Optimizing Bus Warranty (2014)

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6 based on market research and price/cost analysis. Again, FTA explicitly mentions APTA’s SBPG as an industry standard. The case example of Rockford MTD’s warranty program in chapter five includes its process for justifying extended engine warranties. Note that FTA had once treated normal warranty and extended warranties differently. However, with the passage of TEA-21 in 1998, FTA revised its policies in FTA Circular 9030.1C, Urbanized Area Formula Program: Grant Appli- cation Instructions, dated October 1, 1998 (http://www.fta. dot.gov/legal/guidance/circulars/9000/433_1152_ENG_ HTML.htm). Standard warranty costs are eligible for reimbursement under FTA grants to the extent that the grantee determines they are customary or an industry standard. Here the stan- dard recommended warranty coverage periods cited in the SBPG are considered an industry standard. Details of these recommended warranties are provided in the section that follows. Regarding extended warranties, FTA states they become eligible costs to the extent that: 1. The grantee determines what form of warranty would be advantageous and cost-effective as part of the grant- ee’s procurement planning effort; and 2. Extended warranty costs are evaluated separately and determined to be “fair and reasonable.” No guidance on applying these two provisions was found; agen- cies are advised to establish appropriate justification for extended warranties based on established industry standards such as the SBPG and by conducting their own cost/benefit analysis. FTA TRIENNIAL REVIEW Overview The triennial review is one of FTA’s management tools for examining grantee performance and adherence to current FTA requirements and policies. It was mandated by Congress in 1982, and occurs once every three years. The triennial review examines how recipients of Urbanized Area Formula Program funds meet statutory and administrative requirements. FTA’s Triennial Review Program FY2013 Workshop provides an Although no published studies were found that reviewed how transit agencies approach their warranties, several documents were located to serve as valuable companion documents to this study; FTA’s Best Practices Procurement Manual (n.d.) (BPPM) is one and another is FTA’s Triennial Review Pro- gram FY2012 Workshop, as well as the Texas DOT Mainte- nance, Management, and Safety Guide. FTA BEST PRACTICES PROCUREMENT MANUAL FTA’s BPPM provides recipients of FTA funds with guid- ance on how to conduct third-party procurements to assist in meeting the standards of FTA Circular 4220.1D (http:// www.fta.dot.gov/grants/13054_6037.html). The Manual con- sists of suggested procedures, methods, and examples that FTA encourages agencies to use, which are based on the federal acquisition process and “best practices” of grantees and others in the industry. The Manual notes that the suggested proce- dures are not mandatory, and that the Manual will be updated periodically with new subjects and additions or changes. As noted earlier, the term contractor used by both FTA and APTA is retained in this chapter to denote bus OEM. Section 6.3.5: Warranties Section 6.3.5 of FTA’s BPPM pertains exclusively to warran- ties. It references several FTA Circulars including the one men- tioned earlier. It declares that general warranty and extended warranty are both eligible capital costs as long as they incor- porate industry standards. The reference to industry standards is important in that it mentions the SBPG, described here, as an industry standard. A discussion contained within Sec- tion 6.3.5 of FTA’s BPPM defines warranty as: . . . a promise or affirmation given by a contractor to the pur- chaser regarding the nature, usefulness, or condition of the sup- plies, equipment, or performance of services furnished under the contract. The principal purposes of a warranty are to delineate the rights and obligations of the contractor and the purchaser for defective items and services, and to foster quality performance. The benefits to be derived from a warranty must be commensurate with the cost of the warranty to the purchaser. FTA’s guidance document continues by encouraging grant- ees to exercise sound business decisions in structuring broader warranties such as extended warranty as a matter of trade prac- tice or as an industry standard where such warranties are advan- tageous and cost-effective. Such business decisions must be chapter two LITERATURE REVIEW

7 overview of triennial review requirements (http://www.fta.dot. gov/images/content_images/5-24_0700_Grantee_Handbook. pdf). The document makes it clear that the guide is not a sub- stitute for primary reference documents, but instead serves as a portable summary for the reviewer’s use, particularly during a site visit. Reviewers can periodically consult FTA’s web- site (http://www.fta.dot.gov) for the most recent policies and directives. Warranty Provisions Under Part A: Vehicle Maintenance, grantees are required under FTA triennial review requirements to have a current written maintenance program or plan for FTA-funded roll- ing stock. Regarding warranty, the grantee’s maintenance program must be consistent with manufacturers’ minimum maintenance requirements for vehicles under warranty. For vehicles under warranty, FTA recognizes that grantees must perform a series of preventive maintenance (PM) actions if warranty is to remain valid. If the grantee either does not per- form these required maintenance routines or performs them at greater intervals than the manufacturer’s maximum intervals, the grantee runs the risk of invalidating vehicle warranty pro- visions. FTA’s triennial review guidance also notes that some operators have relied on oil analysis to extend oil change inter- vals beyond the engine manufacturer’s recommended inter- val. This is acceptable to FTA provided the grantee has a letter from the manufacturer of the vehicles’ engines stating that this practice will not void the engine warranty. Under Part C: Warranty Program, FTA requires grantees to have a system in place for identifying warranty claims, recording claims, and enforcing claims against manufacturers. Most importantly, FTA requires grantees to have an aggres- sive warranty recovery program to ensure that the cost of defects is borne properly by the equipment manufacturer and not the grantee and FTA. The program needs to include pro- cedures that clearly identify warranty repairs, record the war- ranty claim, submit the claim to the manufacturer, and follow up on unpaid claims. During triennial reviews, an FTA representative will seek evidence that the grantee’s PM program meets or exceeds the manufacturer’s recommended program, and that it has a documented warranty recovery program. FTA representa- tives will review grantee records and files for the warranty program to learn how timely and aggressively the grantee has been in pursuing and collecting warranty claims. The representative will also compare records of warranty claims submitted with claims settled. According to FTA the grantee is deficient if it does not have a warranty recovery system, does not have records docu- menting that warranty claims are pursued, or is not pursuing warranty claims diligently. If deficient, the grantee will be asked to submit to the FTA regional office a written system for managing warranty claims with a plan for implementation. APTA STANDARD BUS PROCUREMENT GUIDELINES The SBPG is available through APTA for various bus sizes and types such as standard diesel, compressed natural gas (CNG), 30-foot, 40-foot, etc. (www.apta.com). Originally referred to as the “White Book,” the SBPG is part of APTA’s Bus Stan- dards Program and outlines a process for procuring buses. The document was developed using a cross section of representa- tives from the public and private sectors of the public transit industry for use by transit agencies. FTA encourages its use and claims that it is the most effective source for determin- ing transit industry practices regarding bus procurements (see http://www.fta.dot.gov/13057_6086.html). As mentioned in the previous section, FTA considers the SBPG an industry standard for the purposes of applying warranty coverage. Although some agencies use the SBPG “as is,” others find it necessary to modify sections to suit their particular needs. The document is organized into 11 sections that include gen- eral information and instructions, general and special provi- sions, federal requirements, technical specifications, quality assurance, forms and certifications, contract documentation, and various appendices. Of particular interest to this project is Section 7, which specifically addresses Warranty Requirements. As noted ear- lier, the term “contractor” in the SBPG refers to the bus OEM or vendor entering into a contract with the agency to provide buses or products specified. Warranty terms and conditions of the SBPG are summarized here to make agencies aware of its many provisions. General SBPG Warranty Provisions Before addressing Section 7, warranty is also mentioned elsewhere in the SBPG. In Section 2, Instructions to Pro- posers (IP), Section IP 13.5: Proposal Selection Process describes the process by which proposals will be evaluated and a selection made for a potential award. One evaluation criterion includes steps the proposer took with other agencies to resolve fleet defects and warranty claims. The General Conditions (GC) section addresses warranty twice. In Section GC1, Definitions, three warranty defini- tions are clarified: • Extended Warranty: A warranty available for purchase above the standard warranty. • Pass-Through Warranty: A warranty provided by the contractor, but administered directly with the compo- nent supplier. • Superior Warranty: A warranty for a bus part or com- ponent that remains in effect after all contractual war- ranties for the entire bus have expired. The remaining warranty is administered directly between the supplier and the agency.

8 Section GC6, Intellectual Property Warranty, explicitly states that the contractor shall defend any suit or proceeding brought against the agency based on a claim that infringes any patent, and the contractor will pay all related damages and costs. In Section 4, Special Provisions (SP), subsection SP 7.4, Agency-Furnished Property, makes it clear that warranty administration is the agency’s responsibility unless the par- ties agree to transfer warranty responsibility to the contrac- tor. And, Section 6, Technical Specifications (TS), Section TS 5.6, Training, states that the contractor shall have com- petent technical service representatives available on request to assist the agency in resolving technical issues during the warranty period, but that this does not relieve the contractor of responsibilities under Section 7: Warranty Requirements. SBPG Section 7 As mentioned previously, Section 7 is the primary area of the SBPG document that addresses warranty. Basic Provisions Section 7 begins with “Basic Provisions,” which recommends warranty coverage for the entire bus and various systems and subsystems as follows: • Complete bus: 1 year/50,000 miles • Body and Chassis Structure: 3 years/150,000 miles • Primary Load Carrying Members of Body/Chassis: 12 years/500,000 miles • Propulsion—Standard warranty: 2 years/100,000 miles • Propulsion—Extended: 5 years/300,000 miles • Emission Control System: 5 years/100,000 miles. Section 7 also recommends that the following subsystems be warranted at 2 years/100,000 miles: • Brake system: excluding friction surfaces • Destination signs • Heating, ventilating: excluding floor heaters and front defroster • Air conditioning unit and compressor: excluding floor heaters and front defroster • Door systems • Air compressor • Air dryer • Wheelchair lift and ramp system: mechanical only • Starter • Alternator: Alternator only; does not include the drive system • Charge air cooler • Fire suppression • Hydraulic systems • Engine cooling systems: Radiator including core, tanks, and related framework, including surge tank • Transmission cooler • Passenger seating; excluding upholstery • Fuel storage and delivery system. Extended Warranties Regarding extended warranties, Section 7 has a provision extending drivetrain warranty to 5 years/300,000 miles. Sec- tion 7 also allows agencies to add any additional subsystems to be warranted at 2 years/100,000 miles in addition to those listed. Chapter three of this report examines how closely the agencies surveyed follow guidelines offered by the SBPG, including standard and extended warranties. Serial Numbers, Extensions, and Voiding Warranty SBPG Section 7 also requires contractors to provide agen- cies with a complete electronic list of serialized unit num- bers for major components installed on each bus to facilitate warranty tracking. The list includes the engine, transmission, alternator, starter, and other such components. This section also stipulates that warranties are to be extended if materi- als are not available or if proper repairs cannot be made in a timely manner. Section 7 also states that warranty is voided if parts fail as a result of misuse, negligence, accident, or repairs not conducted in accordance with the contractor-provided maintenance manuals. Warranty could also be voided if agency technicians are not “adequately trained,” or if inspections and scheduled PM procedures are not “conducted as recommended by the contractor.” Exceptions SBPG Section 7 makes it clear that warranty does not apply to scheduled maintenance items, normal wear-out items, and items furnished by the agency. The last condition is important because agencies typically add fareboxes, next-stop annuncia- tion systems, and other such equipment to buses after they take delivery from the OEM. It also states that should an agency specify a specific product and reject the bus OEM’s preferred product, the standard supplier warranty for that product is the only warranty provided to the agency; this alternate product also is not eligible under “Fleet Defects” summarized here. Pass-Through Warranty At any time during the warranty period the contractor may request approval from the agency to assign or “pass through” its warranty obligations to others, but only on a case-by-case basis approved in writing by the agency. When doing so the contractor has to state in writing that the agency’s warranty reimbursements will not be impacted as a result of the pass- through warranty process. Warranty administration by others

9 based on transit service or other requirements. Such work is then reimbursed by the contractor. Regarding warranty repairs made by the contractor, the agency must notify the contractor within 30 days of first identi- fying a warranty-related defect. The contractor or its designated representative is then required to begin work on warranty- covered repairs within five calendar days. The agency must make the bus available to the contractor to complete the repairs, and the contractor provides all spare parts and tools required to complete repairs at its own expense. At the agency’s option, the contractor may remove the bus from the agency’s property while repairs are made. If the agency itself performs warranty-covered repairs, the SBPG recommends that the agency correct or repair the defect(s) using parts supplied by the contractor specifically for this repair. At its discretion, the agency may use contractor- specified parts available from its own stock if deemed in its best interests. The agency may require the contractor to supply parts for warranty-covered repairs being performed by the agency. Those parts are allowed to be remanufactured but must have the same form, fit and function, and warranty. Any parts needed to make warranty repairs must be shipped prepaid to the agency by the contractor within 14 days of receipt of the request for those parts and may not be subjected to an agency handling charge. Defective Component Return The contractor may request that parts covered by the war- ranty be returned for inspection and verification with freight costs paid by the contractor. Materials must be returned in accordance with the procedures set forth in the “Warranty Processing Procedures” summarized here. Failure Analysis It is important to note that agencies can request that the con- tractor provide a failure analysis of fleet defect, safety-related parts, or major components removed from buses under war- ranty that could affect fleet operation. Reports must be deliv- ered within 60 days of the receipt of the failed parts. Reimbursement for Labor and Other Related Costs The contractor is required under terms of the SBPG to reim- burse the agency for labor. The amount is determined by the agency based on a qualified technician at a straight time wage hourly rate, which includes fringe benefits and over- head adjusted for the agency’s most recently published rate in effect at the time the warranty work is performed, plus the cost of towing if applicable. does not eliminate the warranty liability and responsibility of the contractor. This last clause is important in that agencies can always turn to the contractor for warranty if a subsystem supplier should dispute or neglect a claim submitted under the pass-through process. Superior Warranty In this Section 7 provision of the SBPG the contractor is required to pass on to the agency any warranty offered by a component supplier that is superior to (i.e., extends beyond) the warranty coverage period provided by the bus OEM or specification. The contractor is required to provide a list to the agency noting the conditions and limitations of the Supe- rior Warranty no later than the start of production. It is the agencies’ responsibility, however, to track superior warranty coverage periods to obtain appropriate reimbursement. Fleet Defects Fleet defect is defined by the SBPG as cumulative failures of 25% of the same components in the same or similar applica- tion in a minimum fleet size of 12 or more buses where such items are covered by warranty. The SBPG also states that a fleet defect only applies to the base warranty period in sections entitled “Complete Bus,” “Propulsion System,” and “Major Subsystems.” When a fleet defect is declared, the remaining warranty on that component stops. The warranty period does not resume until the fleet defect is corrected. For the purpose of establishing fleet defects in the SBPG, each option order is treated as a separate bus fleet. In addi- tion, should there be a change in a major component within either the base order or an option order the buses containing the new major component will become a separate bus fleet for the purposes of fleet defects. Under the SBPG fleet defect provisions, the contractor is required to correct a fleet defect under the warranty pro- visions defined in “Repair Procedures” (see the following section). After correcting the defect, the agency and the con- tractor mutually agree to a work program designed to prevent the occurrence of the same defect in all other buses and spare parts purchased under the contract. Fleet defect warranty provisions do not apply to agency- supplied items such as radios, fare collection equipment, com- munication systems, and tires. In addition, fleet defects do not apply to interior and exterior finishes, hoses, fittings, and fabric. Repair Procedures The SBPG states that the contractor is responsible for all warranty-covered repair work. At its discretion, the agency may perform warranty work if it determines it needs to do so

10 Reimbursement for Parts The contractor is also required to reimburse the agency for defective parts and for any other parts that must be replaced to correct the warranty defect. The reimbursement is based on the current price at the time of repair and includes taxes, where applicable, along with 15% handling costs. Handling costs are not paid if parts are supplied by the contractor and shipped to the agency. Reimbursement Requirements The contractor is required under the SBPG to respond to a war- ranty claim with an accept or reject decision including neces- sary failure analysis no later than 60 days after the agency submits the claim and any defective part(s) if requested. Reimbursement for all accepted claims must occur no later than 60 days from the date of acceptance of a valid claim. The agency may dispute a rejected claim or claims where the con- tractor did not reimburse the full amount. Both the agency and contractor agree to review disputed warranty claims during the following quarter to reach an equitable decision. They also agree to review all claims at least once per quarter throughout the entire warranty period to ensure open claims are being tracked and properly reimbursed. Warranty After Replacement/Repairs If any component, unit, or subsystem is repaired, rebuilt, or replaced by the contractor or by the agency with contrac- tor approval, the component, unit, or subsystem is given the same warranty period of the original. In other words, the warranty period begins anew, implying that agencies need to track this distinct warranty period separate from the vehicle itself. If an item is declared a fleet defect, the warranty stops with the declaration. Once the fleet defect is corrected, the item(s) then have three months or the remaining time and/ or miles of the original warranty, whichever is greater. This remaining warranty period begins on the repair/replacement date for corrected items on each bus if the repairs are com- pleted by the contractor, or on the date the contractor pro- vides all parts to the agency. Warranty Processing Procedures The following is a list of items required of the agency for pro- cessing warranty claims. Only one failure per bus per claim is allowed. • Bus number and vehicle identification number • Total vehicle life mileage at time of repair • Date of failure or repair • Acceptance or in-service date • Contractor part number and description • Component serial number • Description of failure • All costs associated with each failure or repair (invoices may be required for third-party costs): – towing – road calls – labor – materials – parts – handling – troubleshooting time. Forms The agency can use its own warranty forms if all of the above information is included. Electronic, computer-generated claim forms can also be used and sent by means of the Internet if available between the contractor and agency. Return of Parts When returning defective parts the agency is required to tag each part with the following: • Bus number and vehicle identification number, • Claim number, • Part number, and • Serial number (if available). Time Frame Each claim must be submitted by the agency no more than 30 days from the date of failure and/or repair, whichever is later. All defective parts must be returned to the contractor, when requested, no more than 45 days from the date of repair. As stated earlier, reimbursement for all accepted claims must occur no later than 60 days from the date of acceptance of a valid claim. Reimbursements are to be transmitted to an address provided by the agency. TEXAS DEPARTMENT OF TRANSPORTATION: MAINTENANCE MANAGEMENT AND SAFETY GUIDE Based on guidance offered by FTA and other jurisdictions where public funds are used to purchase, operate, and main- tain public transportation vehicles, agencies are required to develop a written maintenance plan to protect the public’s investment. An example of such a program has been devel- oped by the Texas Department of Transportation (TxDOT) requiring its transit agencies to have (http://www.dot.state. tx.us/PTN/documents/mgmtguide.pdf): • A written maintenance plan, • PM inspections and scheduled services,

11 rely on this information when considering product improve- ments, which can result in field corrections (recall notices and campaigns). CENTER FOR URBAN TRANSPORTATION RESEARCH LESSONS LEARNED IN TRANSIT EFFICIENCIES In its publication Lessons Learned in Transit Efficiencies, Revenue Generation, and Cost Reduction, CUTR, University of South Florida, highlights warranty efficiency by providing two examples of agencies doing their own warranty repairs in-house (http://ntl.bts.gov/lib/4000/4600/4633/lessons.pdf). The study finds that relationships can be developed with vehicle manufacturers to enable a transit agency to become certified as an authorized warranty center, resulting in pay- ments made to the agency for warranty repairs performed on its own or other vehicles. The following are case examples provided in the CUTR study. Ben Franklin Transit (BFT), Richland, Washington, has 100 Ford vanpool vans and 30 paratransit vehicles built on Ford chassis. The agency applied for and gained designation as a Ford Authorized Warranty Center, allowing its mainte- nance personnel to perform all warranty work required on its fleet. It negotiated an hourly rate with Ford higher than the agency’s own labor costs. Ford also pays BFT 20% above each part’s cost as administrative fees. Furthermore, Ford provides training to the agency’s technicians free of charge. Prior to the warranty arrangement, the local Ford dealers were unable to quickly complete warranty work. With BFT’s des- ignation as an authorized warranty center the agency is also enjoying the advantage of less down time for its fleet. Ford is considering using BFT as a test center for new vehicles, and would provide the agency with free test vehicles and pay for necessary repairs at the rates noted previously. Central New York Regional Transportation Authority (Centro), Syracuse, New York, with a fleet of Ford paratran- sit vans, has also became an authorized Ford Warranty Cen- ter allowing it to perform warranty repairs in a manner that brings in profits for the agency. Its designation as a Ford war- ranty dealer also allows Centro to compete for warranty work on other Ford vehicles owned by social service agencies. • Provisions for accessible equipment, • Management of maintenance resources, • Warranty compliance and recovery, and • Standards for maintenance subcontractors. The requirements serve as a worthy example for all public transit agencies to consider when operating equipment with state and federal assistance. Of interest to this study are pro- cesses TxDOT requires for warranty. Some of the reasons given by TxDOT as to why transit agencies fail to receive maximum benefit from a warranty program include: • Warranty coverage is not understood and therefore never submitted; • Repair work is performed before it is determined that the failure was warranty-related; • Information for the warranty claim is lost; • Failed part cannot be matched to the warranty claim; • Warranty claim not submitted on time; and • Apathy or “too much paperwork.” The apathy referred to by TxDOT is fueled by the lack of incen- tive public transit agencies have to aggressively pursue war- ranty as mentioned in the Introduction (chapter one). TxDOT’s warranty document instructs agencies to pursue warranty claims effectively and promptly, and reminds one that warranty is only valid if a transit agency adheres to a manu- facturer’s maintenance recommendations. It offers a warranty recovery system, warranty records, and annual summaries of warranty claims submitted and received that all need to be maintained by the transit agency. Sample hard-copy examples of a Warranty Claim and Warranty Claim Summary are also offered as basic examples. In one of its “helpful to know” tips, TxDOT points out that agencies should determine up front if warranties cover only failed parts, or if modifications needed to correct the problem are also covered. Others tips include knowing that the warranty compensation others are receiving can be a use- ful bargaining tool and the reimbursable labor rate should include a percentage for overhead. The TxDOT manual also states that warranty is an opportunity to provide feedback to manufacturers regarding their product as most manufacturers