Federally-Funded Highway Projects Facing Impacts by Federal Cargo Preference Act Changes

By Memorandum dated December 11, 2015, the Federal Highway Administration (FHWA) changed the FHWA’s legal position regarding applicability of the Cargo Preference Act (CPA) to federally-funded highway projects. That Memorandum reversed and superseded contrary position in place since 1988.

The Law. Congress passed the CPA in 1954 to promote a U.S. maritime transportation system. The CPA’s policies are intended to provide a revenue base that will retain and encourage a privately-owned and operated merchant marine. The CPA achieves these goals by requiring “at least 50 percent of any equipment, materials or commodities procured, contracted for or otherwise obtained with funds granted, guaranteed, loaned, or advanced by the U.S. Government . . . [to] be transported on privately owned United States-flag commercial vessels, if available.”

The Change. The CPA’s 50% requirement is not interpreted as applying to federally-financed highways - including state projects with federal funding. But there is an exception if the goods or materials are independently acquired.

As example, fabricated steel, tunnel boring machines, large-capacity cranes, and other goods or materials bought specifically for FHWA funded projects must comply with the CPA transportation requirements; however, compliance is not required for shipments of cement, asphalt, or other materials regularly purchased to replenish existing inventories.

Implementation. The FHWA has directed implementation of the change for all federal-aid projects awarded after February 15, 2016. Pending development of FHWA-specific clauses, the recommended clauses in 46 CFR 381.7(a)-(b) are expected to be incorporated by reference into the federal-aid projects. 

The Impact. Contractors must now consider whether federal-aid projects will require CPA compliance, including associated logistical coordination and cost implementation into bids and proposals. Practically, CPA will still not apply to many projects since most materials will not require maritime transportation, and project Buy America Act (BAA) requirements may further dampen CPA impact absent presidential waiver of the BAA. . But, as companies consider their options regarding foreign sources of specially-purchased equipment and project materials, CPA compliance requires attention.

For more information regarding the CPA or other government or construction contracting matters, Vandeventer Black's Construction and Government Contracts Team attorneys are poised to help our clients navigate those needs. Please visit the firm's website to learn more about the firm and our professionals at www.vanblacklaw.com.