Domestic Content Requirements: Thresholds, Waivers, and Penalties

Domestic content requirements are the federal rules that force U.S. sourcing of materials when federal dollars pay for a project. Three statutes drive compliance in 2026, and they do not overlap cleanly: the Buy American Act governs what the federal government itself buys, the Build America, Buy America Act (BABA) governs federally funded infrastructure built by state and local recipients, and the Inflation Reduction Act offers bonus tax credits to clean energy projects that hit voluntary domestic content targets. Each sets its own thresholds, applies its own tests, and carries its own consequences for getting it wrong.

Which Statute Applies to Your Project

The first compliance question is which rule you are actually under. Confusing them is a common and expensive mistake.

The Buy American Act, codified at 41 U.S.C. §§ 8301–8305, covers direct federal procurement: supplies and construction materials the government purchases for itself.¹ The Federal Acquisition Regulation (FAR) Part 25 implements it and sets the specific percentage thresholds bidders must meet.

BABA, enacted as part of the Infrastructure Investment and Jobs Act (Pub. L. No. 117-58), reaches further.² It applies domestic content rules to virtually all federally funded infrastructure even when the federal government is not the purchaser. State highway projects using federal grants, municipal water systems built with federal loans, and rural broadband expansions funded by federal financial assistance all fall under BABA. A contractor who has only worked under the Buy American Act can be tripped up by BABA’s broader reach and different category definitions.

The Inflation Reduction Act works differently. Rather than conditioning eligibility on domestic sourcing, it offers bonus tax credits to clean energy developers who voluntarily meet domestic content thresholds for steel, iron, and manufactured products.³ The incentive is optional; the compliance burden if you claim it is not.

Component Cost Thresholds for Manufactured Products in 2026

Under the Buy American Act and FAR, a manufactured end product is “domestic” only if it is manufactured in the United States and the cost of its domestic components exceeds a set percentage of total component costs. For deliveries in calendar years 2024 through 2028, that threshold is 65 percent. In calendar year 2029, it rises to 75 percent.⁴

The calculation is straightforward in principle. Add up the cost of every component, then figure what share came from components mined, produced, or manufactured in the United States. If the domestic share exceeds 65 percent for a 2026 delivery, the product qualifies. Components of unknown origin count as foreign, which catches contractors who skip documentation on subcomponent supply chains.

Commercially available off-the-shelf (COTS) items get an exception. The domestic content percentage test is waived entirely for COTS purchases, with one carve-out: end products that consist wholly or predominantly of iron or steel still must meet the iron and steel standard below. COTS fasteners are the only exception to that carve-out.⁵

Iron and Steel Face a Stricter Test

Iron and steel products are not evaluated by percentage of cost. The rule requires that all manufacturing processes occur in the United States, from the initial melting stage through the application of coatings. Where the raw ore or scrap came from does not matter. What matters is where the metal was melted, poured, rolled, and finished.⁴

For end products that are wholly or predominantly iron or steel, the cost of foreign iron and steel must be less than 5 percent of the cost of all components. That 5 percent allowance covers minor incidental items, and it is tight. Foreign mill products such as bar, billet, slab, wire, plate, and sheet all count toward the cap, and iron or steel components of unknown origin are treated as foreign.⁵

Construction Material Standards Under BABA

BABA draws a sharp line between manufactured products and construction materials. Construction materials are not assessed by percentage of cost. Instead, all manufacturing processes for a given material must occur in the United States, with specific process requirements defined for each category in 2 CFR 184.6.⁶

The standards vary by material:

Non-ferrous metals: all processes from initial smelting or melting through final shaping, coating, and assembly must occur in the United States.
Glass: all processes from initial batching and melting of raw materials through annealing, cooling, and cutting must occur domestically.
Drywall: all processes from blending gypsum plaster and additives through cutting and drying of panels must take place in the United States.
Lumber: all processes from initial debarking through treatment and planing must occur domestically.
Plastic and polymer-based products: all processes from the initial combination of constituent inputs until the item reaches its final form must occur in the United States.
Fiber optic cable: all processes from ribboning through buffering, stranding, and jacketing must occur domestically, and the glass and optical fiber components must independently meet their own standards.
Engineered wood: all processes from the initial combination of constituent materials until the product reaches its final form must occur in the United States.

A product that combines a plastic or polymer-based construction material with another material category is reclassified as a manufactured product rather than a construction material. That shifts it to the component cost percentage test and changes the documentation required.

Transit Rolling Stock Has Its Own Threshold

Transit vehicles funded by the Federal Transit Administration follow a different rule. Under 49 U.S.C. § 5323(j), rolling stock — buses, rail cars, and train control equipment — must have more than 70 percent of component costs from products produced in the United States, and final assembly must occur domestically.⁷ The 70 percent threshold has been in effect since fiscal year 2020 and is higher than the general Buy American level.

The IRA Domestic Content Bonus for Clean Energy

Clean energy developers work under a separate framework. Meeting the IRA’s domestic content requirements is voluntary, but the payoff is real: the bonus increases the production tax credit by 10 percent and can increase the investment tax credit by up to 10 percentage points for projects that satisfy prevailing wage and apprenticeship requirements or have a maximum net output below 1 megawatt.³ Projects that meet the requirement but fall outside those categories receive a smaller 2-percentage-point ITC increase.

The IRA thresholds are lower than the Buy American Act’s and follow their own escalation schedule. All steel and iron must be 100 percent domestic. For other manufactured product components in non-offshore-wind projects, the required domestic cost percentage is 50 percent for projects that begin construction in 2026, rising to 55 percent for projects starting in 2027 and later. Offshore wind projects ramp more slowly, requiring 35 percent for projects beginning construction in 2026.⁸

The IRS has published a detailed safe harbor in Notice 2024-41 that assigns specific cost percentages to individual components of solar, wind, and battery storage systems.⁹ Developers electing the safe harbor use the assigned percentages instead of their own cost data. That simplifies compliance but requires strict adherence to the IRS’s component classifications.

Trade Agreement Exceptions

The Buy American Act does not operate in isolation. When the United States has a trade agreement with another country, products from that country may receive equal treatment with domestic offers above certain dollar thresholds. The Trade Agreements Act gives the President authority to waive Buy American restrictions for eligible products from signatory countries, and that authority has been delegated to the U.S. Trade Representative.¹⁰

Thresholds vary by agreement. For acquisitions covered by the WTO Government Procurement Agreement, the Buy American preference does not apply to supply or service contracts at or above $174,000 or construction contracts at or above $6,683,000. Several bilateral free trade agreements set lower thresholds; the Korea FTA kicks in at $100,000 for supplies, and the Israeli Trade Act applies to supply contracts at $50,000 and above.¹⁰ Below these thresholds, Buy American preferences apply normally. A bid that includes components from a designated trade agreement country may not face Buy American restrictions at all if the acquisition value clears the relevant threshold.

How the Price Evaluation Factor Works

When a foreign offer comes in lower than the lowest domestic bid, the contracting officer does not simply take the cheaper option. The FAR applies a price evaluation factor to the foreign offer. For standard, non-critical items, the contracting officer adds 20 percent to the foreign price if the domestic bidder is a large business, or 30 percent if the domestic bidder is a small business.⁴ If the domestic offer still comes in below the adjusted foreign price, the domestic product wins. For critical items or products containing critical components, an additional preference factor applies on top of the base 20 or 30 percent.

This is how the “unreasonable cost” exception plays out in direct federal procurement. A domestic product is unreasonably expensive only if it remains more expensive than the foreign offer after the evaluation factor is applied.

Waivers When Compliance Is Not Possible

Federal law provides three categories of waivers, each with different criteria.

Non-Availability

A non-availability waiver applies when the required iron, steel, manufactured products, or construction materials are not produced in the United States in sufficient quantities or of satisfactory quality.¹¹ This is the most commonly requested category. Applicants must demonstrate due diligence, typically by documenting outreach to at least three domestic manufacturers, distributors, or suppliers and providing the responses.¹² If the waiver is based on excessive lead times, the applicant must show how the delay would cause the project to miss a significant milestone.

Unreasonable Cost

An unreasonable cost waiver is available when using domestic materials would increase total project cost by more than 25 percent.¹¹ The applicant documents the price difference between compliant and non-compliant options, including administrative compliance costs supported by an engineer’s or architect’s certification. The request should identify exactly which items need to be waived to bring total compliance costs below the 25 percent threshold.¹²

Public Interest

A public interest waiver is the broadest and most discretionary category. The applicant explains how waiving the requirement for a specific project or product serves the public interest. Agencies have used this category to issue general applicability waivers covering entire product categories or project types. HUD, for example, has issued public interest waivers for small grants (infrastructure projects costing $250,000 or less), de minimis amounts (up to 5 percent of total material costs, capped at $1 million), and exigent circumstances involving threats to life or safety.¹³

The Review Process

Waiver requests go through the relevant funding agency and are reviewed in coordination with the Made in America Office. Once posted, a request is open for public comment for a minimum of 15 calendar days, during which other manufacturers can demonstrate that a domestic alternative actually exists.¹⁴ Every waiver is documented and publicly scrutinized before a decision becomes final.¹³

Documentation You Need to Keep

Proving compliance means building a paper trail that can survive an audit. For Buy American Act procurements, the FAR requires contractors to certify domestic origin through a Buy American Certificate included in the solicitation process.⁵ Contractors who bid domestic end products are bound to deliver only domestic products unless they flagged foreign alternatives in the bid.

Behind the certification sits the actual documentation: a detailed bill of materials listing every component, its cost, and where it was produced. Agencies like DOT and DOE provide standardized reporting forms for BABA-covered projects. If you claim 65 percent domestic content, your component-level data has to support that number, and components of unknown origin count against you. Contractors must keep these records available for at least three years after final payment on the contract.¹⁵

Penalties for False Certifications

Claiming domestic origin for products that do not meet the applicable standard is not a paperwork problem. A contractor risks debarment, a formal exclusion from eligibility for all new federal procurement and financial assistance awards. Debarment typically lasts up to three years, though the debarring official can extend that period when necessary to protect the government’s interests.¹⁶ Before a formal debarment, a contractor can face suspension: a temporary exclusion lasting up to 12 months with a possible six-month extension.

False certifications can also trigger liability under the False Claims Act, which imposes treble damages and per-claim penalties. A contractor caught misrepresenting domestic content on a large infrastructure project faces not just loss of that contract but exclusion from the entire federal marketplace for years. Accurate records and genuine due diligence on your supply chain are the only reliable defense.

1
Office of the Law Revision Counsel. 41 Code 83 – Buy American
2
Congress.gov. Public Law 117-58 – Infrastructure Investment and Jobs Act
3
Internal Revenue Service. Domestic Content Bonus Credit
4
Acquisition.GOV. FAR Subpart 25.1 – Buy American-Supplies
5
Acquisition.GOV. FAR 52.225-1 – Buy American-Supplies
6
eCFR. 2 CFR 184.6 – Construction Material Standards
7
Office of the Law Revision Counsel. 49 USC 5323 – General Provisions
8
U.S. Department of the Treasury. U.S. Department of the Treasury Releases Guidance on Domestic Content Bonus for Clean Energy Credits
9
Internal Revenue Service. Notice 2024-41 – Domestic Content Safe Harbor
10
Acquisition.GOV. FAR Part 25 – Foreign Acquisition
11
U.S. Department of the Interior. Buy America Domestic Sourcing Guidance and Waiver Process
12
GSA.gov. Build America Buy America Waiver Request Data Collection
13
Made in America. Made in America Waivers Data
14
U.S. Department of Energy. DOE Buy America Requirement Waiver Requests
15
Acquisition.GOV. FAR Subpart 4.7 – Contractor Records Retention
16
U.S. Department of the Interior. Suspension and Debarment Frequently Asked Questions