of Homeland Security and the Social Security Administration databases to confirm employment eligibility. Instantly. Okay, but I... I mean, I hear the word state mandate and my mind immediately goes to administrative bloat. Oh, sure. Yeah. Like I picture another one of those dense OSHA posters we just have to staple up to the break room wall. Is this just, you know, a new piece of paper to sign? Or does this actually disrupt the speed at which a framing crew can get guys onto the dirt? Oh, it disrupts absolutely everything if you aren't prepared for it. I mean, you have a strict three -day window. So no wiggle room. None. Yeah. If you
hire a guy on a Friday afternoon, that clock is ticking over the weekend. And honestly, according to Smart Business Automator's Market Intelligence report, the most critical shift in this legislation is the enforcement mechanism itself. Really? How so? State auditors are no longer tasked with educating businesses. Their posture has shifted directly to revenue generation through penalties. Revenue generation, so they're looking to make money off these mistakes. Exactly. If you run that query on day four instead of day three, that is a violation. Just a daylight violation. Yep. If you run it but fail to close the case in the software when the employee later quits, that is also a violation. They are leveraging the digital trail to issue automated fines. Man, that urgency really changes the entire onboarding
timeline. Completely. I mean, you can't just have a foreman collect IDs in the cab of his truck and drop them off at the main office like two weeks later. No, absolutely not. That's a recipe for disaster now. You have to map out exactly how a guy goes from walking onto the site to getting digitally verified into the system within 72 hours. And if we connect this to the bigger picture. Yeah, let's zoom out a bit. Ohio is not an isolated test case here. This is a rapidly spreading pattern. We're tracking a massive wave of mandatory E -Verify legislation moving really aggressively through Republican -led state legislatures all across the country. Across the whole country? Wow. Yeah. Lawmakers in these states are heavily prioritizing immigration enforcement and workforce integrity. And because they lack
federal jurisdiction, you know, they're using state -level employer mandates as their primary mechanism to police the labor market. We're reporting on this entirely neutrally, right? Because regardless of where anyone listening sits on the political spectrum, this legislative wave is just the reality on the ground. Exactly. It's just the environment we're operating in now. But the business community isn't just quietly accepting this new friction, are they? Oh, not at all. There is fierce, highly organized pushback. I bet. Particularly from the agriculture and construction sectors within these exact same states. Business advocacy groups are raising loud alarms about the administrative bottlenecks this creates. Because it's just slowing everything down. Right. They're pointing to the sheer operational friction it adds to an industry that is already struggling to staff projects.
And they're also highlighting the system's technical flaws. Oh, like what? Like what happens when the federal portal crashes? or when a perfectly legal worker is wrongfully flagged by the database just due to a clerical error. Oh, man. Yeah, that sounds like a nightmare. It is. You have this massive collision between state legislative priorities aimed at strict enforcement and business owners who are fighting against paralyzing administrative overhead. So what does this all mean? Well... Because politics aside, the law is the law, and the fines hitting the company bank account are very real. But because of all this noise and industry pushback, I think a dangerous misconception has kind of taken root. I agree completely. What are you seeing? Your contractors complaining.
Like, I already can't find enough guys to swing a hammer. This E -Verify mandate is just going to make my labor shortage worse by spooking guys off the site. Yeah, I hear that all the time. Right. They look at this strictly as a workforce availability problem. And that perspective is a total trap. A trap. Yes. If you are viewing the Ohio E -Verify Workforce Integrity Act as a labor shortage issue, you are leaving your business entirely exposed. You need to reframe this immediately. Okay, so how should they look at it? This is a compliance story. Okay, I really
want to dig into that because to a project manager trying to hit... A milestone bonus. Not having enough hands on site feels like the biggest risk in the world. Sure. It feels that way in the moment. So why is the audit exposure the actual existential threat? We can look right back at the data for that. Smart Business Automator's market intelligence report highlights a total evolution in how these state enforcement agencies operate. How so? They are not sending agents to physically raid job sites looking for unauthorized workers anymore. Because it's a lot of effort, right? Exactly. It's slow. It's expensive. It takes manpower. Instead, they are auditing the administrative hygiene of the back office. Oh, wow. You could employ a workforce where every single person is a legally authorized native -born citizen. But if your process for documenting
that authorization has flaws like typos, missed 72 -hour deadlines, incomplete forms, you will be hit with devastating financial penalties. Just for a typo. Just for a typo. The state fines you per administrative error, and those fines compound rapidly. It's exactly like an IRS audit. That is the perfect analogy. When the IRS audits a construction firm, they do not drive out to the site to inspect the quality of the concrete foundation or the precision of the framing. Right. They couldn't care less about that. Exactly. They don't care how incredible your craftsmanship is. They care about your receipt box. Yeah. If your receipt box is just this disorganized mess of faded paper, you get fined. The E -Verify mandate does the exact same thing to your human resources. Precisely. If your digital paper trail
isn't immaculate, the auditor will just bleed your margins dry. And the auditors are specifically trained to look for patterns of administrative negligence. They're looking for the easy mistakes. Like what kind of mistakes? The missing dates, the transposed social security numbers. They know that if an employer is sloppy with a birth date, they are probably missing the three -day verification window entirely. So they pull the thread on... Easy typos to unravel the whole operation. Exactly. It gives them the justification to dig deeper. Now, dealing with your own W -2 employees is one thing. You can control your own payroll department. I should be able to, yeah. But on a real commercial job site, a general contractor is rarely just dealing with their own direct hires. You have dozens of subcontractors,
subsubs, independent crews, all swarming the site on any given day. And that reality brings us to the most dangerous mechanism written into this new legislation. Yes. Here's where it gets really interesting. And honestly, terrifying for general contractors. It should be terrifying. We need to dissect the subcontractor trap. What's fascinating here is how state lawmakers solved their own resource problem. What do you mean? The state knows it does not have the manpower to individually audit every two -man drywall or plumbing operation in Ohio. Right. There's just too many of them. So they utilize the legal concept of flow -down liability. They leverage the economic power of the general contractor. Oh, man. Under this act, if a subcontractor brings an unverified workforce onto your project, the state auditor doesn't just penalize the subcontractor.
They come after the GC. They flow that liability straight up the chain to the GC. DC. You, as the general contractor, are held financially responsible for the e -verify compliance failures of the companies you hire. That is wild. The state is effectively deputizing GCs to enforce the law on their behalf. That's exactly what they're doing. But I really need to challenge the practicality of that. How on earth does a GC effectively police the internal HR practices of every single painter, electrician, and framer on a massive 300 -person commercial site? It's a huge burden. It's organized chaos. Yeah. Asking a GC to guarantee the paperwork of a company they don't even own seems almost impossible. It is incredibly difficult, but it is the new legal reality. Let's look at the scenario. Okay, lay it out. Your drywall sub brings in a crew
of five guys on a Tuesday. The sub's back office person just forgets to run them through E -Verify. Just forgets. It happens. Two months later, the state audits your project. They find those five unverified workers. The state hits you, the GC, with the fines. Ouch. And on a large commercial project, compounding fines for dozens of unverified subcontractor employees can instantly wipe out the GC's entire profit margin for the job. So a handshake agreement and a verbal promise from your sub that my guys are all good is basically a massive liability. Worth less than nothing. So a general contractor has to fundamentally rewrite their subcontracts. Yes, from the ground up. You have to aggressively demand documented proof of E -Verify compliance before a sub is
even allowed to mobilize. on the dirt. You need indemnification clauses so you can claw back those fines if the sub lies to you. Your subcontractor agreements are your primary shield now. Because you don't have that in writing. If you are audited and an unverified worker is found, your only defense is a rock -solid contract proving you legally required the sub to use E -Verify, coupled with a paper trail showing you actively monitored their compliance. Okay, if I'm a GC on the hook for my drywaller's bad paperwork, I can't just cross my fingers and hope for the best. What does a bulletproof defensive system actually look like on Monday morning? Well, there are specific steps. Let's build the action plan. Okay. The first piece of the infrastructure is enrolling your company in the federal E -Verify
portal. Sounds obvious, but I assume people procrastinate. It sounds so basic, but many delay this until the last possible minute. You have to go to the federal website, review the Memorandum of Understanding, which is a legally binding agreement detailing your responsibilities, and establish your company's digital footprint. Right. Do not wait until you have a new hire sitting in the lobby to figure out your login credentials. Yeah, getting the digital keys is step one. We established earlier that typos and missed deadlines are what actually trigger the fines. Who should be holding those keys and running the system day to day? That brings us to training your payroll lead or HR manager. The person actually pushing the buttons. Exactly. The person typing on that keyboard is your absolute first line of defense. They need
formal training on the strict three -day verification window. Essential. But more importantly, they need to know exactly how to handle the complex scenarios, like a tentative non -confirmation or TNC. Okay, break down the TNC for the listener. Yeah. Because that sounds like the exact moment where things go completely wrong on a job site. Oh, it is. A TNC means the data entered into E -Verify does not instantly match the records held by Homeland Security or the Social Security Administration. Okay. The critical thing to understand is that a TNC does not mean the worker is undocumented. Wait, really? It doesn't. Not at all. It could be a recent name change from a marriage, maybe a transposed digit in a social security number, or just a clerical glitch in the federal database. Oh, I see. By law, you are required to give the worker a formal notice of the TNC and grant them
a specific window of time to contest it and fix the government's records. And I imagine if an untrained site superintendent sees a TNC flag, assumes the guy is unauthorized, and just fires him on the spot. That is a massive problem. It is a catastrophic problem. If you terminate an employee immediately upon receiving a PNC without giving them their legally mandated time to contest it, you have just opened your company up to federal anti -discrimination lawsuits on top of the state compliance fines. Wow. Your HR lead has to understand these mechanisms flawlessly. The human element is huge there. But even with a perfectly trained HR manager, technology fails. All the time. What happens when it is day three of your hiring window, the deadline is looming, and the federal E -Verify
portal just crashes? This is where documenting good faith compliance comes in. The E -Verify system is a massive government database. It experiences outages and glitches constantly. I'm not surprised. But if you miss a 72 -hour deadline because the portal was down, an auditor will still flag it as a violation. Even if it's the government's fault. Yep. To protect yourself, your team must build a habit of taking timestamped screenshots of the error pages. Ah, build the paper trail. You must maintain a log of your attempts to comply. Good faith compliance is the legal standard that protects you from the most severe Tier 1 penalties, which are reserved for employers who willfully ignore the law. Makes sense. If it isn't documented, the auditor just assumes it didn't happen. Creating
that paper trail is vital. but what about the low -hanging fruit we talked about auditors pulling the thread on easy mistakes How do we build a defense against administrative slobbiness? You implement a mandatory secondary review process. Just a second set of eyes. Exactly. The most common fines are for pure negligence, spelling a name wrong, entering the wrong birth year, or failing to go back into the system and officially close a case when an employee gets laid off or quits. Small stuff that adds up. Right. So before the submit button is clicked on an E -Verify case, a second set of eyes needs to verify the data against the I -9. It adds maybe five minutes. minutes to the onboarding process, but it prevents thousands of dollars in compounding fines down the line. Okay, that secures the internal W -2 workforce. But bringing this back to the subcontractor
trap. How does a general contractor enforce all of this across 50 different subcontractor companies without having to hire a dozen new project managers just to chase paperwork? You have to secure your supply chain compliance by implementing a digital gatekeeper. A digital gatekeeper. OK. You need a mandatory prequalification checklist before a subcontractor is allowed to bid on a project, before a contract is signed, and absolutely before they mobilize on site. They must provide their E -Verify company identification number. You demand it up front. And they must. sign an addendum, leaving them to maintain that compliance. But this is exactly where the manual effort just falls apart. Managing this level of document verification, tracking three -day deadlines across 50 subs, and policing their compliance status
on a spreadsheet. That's an absolute logistical nightmare. It really is. You cannot do it with paper and pencil anymore. You really can't. Automation is the only scalable defense against this level of flow down liability and administrative scrutiny. And that is a perfect natural application for smart business automator. We see this all the time. Contractors are just getting buried by these new legislative burdens. Oh, yeah. Buried in paperwork. You need a system that acts as that digital gatekeeper. I mean, SBA's market intelligence and automation tools are literally built to monitor subcontractor compliance automatically. Exactly. You can set up workflows where a sub's crew is physically blocked from accessing the digital site schedule until their E -Verify documentation is uploaded, verified, and approved by the system.
Which is brilliant. It takes the burden of policing the paperwork off your project managers and puts it onto the software, ensuring you aren't exposed to the flow down fines. It's exactly the kind of infrastructure you need. You want the software catching the expired document or the missing verification long before the state auditor steps out of their truck. Absolutely. So with the compliance clock ticking loudly in Ohio, we need to zoom out. Yeah. Let's look at the big takeaway. If there's one core, aha. moment you walk away with from this deep dive is this. The Ohio E -Verify Workforce Integrity Act 2026. takes what used to be a mundane back office HR form and transforms it into a massive flow down liability issue for every general contractor. Perfectly said. The
existential risk has moved out of the filing cabinet and directly onto the dirt of your job site. And this raises a really important question for every business owner listening as we wrap up today. What's that? State governments have clearly realized that utilizing flow down liability to force general contractors to police subcontractors is a highly effective enforcement strategy, right? So if E -Verify liability flows down your chain, wait, I mean, if it flows down your chain, what other invisible compliance blind spots are currently hiding in your subcontractor agreement? That's a scary thought. Are you absorbing the risk for a sub's outdated safety certifications? What about prevailing wage errors or misclassified 1099 workers? Anything could be buried in there. Exactly. If liability flows downhill, you have to seriously audit what else is flowing down
to your bottom line. That is a chilling thought and honestly, a massive incentive to audit your entire operational workflow today, without a doubt. Well, thank you for joining us on Scaling Legends. You are now armed with the mechanical understanding of this law and the exact steps to protect your business before it bites. Time to get to work. Get your HR team trained on TNCs, lock down those indemnification clauses in your subcontracts, and clean up your administrative hygiene. And one final reminder, if you want to stay ahead of this compliance wave and automate all that heavy lifting, be sure to check out the Smart Business Automator beta at smartbusinessautomator .com. Until next time, remember you cannot build a solid foundation if your paperwork is a mess. Keep those receipts clean.
