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Buy America Requirements for Federally Funded Rail Projects (2015)

Chapter: III. HIGHWAY AND TRANSIT BUY AMERICA PROVISIONS

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Suggested Citation:"III. HIGHWAY AND TRANSIT BUY AMERICA PROVISIONS." National Academies of Sciences, Engineering, and Medicine. 2015. Buy America Requirements for Federally Funded Rail Projects. Washington, DC: The National Academies Press. doi: 10.17226/22209.
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Suggested Citation:"III. HIGHWAY AND TRANSIT BUY AMERICA PROVISIONS." National Academies of Sciences, Engineering, and Medicine. 2015. Buy America Requirements for Federally Funded Rail Projects. Washington, DC: The National Academies Press. doi: 10.17226/22209.
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Suggested Citation:"III. HIGHWAY AND TRANSIT BUY AMERICA PROVISIONS." National Academies of Sciences, Engineering, and Medicine. 2015. Buy America Requirements for Federally Funded Rail Projects. Washington, DC: The National Academies Press. doi: 10.17226/22209.
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Suggested Citation:"III. HIGHWAY AND TRANSIT BUY AMERICA PROVISIONS." National Academies of Sciences, Engineering, and Medicine. 2015. Buy America Requirements for Federally Funded Rail Projects. Washington, DC: The National Academies Press. doi: 10.17226/22209.
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Suggested Citation:"III. HIGHWAY AND TRANSIT BUY AMERICA PROVISIONS." National Academies of Sciences, Engineering, and Medicine. 2015. Buy America Requirements for Federally Funded Rail Projects. Washington, DC: The National Academies Press. doi: 10.17226/22209.
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Suggested Citation:"III. HIGHWAY AND TRANSIT BUY AMERICA PROVISIONS." National Academies of Sciences, Engineering, and Medicine. 2015. Buy America Requirements for Federally Funded Rail Projects. Washington, DC: The National Academies Press. doi: 10.17226/22209.
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Suggested Citation:"III. HIGHWAY AND TRANSIT BUY AMERICA PROVISIONS." National Academies of Sciences, Engineering, and Medicine. 2015. Buy America Requirements for Federally Funded Rail Projects. Washington, DC: The National Academies Press. doi: 10.17226/22209.
×
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Suggested Citation:"III. HIGHWAY AND TRANSIT BUY AMERICA PROVISIONS." National Academies of Sciences, Engineering, and Medicine. 2015. Buy America Requirements for Federally Funded Rail Projects. Washington, DC: The National Academies Press. doi: 10.17226/22209.
×
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Suggested Citation:"III. HIGHWAY AND TRANSIT BUY AMERICA PROVISIONS." National Academies of Sciences, Engineering, and Medicine. 2015. Buy America Requirements for Federally Funded Rail Projects. Washington, DC: The National Academies Press. doi: 10.17226/22209.
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Suggested Citation:"III. HIGHWAY AND TRANSIT BUY AMERICA PROVISIONS." National Academies of Sciences, Engineering, and Medicine. 2015. Buy America Requirements for Federally Funded Rail Projects. Washington, DC: The National Academies Press. doi: 10.17226/22209.
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Suggested Citation:"III. HIGHWAY AND TRANSIT BUY AMERICA PROVISIONS." National Academies of Sciences, Engineering, and Medicine. 2015. Buy America Requirements for Federally Funded Rail Projects. Washington, DC: The National Academies Press. doi: 10.17226/22209.
×
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Suggested Citation:"III. HIGHWAY AND TRANSIT BUY AMERICA PROVISIONS." National Academies of Sciences, Engineering, and Medicine. 2015. Buy America Requirements for Federally Funded Rail Projects. Washington, DC: The National Academies Press. doi: 10.17226/22209.
×
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Suggested Citation:"III. HIGHWAY AND TRANSIT BUY AMERICA PROVISIONS." National Academies of Sciences, Engineering, and Medicine. 2015. Buy America Requirements for Federally Funded Rail Projects. Washington, DC: The National Academies Press. doi: 10.17226/22209.
×
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Suggested Citation:"III. HIGHWAY AND TRANSIT BUY AMERICA PROVISIONS." National Academies of Sciences, Engineering, and Medicine. 2015. Buy America Requirements for Federally Funded Rail Projects. Washington, DC: The National Academies Press. doi: 10.17226/22209.
×
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Suggested Citation:"III. HIGHWAY AND TRANSIT BUY AMERICA PROVISIONS." National Academies of Sciences, Engineering, and Medicine. 2015. Buy America Requirements for Federally Funded Rail Projects. Washington, DC: The National Academies Press. doi: 10.17226/22209.
×
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Suggested Citation:"III. HIGHWAY AND TRANSIT BUY AMERICA PROVISIONS." National Academies of Sciences, Engineering, and Medicine. 2015. Buy America Requirements for Federally Funded Rail Projects. Washington, DC: The National Academies Press. doi: 10.17226/22209.
×
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Suggested Citation:"III. HIGHWAY AND TRANSIT BUY AMERICA PROVISIONS." National Academies of Sciences, Engineering, and Medicine. 2015. Buy America Requirements for Federally Funded Rail Projects. Washington, DC: The National Academies Press. doi: 10.17226/22209.
×
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Suggested Citation:"III. HIGHWAY AND TRANSIT BUY AMERICA PROVISIONS." National Academies of Sciences, Engineering, and Medicine. 2015. Buy America Requirements for Federally Funded Rail Projects. Washington, DC: The National Academies Press. doi: 10.17226/22209.
×
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Suggested Citation:"III. HIGHWAY AND TRANSIT BUY AMERICA PROVISIONS." National Academies of Sciences, Engineering, and Medicine. 2015. Buy America Requirements for Federally Funded Rail Projects. Washington, DC: The National Academies Press. doi: 10.17226/22209.
×
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Suggested Citation:"III. HIGHWAY AND TRANSIT BUY AMERICA PROVISIONS." National Academies of Sciences, Engineering, and Medicine. 2015. Buy America Requirements for Federally Funded Rail Projects. Washington, DC: The National Academies Press. doi: 10.17226/22209.
×
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Suggested Citation:"III. HIGHWAY AND TRANSIT BUY AMERICA PROVISIONS." National Academies of Sciences, Engineering, and Medicine. 2015. Buy America Requirements for Federally Funded Rail Projects. Washington, DC: The National Academies Press. doi: 10.17226/22209.
×
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Suggested Citation:"III. HIGHWAY AND TRANSIT BUY AMERICA PROVISIONS." National Academies of Sciences, Engineering, and Medicine. 2015. Buy America Requirements for Federally Funded Rail Projects. Washington, DC: The National Academies Press. doi: 10.17226/22209.
×
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Suggested Citation:"III. HIGHWAY AND TRANSIT BUY AMERICA PROVISIONS." National Academies of Sciences, Engineering, and Medicine. 2015. Buy America Requirements for Federally Funded Rail Projects. Washington, DC: The National Academies Press. doi: 10.17226/22209.
×
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Suggested Citation:"III. HIGHWAY AND TRANSIT BUY AMERICA PROVISIONS." National Academies of Sciences, Engineering, and Medicine. 2015. Buy America Requirements for Federally Funded Rail Projects. Washington, DC: The National Academies Press. doi: 10.17226/22209.
×
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Suggested Citation:"III. HIGHWAY AND TRANSIT BUY AMERICA PROVISIONS." National Academies of Sciences, Engineering, and Medicine. 2015. Buy America Requirements for Federally Funded Rail Projects. Washington, DC: The National Academies Press. doi: 10.17226/22209.
×
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Suggested Citation:"III. HIGHWAY AND TRANSIT BUY AMERICA PROVISIONS." National Academies of Sciences, Engineering, and Medicine. 2015. Buy America Requirements for Federally Funded Rail Projects. Washington, DC: The National Academies Press. doi: 10.17226/22209.
×
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Suggested Citation:"III. HIGHWAY AND TRANSIT BUY AMERICA PROVISIONS." National Academies of Sciences, Engineering, and Medicine. 2015. Buy America Requirements for Federally Funded Rail Projects. Washington, DC: The National Academies Press. doi: 10.17226/22209.
×
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Suggested Citation:"III. HIGHWAY AND TRANSIT BUY AMERICA PROVISIONS." National Academies of Sciences, Engineering, and Medicine. 2015. Buy America Requirements for Federally Funded Rail Projects. Washington, DC: The National Academies Press. doi: 10.17226/22209.
×
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Suggested Citation:"III. HIGHWAY AND TRANSIT BUY AMERICA PROVISIONS." National Academies of Sciences, Engineering, and Medicine. 2015. Buy America Requirements for Federally Funded Rail Projects. Washington, DC: The National Academies Press. doi: 10.17226/22209.
×
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Suggested Citation:"III. HIGHWAY AND TRANSIT BUY AMERICA PROVISIONS." National Academies of Sciences, Engineering, and Medicine. 2015. Buy America Requirements for Federally Funded Rail Projects. Washington, DC: The National Academies Press. doi: 10.17226/22209.
×
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Suggested Citation:"III. HIGHWAY AND TRANSIT BUY AMERICA PROVISIONS." National Academies of Sciences, Engineering, and Medicine. 2015. Buy America Requirements for Federally Funded Rail Projects. Washington, DC: The National Academies Press. doi: 10.17226/22209.
×
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Suggested Citation:"III. HIGHWAY AND TRANSIT BUY AMERICA PROVISIONS." National Academies of Sciences, Engineering, and Medicine. 2015. Buy America Requirements for Federally Funded Rail Projects. Washington, DC: The National Academies Press. doi: 10.17226/22209.
×
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Suggested Citation:"III. HIGHWAY AND TRANSIT BUY AMERICA PROVISIONS." National Academies of Sciences, Engineering, and Medicine. 2015. Buy America Requirements for Federally Funded Rail Projects. Washington, DC: The National Academies Press. doi: 10.17226/22209.
×
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Suggested Citation:"III. HIGHWAY AND TRANSIT BUY AMERICA PROVISIONS." National Academies of Sciences, Engineering, and Medicine. 2015. Buy America Requirements for Federally Funded Rail Projects. Washington, DC: The National Academies Press. doi: 10.17226/22209.
×
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Suggested Citation:"III. HIGHWAY AND TRANSIT BUY AMERICA PROVISIONS." National Academies of Sciences, Engineering, and Medicine. 2015. Buy America Requirements for Federally Funded Rail Projects. Washington, DC: The National Academies Press. doi: 10.17226/22209.
×
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37 trainsets would have about 30 percent domestic content.333 In 1999, unlike the 1996 waiver re- quest, FRA decided to publish Amtrak’s waiver request in the Federal Register for public notice- and-comment.334 The Railway Progress Institute again provided comment, stating that it would not oppose this waiver request but asked that Amtrak be required to strictly comply with the Amtrak Buy America provision in the future.335 In Sep- tember 2000, 10 months after receiving the waiver request, FRA again granted Amtrak a Public Interest waiver to purchase the train- sets.336 The Northwest Corridor case study illustrates how FRA’s flexibility in granting waivers from the Amtrak Buy America provision may have has- tened the deployment of high-speed passenger rail in the Northwest. Operating at a much smaller scale, and with less public scrutiny, than the con- temporary Northeast Corridor project, Amtrak was able to deploy European-style high-speed pas- senger trains almost immediately, to a favorable reception from the riding public. Although it is unlikely that Public Interest waivers would be so freely granted in today’s political climate,337 this may also have been a situation where domestic manufacturers could not have realistically com- peted, so a Nonavailability waiver or Price Differ- ential waiver may have been warranted. The Talgo situation further illustrates, how- ever, the mixed results of Buy America provisions in establishing new domestic rail manufacturing capability. The Seattle manufacturing plant that Talgo opened to assemble cars for the Northwest Corridor was initially converted into a long-term tioned FRA for exemptions from the new FRA crash- worthiness regulations that were necessitating a cus- tom design for the Acela trains in the Northeast Corri- dor. Petition for Grandfathering of Non-Compliant Equipment—National Railroad Passenger Corporation, 64 Fed. Reg. 59,230 (Nov. 2, 1999). 333 Petition for Buy American Exemption—National Railroad Passenger Corporation, 64 Fed. Reg. 59,230 (Nov. 2, 1999). 334 Id. 335 Comments, Railway Progress Institute, Docket No. FRA-1999-6405 (Nov. 2, 1999), available at http://www.regulations.gov/#!documentDetail;D=FRA- 1999-6405-0003. 336 Letter from Jolene M. Molitoris, FRA Administra- tor, to George D. Warrington, Amtrak President and CEO, regarding Grant of Exemption (Sep. 7, 2000), available at http://www.regulations.gov/#!document Detail;D=FRA-1999-6405-0004. 337 See infra §§ III.C.3.c, III.C.4.a. maintenance facility after the contract was com- pleted.338 In 2009, in order to satisfy the new FRA Buy America provision that applied to HSIPR funds, Talgo also opened a manufacturing facility in Wisconsin.339 Upon completion of its manufac- turing contracts for Wisconsin DOT and Oregon DOT, Talgo closed the facility when the State of Wisconsin elected not to retain Talgo for mainte- nance of the new trainsets.340 Although there are significant differences be- tween the Amtrak Buy America provision appli- cable to Amtrak’s capital grant and the FRA Buy America provision applicable to FRA grant funds such as the HSIPR program, certain patterns have developed in recent years. First, FRA admin- isters a common notice-and-comment Web site for both Buy America provisions,341 to solicit public comment on open waiver requests and post final waiver determinations. FRA waiver determina- tions under either Buy America provision gener- ally take 6 months to 1 year from receipt of the waiver request, in large part because FRA performs significant investigations involving NIST-MEP for domestic sources. The most com- mon waiver granted by FRA is a Nonavailability waiver, which can generally be obtained if both the cost and delivery time to obtain the item from a domestic source are moderately greater than the cost and delivery time to obtain the item from a foreign source. However, FRA typically conditions its Nonavailability waivers on the manufacturer increasing domestic content for future purchases. Section III addresses similar Buy America provi- sions that are applicable to rail programs but ad- ministered by other federal agencies—FHWA and FTA—and highlights the differences in the appli- cation of those Buy America provisions. III. HIGHWAY AND TRANSIT BUY AMERICA PROVISIONS A. Surface Transportation Assistance Legislative History The Buy America requirements applicable to FHWA and FTA have similar origins as the 338 Paul Nussbaum, Foreign Firms See Profit in U.S. High-Speed Rail, PHILADELPHIA INQUIRER, Aug. 10, 2010, available at 2010 WLNR 15903717. 339 Id. 340 Paul Nussbaum, “Higher-Speed” Trains to Precede True High-Speed Rail in U.S., PHILADELPHIA INQUIRER, July 13, 2012, available at 2012 WLNR 14623460. 341 FRA, Buy America, https://www.fra.dot.gov/ Page/P0185.

38 Amtrak Buy America provision but have evolved over the years into different requirements. Like the Amtrak Buy America provision, the FHWA and FTA Buy America provisions originated with 1978 legislation, specifically the Surface Trans- portation Assistance Act (STAA).342 As with the Amtrak Buy America provision, the motivations behind the STAA Buy America provision were a recognition by Congress that the BAA did not ap- ply to transportation grants (allowing significant amounts of federal funding to be spent with no domestic preferences),343 and a desire by Congress to protect the domestic steel industry and rolling stock manufacturing industry.344 Like the Amtrak Buy America provision of the same year, the 1978 STAA Buy America provision applied to all manufactured goods and unmanu- factured goods purchased using federal highway and transit grant funds,345 not just steel and roll- ing stock, even though the legislative history evi- dences a congressional intent to specifically apply it to steel and rolling stock procurements. As with the BAA and the Amtrak Buy America provision, the 1978 STAA Buy America provision required manufactured products to be manufactured in the United States “substantially” from domestic com- ponents and included exceptions for nonavailabil- ity and “unreasonable” cost, without defining those terms.346 Also, as with the Amtrak Buy America provi- sion, the original Senate version of the STAA Buy America provision would have applied domestic preferences only to highway and transit projects costing more than $1 million. A compromise was reached in conference that the STAA Buy America provision would not apply to any purchase less than $500,000.347 This compromise version was enacted into law on November 6, 1978. Although the language of the 1978 STAA Buy America pro- vision extended Buy America requirements to all 342 Surface Transportation Assistance Act of 1978, Pub. L. No. 95-599, § 401 (1978). From the passage of the Surface Transportation Assistance Act (STAA) in 1978 until recodification in 1994, the statutory Buy America requirements applicable to both FHWA and FTA were identical, although each agency issued its own distinct regulations to implement the identical statute. 343 Hughes, supra note 1, at 215. 344 See 124 CONG. REC. H5,900–03 (June 21, 1978). 345 Surface Transportation Assistance Act of 1978, Pub. L. No. 95-599, § 401 (1978). 346 Id. 347 Hughes, supra note 1, at 215–16. purchases with federal highway or transit grants (not just steel and rolling stock), the compromise cost threshold of $500,000 effectively limited the 1978 STAA Buy America provision to larger con- struction projects and equipment procurements (such as transit systems). The 1978 STAA Buy America provision was re- vised by the 1982 STAA, which removed unmanu- factured goods from coverage but specifically pro- hibited the purchase of foreign manufactured products, steel, and cement.348 (Cement was sub- sequently removed from the list of covered goods in 1984.349 Iron was added to the list of covered goods in 1991.350) The 1982 STAA Buy America provision also eliminated the $500,000 cost threshold, so that domestic preferences now ap- plied to all purchases of steel and manufactured products using FHWA or FTA grant funds. The 1982 STAA Buy America provision also added specific numeric guidelines for objective application of the waivers. First, the “unreason- able cost” waiver was replaced with a Price Dif- ferential waiver, with a specific 25 percent Price Differential applicable to steel and most manufac- tured products and a less stringent 10 percent Price Differential applicable to rolling stock.351 Second, the exception for foreign content in a “substantially” domestic manufactured product was replaced with a Domestic Content waiver for rolling stock, specifically allowing rolling stock (including train control, communication, and trac- tion power equipment) to be purchased if it was assembled in the United States of at least 50 per- cent domestic components.352 There was no Do- mestic Content waiver for other manufactured products, suggesting that manufactured products other than rolling stock must satisfy a 100 per- cent domestic content requirement. In 1987, Buy America waiver requirements for rolling stock were strengthened, as the Price Differential was 348 Surface Transportation Assistance Act of 1982, Pub. L. No. 97-424, § 165, 96 Stat. 2097, 2136–37 (1983). 349 Pub. L. No. 98-229, § 10 (1984). 350 Intermodal Surface Transportation Efficiency Act of 1991, Pub. L. No. 102-240, § 1048 (1991); see also 58 Fed. Reg. 38,973 (July 21, 1993). 351 Surface Transportation Assistance Act of 1982, Pub. L. No. 97-424, § 165(b)(4), 96 Stat. 2097, 2137 (1983). The 10 percent Price Differential for rolling stock means that FTA grant recipients could obtain a waiver to purchase foreign rolling stock if the price of the foreign rolling stock, multiplied by 1.1, was still less than the price of comparable domestic bids. 352 Id. § 165(b)(3).

39 increased from 10 percent to 25 percent,353 the Domestic Content waiver requirement was in- creased from 50 percent to 60 percent,354 and grant recipients were required to evaluate domes- tic content of rolling stock by considering both components and subcomponents.355 In 1994, Congress formally recodified the STAA Buy America provision as two separate Buy America provisions,356 with one applicable to FHWA357 and one applicable to FTA.358 The follow- ing sections describe how the FHWA and FTA Buy America provisions are interpreted and ad- ministered today and issues that have arisen in recent years related to those statutes. B. FHWA Provision 1. Statutory Language a. Coverage and Applicability.—Under the FHWA Buy America provision, FHWA grant funds may only be used on a project if all “steel, iron, and manufactured products used in such project are produced in the United States.”359 The traditional use of FHWA grant funds has been for construction projects. Therefore, the primary ap- plication of the FHWA Buy America provision has been to prohibit the incorporation of foreign steel and iron construction materials into development projects funded with FHWA grants. Unlike the BAA, the FHWA Buy America pro- vision does not refer to products manufactured in the United States “substantially” from domestic components. Furthermore, there is no Domestic Content waiver for manufactured products in the FHWA Buy America provision. This suggests that Congress intended manufactured products pur- chased with FHWA grant funds to satisfy a 100 353 Surface Transportation and Uniform Relocation Assistance Act of 1987, Pub. L. No. 100-17, § 337(c), 101 Stat. 241 (1987). 354 Id. § 337(a). 355 Id. § 337(b). 356 Pub. L. No. 103-272, § 1(e) (1994) (formally codify- ing the FTA Buy America provision); see also Safe, Ac- countable, Flexible, Efficient Transportation Equity Act: A Legacy for Users, Pub. L. No. 109-59, § 1903 (2005) (recodifying the FHWA Buy America provision). These legislative actions formally removed the waivers specifically for rolling stock from the FHWA Buy Amer- ica provision, so that those waivers are currently only available to FTA grant recipients. 357 23 U.S.C. § 313 (2013). 358 49 U.S.C. § 5323(j) (2013). 359 23 U.S.C. § 313(a) (2013). percent domestic content standard. However, as discussed in detail in Section III.B.3.b infra, FHWA has a longstanding general waiver for manufactured products. Therefore, at the present time, the FHWA Buy America provision effec- tively prohibits only the purchase of foreign steel and iron with FHWA grant funds. The general waiver for manufactured products does not allow FHWA grant recipients to use FHWA grant funds to purchase manufactured products that are “predominantly” steel or iron,360 which FHWA has defined to mean those that con- tain 90 percent steel or iron by content.361 When purchasing manufactured products that are pre- dominantly steel or iron, “all manufacturing proc- esses, including application of a coating, for these materials must occur in the United States.”362 For other manufactured products that are not pre- dominantly steel or iron, the general waiver ap- plies, so there is no domestic content requirement for the “miscellaneous steel or iron components” such as washers and screws used in those prod- ucts.363 In addition to the general waiver for manufac- tured products, there are a number of exceptions or waivers from the FHWA Buy America provi- sion that may be available in a given situation. These are addressed as follows. b. Waivers and Exceptions.— • Price Differential When Buy America requirements were first imposed on FHWA grants with passage of the STAA Buy America provision, the Price Differen- tial exception (for “unreasonable” cost of domestic goods) was the most likely option for FHWA grant recipients to purchase foreign goods.364 In 1982, 360 Memo from Donald P. Steinke, FHWA Chief of Highway Operations, to Edward V.A. Kussy, Acting FHWA Chief Counsel, regarding Buy America Policy Response (Dec. 22, 1997), available at http://www. fhwa.dot.gov/programadmin/contracts/122297.cfm. 361 Memo from John R. Baxter, FHWA Associate Administrator for Infrastructure, to FHWA Division Administrators et al. (Dec. 21, 2012), available at http://www.fhwa.dot.gov/construction/contracts/121221. cfm. 362 23 C.F.R. § 635.410(b)(1) (2013). 363 Memo from John R. Baxter, supra note 361. 364 Valiant Steel and Equipment, Inc. v. Goldschmidt, 499 F. Supp. 410, 413 (D.D.C. 1980) (FHWA’s “regulations incorporate only one of these ex- emptions, the cost differential provision, and they ig- nore entirely the exceptions Congress stipulated to al-

40 however, when Congress specified the Price Dif- ferential to be 25 percent, the Price Differential exception became much less of a realistic option. FHWA currently permits a grant recipient (e.g., a state DOT) to employ a Price Differential excep- tion as long as the grant recipient states in its bid documents “that the contract will be awarded to the bidder who submits the lowest total bid based on furnishing domestic steel and iron materials unless such total bid exceeds the lowest total bid based on furnishing foreign steel and iron materi- als by more than 25 percent.”365 In other words, the 25 percent Price Differential is applied to the total bid price, not just the price of foreign steel and iron materials in the bid.366 If this condition is satisfied, FHWA regulations do not require the grant recipient to request a waiver. However, due to the large 25 percent Price Differential, this ex- ception is rarely used. • Nonavailability The FHWA Buy America provision provides for a Nonavailability waiver to purchase predomi- nantly steel or iron products if “such materials and products are not produced in the United States in sufficient and reasonably available quantities and of a satisfactory quality.”367 Unlike the BAA (which allows federal agencies to pur- chase goods from the FAR list of goods that are considered unavailable without a project-specific waiver), FHWA has no general Nonavailability waivers for predominantly steel and iron prod- ucts. This means that FHWA grant recipients must specifically request waivers on a project- specific, case-by-case basis for any predominantly steel or iron products that the grant recipient be- lieves to be unavailable domestically. This ap- pears to be the most common type of project- specific waiver granted by FHWA. • Public Interest FHWA grant recipients may request a waiver from the FHWA Buy America provision if its “ap- plication would be inconsistent with the public low for domestic unavailability or other public interest considerations.”). 365 23 C.F.R. § 635.410(b)(3) (2013). 366 23 U.S.C. § 313(b)(3) (2013) (allowing a Price Dif- ferential exception if the use of domestic material will increase the cost of the overall project by 25 percent). 367 23 U.S.C. § 313(b)(2) (2013); see also 23 C.F.R. § 635.410(c)(1)(ii) (2013). interest.”368 Since 1983, FHWA has had a general Public Interest waiver in place for all manufac- tured products (except for predominantly steel and iron manufactured products).369 Therefore, the Public Interest waiver has probably been more widely used in conjunction with the FHWA Buy America provision than with any other transportation grant Buy America provision (where Public Interest waivers are typically sub- ject to intense scrutiny). However, for products not covered by the general waiver for manufac- tured products, Public Interest waivers must be specifically requested from FHWA, and are rarely granted for predominantly steel and iron prod- ucts. Note, however, that FHWA is still develop- ing its regulations for rolling stock such as loco- motives370—it is unclear whether rolling stock qualifies for FHWA’s general waiver for manufac- tured products. While FHWA rulemaking on roll- ing stock is pending, FHWA in recent years has granted a number of Public Interest waivers for various rolling stock procurements.371 • Small Purchase Although Congress did not provide a Small Purchase exception from the FHWA Buy America provision,372 FHWA permits the purchase of pre- dominantly steel or iron foreign products “if the cost of such materials used does not exceed one- tenth of one percent (0.1 percent) of the total con- tract cost or $2,500, whichever is greater.”373 This Small Purchase exception was implemented by FHWA in a final rule issued in 1983 and was reit- erated by memorandum in 1989.374 Under FHWA regulations, a grant recipient does not have to request a waiver if either of these “minimal use” 368 23 U.S.C. § 313(b)(1) (2013); see also 23 C.F.R. § 635.410(c)(1)(i) (2013). 369 See infra § III.B.3.b. 370 Buy America Policy, 78 Fed. Reg. 41,492, 41,494 (July 10, 2013). 371 See infra § III.B.4.b. 372 The original STAA Buy America provision only applied to FHWA projects costing more than $500,000. Pub. L. No. 95-599, § 401 (1978). However, Congress entirely removed this cost threshold in 1983. Pub. L. No. 97-424, § 165 (1983). 373 23 C.F.R. § 635.410(b)(4) (2013). 374 Memo from William A. Weseman, FHWA Chief of Construction and Maintenance, to FHWA Regional Administrators et al. (July 6, 1989), available at https://www.fhwa.dot.gov/programadmin/contracts/0706 89.cfm.

41 criteria is satisfied.375 However, the grant recipi- ent must “maintain a running list of non-domestic steel or iron components or subcomponents as a construction project proceeds,”376 to ensure that the minimal use criteria are not exceeded. c. Notice-and-Comment.—FHWA is required to respond in writing to any request for a waiver from the FHWA Buy America provision, and any such written response from FHWA can be ob- tained by the public upon request.377 Prior to 2008, however, FHWA only published requests for “nationwide” general waivers in the Federal Reg- ister for public notice-and-comment.378 In the 2008 USDOT appropriations bill, Con- gress added a requirement for FHWA to provide “an informal public notice and comment opportu- nity,” such opportunity to last at least 15 days, to publish any waiver of the FHWA Buy America provision that FHWA intends to grant as well as FHWA’s rationale for doing so.379 In response, in April 2008,380 FHWA established a Buy America waiver Web site381 on which it provides notice of waiver requests and solicits public comment for 15 days. FHWA is only obligated to post waiver requests that it intends to grant, along with its justification for doing so. However, in practice, the Web site states that “all waiver requests” will be posted there. Typically, FHWA posts the waiver request from its grant recipient without stating whether it intends to grant the request or offering any specific justification. On the Web site, the public can subscribe to receive an email notifica- tion of each new waiver request posted. The public can post comments pertinent to each waiver re- quest informally via a form on the Web site, and posted comments are publicly visible. Shortly after establishing the informal notice- and-comment requirement, Congress required FHWA to publish its “finding” on any waiver re- 375 23 C.F.R. § 635.410(b)(4) (2013). 376 Buy America Policy, 78 Fed. Reg. 41,492, 41,495 (July 10, 2013). 377 23 C.F.R. § 635.410(c)(6) (2013). 378 Id. 379 Consolidated Appropriations Act of 2008, Pub. L. No. 110-161, Div. K, § 130 (2007). This requirement has been repeated in subsequent appropriations bills. See Consolidated Appropriations Act of 2010, Pub. L. No. 111-117, Div. A, § 123 (2009). 380 Buy America Waiver Notification System, 73 Fed. Reg. 19,927 (Apr. 11, 2008). 381 FHWA, Notice of Buy America Waiver Request, http://www.fhwa.dot.gov/construction/contracts/waivers. cfm. quest in the Federal Register, along with “a de- tailed written justification as to the reasons that such finding is needed.”382 Although FHWA is re- quired to solicit public comment for 60 additional days following publication of the finding, the waiver may be effective as soon as FHWA makes its finding.383 Therefore, following the 15-day in- formal notice-and-comment period on its Web site, FHWA publishes its final decision to grant (or deny) a waiver request in the Federal Register for an additional 60-day comment period. d. Certification and Enforcement.—There is no requirement in the FHWA Buy America provision for the contractor or supplier to certify its compli- ance with the FHWA Buy America provision to the FHWA grant recipient. However, FHWA grant recipients must rely on representations made by their contractors or suppliers as to the domestic content of goods delivered on FHWA grant-funded projects. If a court or federal agency determines that a contractor or supplier for an FHWA grant recipient “intentionally” represents that products are domestic when they are not, that contractor is ineligible to receive further FHWA grant funds, either as a direct contractor to an FHWA grant recipient or as a lower-tier subcontractor or supplier.384 Because the contractor, subcontractor, or sup- plier makes its representations to the FHWA grant recipient and not to FHWA, it may not be liable under the FCA for false representations of domestic content.385 There is also no express criminal penalty for violations of the FHWA Buy America provision. The only comparable penalties for intentional violations of the FHWA Buy Amer- ica provision would thus have to arise under state law, but FHWA grant recipients (e.g., state DOTs) would have to ensure that their standard bid re- quirements or contract terms are sufficient to in- voke the state law enforcement mechanisms. For example, the state DOT might have to develop a standard Buy America compliance certificate that is submitted as a condition of bid responsiveness in order to hold its contractor liable under state versions of the FCA for false representations of domestic content. FHWA regulations provide that a state’s standard “contract procedures may be 382 SAFETEA-LU Technical Corrections Act of 2008, Pub. L. No. 110-244, § 117(a)(1)(A) (2008). 383 Id. at §§ 117(a)(1)(B), 117(b). 384 23 U.S.C. § 313(e) (2013). 385 See, e.g., United States ex rel. Totten v. Bombar- dier Corp., 380 F.3d 488, 502 (D.C. Cir. 2004).

42 used to assure compliance” with the FHWA Buy America provision.386 e. Multiple Funding Sources.—The FHWA Buy America provision requires FHWA to allow its grant recipients (e.g., state DOTs) to enact “more stringent requirements” on domestic content for products used in FHWA grant-funded projects.387 FHWA permits state DOTs to use “standard con- tract provisions that require the use of domestic materials and products, including steel and iron materials, to the same or greater extent as the” FHWA Buy America provision.388 For example, a 2012 decision by the U.S. Court of Appeals for the Third Circuit held that although the FHWA Buy America provison does not prohibit the use of “temporary bridges made of foreign steel,” a state DOT could still prohibit such foreign products un- der a state Buy America provision.389 Whether a state Buy America provision can be considered more stringent than the FHWA Buy America provision might not be a straightforward determination. While FHWA may have a stronger Domestic Content requirement for steel and iron, a comparable state Buy America provision might have stronger restrictions against foreign manu- factured products. FHWA grant recipients must perform independent evaluations of a project’s compliance with both the FHWA Buy America provision and any potentially applicable state Buy America provision. The same principle generally applies to projects that receive grant funds from multiple federal agencies—the grant recipient should evaluate the project’s compliance with all potentially applicable Buy America provisions based on the funding source.390 2012 legislation by Congress could extend the FHWA Buy America provision even to contracts that are not funded by FHWA grants, including contracts funded by state DOTs or other federal agencies that are merely “eligible for assistance” from FHWA, as long as FHWA funds at least one contract in the overall project.391 In that situation, state DOTs may now have to perform independent evaluations of each eligible contract under both the FHWA Buy America provision and any appli- 386 23 C.F.R. § 635.410(d) (2013). 387 23 U.S.C. § 313(d) (2013). 388 23 C.F.R. § 635.410(b)(2) (2013). 389 Mabey Bridge & Shore, Inc. v. Schoch, 666 F.3d 862, 871 (3d Cir. 2012). 390 See, e.g., supra § II.A.4.a. 391 Moving Ahead for Progress in the 21st Century Act, Pub. L. No. 112–141, § 1518, 126 Stat. 405, 574 (2012) (to be codified at 23 U.S.C. § 313(g)). cable Buy America provision required by the fund- ing source for that contract. FHWA has not issued final guidance or regulations implementing this legislation, which is discussed in more detail in the following section. 2. Legislative Revision (2012) A revision to the FHWA Buy America provision was made by the 2012 USDOT appropriations bill known as the Moving Ahead for Progress in the 21st Century Act (MAP-21). Under this change, the FHWA Buy America provision applies “to all contracts eligible for assistance” from FHWA, re- gardless of the actual funding source of those con- tracts, as long as at least one contract on the “pro- ject” is funded with FHWA funds.392 For the purposes of this change, the “project” is defined to be any federal action that is subject to the National Environmental Policy Act (NEPA), i.e., any federal action “significantly affecting the quality of the human environment.”393 NEPA re- quires FHWA to account for environmental im- pacts of any such project, including the direct im- pacts, indirect or secondary impacts, and cumulative impacts.394 The cumulative impact of the federal action is “the incremental impact of the action when added to other past, present, and reasonably foreseeable future actions regardless of what agency (Federal or non-Federal) or person undertakes such other actions.”395 One purpose of the cumulative impact requirement is to prevent federal, state, and local government agencies from “segmenting” large projects into multiple smaller contracts, each of which (standing alone) may have an insignificant environmental impact, in order to circumvent NEPA environmental review for the overall project.396 The cumulative impact requirement extends the NEPA environmental review beyond a single federal contract, to all fed- eral, state, and local government contracts that are reasonably related so as to comprise a single development project.397 With MAP-21, by applying the FHWA Buy America provision cumulatively to 392 Id. 393 Id.; see also 42 U.S.C. § 4332(C) (2013). 394 40 C.F.R. § 1508.8 (2013). 395 40 C.F.R. § 1508.7 (2013). 396 Coal. on Sensible Transp. Inc. v. Dole, 642 F. Supp. 573, 591 (D.D.C. 1986), aff'd, 826 F.2d 60 (D.C. Cir. 1987 (“NEPA does not permit agencies to avoid review of cumulative effects by dividing projects into components.”)). 397 See, e.g., Western N.C. Alliance v. N.C. Dep’t of Transp., 312 F. Supp. 2d 765, 772–73 (E.D.N.C. 2003).

43 all contracts on a single NEPA “project,” Congress similarly attempted to prevent the “segmenting” of highway projects to circumvent the FHWA Buy America provision. a. Background.—The new MAP-21 requirement arose primarily out of controversy over the recon- struction of the Bay Bridge between San Fran- cisco and Oakland. In 2000, the California De- partment of Transportation (Caltrans) accepted $237 million in FHWA grant funds to help fund the project.398 By 2002, however, concerns arose that the resulting FHWA Buy America require- ments would increase the reconstruction cost by $200 million (due to higher prices of domestic steel).399 In 2003, in part to invoke the Price Dif- ferential exception, Caltrans announced bidding requirements that would factor “delay costs” for steel delivery into the bid price.400 In response to the bidding requirements, a number of domestic steel fabricators formed a unified consortium to invest in a new facility and pursue the steel deliv- ery subcontract.401 If prime contract bidders pro- posed to supply foreign steel, Caltrans required the bidders to also include an alternative price for the use of domestic steel.402 Presumably the bid- der would have to issue a subcontract to the do- mestic steel consortium if required to use domes- tic steel. 398 Greg Lucas & Lynda Gledhill, Cost to Rebuild Bay Bridge Could Soar: Federal Rule Requires Use of Ex- pensive Steel, SAN FRANCISCO CHRON., July 7, 2002, available at 2002 WLNR 6856056. 399 Id. (“Department sources privately say the use of American steel will cause a $200 million increase.”). 400 Lisa Vorderbrueggen, Bay Bridge Work Delayed Again; Rising Costs Blamed: Caltrans, Citing a Weak U.S. Steel Market, Changes Bid Rules for Construction, CONTRA COSTA TIMES, Oct. 22, 2003, available at 2003 WLNR 3089738. The design for the bridge called for very large girders, and there was the belief that no sin- gle domestic manufacturer had the existing facilities to manufacture the girders. Paul Rosta, Caltrans Steels Up For Big Bid Changes: Rejecting a Sole Bid that Came in Too High, California Agency Makes Changes for Bay Crossing, ENGINEERING NEWS-RECORD, Nov. 3, 2003, available at 2003 WLNR 3250864. By imposing a “delay cost” penalty on the domestic bids, the delay- adjusted domestic bids might be 25 percent higher than the bids using foreign steel, enabling the lower foreign bids to qualify for the Price Differential exception. 401 Allan Brettman, Steel Fabricators Join Hands for Bid, PORTLAND OREGONIAN, Mar. 12, 2004, available at 2004 WLNR 20412567. 402 Id. In May 2004, Caltrans received just one bid for the eastern span. The bid was $1.4 billion for the use of foreign steel, with an alternative bid of $1.8 billion for the use of domestic steel.403 The domes- tic alternative was about 28 percent more expen- sive than the $1.4 billion bid for foreign steel, ap- pearing to justify the Price Differential exception. However, a challenge by the domestic steel manu- facturers was likely, since they could argue that the bidder deliberately overstated the consor- tium’s costs to supply domestic steel (or that the bidder deliberately overstated the “delay costs” associated with supplying domestic steel). There was also controversy over whether the 25 percent Price Differential was satisfied—although the $1.8 million domestic bid was 28 percent higher than the $1.4 million foreign bid, calculated alter- natively the $1.4 million foreign bid was only 23 percent less than the $1.8 million domestic bid.404 Caltrans had concerns that its acceptance of $237 million in federal funds would now require it to pay an additional $400 million for domestic steel.405 Caltrans began looking at “de- federalizing” the eastern span by using no federal money for it.406 Congress responded in the 2005 USDOT appropriations bill known as the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU) by stating the “Sense of Congress” that the FHWA Buy America provision “needs to be applied to an entire bridge project and not only to component parts of such project.”407 This legislation reiter- ated that domestic steel must be used “unless there is a finding that the inclusion of domestic materials will increase the cost of the overall pro- 403 Michael Cabanatuan, Lone Bid for Bay Bridge Way Over Estimate: $1.8 Billion Offer More than Double Caltrans’ Hope, S.F. CHRONICLE, May 27, 2004, avail- able at 2004 WLNR 7638950. 404 Michael Cabanatuan, Sacramento: Caltrans May Be Able to Take Lower Bid for Bay Bridge: State Agency Says It Can Use Foreign Steel to Build Span, Although That’s Still Double the Original Construction Cost Es- timate, S.F. CHRON., May 28, 2004, available at 2004 WLNR 7640706. 405 Sean Holstege, “Freeway on Stilts” Begets Costly Span, OAKLAND TRIBUNE, May 28, 2004, available at 2004 WLNR 17168291. 406 Sean Holstege, Questions May Delay Bay Bridge Call, OAKLAND TRIBUNE, Dec. 6, 2004, available at 2004 WLNR 13146721. 407 Safe, Accountable, Flexible, Efficient Transporta- tion Equity Act: A Legacy for Users, Pub. L. No. 109-59, § 1928 (2005).

44 ject by more than 25 percent.”408 The legislation also stated that uncertainty over how to apply the Price Differential waiver “for major bridge pro- jects threatens the domestic bridge industry.”409 SAFETEA-LU was enacted on August 10, 2005, just a couple of weeks after Caltrans approved a rebid package for the eastern span using no fed- eral funds and no FHWA Buy America provi- sion.410 On October 5, 2005, FHWA published a memorandum reiterating that its practice was to apply the FHWA Buy America provision only to the individual contracts funded with FHWA funds.411 In 2006, Caltrans moved forward with its rebid procedures (including no FHWA Buy America provision and no domestic steel alternative bid price requirement),412 and in March 2006 it ac- cepted a low bid of $1.4 billion.413 Although Caltrans was foregoing federal funds in order to avoid the FHWA Buy America provision, Caltrans argued that it could later apply to use the $237 million in federal funds for other parts of the bridge construction.414 Some in Congress viewed this as a deliberate attempt by FHWA and Cal- trans to circumvent the FHWA Buy America pro- vision.415 In June 2006416 and again in April 2007,417 FHWA Administrator J. Richard Kapka testified before Congress that the FHWA Buy America provision applied only to federally funded contracts and that the provision was not violated on the Bay Bridge project. 408 Id. 409 Id. 410 Sean Holstege, Mood is Upbeat as Bridge Tower Cleared for Bids, ALAMEDA TIMES-STAR, July 28, 2005, available at 2005 WLNR 24119473. 411 Holley Gilbert, Cost, Law Figure in California De- cision on Bridge Project, PORTLAND OREGONIAN, Mar. 24, 2006, available at 2006 WLNR 4916576. 412 Contractors Anticipate Rebidding of Signature Span, ENGINEERING NEWS-RECORD, Jan. 23, 2006, available at 2006 WLNR 1650880. 413 Gilbert, supra note 411. 414 Id. 415 Id.; J.T. Long, This Time, Controversial Bay Area Span Brings in Two Bids, ENGINEERING NEWS-RECORD, Apr. 3, 2006, available at 2006 WLNR 6027151. 416 Implementation of SAFETEA-LU: Hearing Before the Subcomm. on Highways, Transit and Pipelines of the H. Comm. on Transportation and Infrastructure, 109th Cong. 11, 22–23 (June 7, 2006). 417 Buy America: Hearing Before the Subcomm. on Highways and Transit of the H. Comm. on Transporta- tion and Infrastructure, 110th Cong. 3–4 (Apr. 24, 2007). The Bay Bridge controversy was renewed in late 2009, when delivery of steel from China was over 1 year late.418 During the bidding process, a persistent factor in assessing the higher cost of domestic steel had been the perception that do- mestic steel manufacturers could not satisfy the delivery schedule demands of the Bay Bridge pro- ject, but the foreign steel suppliers could.419 The steel shipments from China were finally com- pleted in 2011, resulting in unfavorable publicity for Caltrans and its decision to forego federal funding to avoid the FHWA Buy America re- quirements.420 At a congressional hearing in De- cember 2011, a number of Congressmen reiter- ated to Secretary of Transportation Ray LaHood that application of the Buy America provisions for transportation grants needed to be strengthened, pointing specifically to the Bay Bridge as an ex- ample of bad practices by grant recipients.421 b. Legislative History.—The version of MAP-21 originally passed by the Senate in 2012 would have extended the antisegmentation requirement not just to FHWA, but also to FTA and Amtrak.422 In other words, if FHWA grant funds, FTA grant funds, or Amtrak capital grant funds were used to fund any contract on a “project,” then all other contracts in that project would be subject to the respective Buy America provisions. This could have had major consequences for rail projects, where segmentation has long been an accepted practice for avoiding Buy America provisions. For example, shortly after passage of the STAA Buy America provision in the 1980s, the Sacramento regional transit authority received $96 million in federal grant funds from FTA (then UMTA) 418 Frank Haflich, Bay Bridge Steel Delay Puts Com- pletion Date in Question, AMERICAN METAL MARKET, Nov. 2, 2009, available at 2009 WLNR 26488935. 419 Frank Haflich, Steel Fabricators Lash Out at Bay Bridge Suggestions, AMERICAN METAL MARKET, Dec. 18, 2009, available at 2009 WLNR 26714047. 420 Donald L. Barlett & James B. Steele, Big Boost for Chinese Steel, PHILADELPHIA INQUIRER, Oct. 16, 2011, available at 2011 WLNR 21440404; David Barboza, Bridge Comes to San Francisco With a Made- in-China Label, N.Y. TIMES, June 26, 2011, available at 2011 WLNR 12698943. 421 The Federal Railroad Administration’s High- Speed and Intercity Passenger Rail Program: Mistakes and Lessons Learned: Hearing Before the H. Comm. on Transportation and Infrastructure, 112th Cong. 17, 25 (Dec. 6, 2011). 422 S. 1813, 112th Cong. §§ 1528, 20017, 35210 (2012).

45 toward its $176 million light-rail project.423 Sacramento was permitted to segment the project by identifying 15 rail cars that would be built us- ing nonfederal funds, and only the remaining 11 rail cars that would be built with federal funds would have to comply with the STAA Buy Amer- ica provision.424 Likewise, a 1993 rail construction project by the Los Angeles county transportation authority was segmented into federally funded segments (which were required to comply with the FTA Buy America provision) and locally funded segments (which were not).425 Domestic industry representatives such as the Railway Progress In- stitute have repeatedly expressed concerns to Congress that this segmentation policy is used by FTA to circumvent the FTA Buy America provi- sion.426 The version of MAP-21 passed by the Sen- ate (with antisegmentation provisions applicable to FTA and Amtrak, as well as FHWA) could have changed current practice for rail car and rail con- struction procurements. There was significant support in Congress to apply the antisegmentation provision to rail pro- grams in 2012.427 Ultimately, however, Congress adopted the House version of the antisegmenta- tion provision, which was applicable only to FHWA.428 For its part, FRA has also adopted an internal antisegmentation policy, so that the FRA 423 Dale Vargas & Ricardo Pimentel, Light-Rail Deal Gets House Attention: Agreement on Violation of Buy America Regulations Triggers Probe, SACRAMENTO BEE, Jan. 31, 1987, available at 1987 WLNR 1810794. 424 Id. 425 Rail Project Bidding Altered: Foreign, Domestic Steelmakers Uncertain of Process, AMERICAN METAL MARKET, Jan. 18, 1993, available at 1993 WLNR 5020589. 426 See 134 CONG. REC. S10,142 (July 27, 1988) (statement of Richard Griffin, General Signal Corp.) (“Congress should investigate the possibility of modify- ing the [FTA] authorizing legislation to preclude a tran- sit property from ‘segmenting’ its funds, thereby avoid- ing compliance with all federal requirements. …Congress should evaluate whether or not the entire operation of a transit agency should be subject to Buy America.”). 427 See 158 CONG. REC. H3,045 (May 17, 2012). 428 Moving Ahead for Progress in the 21st Century Act, Pub. L. No. 112-141, § 1518 (2012); see also Tom Ichniowski, MAP-21 Toughens 'Buy America' Require- ments, U.S. Industry Says, ENGINEERING NEWS-RECORD, Aug. 6, 2012, available at 2012 WLNR 17143377 (“[A] Senate-approved rail title that included ‘Buy America’ provisions…was dropped in the late rounds of negotia- tions on the final MAP-21 bill.”). Buy America provision will also “apply to items purchased with non-grant funds if used in a grant-funded project.”429 This antisegmentation trend is likely to result in legal disputes over what constitutes a “project” for purposes of ex- tending the Buy America requirements to con- tracts not funded with federal grants. Also, for jointly funded projects (e.g., where both FHWA and FRA funds are used to fund separate con- tracts related to the same overall transportation development project), the situation could arise where the FHWA Buy America provision applies to FRA grant funds and the FRA Buy America provision applies to FHWA grant funds. In such joint funding situations, the grant recipient will need to confirm that both Buy America provisions are satisfied for the entire project. 3. Rulemaking History a. Segmentation.—Despite Congress adopting the NEPA definition of “project” for purposes of evaluating the FHWA Buy America provision, in an NPRM issued jointly thereafter by FHWA, FRA, and FTA, the agencies stated that “in the highway context, …issuance of Buy America waivers…are not considered to be environmental review responsibilities that can be assigned.”430 Thus, in a highway project with multiple federal funding sources (e.g., with portions funded by FHWA, FRA, or FTA), each agency retains au- thority over requests for waivers from its own Buy America provision. Even though the FHWA Buy America provision applies to the entire project (including segments or components funded by FRA or FTA), the other agencies do not assign to FHWA the authority to issue waivers from the FRA or FTA Buy America provisions. Project seg- ments funded by FRA or FTA conceivably have to satisfy multiple Buy America provisions or obtain waivers from multiple agencies, including both the funding agency and FHWA. As a result of MAP-21, the FHWA Buy America provision can extend to contracts that would oth- erwise not be subject to any Buy America provi- sion. In December 2012, for example, FHWA de- termined that “utility work” on FHWA-funded projects (such as state-funded relocation of utili- ties out of the path of new highway development) is subject to the FHWA Buy America provision, even if the utility work is not reimbursed with 429 FRA Buy America Webinar, supra note 60, at 9. 430 Surface Transportation Project Delivery Program Application Requirements, 78 Fed. Reg. 53,712, 53,715 (Aug. 30, 2013).

46 FHWA funds.431 This prompted concern from state DOTs and transportation industry associations that projects would be delayed while utility com- panies, who had not historically been subject to Buy America requirements, became compliant.432 Therefore, on July 11, 2013, FHWA granted a temporary reprieve to utility companies, delaying application of the FHWA Buy America provision to state-funded utility relocations only through December 31, 2013.433 However, state DOTs and transportation in- dustry associations continue to express concern about how the antisegmentation legislation will be applied. Despite the language of MAP-21, which would apply the FHWA Buy America provi- sion to all contracts on a project, Caltrans has recommended that Buy America provisions should apply on[l]y to those contracts that utilize federal funding. FHWA, FTA and FRA all apply [Buy America] provisions differently on those projects where they are the federal lead agency. Caltrans recognizes that utility companies are struggling to develop internal processes to identify materials that are subject to [Buy America] when the rules are applied differently from one project to an- other.434 The American Road and Transportation Build- ers Association has expressed concern that, as a result of MAP-21, FHWA will now have to “de- termine Buy America compliance on many utility and railroad contracts it would not [ordinarily] review through its customary oversight responsi- bilities.”435 As a result, “owners may delay con- 431 Letter from Victor M. Mendez, FHWA Adminis- trator, to John Horsley, AASHTO Executive Director (Dec. 20, 2012), available at https://www.fhwa.dot.gov/ construction/contracts/121220.cfm. 432 Letter from AASHTO et al. to Ray LaHood, USDOT Secretary et al., regarding Application of Buy America Requirements to Utility Relocations (June 28, 2013), available at http://www.apta.com/gap/letters/ 2013/Pages/130628_LaHood_Foxx.aspx. 433 Memo from Gloria M. Shepherd, FHWA Associate Administrator for Infrastructure, to FHWA Division Administrators et al., regarding Application of Buy America to non FHWA-funded Utility Relocations (July 11, 2013), available at https://www.fhwa.dot.gov/ construction/contracts/130711.cfm. 434 Comments, California Department of Transporta- tion, Docket No. FHWA-2013-0041 (Sep. 9, 2013), available at http://www.regulations.gov/#!document Detail;D=FHWA-2013-0041-0062. 435 Comments, American Road and Transportation Builders Association, Docket No. FHWA-2013-0041 (Sep. 9, 2013), available at http://www.regulations.gov/ #!documentDetail;D=FHWA-2013-0041-0048. struction of a project if there is uncertainty about the Buy America compliance of the utility or rail- road contract.” As of this publication, however, FHWA has not implemented any rules or regula- tions addressing the application of the FHWA Buy America provision to railroad contracts funded by non-FHWA sources. b. Manufactured Products Waiver.—There is a longstanding general waiver from the FHWA Buy America provision for manufactured products other than steel or iron. Dating back to the origi- nal 1978 STAA Buy America provision (which nominally established domestic preferences for all manufactured goods and unmanufactured goods), FHWA issued regulations “temporarily” applying the domestic preference only to structural steel (defined as “shapes, plates, H-piling, and sheet piling”).436 This granted a waiver to all other manufactured products, including steel compo- nents of manufactured products. The purpose for this broad waiver was FHWA’s determination that “foreign structural steel is the only product having a significant nationwide effect on the cost of Federal-aid highway construction projects.”437 Removing coverage for manufactured products other than structural steel was justified in part based on the fact that the vast majority of high- way grant funds were spent on steel, cement, as- phalt, and aggregate materials (including sand)— mechanical and electrical equipment (such as traffic signals) accounted for only a small percent- age of federal highway grant funds at the time. With the 1982 STAA Buy America provision, Congress appeared to modify the domestic prefer- ence requirements for FHWA grants, applying domestic preferences specifically to steel and manufactured products. However, FHWA imple- mented an interim rule in January 1983 specifi- cally retaining its general waiver for manufac- tured products and soliciting public comment.438 Several commenters, many apparently from state DOTs, told FHWA “that it is virtually impossible for a contracting agency to trace all components of some manufactured products incorporated into highway products; e.g.: signal controllers, glass for 436 43 Fed. Reg. 53,717 (Nov. 17, 1978); see also 45 Fed. Reg. 77,455 (1980). 437 Letter from Elmer B. Staats, U.S. Comptroller General, to Hon. Adam Benjamin, Jr., Docket No. B- 194859 (Aug. 3, 1979), available at http://www.gao.gov/ assets/130/127424.pdf. 438 48 Fed. Reg. 1,946 (Jan. 17, 1983); see also 48 Fed. Reg. 23,631 (May 26, 1983) (amending the Jan. 17, 1983, interim rule).

47 the signal heads, almost all electrical equipment,” etc.439 In November 1983, in its final rule, FHWA agreed “that it is very difficult to identify the vari- ous materials and then trace their origin. A manufactured product such as a traffic controller which has many components is particularly diffi- cult to trace.”440 Furthermore, despite the fact that the 1982 STAA Buy America provision ex- pressly applied to manufactured products, FHWA concluded that it “does not believe that all manu- factured products must be covered,” because “FHWA has never covered all manufactured products under its Buy America regulation and Congress did not specifically direct a change in that policy.”441 Therefore, FHWA granted a gen- eral Public Interest waiver for all “manufactured products other than steel and cement manufac- tured products.”442 (Cement was removed from coverage by Congress in 1984.443) At the same time, however, FHWA expanded coverage of its Buy America requirements beyond structural steel “to include all steel products.”444 In 1997, FHWA clarified its policy to explain that, despite its Buy America waiver for manufactured prod- ucts, “the steel components of a predominately steel product must be of domestic manufacture unless the value of the components is less than the minimal use threshold for the project.”445 Therefore, manufactured products that are pre- dominantly steel or iron are not exempted by the Public Interest waiver for manufactured goods and must satisfy the FHWA Buy America re- quirement of 100 percent domestic steel or iron. In light of FHWA’s waiver for manufactured products, questions have arisen over the years as to how to treat steel and iron components of manufactured products, where the manufactured products themselves are not predominantly steel or iron. In the past, FHWA has taken the position that all steel and iron components of manufac- 439 Buy America Requirements, 48 Fed. Reg. 53,099 (Nov. 25, 1983). 440 Id. 441 Id. 442 Id. 443 Pub. L. No. 98-229, § 10 (1984). 444 Buy America Requirements, 48 Fed. Reg. 53,099 (Nov. 25, 1983). 445 Memo from Donald P. Steinke, FHWA Chief of Highway Operations, to Edward V.A. Kussy, FHWA Chief Counsel, regarding Buy America Policy Response (Dec. 22, 1997), available at http://www.fhwa.dot.gov/ programadmin/contracts/122297.cfm. tured products must be domestic.446 However, FHWA clarified its position in 2012, in response to increased scrutiny of ARRA projects, explaining that its manufactured products waiver “was in- tended to encompass miscellaneous steel or iron components and subcomponents that are com- monly available as off-the-shelf products such as faucets, door hardware, and light bulbs.”447 Under this 2012 clarification, for manufactured products that are not predominantly steel or iron, “miscel- laneous steel or iron components” of those prod- ucts (such as wires, hooks, brackets, hinges, nuts, bolts, washers, and screws) are exempted by FHWA’s manufactured products waiver and thus are not required to be domestic.448 Products “manufactured predominantly of steel or iron” are not subject to the waiver and must be domestic.449 But in its 2012 clarification, FHWA further stated that products “manufactured predominantly of steel or iron” are those that consist of “at least 90% steel or iron content when it is delivered to the job site for installation.”450 The 90 percent steel or iron requirement makes it clear that most steel incorporated into construction projects (in- cluding reinforcing steel) must be domestic, but most mechanical and electrical equipment (such as vehicles) are subject to the manufactured prod- ucts waiver even if it contains a significant amount of steel or iron content. 446 FHWA, Buy America Q&A for Federal-aid Pro- gram (Dec. 12, 2013), http://www.fhwa.dot.gov/ construction/contracts/buyam_qa.cfm (“Buy America requirements apply to any steel or iron component of a manufactured product regardless of the overall composition of the manufactured product….”); FHWA, CONTRACT ADMINISTRATION CORE CURRICULUM PARTICIPANT’S MANUAL AND REFERENCE GUIDE 23 (2006) (“All foreign steel and iron materials and products are covered by Buy America regardless of the percentage they comprise in a manufactured product or the form they take.”); FHWA, Buy America Application to Fed- eral-aid Highway Construction Projects (July 29, 2002), http://www.fhwa.dot.gov/programadmin/contracts/ buyamgen.cfm (“All steel and iron materials are covered by Buy America regardless of the percentage they com- prise in a manufactured product or form they take.”). 447 Memo from John R. Baxter, FHWA Associate Administrator for Infrastructure, to FHWA Division Administrators et al. (Dec. 21, 2012), available at http://www.fhwa.dot.gov/construction/contracts/121221. cfm. 448 Id. 449 Id. 450 Id.

48 The 2012 clarification that FHWA considers its manufactured products waiver to apply to all but those comprised of 90 percent steel or iron “trig- gered opposition from various groups in the manufacturing industry,” as well as some Con- gressmen.451 In particular, there was concern that FHWA grant funds were being used to purchase a significant amount of foreign vehicles, including construction equipment and even locomotives, since FHWA grant funds may be used to purchase such vehicles under the Congestion Mitigation and Air Quality Improvement (CMAQ) pro- gram.452 Therefore, in July 2013, in the Federal Register, FHWA solicited public comments on whether “FHWA needs to reconsider its criteria for applying Buy America requirements to manu- factured products.”453 All issues related to the FHWA manufactured products waiver were open for consideration, including whether there were specific categories of manufactured products that should or should not be subject to the waiver, how to define a “predominantly steel or iron product,” and whether vehicles should be subject to the waiver.454 Specifically, FHWA solicited comments on the following question: What standard should apply to locomotives, rail cars, and locomotive parts that are purchased for locomotive retro- fits? Should the FHWA require the application of the Fed- eral Railroad Administration’s policy, which views loco- motives and rail cars as ‘‘end products’’ that must be assembled in the United States and all components (in- cluding components purchased for retrofits) be manufac- tured in the United States?455 Representative comments received from domes- tic manufacturers included those from the Mu- nicipal Castings Association (MCA), which argued 451 Buy America Policy, 78 Fed. Reg. 41,492, 41,493 (July 10, 2013). Additionally, domestic steel manufac- turers and labor organizations filed a lawsuit against FHWA over its 2012 clarification, seeking a judicial declaration that the 2012 memorandum “amounts to an unlawfully promulgated legislative rule which is incon- sistent with [FHWA]’s statutory authority and which has upset over thirty years of practice and precedent in [FHWA]’s administration of its duties under the Buy America statute, 23 U.S.C. § 313.” Complaint for In- junctive and Declaratory Relief at 2, United Steel, Pa- per & Forestry, Rubber, Mfg., Energy, Allied Indus. & Serv. Workers Int’l Union v. FHWA, No. 13-1301 (D.D.C. Oct. 4, 2013). The litigation is ongoing at the time of this writing. 452 Buy America Policy, 78 Fed. Reg. 41,492, 41,494 (July 10, 2013). 453 Id. at 41,495. 454 Id. at 41,495–96. 455 Id. at 41,496. for streamlining the Buy America requirements for rolling stock across federal agencies: The MCA sees little value in the adoption of a standard that departs from those Buy America standards applied to rolling stock by fellow Departmental agencies, the FTA and FRA (as discussed above). A consistent approach to the domestic content requirements of rolling stock should be applied Department-wide. The MCA urges the FHWA to apply the Title 23 Buy America requirements to pro- curements of rolling stock in a manner requiring no less domestic component content than that required under procurements of rolling stock for federal-aid transit pro- jects.456 Likewise, Norfolk Southern Corporation urged FHWA to either adopt the FTA 60 percent domes- tic content requirement for rail rolling stock or else to grant a nationwide waiver from the FHWA Buy America provision for all locomotives.457 Similarly, several labor organizations recom- mended, at minimum, that FHWA adopt the FTA 60 percent domestic content requirement for rail rolling stock, increasing over time to the FRA 100 percent domestic content requirement for rail roll- ing stock.458 Likewise, CSX Corporation recom- mended that “for locomotives, FHWA maintain consistency with the policy of the Federal Rail- road Administration under which locomotives and rail cars are considered ‘end products’ and all end products are assembled and all components are manufactured in the United States.”459 However, CSX also sought leeway on the domestic content requirement of locomotives: [T]racking the source of steel for each of these compo- nents, especially the engines and electrical components, is overly burdensome and essentially impossible in a global economy. …The application of the Buy America require- 456 Comments, Municipal Castings Association, Docket No. FHWA-2013-0041 (Sep. 8, 2013), available at http://www.regulations.gov/#!documentDetail;D= FHWA-2013-0041-0059. 457 Comments, Norfolk Southern Corp., Docket No. FHWA-2013-0041 (Sep. 9, 2013), available at http://www.regulations.gov/#!documentDetail;D=FHWA -2013-0041-0072. 458 Comments, United Steelworkers Association, Docket No. FHWA-2013-0041 (Sep. 9, 2013), available at http://www.regulations.gov/#!documentDetail;D= FHWA-2013-0041-0047; Comments, International Un- ion, United Automobile, Aerospace and Agricultural Implement Workers of America (UAW), Docket No. FHWA-2013-0041 (Sep. 9, 2013), available at http://www.regulations.gov/#!documentDetail;D=FHWA -2013-0041-0063. 459 Comments, CSX Corporation, Docket No. FHWA-2013-0041 (Sep. 3, 2013), available at http://www.regulations.gov/#!documentDetail;D=FHWA -2013-0041-0034.

49 ment in this context is clearly inconsistent with the pub- lic interest. …As a result, the option to request a waiver should remain in place.460 In January 2014, FHWA announced that, based on the public comments received, FHWA will probably issue new formal regulations, which may supersede the guidance in its 2012 memo- randum.461 As of the publication of this digest, FHWA has not issued a final rule regarding changes to its manufactured products waiver or applicability of the FHWA Buy America provision to rail rolling stock. However, a number of recent Public Interest waivers granted by FHWA for ve- hicles purchased under the CMAQ program462 in- dicate some movement in the direction of applying the FHWA Buy America provision to rolling stock, suggesting that FHWA does not consider its gen- eral waiver for manufactured products to exempt such vehicles from the FHWA Buy America provi- sion. FHWA has very recently stated that it pre- fers “to no longer process Buy America waivers for the purchase of transit vehicles.”463 In response, USDOT has expressed its preference for CMAQ funds for rolling stock to “be transferred [from FHWA] to FTA to be administered under applica- ble FTA requirements,” including the FTA Buy America provision.464 This may allow FHWA to avoid deciding how the FHWA Buy America pro- vision is to be applied to rolling stock. It would also subject rolling stock purchased under the CMAQ program to FTA’s 60 percent domestic con- tent requirement for rolling stock rather than FRA’s 100 percent domestic content requirement for rolling stock or FHWA’s 100 percent domestic content requirement for “predominantly steel or iron” manufactured products. 4. Waiver Case Studies a. Railroad Turnouts.—In June 2008, on its relatively new Web site for informal notice-and- 460 Id. 461 Motion for Stay of Proceedings to Allow Agency to Complete New Rulemaking or in the Alternative for Extension of Time at 2, United Steel, Paper and For- estry, Rubber, Mfg., Energy, Allied Indus. and Serv. Workers Int’l Union v. FHWA, No. 13-1301 (D.D.C. Jan. 28, 2014). 462 See infra § III.B.4.b. 463 Memo from Fred R. Wagner, FHWA Chief Coun- sel, and Dorval R. Carter Jr., FTA Chief Counsel, to FHWA Administrators, regarding Transfer of Funds for Transit Projects (Dec. 11, 2013), available at http://www.fhwa.dot.gov/construction/contracts/131211. cfm. 464 Id. comment, FHWA posted a notice soliciting com- ments on whether FHWA should grant a waiver of its Buy America provision to IDOT to purchase railroad turnout braces, manganese castings (“frogs”), guard rails, and weld kits.465 In July 2008, in the Federal Register, FHWA announced that because it received no comments within 15 days, it concluded “that there are no domestic manufacturers for these products” and a Nonavailability waiver was appropriate.466 The waiver (for $206,000 worth of foreign turnout parts) was immediately effective, although FHWA invited additional comment on its Web site for a 15-day period. The following year, in May 2009, FHWA again posted a notice on its Web site soliciting com- ments on whether FHWA should grant IDOT an- other waiver to purchase turnout braces, manga- nese castings, guard rails, and weld kits.467 Again, FHWA received no comments within 15 days, which suggested to FHWA that the turnout parts “may not be available domestically.”468 This time, during the 15-day comment period, “FHWA con- ducted an additional nationwide review to locate potential domestic manufacturers.”469 Finding no domestic manufacturers, in July 2009 FHWA again granted a Nonavailability waiver (this time for $699,645 worth of foreign turnout parts), effec- tive immediately.470 Again, FHWA invited addi- tional comment on its Web site for a 15-day period after granting the waiver. The IDOT turnout waivers illustrate a number of unique features of how FHWA administers the FHWA Buy America provision. First, it is unlikely that the notices provided on the Web site satisfied FHWA’s statutory informal notice-and-comment requirements, since they did not indicate that FHWA intended to grant the waivers, or offer any 465 FHWA, Request (June 5, 2008), available at http://web.archive.org/web/20130606200547/http://www. fhwa.dot.gov/construction/contracts/waivers.cfm?id=12 (seeking comments on IDOT’s Buy America waiver re- quest for railroad turnout components). 466 Buy America Waiver Notification, 73 Fed. Reg. 42,894 (July 23, 2008). 467 FHWA, Request (May 20, 2009), available at http://web.archive.org/web/20130606174129/http://www. fhwa.dot.gov/construction/contracts/waivers.cfm?id=33 (seeking comments on IDOT’s Buy America waiver re- quest for railroad turnout components). 468 Buy America Waiver Notification, 74 Fed. Reg. 32,219 (July 7, 2009). 469 Id. 470 Id.

50 justification for the waivers.471 In fact, the notices may have been unclear—a typical reader may not have understood that the waiver sought was for railroad turnout parts. The notices contained very little product specification or manufacturers in- formation to identify the parts, and there was no project description indicating that these were rail- road projects.472 In both cases, public comments were received only after the waiver notice ap- peared in the Federal Register. The public may have very little actual notice of waivers of the FHWA Buy America provision until the waivers are granted. Domestic suppliers of construction materials and manufactured products for highway and railroad projects must closely monitor FHWA’s Web site in order to timely participate in the notice-and-comment process for potential waivers. Second, the IDOT waivers illustrate what may be a lower standard for Nonavailability waivers under the FHWA Buy America provision than other transportation grant Buy America provi- sions. There is no indication that the grant recipi- ent was required to show evidence that it was un- able to obtain the turnout parts from domestic sources. In the 2008 waiver, FHWA based its waiver determination solely on the lack of public comments on its Web site in the 15-day period.473 Even in the 2009 waiver, when FHWA performed its own independent search for domestic sources, it did so within the 15-day online comment pe- riod.474 As a result, FHWA granted the Nonavail- ability waivers for railroad turnout parts very quickly, as opposed to FRA waivers in similar cir- cumstances, which have involved months-long searches for domestic manufacturers working with NIST-MEP and concessions from manufac- turers to increase domestic content in the fu- ture.475 Finally, these waivers may indicate a distinc- tion between how railroad turnouts are treated for purposes of the FHWA and FRA Buy America provisions. Under the FRA Buy America provi- sion, turnouts are considered manufactured prod- ucts, and the parts for which IDOT sought waiv- ers would be considered components or possibly subcomponents (in which case FRA would not re- 471 See supra notes 465, 467. 472 Id. 473 Buy America Waiver Notification, 73 Fed. Reg. 42,894 (July 23, 2008). 474 Buy America Waiver Notification, 74 Fed. Reg. 32,219 (July 7, 2009). 475 See supra § II.A.4.e. quire the subcomponents to be domestic).476 Under the FHWA Buy America provision, however, manufactured products are waived, unless they are composed of 90 percent steel or iron. FHWA may not have considered treating the turnout it- self as a manufactured product subject to the waiver, instead treating the turnout parts (such as the frogs) as predominantly steel or iron con- struction materials that must be evaluated indi- vidually for compliance with the FHWA Buy America provision. Shortly after the 2009 IDOT waiver, in Novem- ber 2009, FHWA again posted a notice on its Web site soliciting comments on whether FHWA should grant ODOT a waiver to purchase turnout braces, manganese castings, guard rails, and weld kits.477 This time, FHWA received a number of comments, most indicating that the turnout braces and manganese castings were manufac- tured domestically by Nortrak but confirming that the guard rails were not rolled in the United States.478 FHWA’s subsequent investigation was more detailed than it was for the IDOT request, as a final decision was not published in the Fed- eral Register until June 2010. Although FHWA granted a Nonavailability waiver for the guard rail, it concluded that Nonavailability waivers were “not appropriate for Manganese turnout castings, LV braces, and Weld kits” (despite pre- viously granting Nonavailability waivers to IDOT for those parts).479 b. Public Interest Waivers for Rolling Stock.— FHWA has not traditionally dealt with applica- tion of the FHWA Buy America provision to roll- ing stock.480 However, in November 2011, in the Federal Register, FHWA addressed waiver re- quests from Alameda County, California,481 and San Francisco County, California,482 to purchase 476 FRA Buy America Webinar, supra note 60, at 14. 477 FHWA, Request (Nov. 13, 2009), available at http://web.archive.org/web/20130606190500/http://www. fhwa.dot.gov/construction/contracts/waivers.cfm?id=41 (seeking comments on ODOT’s Buy America waiver request for railroad turnout components). 478 Buy America Waiver Notification, 75 Fed. Reg. 37,875 (June 30, 2010). 479 Id. 480 Buy America Waiver Notification, 76 Fed. Reg. 72,027 (Nov. 2, 2011) (“Vehicles, however, are not the types of products that were initially envisioned as being purchased with Federal-aid highway funds when Buy America was first enacted.”). 481 Id. 482 Buy America Waiver Notification, 76 Fed. Reg. 72,028 (Nov. 2, 2011).

51 electric vehicles and hybrid vehicles using FHWA funds under the CMAQ program. In March 2012, FHWA addressed a similar request by Merced County, California.483 In all of these cases, FHWA granted a “partial” Public Interest waiver: the grant recipients could purchase the vehicles on the condition that “final assembly” took place in the United States, regardless of domestic content. In granting these “partial” waivers, FHWA did not address its existing Public Interest waiver for manufactured products, nor whether that waiver applied to vehicles. In fact, FHWA implied that a waiver was required for vehicle purchases because “FHWA has not located a vehicle that meets a 100 percent domestic iron and steel content require- ment.” In March 2012, around the time it was granting the Merced County waiver, FHWA published on its Web site a waiver request from the Vermont Agency of Transportation (VTrans) to purchase vehicles under the CMAQ program. FHWA re- ceived a number of comments, many questioning the “applicability” of the FHWA Buy America pro- vision to vehicle procurements in light of FHWA’s waiver for manufactured projects. It took FHWA more than 1 year to address this waiver request. Finally, in June 2013, FHWA granted a “partial” Public Interest waiver request for the VTrans ve- hicles,484 as well as 74 other projects involving the purchase of “3,500 vehicles (including sedans, vans, pickups, SUVs, trucks, buses, and equip- ment, such as backhoes, street sweepers, and trac- tors).”485 This Public Interest waiver is not a gen- eral waiver for all vehicles, but rather a formal waiver of any domestic content requirement for these specific projects, conditioned on final assem- bly of the vehicles in the United States. At that time, FHWA stated that it was still trying to de- termine “what standards should apply to vehi- cles.” Shortly thereafter, FHWA issued its NPRM concerning whether vehicles should be subject to its general Public Interest waiver for all manufac- tured products.486 As of this publication, FHWA has not issued a final ruling, although in the in- terim it has continued to grant “partial” Public 483 Buy America Waiver Notification, 77 Fed. Reg. 19,410 (Mar. 30, 2012). 484 Buy America Waiver Notification, 78 Fed. Reg. 36,295 (June 17, 2013). 485 Buy America Waiver Notification, 78 Fed. Reg. 36,296 (June 17, 2013). 486 Buy America Policy, 78 Fed. Reg. 41,492, 41,495– 96 (July 10, 2013). Interest waivers for specific vehicle projects, con- ditioned on final assembly in the United States.487 These recent “partial” Public Interest waivers for vehicles, along with FHWA’s general Public Interest waiver for manufactured products, illus- trate FHWA’s lower standard for Public Interest waivers than other transportation grant agencies, for which Public Interest waivers tend to be con- troversial. Although final guidance on vehicles is forthcoming, these recent waivers also suggest that FHWA is likely to impose a lower standard on domestic content for rolling stock than other transportation grant agencies (and lower than Congress originally imposed on FHWA with the 1982 STAA Buy America provision). FHWA has stated recently that it “does not believe that ap- plication of a domestic content standard should be applied to the purchase of vehicles.”488 The recent waivers suggest, however, that FHWA is leaning toward requiring final assembly of vehicles in the United States (which it has not traditionally re- quired for other manufactured products). While the controversy over how to handle vehi- cles has been ongoing, FHWA has also dealt with at least one waiver request for an apparent loco- motive retrofit project under the CMAQ program. In August 2012, FHWA published a notice on its Web site to solicit public comment regarding a waiver request by Kentucky DOT for a diesel en- gine-generator set (“genset”) and air compres- sor.489 The notice provided very little detail (the products were not clearly identified by manufac- turer or specifications, and the project was not clearly identified as a rail or locomotive project). Consequently, there were few comments and most were in favor of the waiver request, including comments apparently from the manufacturers of the products for which the waiver was sought. Stauffer Diesel, Inc. (doing business as Stadco Generators), commented that it had “7 years of experience building generator sets for ultra-low emissions locomotives,” and that its genset “is en- gineered and built in the U.S., using a diesel en- gine with less than 34% foreign content.”490 R.J. 487 Buy America Waiver Notification, 79 Fed. Reg. 33,633 (June 11, 2014); Buy America Waiver Notifica- tion, 78 Fed. Reg. 79,560 (Dec. 30, 2013). 488 Buy America Waiver Notification, 78 Fed. Reg. 70,395 (Nov. 25, 2013) 489 FHWA, Request (Aug. 22, 2012), http://www. fhwa.dot.gov/construction/contracts/waivers.cfm?id=79 (seeking comments on Buy America waiver request for iron and steel components of genset and compressor). 490 Id.

52 Corman Railroad Group (doing business as Rail- power Locomotives) commented that “all the final assembly of the Railpower GenSet locomotives and subsystems is performed in the United States,” and that it purchased components from other domestic vendors where possible. Although its genset was not 100 percent domestic, Rail- power commented that its competitor’s products “also do not consist of 100% domestic steel (or iron).”491 In March 2013, FHWA issued a Nonavailability waiver for the parts, concluding “that there are no domestic manufacturers of the iron and steel products in GenSet diesel engine and air com- pressor for CMAQ project in the Commonwealth of Kentucky.”492 Once again, FHWA did not dis- cuss the applicability of its general waiver for manufactured products to these components of rail rolling stock, perhaps because these were predominantly steel or iron products to which the general waiver does not apply. It is unclear why FHWA used the Nonavailability waiver for this locomotive project rather than the “partial” Public Interest waiver that it was using for vehicle pro- jects, since the same criteria appear to be satisfied (final assembly in the United States but less than 100 percent domestic content). In its NPRM is- sued shortly thereafter, FHWA proposed to ad- dress the standard for locomotives and locomotive retrofits along with vehicles.493 However, as of this publication, FHWA has not issued its final guid- ance. USDOT recently expressed its preference for CMAQ funds for rolling stock to “be transferred [from FHWA] to FTA to be administered under applicable FTA requirements,” including the FTA Buy America provision.494 This may allow FHWA to avoid deciding how the FHWA Buy America provision is to be applied to rolling stock. C. FTA Provision 1. Statutory Language a. Coverage and Applicability.—The FTA Buy America provision requires all steel, iron, and manufactured products used in a project to be “produced in the United States” in order for FTA 491 Id. 492 Buy America Waiver Notification, 78 Fed. Reg. 19,063 (Mar. 28, 2013). 493 Buy America Policy, 78 Fed. Reg. 41,492, 41,496 (July 10, 2013). 494 Memo from Fred R. Wagner and Dorval R. Carter, Jr., supra note 463. grant funds to be used in the project.495 In part because FTA grant funds have long been applied both to major construction projects and rolling stock procurements, the FTA Buy America provi- sion has been the subject of far more legislative and administrative attention than any of the other transportation grant provisions. The volu- minous guidance from FTA applicable to railroad development and rail rolling stock procurement projects is synthesized herein. • Construction Materials FTA has interpreted the requirement for do- mestic steel and iron to apply to “all construction materials made primarily of steel or iron,” includ- ing “running rail and contact rail.”496 This is analogous to what FHWA considers to be “pre- dominantly steel or iron products.”497 However, whereas FHWA considers predominantly steel or iron products to be those that are 90 percent steel or iron, “FTA believes that it is not appropriate to attach a percentage” of steel/iron content to its definition of construction materials made primar- ily of steel or iron.498 Under the FTA Buy America provision, for construction materials “made pri- marily of steel or iron” to be considered domestic, “[a]ll steel and iron manufacturing processes must take place in the United States, except metallur- gical processes involving refinement of steel addi- tives.”499 Although the FTA Buy America provision only applies to steel, iron, and manufactured products, FTA grant recipients should be aware that there are older FTA decisions that treat construction projects as manufactured products: “[T]he deliv- erable of the construction contract is considered as the end product and the construction materials used therein are considered components of the end product.”500 Since all components of manufac- tured products must be domestic under the FTA Buy America provision,501 the implication is that all construction materials (not just primarily steel or iron construction materials) incorporated into 495 49 U.S.C. § 5323(j)(1) (2013); see also 49 C.F.R. § 661.5(a) (2013). 496 49 C.F.R. § 661.5(c) (2013). 497 See supra notes 445–450 and accompanying text. 498 Buy America Requirements, 61 Fed. Reg. 6,300 (Feb. 16, 1996). 499 49 C.F.R. § 661.5(b) (2013). 500 46 Fed. Reg. 5,808 (Jan. 19, 1981). 501 49 C.F.R. § 661.5(d)(2) (2013) (“All of the compo- nents of the product must be of U.S. origin.”).

53 an FTA-funded construction project must be do- mestic. In 2007, FTA formally adopted a list of typical steel and iron end products, which in- cludes “structures, bridges, and trackwork, includ- ing running rail, contact rail, and turnouts.”502 At the same time, FTA formally adopted a list of typical “manufactured end products,” which in- cludes “[i]nfrastructure projects not made primar- ily of steel or iron, including structures (termi- nals, depots, garages, and bus shelters).”503 Again, if these structures are considered manufactured products, the implication is that 100 percent of their components (i.e., all construction materials, not just steel and iron) must be domestic.504 There is very little guidance and no recent FTA waiver decisions applying the manufactured products standard to constructed facilities under the FTA Buy America provision, but grant recipients should be aware that there may be heightened domestic preferences for construction materials in addition to steel and iron in FTA-funded construc- tion projects. • Manufactured Products For a manufactured product to be considered domestic under the FTA Buy America provision, “[a]ll of the manufacturing processes for the prod- uct must take place in the United States,” and “[a]ll of the components of the product must be of U.S. origin.”505 A component, however, is consid- ered domestic as long as “it is manufactured in the United States,” but its subcomponents need not be domestic.506 In other words, under the FTA Buy America provision, foreign subcomponents can be combined via “manufacturing processes” to produce a component that is considered 100 per- cent domestic, as long as the manufacturing proc- esses take place in the United States. FTA defines “manufacturing processes” to be those that “alter the form or function” of the manufactured prod- uct’s components, “transforming” the components into “a new end product,” which has “add[ed] value” greater than the mere sum of the value of the components.507 Manufacturing is not “mere assembly” of the components.508 In other words, 502 49 C.F.R. § 661.3, App. A(2) (2013). 503 49 C.F.R. § 661.3, App. A(3) (2013). 504 49 C.F.R. § 661.5(d)(2) (2013) (“All of the compo- nents of the product must be of U.S. origin.”). 505 49 C.F.R. § 661.5(d) (2013). 506 49 C.F.R. § 661.5(d)(2) (2013). 507 49 C.F.R. § 661.3 (2013). 508 Id. manufacturers can not skirt the FTA Buy Amer- ica provision by importing foreign subcomponents that are merely “assembled” domestically into components that automatically become domestic by virtue of the final assembly location. The do- mestic manufacturing processes must be substan- tial, so that the foreign subcomponents are “trans- formed” domestically into a truly new component that has a higher function than the sum of its sub- component parts. As is the case with the other transportation grant Buy America provisions, there are a number of exceptions or opportunities to obtain a waiver from the strict domestic preferences of the general rule. Most importantly, rolling stock, although treated as a manufactured product, is subject to lower standards, both in terms of domestic con- tent and what constitutes the manufacturing process for the end product. This and other waiv- ers and exceptions are discussed in the following section. b. Exceptions and Waivers.— • Domestic Content Unlike the BAA and the Amtrak Buy America provision, where manufactured products may be considered “substantially” domestic if 50 percent of the components are domestic and final assem- bly takes place in the United States, the FTA Buy America provision does not consider most manu- factured products to be domestic unless 100 per- cent of the components are domestic.509 Further, for most manufactured products under the FTA Buy America provision, mere assembly of domes- tic components in the United States is insufficient to establish the end product as domestic. How- ever, under the FTA Buy America provision, roll- ing stock will be considered domestic if it consists of 60 percent domestic content and final assembly takes place in the United States.510 Under FTA’s regulations interpreting the statute, this is treated as an exception rather than a waiver, so that rolling stock satisfying both criteria is con- sidered domestic, and no waiver is required.511 Note that this Domestic Content exception is not available for manufactured products other than rolling stock. For purposes of the Domestic Content exception only, the FTA Buy America provision considers the origin of both the components and subcompo- 509 49 C.F.R. § 661.5(d) (2013). 510 49 U.S.C. § 5323(j)(2)(C) (2013). 511 49 C.F.R. § 661.11(a).

54 nents of the rolling stock.512 This exception, there- fore, envisions that the components of the rolling stock may themselves be manufactured products that are assembled together to create the rolling stock end product.513 If the component is a manu- factured product that is manufactured domesti- cally and domestic subcomponents comprise 60 percent of the cost of the component, then the component itself is considered a 100 percent do- mestic product.514 In that case, the component’s entire cost may be treated as domestic for pur- poses of determining whether the entire rolling stock end product qualifies for the Domestic Con- tent exception, even if up to 40 percent of its subcomponents are foreign. However, FTA has recently stated that all steel and iron subcompo- nents must be manufactured domestically.515 Sub- components other than steel and iron are consid- ered domestic as long as they are manufactured in the United States, regardless of the origin of their constituent materials.516 Of all the Buy America provisions potentially applicable to rolling stock, only the Domestic Content exception in the FTA Buy America provision considers the origin of sub- components. • Public Interest The FTA Buy America provision may be waived if its application “would be inconsistent with the public interest.”517 There are no objective criteria established in the statute or regulations explain- ing what would qualify for a Public Interest waiver. When presented with a Public Interest waiver request, FTA “will consider all appropriate factors on a case-by-case basis, unless a general exception is specifically set out in” the FTA regu- lations.518 As discussed further herein,519 both gen- 512 49 U.S.C. § 5323(j)(2)(C) (2013). 513 49 C.F.R. § 661.11(c),(d) (2013). 514 49 C.F.R. § 661.11(b),(g) (2013). 515 Buy America Requirements—End Product Analy- sis and Waiver Procedures, 71 Fed. Reg. 69,412, 69,419 (Nov. 30, 2006) (The FTA Buy America “requirements are clear: ‘all steel and iron manufacturing processes must take place in the United States,’ whether the item is an end product, a component, or a subcomponent.” (quoting 49 C.F.R. § 661.5(b))). Contrast this with the FHWA Buy America provision, in which most steel and iron subcomponents may be considered “miscellaneous steel or iron” and need not be domestic. See supra notes 447–448 and accompanying text. 516 49 C.F.R. § 661.11(h) (2013). 517 49 U.S.C. § 5323(j)(2)(A) (2013). 518 49 C.F.R. § 661.7(b) (2013). eral and case-specific Public Interest waivers from the FTA Buy America provision have been the subject of controversy, leading Congress in the past to enact special notice-and-comment re- quirements and rulemaking obligations on FTA, which applied only to Public Interest waivers.520 Before requesting a Public Interest waiver, an FTA grant recipient should try to determine whether one of the other waivers or exceptions potentially applies. • Nonavailability The FTA Buy America provision may be waived if certain steel, iron, or manufactured products are not produced in the United States “in a suffi- cient and reasonably available amount or are not of a satisfactory quality.”521 In accordance with this authority, FTA has expressly granted a gen- eral Nonavailability waiver522 for all goods on the FAR list of unavailable goods.523 Therefore, FTA grant recipients need not seek a project-specific waiver to use those goods on an FTA grant-funded project. If the FTA grant recipient receives at least one responsive and responsible bid in response to an open solicitation, and that bidder certifies compli- ance with the FTA Buy America provision, then the presumption is that those goods are available domestically and the Nonavailability waiver is not applicable.524 On the other hand, if the FTA grant recipient does not receive any bid to supply all domestic goods but instead receives only bids that include foreign goods (but are otherwise respon- sive and responsible), then FTA will presume that a Nonavailability waiver is warranted.525 There is no requirement in the statute or regulations for FTA grant recipients to perform an investigation to identify potential sources of comparable domes- tic goods when using the open solicitation process. However, if the FTA grant recipient seeks to pur- 519 See infra § III.C.3.c, III.C.4.a. 520 Safe, Accountable, Flexible, Efficient Transporta- tion Equity Act: A Legacy for Users, Pub. L. No. 109-59, § 3023 (2005). 521 49 U.S.C. § 5323(j)(2)(B) (2013). 522 49 C.F.R. § 661.7, App. A(a) (2013). 523 48 C.F.R. § 25.104(a) (2013). 524 49 C.F.R. § 661.15(a) (2013). However, in the case of rolling stock, the FTA grant recipient still has an obligation to perform its own investigation of the bid- der’s compliance with the FTA Buy America provision. See infra notes 554–556 and accompanying text. 525 49 C.F.R. § 661.7(c)(1) (2013).

55 chase foreign goods via a sole-source procurement rather than an open solicitation, then FTA will require its grant recipient to provide evidence that comparable domestic products are truly un- available in sufficient quantities before FTA will grant a Nonavailability waiver.526 Further, like FRA, FTA has recently entered into an inter- agency agreement with NIST-MEP to help it iden- tify potential domestic manufacturing sources of rail rolling stock.527 In either open solicitations or sole-source pro- curements, if the FTA grant recipient’s contractor or supplier certifies compliance with the FTA Buy America provision in the accepted bid but after award seeks to provide foreign materials, the bid- der is bound by the Buy America compliance certi- fication submitted with its bid.528 FTA will require its grant recipient to provide evidence that com- parable domestic products are truly not available in the necessary quantities before FTA will grant a Nonavailability waiver in that situation.529 • Price Differential The FTA Buy America provision may be waived if “including domestic material will increase the cost of the overall project by more than 25 per- cent.”530 FTA regulations implementing this pro- vision clarify that the 25 percent Price Differen- tial is applied to the individual contract between the FTA grant recipient and its presumptive con- tractor.531 If the lowest bid in response to a solici- tation by the FTA grant recipient proposes to in- clude foreign goods, and the bid is otherwise responsible and responsive, then (for evaluation purposes only) the FTA grant recipient is to mul- tiply the entire bid price (not just the cost of the foreign goods in the bid) by 1.25.532 The FTA grant recipient must then compare this surcharged bid 526 49 C.F.R. § 661.7(c)(2) (2013). 527 Interagency Agreement Between U.S. Depart- ment of Transportation, Federal Transit Administra- tion, and U.S. Department of Commerce, National In- stitute of Standards and Technology (2013), available at http://www.fta.dot.gov/documents/2013-9-24_IAA.pdf. 528 49 C.F.R. § 661.13(c) (2013). 529 49 C.F.R. § 661.7(c)(3) (2013). 530 49 U.S.C. § 5323(j)(2)(D) (2013) (emphasis added). 531 49 C.F.R. § 661.7(d) (2013). This is similar to FHWA’s historic interpretation that Buy America pro- visions are to be evaluated at the individual contract level. See supra notes 411, 416–417, and accompanying text. 532 49 C.F.R. § 661.7(d) (2013). price with the lowest responsible and responsive bid to provide only domestic goods. If the sur- charged bid price that includes foreign goods is less than the actual bid price to provide only do- mestic goods, then the FTA grant recipient may request a Price Differential waiver from the FTA Buy America provision in order to contract with the low bidder.533 • Small Purchase Although the FTA Buy America provision en- acted by Congress did not include a Small Pur- chase exception, in 1991, FTA adopted a general Public Interest waiver534 for contracts defined as “small purchases” in USDOT’s “common grant rule.” USDOT defines small purchases as pro- curements that do not cost more than the “simpli- fied acquisition threshold” for direct federal pro- curements535 (which is $100,000 as of this publication536). FTA grant recipients can enter into contracts to purchase foreign goods where the total contract price is at or below this Small Pur- chase cost threshold, without seeking a project- specific waiver from FTA.537 c. Notice-and-Comment.—Before issuing any waivers of the FTA Buy America provision, FTA must publish its decision to grant a waiver both on its Web site and in the Federal Register.538 Af- ter publication, FTA must allow “a reasonable period of time for notice and comment” before granting the waiver.539 This is a relatively recent requirement, originating in MAP-21, which was enacted in July 2012. Prior to that, beginning with SAFETEA-LU in 2005, FTA was only re- quired to publish its decision to grant Public In- terest waivers.540 Note that the statutory publication require- ment applies only to waivers that FTA has al- ready decided to grant, not to all waiver requests received. However, FTA has interpreted its statu- 533 Id. 534 56 Fed. Reg. 932 (Jan. 9, 1991). 535 49 C.F.R. § 18.36(d) (2013). 536 Id.; 41 U.S.C. § 134 (2013). 537 49 C.F.R. § 661.7, App. A(c) (2013). 538 Moving Ahead for Progress in the 21st Century Act, Pub. L. No. 112-141, § 20016 (2012). 539 Id. 540 49 U.S.C. § 5323(j)(3) (2011); Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users, Pub. L. No. 109-59, § 3023 (2005).

56 tory notice-and-comment requirement to consist of a four-step process:541 • FTA posts waiver requests on its Web site to solicit public comment. • If FTA decides to grant the waiver (based on public comments, information provided by the FTA grant recipient, or FTA’s own investigation), FTA prepares a written justification detailing the rationale for approving the waiver request. • FTA publishes the written justification in the Federal Register for notice-and-comment within a “reasonable time.” • FTA posts on its Web site its final decision to either grant or deny the waiver. This is similar to the informal notice-and- comment process that has been developed by FHWA and FRA in recent years.542 FTA expects its “total processing time” for waiver requests to take about 30 days.543 d. Certification and Enforcement.—A contractor or supplier entering into a contract with an FTA grant recipient is required to execute a Buy Amer- ica certificate, in which the contractor either certi- fies compliance with the FTA Buy America provi- sion or indicates that the bid is believed to be eligible for a waiver from the provision.544 The cer- tificate is to be incorporated into the contract with the FTA grant recipient. If a contractor has certi- fied compliance with the FTA Buy America provi- sion and later determines that it is unable to com- ply, the contractor is in breach of contract.545 At that point, the FTA grant recipient may pursue its contractual remedies against the contractor for breach of contract,546 which may include termina- tion of the contractor or withholding funds pend- ing the contractor either achieving compliance or obtaining a waiver. If the contractor establishes that its false certification was inadvertent, via sworn statement and such other evidence as may be required, FTA may allow the contractor to cor- 541 Buy America Requirements—End Product Analy- sis and Waiver Procedures, 71 Fed. Reg. 69,412, 69,413 (Nov. 30, 2006). 542 See supra notes 74–75, 380–381, and accompany- ing text. 543 Buy America Requirements—End Product Analy- sis and Waiver Procedures, 71 Fed. Reg. 69,412, 69,413 (Nov. 30, 2006). 544 49 C.F.R. §§ 661.6, 661.12 (2013). 545 49 C.F.R. § 661.17 (2013). 546 49 C.F.R. § 18.36(i) (2013). rect its certification and seek a waiver.547 The FTA grant recipient is not obligated to request a waiver on behalf of its contractor at that point, nor is FTA obligated to grant a waiver even if the conditions are satisfied that would justify grant- ing a waiver.548 A contractor’s “willful refusal” to comply with its Buy America certificate can subject the con- tractor to debarment or suspension.549 If FTA or a court determines that the contractor intentionally falsified the Buy America certificate, by falsely representing that goods were domestic when they were not, the contractor is ineligible to receive FTA grant funds.550 Furthermore, if the contrac- tor’s certification was “knowingly and will- fully…false, fictitious, or fraudulent,” the contrac- tor or the individual who made the certification is subject to criminal fines and imprisonment of up to 5 years.551 The FTA Buy America provision is unique among the transportation grant Buy America provisions by expressly providing for fed- eral criminal liability. The statute does not ex- pressly provide for liability under the FCA for false certifications of compliance with the FTA Buy America provision. However, some take the position that a false certification of compliance with the FTA Buy America provision can subject the contractor to liability under the FCA,552 which would potentially subject the contractor to civil penalties, including treble damages.553 For purchases of rolling stock, the FTA grant recipient is not entitled to rely on its contractor’s or supplier’s certification of compliance with the FTA Buy America provision—the FTA grant re- cipient is required to conduct preaward and postdelivery audits of the manufacturer or con- tractor to ensure compliance.554 The preaward au- 547 49 U.S.C. § 5323(j)(8) (2013). 548 49 C.F.R. § 661.13(c) (2013). 549 49 C.F.R. § 661.19 (2013). 550 49 U.S.C. § 5323(j)(6) (2013). 551 18 U.S.C. § 1001 (2013); see also 49 U.S.C. § 5323(l) (2013) (making a certificate of compliance with the FTA Buy America provision subject to 18 U.S.C. § 1001). 552 See United States ex rel Sanders v. N. Am. Bus Indus., Inc., 546 F.3d 288, 296 (4th Cir. 2008) (dismiss- ing an FCA action as untimely based on the statute of limitations, and not reaching the question of whether a false certification of compliance with the FTA Buy America provision constitutes a false claim under the FCA). 553 31 U.S.C. § 3729 (2013). 554 49 U.S.C. § 5323(m) (2013).

57 dit includes an independent review (by the FTA grant recipient or someone independent of the manufacturer) of the manufacturer’s documenta- tion of proposed components and subcomponents, their cost, and their country of origin.555 Likewise, the postdelivery audit includes an independent review (by the FTA grant recipient or someone independent of the manufacturer) of the manufac- turer’s documentation of actual components and subcomponents, their cost, and their country of origin.556 These audit requirements are unique to the FTA Buy America provision. e. Multiple Funding Sources.—The FTA Buy America provision expressly provides that states may impose “more stringent requirements” than the FTA Buy America provision “on the use of ar- ticles, materials, and supplies mined, produced, or manufactured in foreign countries in projects car- ried out with” FTA assistance.557 However, for state Buy America provisions to apply to FTA- funded projects, the state provisions must be “ex- plicitly set out under State law,” not mere “admin- istrative interpretations of non-specific State leg- islation.”558 Where enforceable state Buy America provisions exist, it may not be straightforward to determine whether the state Buy America provi- sion is more or less stringent than the FTA Buy America provision. Where an FTA grant recipient is subject to a state Buy America provision, it should evaluate the compliance of the FTA grant- funded project according to both statutes.559 Where development projects are funded jointly, using FTA grant funds and funds from some other source, FTA requires “that the steel, iron, and manufactured goods used in the joint development project are produced in the United States, as de- scribed in” the FTA Buy America provision.560 Therefore, the FTA Buy America provision could conceivably apply to individual contracts or “seg- 555 49 C.F.R. § 663.25(b) (2013). 556 49 C.F.R. § 663.35(b) (2013). 557 49 U.S.C. § 5323(j)(7) (2013); see also 49 C.F.R. § 661.21(a) (2013). 558 49 C.F.R. § 661.21(b)(2) (2013). 559 See, e.g., Conti Enters., Inc. v. Se. Pa. Transp. Auth., No. Civ. A. 03–5345, 2003 WL 22594327, at *9 (E.D. Pa. Oct. 14, 2003) (requiring contractor to comply with both the FTA Buy America provision and a state Buy America provision, where a Public Interest waiver is potentially available under the FTA Buy America provision but not the state Buy America provision). 560 Notice of Final Agency Guidance on the Eligibility of Joint Development Improvements Under Federal Transit Law, 72 Fed. Reg. 5,788, 5,792 (Feb. 7, 2007). ments” of a project not funded by FTA. Whether the FTA Buy America provision applies to a given contract may depend on the meaning of the word “project.”561 In 2012, the Senate passed a measure that would adopt the very broad NEPA definition of a “project” for purposes of the FTA Buy Amer- ica provision.562 Although this measure was not ultimately enacted into law, as discussed in Section III.B.2 supra, the current trend in federal law is to extend Buy America provisions from one funding source to related contracts funded by an- other source, if the contracts are related parts of a single “project.”563 2. Legislative Revision (2005) Congress initiated a significant update of the FTA Buy America provision with the 2005 USDOT appropriations bill known as SAFETEA– LU.564 This was the same legislation where Con- gress first addressed the potential use of segmen- tation to circumvent the FHWA Buy America pro- vision.565 Likewise, many of the changes to the FTA Buy America provision in SAFETEA-LU ap- peared to be aimed at closing potential loopholes and abuses of the FTA Buy America provision. With respect to Public Interest waivers, Congress repealed some longstanding general waivers,566 required FTA to limit the applicability of oth- ers,567 and imposed heightened notice-and- comment requirements on future Public Interest waivers.568 With respect to manufactured prod- ucts, Congress required FTA to formally define the term “end product,” to develop rules “to en- sure that major system procurements are not used to circumvent the Buy America requirements,” and to provide a list of “representative items” 561 The FTA Buy America provision requires all “steel, iron, and manufactured goods used in the pro- ject” to be “produced in the United States.” 49 U.S.C. § 5323(j)(1) (2013) (emphasis added); see also 49 C.F.R. § 661.5(a) (2013). Historically, FTA has only applied the FTA Buy America provision to individual contracts that are funded by FTA grants, not to other contracts that are conceivably part of the same “project.” See supra note 531 and accompanying text. 562 S. 1813, 112th Cong., § 20017 (2012). 563 See supra notes 427–429 and accompanying text. 564 Safe, Accountable, Flexible, Efficient Transporta- tion Equity Act: A Legacy for Users, Pub. L. No. 109-59, § 3023(i) (2005). 565 Id. § 1928. 566 Id. § 3023(i)(4). 567 Id. § 3023(i)(5)(A). 568 Id. § 3023(i)(1)(B).

58 such as end products or systems that FTA consid- ers subject to the FTA Buy America provision.569 Finally, with respect to bid certification and en- forcement, Congress required FTA to clarify how the FTA Buy America compliance certification requirement is to apply to negotiated procure- ments,570 required FTA to issue formal rules gov- erning the process for granting waivers after the bidder has certified compliance,571 and established potential criminal liability for false certifica- tions.572 Over the next several years, in response to SAFETEA-LU, FTA engaged in a lengthy rulemaking process that transformed the FTA Buy America provision. As a result, the FTA Buy America rules (particularly for evaluating domes- tic content) became more straightforward, condu- cive to more consistent application, and generally easier to satisfy. The following section addresses the FTA rulemaking with an emphasis on the changes made in response to SAFETEA-LU. 3. Rulemaking History a. Compliance Certification Requirements.—It has long been established that, for sealed bids, completion of the Buy America certificate (certify- ing either that the bid complies with the FTA Buy America provision or that it does not comply but qualifies for a waiver) is a condition of bid respon- siveness.573 In 1986, to eliminate confusion from potential bidders who worried that completing the Buy America certification as a sign of responsive- ness exposed them to potential penalties, FTA established two separate certification forms.574 One certified compliance and one combined a noncompliance certification with a waiver re- quest. These forms have persisted in essentially the same form for nearly 30 years.575 569 Id. § 3023(i)(5)(B). 570 Id. § 3023(i)(5)(D). 571 Id. § 3023(i)(5)(C). 572 Id. § 3023(j). 573 49 C.F.R. § 661.13(b) (2013). 574 Buy America Requirements, 51 Fed. Reg. 22,285 (June 19, 1986). 575 In 1991, two separate sets of forms were estab- lished to correspond to the different domestic content standards for rolling stock and other manufactured products established by Congress that year. Buy Amer- ica Requirements, 56 Fed. Reg. 926 (Jan. 2, 1991). In 2006, the forms were slightly modified to make it clear that an individual officer of the company is to make the certification, by requiring the individual’s name and not just the company name on the certification form. Buy America Requirements–Amendments to Definitions, 71 Fed. Reg. 14,112, 14,117 (Mar. 21, 2006). This may al- Because the certification forms are established by FTA regulations as conditions of bid respon- siveness,576 FTA grant recipients must reject bids or proposals from prospective contractors who do not complete one Buy America certificate or the other. As the U.S. District Court for the Eastern District of Virginia explained in 1991: [P]laintiff's failure to [complete] either certificate left it in a position to manipulate the bid to its advantage. For ex- ample, if plaintiff's bid was more than ten-percent below the next lowest bid, plaintiff could have increased its price ten percent simply by checking the foreign source certificate and still have received the contract. Similarly, if the bid were less than ten percent below the next lowest bidder, plaintiff could decide whether to [complete] the domestic source certificate and win the contract as the lowest bidder, or to [complete] the foreign source certifi- cate and avoid winning the contract. A bidder might choose the latter course of action where it belatedly rec- ognized that it would loose [sic] money if forced to per- form at the bid price. This potential for manipulating the process by leaving the Buy American Certificate unsigned underscores the materiality of the requirement that the bidder properly complete the Buy American Certifi- cate.577 Due to similar concerns about bid manipula- tion, in 1988 FTA clarified that each bid recipient “is bound by its original certification” and can not change its certification after bid opening to obtain a competitive advantage: A bidder who certifies that it will meet the "Buy America" requirements is on notice that it cannot receive a waiver if it becomes apparent after bid opening that the grounds for a waiver exist. Conversely, a bidder who certifies that it cannot meet the applicable "Buy America" require- ments is on notice that it cannot be awarded a contract unless the grounds for a waiver exist, and such bidder cannot, after bid opening, change its certification to one of compliance with the applicable requirements. …To allow such a bidder to modify its certification, would give the bidder the best of both worlds—it could bid and then de- cide, based on the competing bids, whether it will supply a foreign or domestic "end product".578 In 1999, Congress relaxed this requirement slightly, requiring FTA to allow the bidder an op- portunity to correct certain incorrect Buy America certificates, including “any certification of non- compliance or failure to properly complete the cer- tification (but not including failure to sign the cer- low FTA or its grant recipients to hold the individual personally liable for false certifications. 576 49 C.F.R. § 661.6 (2013). 577 Seal and Co., Inc. v. Wash. Metro. Area Transit Auth., 768 F. Supp. 1150, 1158–59 (E.D. Va. 1991). 578 Buy America Requirements—Amendments, 53 Fed. Reg. 32,994 (Aug. 29, 1988).

59 tification).”579 Because the statute only provided an opportunity to correct incorrect certifications of noncompliance, it was unclear whether bidders should also be allowed to correct inaccurate cer- tificates of compliance. The concern in the latter situation was that it might permit a bidder who has certified Buy America compliance to change its certification to noncompliance in order to re- quest a waiver after being awarded the contract. In 2003, after 4 years of deliberation, FTA decided to extend the opportunity to correct certifications both to bidders who incorrectly certified noncom- pliance and to those who incorrectly certified com- pliance with the FTA Buy America provision.580 To avoid the potential for bid manipulation, the bidder correcting its certification must certify un- der penalty of perjury that any such incorrect cer- tification was “the result of an inadvertent or clerical error,” so the opportunity to correct may not be used simply to manipulate the bidding process.581 In 2005, Congress addressed this in SAFETEA-LU by expressly providing that FTA may permit Nonavailability waivers after contract award, where the contractor made an initial certi- fication of Buy America compliance “in good faith.”582 In the same legislation, in recognition that FTA grant recipients are generally author- ized under state laws to enter into procurements other than sealed bidding procedures, Congress required FTA to define the term “negotiated pro- curement” and to amend its Buy America certifi- cation requirements to support the negotiated procurement process.583 In November 2005, FTA proposed new rules and regulations to implement the requirements of SAFETEA-LU.584 First, recognizing that “the term ‘negotiated procurement’ is difficult to define” due to state and local variations in approved procure- ment processes, FTA proposed to define “negoti- ated procurement” broadly as any “contract 579 Transportation Equity Act for the 21st Century, Pub. L. No. 105-178, § 3020(b) (1999). 580 Buy America Requirements—Amendment to Cer- tification Procedures, 68 Fed. Reg. 9,798 (Feb. 28, 2003). 581 49 C.F.R. § 661.13(b)(1) (2013). 582 Safe, Accountable, Flexible, Efficient Transporta- tion Equity Act: A Legacy for Users, Pub. L. No. 109-59, §§ 3032(i)(5). 583 Id. 584 Buy America Requirements—Amendments to Definitions and Waiver Procedures, 70 Fed. Reg. 71,246 (Nov. 28, 2005). awarded using other than sealed bidding proce- dures.”585 In the case of a negotiated procurement, FTA recognized that during the negotiation proc- ess the contractor may make multiple proposals, with or without Buy America certifications, and the contractor may change its certification based on information learned during negotiations. How- ever, the contractor would be required to submit one of the Buy America certification forms (either compliance or noncompliance) with its “best and final offer,” and FTA proposed that the contractor be contractually bound by the certification in its final offer the same way that a sealed-bid contrac- tor is bound by the certification in its proposal.586 Any earlier certifications made during the nego- tiation process would be disregarded. This pro- posal was relatively uncontroversial (although some commenters wanted FTA to revise the defi- nition of “negotiated procurement” more specifi- cally to “reflect standard practices” adopted by particular states or industries).587 In March 2006, FTA implemented its original proposal to bind bidders to the Buy America certificate in their “best and final offer” in negotiated procurement situations (using FTA’s broad definition of “nego- tiated procurement” to include any procurement other than a sealed bid).588 FTA’s proposal regarding postaward waivers for bidders who certified Buy America compliance was more controversial. Although Congress indi- cated that FTA should permit Nonavailability waivers where the bidder originally certified com- pliance “in good faith,”589 in November 2005 FTA proposed requirements on bidders in that situa- tion to guard against abuse and manipulation of the bidding process.590 For example, FTA proposed to grant such postaward waivers only where bid- ders produced evidence of domestic price esti- mates they received during bid preparation and evidence that it had since become impossible, or at least commercially impracticable, to obtain the domestic goods.591 Further, FTA proposed to con- 585 Id. at 71,249. 586 Id. at 71,253. 587 Buy America Requirements—Amendments to Definitions, 71 Fed. Reg. 14,112, 14,113 (Mar. 21, 2006). 588 Id. at 14,117; 49 C.F.R. § 661.13(b)(2) (2013). 589 Safe, Accountable, Flexible, Efficient Transporta- tion Equity Act: A Legacy for Users, Pub. L. No. 109-59, §§ 3032(i)(5). 590 Buy America Requirements—Amendments to Definitions and Waiver Procedures, 70 Fed. Reg. 71,246, 71,253 (Nov. 28, 2005). 591 Id.

60 sider the effect of any postaward waiver on other bidders, such as those who might have been awarded the contract if the low bidder had origi- nally certified noncompliance.592 Most comment- ers “felt that FTA’s proposal was unnecessarily complex or unduly restrictive.”593 Nevertheless, in November 2006, FTA implemented its original proposal with the tight restrictions largely un- changed.594 In fact, FTA indicated it would only offer postaward waivers over an initial Buy Amer- ica certification of compliance when it would be “commercially impracticable” for the bidder to provide the domestic goods, expressly adopting federal case law standards for commercial imprac- ticability to mean “when all means of performance are commercially senseless.”595 Thus, a bidder who has certified compliance with the FTA Buy Amer- ica provision should not anticipate a Nonavailabil- ity waiver and should request one only if the bid- der can demonstrate that its original bid was reasonable and based on real market prices, and that the prices of domestic goods have become ex- cessive and unreasonable since bid time. b. Manufactured Products.—A long-standing issue with the FTA Buy America provision has been how to identify the components of an end product under the provision, for purposes of de- termining whether manufactured products are domestic and also for determining whether rolling stock qualifies for a Domestic Content waiver. Af- ter Congress strengthened the Domestic Content waiver criteria for rolling stock in 1987, FTA is- sued an NPRM in 1988 to address such key terms as “final assembly” and “end product.”596 These terms were critical to the identification of compo- nents, because FTA has long defined a “compo- nent” to be an element incorporated into the “end product” at the “final assembly” location.597 In the eventual rule, which was not promulgated until 1991,598 FTA provided guidance that left many 592 Id. 593 Buy America Requirements—End Product Analy- sis and Waiver Procedures, 71 Fed. Reg. 69,412, 69,415 (Nov. 30, 2006). 594 Id.; 49 C.F.R. § 661.7(c)(3) (2013). 595 Buy America Requirements—End Product Analy- sis and Waiver Procedures, 71 Fed. Reg. 69,412, 69,415–16 (citing Jennie-O Foods, Inc. v. United States, 217 Ct. Cl. 314, 580 F.2d 400, 409 (1978)). 596 Buy America Requirements—Amendments, 53 Fed. Reg. 32,994 (Aug. 29, 1988). 597 49 C.F.R. § 661.3 (2013). 598 Buy America Requirements, 56 Fed. Reg. 926 (Jan. 9, 1991). terms open to interpretation, and there was con- tinued confusion over its proper application. In 2005, as part of SAFETEA-LU, Congress required FTA to initiate rulemaking to define the term “end product” for purposes of the FTA Buy Amer- ica provision, to develop a list of representative “end products” that are subject to the FTA Buy America provision, and to “address the procure- ment of systems under the definition [of end product] to ensure that major system procure- ments are not used to circumvent the Buy Amer- ica requirements.”599 • Final Assembly FTA’s concern about “final assembly” has long been whether sufficient manufacturing processes are actually taking place in the United States, or whether manufacturers are abusing the process by manufacturing up to 40 percent of the compo- nents elsewhere (or even a majority of the sub- components) and performing “mere assembly” of the components and subcomponents in the United States,600 so that the end product is effectively a foreign product. In its 1991 rulemaking, FTA de- clined to provide quantitative or objective criteria to define “final assembly” (rejecting a previous standard that final assembly must include activi- ties constituting at least 10 percent of the cost of the product).601 At that time, FTA adopted more subjective criteria for final assembly as “the crea- tion of the end product…through the application of manufacturing processes.” These may include “installing” or “interconnecting,”602 which could be used to describe almost any assembly process. However, FTA provided a concrete example of the significant amount of assembly activity required to constitute final assembly: In the case of the manufacture of a new rail car, for in- stance, "final assembly" would include, as a minimum, the following operations: installation and interconnection of propulsion control equipment, propulsion cooling equipment, brake equipment, energy sources for auxilia- ries and controls, heating and air conditioning, communi- 599 Safe, Accountable, Flexible, Efficient Transporta- tion Equity Act: A Legacy for Users, Pub. L. No. 109-59, § 3023(i)(5)(B) (2005). 600 See, e.g., 49 C.F.R. § 661.3 (2013) (defining “manufacturing process” to include the creation of “a new end product functionally different from that which would result from mere assembly of the elements or materials.”). 601 Buy America Requirements, 56 Fed. Reg. 926 (Jan. 9, 1991). 602 Id.

61 cations equipment, motors, wheels and axles, suspensions and frames; the inspection and verification of all installa- tion and interconnection work; and, the testing in plant of the stationary product to verify all functions.603 Under the 1991 rule, the domestic content of all components that are incorporated into the end product at this “final assembly” location would have to be evaluated in order to evaluate the do- mestic content of the end product and determine whether rolling stock qualified for a Domestic Content waiver. In the late 1990s, FTA amended its regulations to specify a list of typical compo- nents of rail rolling stock.604 To a certain extent, providing the list of typical components obviates the need to specifically define “final assembly,” since manufacturers understand that even if the identified components (e.g., traction motor, pro- pulsion gearbox, acceleration and breaking resis- tors, and propulsion controls) are packaged as a rail car subsystem (e.g., the propulsion control system) and delivered to the final assembly loca- tion as a package, the domestic content of the spe- cifically identified components (rather than the assembled subsystem) is what matters for pur- poses of evaluating domestic content under the FTA Buy America provision.605 In 2005, in response to SAFETEA-LU, FTA proposed amending its regulations to formally adopt its 1991 example list of operations required to constitute final assembly (revised to include a number of additional elements that must be in- stalled or interconnected into the end product, including car bodies or shells, pneumatic and elec- trical systems, door systems, and passenger seats, etc.).606 However, at least one commenter607 sug- gested there was a likelihood of confusion by FTA’s use of two distinct “typical” lists (one list of typical “components” of rail rolling stock608 and a separate list of typical elements of rolling stock that are installed or interconnected at the final assembly location609), especially considering the 603 Id. 604 62 Fed. Reg. 40,954 (July 31, 1997); 61 Fed. Reg. 6,302 (Feb. 16, 1996). For the current list of rail rolling stock components, see 49 C.F.R. § 661.11, App. C (2013). 605 Notice of Granted Buy America Waiver, 66 Fed. Reg. 32,412 (June 14, 2001). 606 Buy America Requirements—Amendments to Definitions and Waiver Procedures, 70 Fed. Reg. 71,246, 71,252 (Nov. 28, 2005). 607 Buy America Requirements—End Product Analy- sis and Waiver Procedures, 71 Fed. Reg. 69,412, 69,423 (Nov. 30, 2006). 608 49 C.F.R. § 661.11, App. C (2013). 609 49 C.F.R. § 661.11, App. D(a) (2013). fact that components are defined to be elements “directly incorporated into the end product at the final assembly location.”610 The commenter sug- gested revising the list of typical operations re- quired for final assembly of rail rolling stock to specifically include the “installation and intercon- nection” of all rail rolling stock components identi- fied by FTA.611 Although this would significantly expand the list of operations required to achieve final assembly in the United States, the com- menter proposed that FTA formally adopt a com- pliance review process that would allow FTA to find “final assembly” on a case-by-case basis, even if all “typical” components were not installed or interconnected at the final assembly location.612 In November 2006, FTA indicated that it agreed with the commenter’s suggested approach to make FTA’s list of typical rail rolling stock ele- ments for “final assembly” consistent with its list of typical rail rolling stock “components.”613 This proposal to effectively merge the two lists met substantial opposition, however, from rolling stock manufacturers and suppliers.614 Therefore, in the final rule, FTA formally adopted the list of minimum elements that must be “installed and interconnected” for final assembly that FTA has been using since the 1990s (without incorporating its list of typical “components” into the “final as- sembly” list).615 FTA regulations now include both the list of typical components of rail rolling stock616 and the shorter list of elements that must be installed or interconnected at the final assem- bly location for purposes of determining whether final assembly of rail rolling stock takes place in the United States.617 For FTA grant recipient purposes, the list of typical components is the primary reference for purposes of calculating do- mestic content. If multiple components are com- bined off site into a rolling stock subsystem and delivered as the subsystem to the final assembly 610 49 C.F.R. §§ 661.3, 661.11(c) (2013). 611 Buy America Requirements—End Product Analy- sis and Waiver Procedures, 71 Fed. Reg. 69,412, 69,423 (Nov. 30, 2006). 612 Id. 613 Id. 614 Buy America Requirements—End Product Analy- sis and Waiver Procedures, 72 Fed. Reg. 53,688, 53,694 (Sep. 20, 2007). 615 Buy America Requirements—End Product Analy- sis and Waiver Procedures, 72 Fed. Reg. 55,102, 55,103 (Sep. 28, 2007). 616 49 C.F.R. § 661.11, App. C (2013). 617 49 C.F.R. § 661.11, App. D(a) (2013).

62 location for installation, the assembled subsystem does not rise to the level of a “component,” and the components do not become “subcomponents” for purposes of calculating domestic content. FTA also adopted the suggestion to provide for case-by- case review of “final assembly” compliance,618 so that if a manufacturer does not install or inter- connect all of the final assembly elements in the United States, or potentially if the manufacturer contests whether a part should be considered a component, FTA can consider the manufacturer’s request to deviate from these “typical” lists with- out necessitating a formal waiver. • End Product One of the most significant and complicated changes adopted via the SAFETEA-LU rulemak- ing was a change in how FTA identifies an “end product” for purposes of evaluating the FTA Buy America provision. As discussed herein, in 2007, FTA formally adopted what it calls a “non- shifting” approach to identify the end product, replacing its longstanding “shifting” approach. The difference is best illustrated by reviewing how FTA’s guidance has changed over the years. In its 1991 rulemaking, FTA clarified that the end product was typically the subject of the pro- curement contract. This meant, for example, “if a grantee is procuring a new rail car, the car is the end product and the propulsion motor could be a component of the end product.”619 In that case, the FTA Buy America provision would be evaluated for the rail car based on the domestic content of its components (e.g., the propulsion motor). “If that same grantee is procuring a replacement propulsion motor for an existing rail car, that pro- pulsion motor would be the end product.”620 In the latter case, the FTA Buy America provision would be evaluated for the propulsion motor based on the domestic content of its components (which would have otherwise been subcomponents if the end product was the rail car). FTA has further explained that under the first scenario, when rail rolling stock was the end product, the 60 percent Domestic Content standard applied. However, when purchasing replacement parts, so that what was formerly a component became the end prod- uct, it was treated as a manufactured product (e.g., the propulsion motor) and the 100 percent 618 49 C.F.R. § 661.11, App. D(c) (2013). 619 Buy America Requirements, 56 Fed. Reg. 926 (Jan. 9, 1991). 620 Id. Domestic Content standard applied.621 This “shift- ing approach” would generally result in higher domestic content for replacement parts, since the original rail car procurement would need to con- tain only 60 percent domestic content. Its original propulsion motor could have been entirely foreign (as long as the remaining rail car components were sufficiently domestic to constitute at least 60 percent of the rail rolling stock).622 Alternatively, the original propulsion motor (as a component of the rolling stock end product) could have been considered 100 perecent domestic under the roll- ing stock standard, as long as 60 percent of its subcomponents were domestic and the motor it- self was manufactured in the United States.623 A replacement propulsion motor, on the other hand, as a manufactured end product, would have to contain 100 percent domestic content, so 100 per- cent of its components (which would have been subcomponents of the original rolling stock pro- curement) must be domestic.624 In 2005, in response to SAFETEA-LU, FTA proposed amending its regulations to abandon this longstanding shifting approach and instead adopt a list of “representative” end products that are always considered end products.625 “In other words, where a bus, rail car, or other major pro- curement items are always designated as end products—and their components are always des- ignated as components, even if purchased as re- placement parts.”626 The proposed list of typical end products would be consistent with FTA’s other list of typical rail rolling stock components, providing additional clarity and consistency re- garding the calculation of domestic content. Un- der the former shifting approach, items on FTA’s list of typical rail rolling stock components627 would not have actually been considered compo- nents if purchased as replacement parts. Under 621 Buy America Requirements—Amendments to Definitions and Waiver Procedures, 70 Fed. Reg. 71,246, 72,250 (Nov. 28, 2005). 622 49 C.F.R. § 661.11(a) (2013) (The FTA Buy Amer- ica provision does not apply to rolling stock “if the cost of components produced in the United States is more than 60 percent of the cost of all components and final assembly takes place in the United States.”). 623 49 C.F.R. § 661.11(g) (2013). 624 49 C.F.R. § 661.5(d)(2) (2013). 625 Buy America Requirements—Amendments to Definitions and Waiver Procedures, 70 Fed. Reg. 71,246, 72,250 (Nov. 28, 2005). 626 Id. 627 49 C.F.R. § 661.11, App. C (2013).

63 the proposed nonshifting standard, items on the list of typical rail rolling stock components would always be considered components.628 By specifying that the rolling stock standard (rather than the manufactured product standard) would now apply to purchases of rolling stock replacement parts, the suggestion was that replacement parts for rail rolling stock would now only need to contain 60 percent domestic content, which would appear to be a significant drop in domestic content from prior practice under the 1991 rule. Most of the opposition to the proposed new rule came from commenters concerned “that FTA would treat re- placement parts under the rolling stock standard (i.e., where sixty percent of the subcomponents of a component, by cost, must be domestic, but forty percent may be foreign sourced).”629 Therefore, in 2006, FTA proposed “to continue to treat rolling stock replacement parts under the manufactured products standard, which requires that 100% of components be of domestic manufac- ture.”630 However, because replacement parts would now be considered components rather than end products under FTA’s new nonshifting ap- proach, a replacement part such as a new propul- sion engine would now be “considered of U.S. ori- gin if it is manufactured in the United States, regardless of the origin of its subcomponents.”631 Under this new proposal, the subcomponents of the replacement engine, which had to be 100 per- cent domestic under prior practice, could now be 100 percent foreign as long as the final manufac- turing process for the replacement engine takes place in the United States. Furthermore, the pro- curement of replacement rolling stock subcompo- nents (such as piston assemblies), which under prior practice were treated as end products that must be domestic, would now be treated as sub- components with no domestic content require- ment at all.632 628 For example, when “procuring a replacement pro- pulsion motor for an existing rail car, [the] propulsion motor would still be a component of the rail car end product, and the rolling stock standard applicable to the rail car would apply to its component.” Buy America Requirements—Amendments to Definitions and Waiver Procedures, 70 Fed. Reg. 71,246, 71,251 (Nov. 28, 2005). 629 Buy America Requirements—End Product Analy- sis and Waiver Procedures, 71 Fed. Reg. 69,412, 69,418 (Nov. 30, 2006). 630 Id. 631 49 C.F.R. § 661.5(d)(2) (2013). 632 Buy America Requirements—End Product Analy- sis and Waiver Procedures, 72 Fed. Reg. 53,688, 53,692 (Sep. 20, 2007). This nonshifting approach was adopted in Sep- tember 2007,633 although it is not plainly de- scribed in FTA regulations. Instead, FTA regula- tions were revised to include the new definition of “end product,” and the new list of representative end products.634 FTA’s list of representative end products provides clarity to FTA grant recipients that any component of the representative end products (including items on FTA’s list of typical rolling stock components635) can now be procured without being subject to any domestic content standard. Components procured directly by FTA grant recipients need only be manufactured in the United States, regardless of the origin of their subcomponents.636 This 2007 change reduced the domestic content requirements for replacement parts for rail rolling stock. • Systems Procurement In its 1991 rulemaking, FTA also addressed the procurement of “systems,” such as “an entire peo- ple-mover system.”637 In that case, even though the system was the “subject of the contract,” FTA stated that the system was not the “end product” for purposes of the FTA Buy America provision. Rather, each “sub-system” was to be treated as an end product, requiring the FTA Buy America pro- vision to be evaluated for each subsystem. In the people-mover system example: “The six sub- systems are: the guideway surfaces and equip- ment; the vehicles; the traction power system; the command and control system; the communications system; and the maintenance facility and equip- ment.”638 Therefore, for a people-mover system procurement, the FTA Buy America provision (re- quiring 100 percent domestic content for manu- factured products) was to be evaluated independ- ently for each of the six subsystems. This was years prior to FTA’s formal identification of repre- sentative end products, however, and FTA did not clearly define “system” in the 1991 rulemaking. Instead, it determined that for system procure- ments, “it is industry practice to have a contract broken down by sub-systems,”639 so end products could be identified by the contract breakdown of 633 Id. 634 49 C.F.R. § 661.3 (2013). 635 49 C.F.R. § 661.11, App. C (2013). 636 49 C.F.R. § 661.5(d)(2) (2013). 637 Buy America Requirements, 56 Fed. Reg. 926 (Jan. 9, 1991). 638 Id. 639 Id.

64 subsystems. Under that approach, the distinction between procurement of a single end product and procurement of a system of end products would turn on whether the contract identified the pro- curement as a collection of subsystems or not. In subsequent years, however, FTA began to take the position that a system is an end product itself. In decisions involving fare collection equip- ment in 1994, 1995, and 2002, FTA concluded that a “fare collection system” was an end product, so that each machine or device bundled into the sys- tem procurement was a component rather than an end product.640 As a component, each machine or device bundled into the fare collection system pro- curement would be considered domestic as long as it was manufactured in the United States, regard- less of the origin of its subcomponents. This was controversial in part because the individual ma- chines would be subject to lower domestic content standards as components of a system procurement than if the individual machines were purchased as end products.641 In 2005, with SAFETEA-LU, Congress required FTA to address system pro- curements “to ensure that major system procure- ments are not used to circumvent the Buy Amer- ica requirements.”642 In response to SAFETEA-LU, FTA proposed to continue to treat systems as end products for pur- poses of the FTA Buy America provision.643 To avoid abuses such as bundling of unrelated equipment into a single “system,” it proposed to define “system” to mean “a machine, product, or device, or combination of such equipment, …which are intended to contribute together to a clearly defined function.”644 Furthermore, FTA proposed to identify typical systems, including fare collection systems, computer systems, and “information, security, and data processing” sys- tems, in its new list of representative end prod- ucts.645 Some commenters were concerned that 640 Buy America Requirements; Amendments to Definitions and Waiver Procedures, 70 Fed. Reg. 71,246, 71,251 (Nov. 28, 2005). 641 For more background on the fare collection sys- tem controversy, see the discussion of FTA’s microcom- puter/software waiver in § III.C.3.d infra. 642 Safe, Accountable, Flexible, Efficient Transporta- tion Equity Act: A Legacy for Users, Pub. L. No. 109-59, § 3023(i)(5)(B) (2005). 643 Buy America Requirements—Amendments to Definitions and Waiver Procedures, 70 Fed. Reg. 71,246, 71,251 (Nov. 28, 2005). 644 Id. 645 Id. at 71,252. FTA’s formal designation of systems as end prod- ucts “results in designation of critical equipment as components, thereby dramatically increasing the quantity of foreign-manufactured equipment that may be incorporated into a procured sys- tem.”646 Commenters were also concerned that FTA grant recipients or manufacturers may at- tempt to take advantage of the rule by bundling unrelated equipment into “super systems,”647 so that each “component” of the super system would qualify for the relaxed domestic content standard for components. To address the concerns, FTA proposed “to contain the potential for system abuse” by defining a system to be “the minimum set of components and interconnections needed to perform all of the functions specified by the grantee in its procurement.”648 FTA revised the proposed definition of system to include a number of objective factors to identify whether the indi- vidual components are truly integrated or simply independent end products.649 In 2007, FTA revised its regulations to formally specify that systems qualify as end products to formally adopt the expanded definition of “sys- tem,” and to include typical systems in its list of representative end products.650 This establishes that significant machinery and equipment items can be purchased without regard to their domestic content, as long as they are manufactured in the United States, where they are formally identified as components of end product “systems.” However, this also relieves the potential for certain abuses, such as bundling of unrelated equipment into “systems,” because all FTA grant recipients and all manufacturers of end product “systems” are subject to a common published standard. Primar- ily, the list of representative end products identi- fying typical systems651 provides clarity for FTA grant recipients and manufacturers performing domestic content calculations. 646 Buy America Requirements—End Product Analy- sis and Waiver Procedures, 71 Fed. Reg. 69,412, 69,419 (Nov. 30, 2006). 647 Id. at 69,420, 69,421. 648 Id. at 69,421. 649 Buy America Requirements—End Product Analy- sis and Waiver Procedures, 72 Fed. Reg. 53,688, 53,696 (Sep. 20, 2007). 650 49 C.F.R. § 661.3 (2013). 651 49 C.F.R. § 661.3, App. A (2013) (listing “fare col- lection systems; computers; information systems; secu- rity systems; data processing systems” and “a commu- nication or traction power system” as representative end products).

65 While the manufactured products rulemaking in response to SAFETEA-LU is lengthy and com- plex, the new lists implemented by FTA represent an improvement over prior practice in that grant recipients can have certainty about how to evalu- ate domestic content in most situations. If there is any question about what is the end product (for which domestic content and final assembly must be evaluated), grant recipients can refer to the list of representative end products.652 If there is any question about what the components of the end product are, grant recipients can refer to the lists of typical components.653 And if there is any ques- tion whether final assembly has taken place in the United States, grant recipients can refer to the list of minimum final assembly operations.654 c. Public Interest Waivers for Chrysler Vehi- cles.—Although the FTA Buy America provision includes the opportunity to request a Public In- terest waiver, such waivers have rarely been granted since SAFETEA-LU was enacted in 2005. Prior to that, Public Interest waivers were widely used by FTA grant recipients, e.g., to purchase vehicles manufactured by Chrysler outside of the United States.655 Examining the history of this waiver, its repeal by Congress, and FTA’s more recent approach to Public Interest waiver re- quests helps illustrate the change this creates for FTA grant recipients and their procurement prac- tices. In February 1984, FTA published a notice in the Federal Register soliciting public comment on a waiver request from Chrysler to allow FTA grant recipients to purchase 15-passenger Chrys- ler vans that were assembled in Canada.656 FTA received comments from 29 states supporting the request.657 FTA determined that the vans con- tained 74 percent domestic content,658 which would have qualified for the rolling stock Domes- tic Content exception but for the fact that the fi- nal assembly location was in Canada. FTA granted a Public Interest waiver for the vans, jus- tified on the grounds that it would provide for 652 49 C.F.R. § 661.3, App. A (2013). 653 49 C.F.R. § 661.11, App. B, C (2013). 654 49 C.F.R. § 661.11, App. D (2013). 655 Exemption from Buy America Requirements, 49 Fed. Reg. 13,944 (Apr. 9, 1984). 656 49 Fed. Reg. 4,062 (Feb. 1, 1984). 657 Exemption from Buy America Requirements, 49 Fed. Reg. 13,944 (Apr. 9, 1984). 658 Id. more competitive pricing in vehicle procurements by FTA grant recipients.659 Waiver requests almost always involve lower prices, so FTA grant recipients and suppliers (e.g., Chrysler) might often try to justify a waiver on the grounds of more competitive pricing. However, 4 years after granting a Public Interest waiver for Chrysler vans (and just 1 year after extending the waiver to Chrysler station wagons), FTA denied a similar Public Interest waiver request for Mich- elin tires manufactured in Europe.660 In that case, FTA stated that the Public Interest waiver was to “be utilized in extremely limited situations,”661 and improving the competitive position of foreign products does not generally qualify: The intent of the Buy America provision is to foster and encourage production of materials in the United States for use in federally funded mass transit projects. The granting of a general waiver to allow a foreign produced item to have equal competitive status with domestically produced items is contrary to the clear intent of the statu- tory provision.662 In 2003 and 2004, Chrysler requested similar Public Interest waivers (or Nonavailability waiv- ers in the alternative) for the chassis and drive train of its smaller 8-to-10 passenger cargo vans, which were manufactured from German compo- nents.663 In 2004, FTA denied a general waiver for the Chrysler chassis on the grounds that a waiver for foreign products would “influence competition in these procurements.”664 However, the 1984 gen- eral waivers for 15-passenger Chrysler vehicles remained in FTA’s regulations.665 In 2005, as part of SAFETEA-LU, Congress formally repealed the Chrysler waivers.666 However, in 2009, FTA posted notice in the Federal Register seeking public comment on a 659 Id. 660 Determination Concerning Request for Public In- terest Waiver of Buy America Requirements, 53 Fed. Reg. 22,418 (June 15, 1988). 661 Id. 662 Id. 663 Letter from Gregory B. McBride, FTA Deputy Chief Counsel, to W. Alvin Jackson, DaimlerChrysler (Apr. 7, 2004), available at http://www.fta.dot.gov/ legislation_law/legislation_law_664.html. 664 Id. 665 49 C.F.R. § 661.7, App. A(b),(c) (2005). 666 Safe, Accountable, Flexible, Efficient Transporta- tion Equity Act: A Legacy for Users, Pub. L. No. 109-59, § 3023(i)(4) (2005). FTA removed the Chrysler waivers from its regulations in March 2006. Buy America Re- quirements—Amendments to Definitions, 71 Fed. Reg. 14,112, 14,113 (Mar. 21, 2006).

66 Nonavailability waiver request for the Chrysler minivan chassis.667 The waiver request was from a domestic manufacturer, ElDorado National, which manufactured minivans using the Chrysler chas- sis. Although at that time FTA’s public notice- and-comment requirements only applied to Public Interest waivers, FTA published this request out of “an abundance of caution because a nonavail- ability waiver would have a national impact.”668 In 2010, Chrysler also requested a Public Interest waiver for both its chassis and its minivans,669 which FTA addressed along with the ElDorado request. In June 2010, FTA granted a general, nationwide Nonavailability waiver (rather than a Public Interest waiver) for all minivans and mini- van chassis because no domestic source was iden- tified by members of the public in the notice-and- comment process.670 In March 2012, a domestic manufacturer, Vehi- cle Production Group (VPG), informed FTA that it had developed a process to manufacture minivans and minivan chassis that conformed to the FTA Buy America provision and asked FTA to rescind the Nonavailability waiver.671 FTA published VPG’s rescission request in the Federal Register for public notice-and-comment,672 and FTA re- scinded the minivan and chassis waiver in De- cember 2012.673 FTA received more than 800 comments in response to this request. Most of the comments opposing rescission of the waiver ar- gued that the waiver results in more competitive pricing in minivan procurements by FTA grant recipients. FTA rejected the “competition” justifi- cation for either a Nonavailability waiver or a Public Interest waiver, saying that was the pur- pose of the Price Differential waiver: 667 Notice of Buy America Waiver Request by ElDorado National for Minivan Chassis, 74 Fed. Reg. 15,048 (Apr. 2, 2009). 668 Notice of Buy America Waiver for Minivans and Minivan Chassis, 75 Fed. Reg. 35,123, 35,124 (June 21, 2010). 669 Id. at 35,123. 670 Id. at 35,124. 671 Letter from Seth Weinberg, VPG General Coun- sel, to Peter M. Rogoff, FTA Administrator (Mar. 29, 2012), available at http://www.regulations.gov/ #!documentDetail;D=FTA-2012-0029-0002. 672 Notice of Request to Rescind Buy America Waiver for Minivans and Minivan Chassis, 77 Fed. Reg. 46,556 (Aug. 3, 2012). 673 Decision To Rescind Buy America Waiver for Minivans and Minivan Chassis, 77 Fed. Reg. 71,673 (Dec. 3, 2012). If limited competition results in a product ceasing to be available to FTA-funded transit agencies at a competitive price (measured by a greater than 25 percent differential between foreign-produced and Buy America-compliant vehicles), the appropriate action would be for the grantee to apply for a waiver based on price-differential.674 This is a change from 1984, when FTA origi- nally granted the Chrysler minivan waiver for the express purpose of improving competitive pricing for its grant recipients. As a result of FTA rescinding the general waiver for minivan chassis, other domestic manu- facturers have modified their manufacturing prac- tices to produce vans that satisfy the FTA Buy America provision. In July 2013, FTA notified El Dorado and Braun Corporation that it had de- termined that their manufacturing processes “to convert an incomplete Chrysler or Dodge minivan into” a domestic minivan “are sufficient to meet the Buy America final assembly requirements.”675 The Chrysler van waiver history illustrates that general, nationwide waivers for rolling stock are no longer likely under the FTA Buy America provision. Although Nonavailability waivers may be available on a project-specific basis, general nationwide Nonavailability waivers are unlikely to be long-term. Domestic manufacturers will have a strong incentive under the FTA Buy Amer- ica provision to increase domestic content or do- mestic manufacturing processes whenever FTA determines there are no other domestic sources, because a domestic supplier in that case would have an effective monopoly for future FTA grant projects. More importantly for FTA grant recipi- ents, the Chrysler van waiver history demon- strates that Public Interest waivers are unlikely for the foreseeable future. With SAFETEA-LU, Congress indicated its disapproval of widespread Public Interest waivers. And in 2012, FTA sent a clear signal that the subjective concept of “more competitive pricing” that it used to justify Public Interest waivers for Chrysler vans in 1984 is no longer considered an appropriate justification for Public Interest waivers. In fact, it is unclear what would qualify for a Public Interest waiver, outside of the context of public safety. 674 Id. at 71,676. 675 Letter from Peter Rogoff, FTA Administrator, to Andrew Imanse, Thor Industries Group President (July 1, 2013), available at http://www.fta.dot.gov/documents /Imanse_re_Chrysler_Buy_America.pdf; Letter from Peter Rogoff, FTA Administrator, to Nick Gutwein, BraunAbility President (July 1, 2013), available at http://www.fta.dot.gov/documents/Gutwein_re_Chrysler _Buy_America.pdf.

67 d. Nonavailability Waiver for Computers and Software.—Compliance with the FTA Buy Amer- ica provision is streamlined by FTA’s longstand- ing general waiver for much computer hardware and software. Beginning in January 1985, FTA published a notice in the Federal Register that it had received a request from the American Asso- ciation of State Highway and Transportation Offi- cials (AASHTO) for a general, nationwide Public Interest waiver to exempt “microcomputers” from the FTA Buy America provision.676 AASHTO’s jus- tification for the request was that “[m]any smaller transit systems are now using microcomputers for their daily transit planning and daily program- ming needs,” and that the microcomputers did not satisfy the FTA Buy America provision “since their chips and some major components are not made in the United States.” In May 1985, based on comments received, FTA determined that a temporary Nonavailability waiver was appropri- ate,677 since it appeared that the components (primarily microchips) were not being manufac- tured in the United States in sufficient quantities of satisfactory quality. In October 1986, FTA made the microcomputer waiver permanent after determining, based on public comments,678 that the components (primarily microchips) were still not available domestically.679 One controversial aspect of FTA’s waiver for microcomputers has been its impact on software procurement, either as a standalone product or as a component of other manufactured products. In adopting the nationwide general waiver for micro- computers in 1985, FTA adopted a definition of a microcomputer to be a “computer system” that “includes a microprocessor, storage, and in- put/output facility, which may or may not be on one chip,” and recognized that a microcomputer includes “associated software” such as its operat- ing system.680 FTA therefore interpreted the Nonavailability waiver for microcomputers to ex- tend to software, permitting the purchase of for- eign software as a standalone end product, with- 676 Exemption from Buy American Requirements, 50 Fed. Reg. 1,156 (Jan. 9, 1985). 677 Exemption from Buy America Requirements, 50 Fed. Reg. 18,760 (May 2, 1985). 678 FTA solicited public comments in May 1986 as to whether the domestic market for microcomputer prod- ucts had improved. 51 Fed. Reg. 19,653 (May 30, 1986). 679 Buy American Requirements—Permanent Waiver, 51 Fed. Reg. 36,126 (Oct. 8, 1986). 680 Exemption from Buy America Requirements, 50 Fed. Reg. 18,760 (May 2, 1985). out regard to whether it was actually incorporated into a microcomputer or resided on a microchip and without ever determining that software is not available domestically. While FTA’s logic was questionable (to grant a Nonavailability waiver for all software based primarily on a determina- tion that microchips are not available domesti- cally), the software waiver eliminated difficult questions related to FTA procurements, such as the need to identify the “components” of software and their respective costs and country of origin. Furthermore, under FTA’s approach for handling nonavailable goods, the cost of software incorpo- rated into a manufactured end product may be considered domestic for purposes of evaluating overall domestic content of the end product.681 The Nonavailability waiver for microcomputers (and software) remained in place, unchanged, as computer technology transformed dramatically in the 1990s. In 1999, FTA received a request to clarify the microcomputer waiver.682 Specifically, the petitioner asked FTA to explain whether the waiver applied to any manufactured product con- taining a microprocessor or microchip (specifically referencing “fare collection equipment”), or whether the waiver should apply only to desktop computers (which were the focus of the 1985 waiver request). In October 1999, FTA published the waiver request in the Federal Register for public comment.683 FTA received only nine com- ments from the public, all in November and De- cember 1999. However, FTA did not respond until February 2003, more than 3 years later, when FTA announced that it had determined, based on public comments, that microcomputer components (primarily microchips) were still not available domestically in sufficient quantities of satisfac- tory quality.684 Therefore, FTA did not revise the 1985 general waiver for microcomputers. FTA clarified, however, that it did not consider the general waiver to permit the purchase of all for- eign manufactured products containing a micro- processor or microchip. If a manufactured product such as “a farecard system” contained a micro- computer, then the waiver only applied to the mi- 681 49 C.F.R. § 661.7(f) (2013) (“If a waiver is granted for a component or a subcomponent, that component or subcomponent will be considered to be of domestic ori- gin.”). 682 Buy America Requirements—Permanent Waiver for Microcomputers, 64 Fed. Reg. 54,855 (Oct. 8, 1999). 683 Id. 684 Buy America Requirements—Permanent Waiver for Microcomputers, 68 Fed. Reg. 9,801 (Feb. 28, 2003).

68 crocomputer; “the rest of the end product must be in compliance” with the FTA Buy America provi- sion.685 At the same time, FTA reiterated that it would continue to consider the waiver to permit the purchase of foreign software. FTA’s 2003 clarification of the microcomputer waiver came in the midst of a legal dispute over whether fare collection equipment purchased by the Massachusetts Bay Transportation Authority (MBTA) complied with the FTA Buy America pro- vision.686 An unsuccessful bidder challenged MBTA’s purchase of an automated fare collection system. In November 2002, FTA notified MBTA that the fare collection system complied with the FTA Buy America provision, in part because it determined that one foreign-manufactured com- ponent (a “smart card reader”) was a microcom- puter that qualified for the microcomputer waiver. The unsuccessful bidder filed a lawsuit in 2003 to challenge the application of the microcomputer waiver to this component of fare collection equip- ment.687 Shortly after FTA’s 2002 determination that MBTA’s smart card reader qualified for the microcomputer waiver, FTA received a request from CoinCard International, Inc., to interpret the microcomputer/software waiver to exempt CoinCard’s fare collection equipment. In May 2003, just 2 weeks after the lawsuit was filed challenging FTA’s determination on the MBTA fare collection equipment,688 FTA responded to CoinCard with its determination that CoinCard’s fare collection equipment did not comply with the FTA Buy America provision and was not ex- empted by the waiver.689 Individual components of CoinCard’s fare collection equipment were cov- ered by the waiver, including the software and selected hardware components, such as command modules and transaction processors, which con- tained microprocessors, input and output slots, internal storage, operating systems, and memory. 685 Id. 686 Cubic Transp. Sys., Inc. v. Mineta, 357 F. Supp. 2d 261 (D.D.C. 2004). 687 The court ultimately dismissed the lawsuit based on the unsuccessful bidder’s lack of standing, without determining whether the microcomputer waiver was properly applied to the fare collection equipment. Id. 688 Complaint, Cubit Transp. Sys., Inc. v. Mineta, No. 03-CV-01023 (May 9, 2003). 689 Letter from Gregory B. McBride, FTA Deputy Chief Counsel, to Denis Bernardi, CoinCard Interna- tional, Inc. (May 23, 2003), available at http://www.fta. dot.gov/legislation_law/12316_621.html. However, FTA determined that other hardware components, such as passenger counters, farecard printers, and bill and coin validators, “are not, themselves, microcomputers, although they may each contain embedded microprocessors.”690 All other subcomponents of these hardware compo- nents, as well as other components of the fare col- lection systems that were not microprocessors or software, had to be domestic in order for the fare collection equipment to comply with the FTA Buy America provision. Over the next 15 months, cit- ing its CoinCard determination, FTA ruled that several other manufactured products (including automated passenger and customer information systems691 and monitoring and diagnostic equip- ment)692 were not themselves microcomputers eli- gible for the waiver, although certain components of these products were eligible microcomputers to the extent they were “capable of processing, stor- age, programming, and have input/output facili- ties.” Despite the apparent consistency and relative clarity of these decisions, in 2005 (as part of SAFETEA-LU), Congress required FTA to issue a rule clarifying that the microcomputer waiver “applies only to a device used solely for the pur- pose of processing or storing data and does not extend to a product containing a microprocessor, computer, or microcomputer.”693 In November 2005, FTA issued an NPRM, which confirmed that the statutory language “actually reflects current FTA practice with respect to implementing the general waiver for microcomputer, microproces- sor, and related equipment,”694 and solicited pub- lic comment on the need to clarify the waiver. Many of the public comments focused on whether 690 Id. 691 Letter from Gregory B. McBride, FTA Deputy Chief Counsel, to Martin B. Schnabel, MTA New York City Transit (Sep. 23, 2003), available at http://www.fta.dot.gov/legislation_law/12316_620.html; Letter from Gregory B. McBride, FTA Deputy Chief Counsel, to Kevin Berry, Vansco Electronics Ltd. (Sep. 15, 2003), available at http://www.fta.dot.gov/legislation _law/12316_621.html. 692 Letter from Gregory B. McBride, FTA Deputy Chief Counsel, to Stephen McKay, Quester Tangent Corp. (Aug. 2, 2004), available at http://www.fta.dot.gov /legislation_law/12316_615.html. 693 Safe, Accountable, Flexible, Efficient Transporta- tion Equity Act: A Legacy for Users, Pub. L. No. 109-59, § 3023(i)(5)(A) (2005). 694 Buy America Requirements—Amendments to Definitions and Waiver Procedures, 70 Fed. Reg. 71,246 (Nov. 28, 2005).

69 FTA should allow its grant recipients to purchase foreign-origin software or input and output de- vices under this waiver,695 since the justification for the waiver has always been the nonavailabil- ity of microchips, and software and input and output devices are available domestically and can be procured independently of microchips. How- ever, in November 2006,696 FTA clarified that the waiver will continue to apply to both microcom- puters (which include “a microprocessor, storage, and input/output facility, which may or may not be on one chip”697) and software. FTA grant recipi- ents can acquire software and input and output devices from foreign sources, regardless of whether a microprocessor or microchip is part of the purchase. Further, when purchasing manu- factured products, any components of those prod- ucts that may fairly be considered computers, mi- croprocessors, storage, input and output devices, or software, may be treated as domestic when evaluating the domestic content of the manufac- tured product.698 However, no general waiver is available for the remainder of the manufactured product simply because some of its components may be classified as computer equipment or soft- ware—the remainder of the product still must be domestic to comply with the FTA Buy America provision. 4. Case Studies a. Public Interest Waiver Request (MBTA).—In October 2008, FTA published a notice in the Fed- eral Register soliciting comments on a Public In- terest waiver request from MBTA to permit it to purchase two locomotives manufactured in Spain.699 MBTA had solicited bids for 28 new lo- comotives and entered into a negotiated procure- ment process with two bidders: MotivePower and Vossloh. MotivePower’s best and final offer of $150.7 million included a Buy America compli- ance certification indicating that all 28 locomo- tives would qualify for the Domestic Content ex- 695 Buy America Requirements—End Product Analy- sis and Waiver Procedures, 71 Fed. Reg. 69,412, 69,414 (Nov. 30, 2006). 696 Id. 697 50 Fed. Reg. 18,760 (May 2, 1985). 698 See supra notes 689–692 and accompanying text. 699 Notice of Buy America Waiver Request by the Massachusetts Bay Transportation Authority for Final Assembly of Rail Rolling Stock, 73 Fed. Reg. 62,587 (Oct. 21, 2008). ception for rolling stock.700 Vossloh’s best and final offer of $148.5 million included a Buy America noncompliance certification, indicating that it would manufacture the first two locomotives in Spain, in order to save costs and time by allowing its Spanish-based design team to be involved in the manufacturing process.701 MBTA requested a Public Interest waiver for the two pilot locomo- tives, because it would enable Vossloh “to submit a competitive bid with respect to price and sched- ule.”702 The small difference in bid prices did not qual- ify for the 25 percent Price Differential waiver from the FTA Buy America provision. MBTA did not argue that this procurement qualified for the Nonavailability waiver from the FTA Buy Amer- ica provision.703 Therefore, a Public Interest waiver was Vossloh’s only option. FTA received more than 300 comments in response to this waiver request, including comments from a number of Congressmen oppos- ing the waiver.704 In November 2008, FTA denied the waiver request because the justification of- fered by MBTA was the moderate cost savings associated with the Vossloh bid. FTA stated, “Public interest waivers are very difficult to ob- tain. FTA requires a clear nexus between the item requested and the beneficial impact on the pub- lic.”705 While FTA may grant Public Interest waiv- ers for prototype vehicles, the waivers must be justified by Public Interest factors other than cost savings—such as schedule delays, safety issues, or the introduction of significant new technology. It was unclear from MBTA’s waiver request that 700 Noah Bierman, MBTA Puts Off Buying 28 New Locomotives, BOSTON GLOBE, Jan. 24, 2009. 701 Id. 702 Notice of Buy America Waiver Request by the Massachusetts Bay Transportation Authority for Final Assembly of Rail Rolling Stock, 73 Fed. Reg. 62,587, 62,588 (Oct. 21, 2008). 703 As illustrated in § II.A.4 supra, under the FRA Buy America provision, Nonavailability waivers have been granted by FRA even where there is a domestic bid, where the foreign goods only moderately improve the overall project cost and completion time. However, FTA has not adopted that relaxed standard for Nonavailability waivers. 704 Comments, Docket No. FTA-2089-0075 (Oct. 22– Nov. 21, 2008), available at http://www.regulations.gov /#!docketBrowser;D=FTA-2008-0047. 705 Letter from Sherry E. Little, FTA Deputy Admin- istrator, to Daniel A. Grabauskas, MBTA (Nov. 14, 2008), available at http://www.fta.dot.gov/legislation_ law/legislation_law_8894.html.

70 there would be any schedule delays or safety is- sues associated with the MotivePower bid, rela- tive to the Vossloh bid, and “MBTA has not ar- gued that this procurement involves the introduction of significant new technology.”706 After FTA denied the waiver request, MBTA cancelled its solicitation in January 2009, saying that it could not afford to purchase the 28 locomo- tives at the MotivePower bid price. MBTA was also concerned about a bid protest, “regardless of which company it chose.”707 Ultimately, in July 2010, MBTA entered into a contract with Motive- Power to supply 20 new locomotives at a price of $114.6 million.708 The MBTA waiver request illustrates the tougher standard for Public Interest waivers un- der the FTA Buy America provision since SAFETEA-LU, in comparison to the FHWA Buy America provision, where Public Interest waivers have been employed regularly.709 It also illus- trates the tougher standard for Nonavailability waivers under the FTA Buy America provision, in comparison to the FRA Buy America provision (where domestic products may be deemed “not reasonably available” based on moderately higher prices and delivery times).710 Under the FTA Buy America provision, unless there are no compliant domestic bids, a low bid that fails to satisfy the Domestic Content exception for rolling stock (60 percent domestic content and final assembly in the United States) can only be purchased if the lowest compliant domestic bid is 25 percent more expensive. b. Final Assembly Determinations.—After the 2006–2008 “final assembly” rulemaking in re- sponse to SAFETEA-LU,711 FTA has published some of its recent waiver determinations that il- lustrate how the final assembly rules are applied in the context of rail rolling stock procurements. In June 2010, the Washington Metropolitan Area Transit Authority (Metro) requested a Public Interest waiver to purchase eight rail cars manu- factured in Japan by Kawasaki. However, FTA 706 Id. 707 Noah Bierman, MBTA Getting Set to Buy Long- Needed Locomotives for Commuter Rail, BOSTON GLOBE, Mar. 7, 2010. 708 MBTA Orders MotivePower HSP46 Diesels, RAILWAY GAZETTE, July 20, 2010; Boise's MotivePower Gets $114 Million Contract, IDAHO BUSINESS REVIEW, July 15, 2010. 709 See supra §§ III.B.3.b, III.B.4.b. 710 See supra § II.A.4. 711 See supra notes 615–618 and accompanying text. explained that Public Interest waivers are now granted only “under the most extreme circum- stances.”712 Thereafter, Kawasaki revised its pro- posal to Metro. Kawasaski now proposed to design the rail cars in Japan and manufacture four rail cars in Japan for “design qualification test- ing.”713 The cars would be disassembled and only the four car shells would be shipped to the United States. Kawasaki would then reassemble the four rail cars in the United States, using “all new com- ponents”—aside from the car shells themselves, the parts used for design qualification testing would not be reused.714 Specifically, all of the items on FTA’s published list of elements that must be installed or interconnected at the final assembly location715 would be new, and then the reassembled rail cars would be retested to satisfy the FTA requirement for “in-plant testing of the stationary product.” In July 2010, FTA concluded that this constituted “final assembly” in the United States for purposes of the FTA Buy Amer- ica provision.716 Furthermore, Kawasaki calcu- lated that the four reassembled rail cars (using the car shells manufactured in Japan) would have 61 percent domestic content, and the remainder of the rail cars manufactured to complete the order for Metro would have 69 percent domestic con- tent.717 Therefore, both requirements of the Do- mestic Content exception for rolling stock were satisfied by this approach. In February 2011, FTA fielded a similar re- quest from Miami-Dade Transit (MDT) to evalu- ate a proposal from Italian manufacturer Ansal- doBreda to supply heavy rail vehicles.718 AnsaldoBreda proposed to perform manufacturing and in-plant testing of some of the components in Italy. However, all of the activities on FTA’s list of 712 Letter from Dorval Carter, Jr., FTA Chief Coun- sel, to Carol B. O’Keefe, Metro General Counsel, regard- ing Determination of Buy America Compliance for the 7000 Series Railcar Procurement (July 23, 2010), avail- able at http://www.fta.dot.gov/legislation_law/ 12316_11881.html. 713 Id. 714 Id. 715 49 C.F.R. § 661.11, App. D(a) (2013). 716 Letter from Dorval Carter, Jr., supra note 712. 717 Id. 718 Letter from Dorval Carter, Jr., FTA Chief Coun- sel, to Ysela Llort, MDT Director, regarding Buy Amer- ica Determination of Compliance (Apr. 2, 2012), avail- able at http://www.fta.dot.gov/legislation_law/12316_ 15062.html.

71 minimum final assembly operations,719 including all of the items on FTA’s list of elements that must be installed or interconnected at the final assembly location, as well as in-plant testing of the end product, would take place in the United States. In April 2012, FTA concluded that this satisfied its requirements for “final assembly” in the United States.720 FTA’s list of minimum final assembly operations do not require in-plant test- ing of components to take place in the United States, just in-plant testing of the end product. However, FTA cautioned MDT and AnsaldoBreda that final assembly in the United States is not sufficient to qualify for the Domestic Content ex- ception for rolling stock.721 The end product must also contain at least 60 percent domestic content, measured by the cost of components and subcom- ponents. FTA’s lists of representative rail rolling stock components722 are set out separately from FTA’s list of minimum final assembly operations. Where in-plant testing of a component takes place overseas, it is unlikely that the component is do- mestically manufactured—and as more compo- nents are manufactured (and tested) overseas it becomes less likely that the end product will qual- ify for the Domestic Content exception for rolling stock. Likewise, even if the end product contains 60 percent domestic content or more, final assembly of the components into the end product must take place in the United States to qualify for the Do- mestic Content waiver. In August 2002, FTA fielded a request from Alstom Transportation, Inc., to evaluate its proposal to conduct mid-life overhauls of rail vehicles for the Maryland Mass Transit Administration (MMTA).723 Alstom pro- posed to overhaul the truck assemblies in Canada, then reconnect the trucks to refurbished car bod- ies in the United States. The truck overhauls in Canada would include “removal and re- installation of traction motors; wheel, axle and gear units; tread brake units; and cab signal an- tennas (communications equipment).”724 FTA’s list of minimum final assembly operations for rail rolling stock includes “installation and intercon- 719 49 C.F.R. § 661.11, App. D(a) (2013). 720 Letter from Dorval Carter, Jr., supra note 718. 721 Id. 722 49 C.F.R. § 661.11, App. C (2013). 723 Letter from Gregory B. McBride, FTA Deputy Chief Counsel, to Peter Stahlmann, Alstom Corporate Counsel, available at http://www.fta.dot.gov/legislation _law/12316_609.html. 724 Id. nection of…brake equipment, …communications equipment, motors, wheels, and axles.”725 There- fore, FTA concluded that regardless of the domes- tic content of the overhauled rail vehicles, they would not qualify for the Domestic Content excep- tion for rolling stock if these items were removed and reinstalled in Canada. These recent decisions illustrate the impor- tance of FTA’s published lists of typical rail roll- ing stock components726 and minimum final as- sembly operations for rail cars727 in evaluating the Domestic Content exception for rail rolling stock. The list of components is used to verify that 60 percent of the cost of the end product is domestic; the list of final assembly operations is used to ver- ify that 100 percent of the final assembly opera- tions took place in the United States. Both criteria must be satisfied for the rail rolling stock to qual- ify for the Domestic Content rolling stock excep- tion to the FTA Buy America provision. c. Price Differential Waiver Requests (Metro North).—As opposed to the BAA, where Price Dif- ferential waivers are common, Price Differential waivers are rare under the transportation grant Buy America provisions because Congress estab- lished large price differentials (typically 25 per- cent) for the transportation grant programs. Unlike FRA, which applies the 25 percent price differential to the cost of the “overall project,”728 FTA has historically applied the 25 percent price differential only to “the cost of the contract be- tween the grantee and its supplier of that item or material.”729 Therefore, the Price Differential waiver conditions have occasionally been satisfied under the FTA Buy America provision, particu- larly in narrowly focused supply contracts for a single item where there is little domestic competi- tion or in construction contracts for a segment of an overall project. Application of the Price Differ- ential waiver to rail projects is illustrated by a couple of waiver requests from Metro North Rail- road in New York. In April 2004, Metro North requested a Price Differential waiver for Phase III of its Harlem Valley Rail Trail construction project.730 This was 725 49 C.F.R. § 661.11, App. D(a) (2013). 726 49 C.F.R. § 661.11, App. C (2013). 727 49 C.F.R. § 661.11, App. D(a) (2013). 728 See supra notes 60–61 and accompanying text. 729 49 C.F.R. § 661.7(d) (2013). 730 Letter from Gregory B. McBride, FTA Deputy Chief Counsel, to Thomas J. Larkin, Metro North Direc- tor of Procurement and Material Management (May 21, 2004), available at http://www.fta.dot.gov/legislation

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TRB’s National Cooperative Rail Research Project (NCRRP) Legal Research Digest 1: Buy America Requirements for Federally Funded Rail Projects evaluates and analyzes the requirements of four existing Buy America programs applicable to passenger and freight rail systems, each of which present different regulatory and statutory requirements.

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