While navigating tricky supply chain issues, it is still vitally important for suppliers and contractors to comply with state and federal procurement requirements.
One such requirement for public projects in the Commonwealth arises under Pennsylvania’s Steel Products Procurement Act (the “Act”), which mandates that at least 75% of the cost of any steel product used in a public project be attributable to articles, materials, and supplies (“ASMs”) that were mined, produced, or manufactured in the United States. In order to receive payment, the contractor, subcontractor, manufacturer, or supplier providing the product must certify compliance with this requirement. Noncompliance with the Act justifies withholding (or recovery) of payment.
As with any issue of compliance, the Act is subject to multiple interpretations and characterizations. In a recent opinion, the Pennsylvania Supreme Court explained how this percentage is to be calculated. The Court held that the “cost” of all foreign-sourced ASMs includes all aspects of the price paid to acquire the ASMs by the manufacturer, including raw material, labor, warehousing, marketing, transportation, and markups incorporated in the price—regardless of whether such activities occurred in the United States or constitute domestically added value. Accordingly, such domestic overhead costs are not to be removed from the cost of foreign-sourced ASMs for purposes of determining compliance with the Act. The resulting cost of foreign-sourced ASMs in a steel product is then divided by the total price of all foreign and domestic ASMs in the product paid by the manufacturer. If the resulting percentage is greater than 25%, the steel product is not in compliance the Act. The Court reasoned that the manufacturer is in the best position to confirm the origin of the various component ASMs.
Contractors, subcontractors, manufacturers, and suppliers engaged in public works in the Commonwealth of Pennsylvania must be aware of all applicable procurement requirements and work with upstream participants from the outset of a project to ensure compliance.
