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Updated Guide to Buy America Requirements—2015 Supplement (2017)

Chapter: III. APPLICATION OF FTA BUY AMERICA DOMESTIC CONTENT REQUIREMENT

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Suggested Citation:"III. APPLICATION OF FTA BUY AMERICA DOMESTIC CONTENT REQUIREMENT." National Academies of Sciences, Engineering, and Medicine. 2017. Updated Guide to Buy America Requirements—2015 Supplement. Washington, DC: The National Academies Press. doi: 10.17226/24780.
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Suggested Citation:"III. APPLICATION OF FTA BUY AMERICA DOMESTIC CONTENT REQUIREMENT." National Academies of Sciences, Engineering, and Medicine. 2017. Updated Guide to Buy America Requirements—2015 Supplement. Washington, DC: The National Academies Press. doi: 10.17226/24780.
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Suggested Citation:"III. APPLICATION OF FTA BUY AMERICA DOMESTIC CONTENT REQUIREMENT." National Academies of Sciences, Engineering, and Medicine. 2017. Updated Guide to Buy America Requirements—2015 Supplement. Washington, DC: The National Academies Press. doi: 10.17226/24780.
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Suggested Citation:"III. APPLICATION OF FTA BUY AMERICA DOMESTIC CONTENT REQUIREMENT." National Academies of Sciences, Engineering, and Medicine. 2017. Updated Guide to Buy America Requirements—2015 Supplement. Washington, DC: The National Academies Press. doi: 10.17226/24780.
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Suggested Citation:"III. APPLICATION OF FTA BUY AMERICA DOMESTIC CONTENT REQUIREMENT." National Academies of Sciences, Engineering, and Medicine. 2017. Updated Guide to Buy America Requirements—2015 Supplement. Washington, DC: The National Academies Press. doi: 10.17226/24780.
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Suggested Citation:"III. APPLICATION OF FTA BUY AMERICA DOMESTIC CONTENT REQUIREMENT." National Academies of Sciences, Engineering, and Medicine. 2017. Updated Guide to Buy America Requirements—2015 Supplement. Washington, DC: The National Academies Press. doi: 10.17226/24780.
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Suggested Citation:"III. APPLICATION OF FTA BUY AMERICA DOMESTIC CONTENT REQUIREMENT." National Academies of Sciences, Engineering, and Medicine. 2017. Updated Guide to Buy America Requirements—2015 Supplement. Washington, DC: The National Academies Press. doi: 10.17226/24780.
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Suggested Citation:"III. APPLICATION OF FTA BUY AMERICA DOMESTIC CONTENT REQUIREMENT." National Academies of Sciences, Engineering, and Medicine. 2017. Updated Guide to Buy America Requirements—2015 Supplement. Washington, DC: The National Academies Press. doi: 10.17226/24780.
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Suggested Citation:"III. APPLICATION OF FTA BUY AMERICA DOMESTIC CONTENT REQUIREMENT." National Academies of Sciences, Engineering, and Medicine. 2017. Updated Guide to Buy America Requirements—2015 Supplement. Washington, DC: The National Academies Press. doi: 10.17226/24780.
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Suggested Citation:"III. APPLICATION OF FTA BUY AMERICA DOMESTIC CONTENT REQUIREMENT." National Academies of Sciences, Engineering, and Medicine. 2017. Updated Guide to Buy America Requirements—2015 Supplement. Washington, DC: The National Academies Press. doi: 10.17226/24780.
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Suggested Citation:"III. APPLICATION OF FTA BUY AMERICA DOMESTIC CONTENT REQUIREMENT." National Academies of Sciences, Engineering, and Medicine. 2017. Updated Guide to Buy America Requirements—2015 Supplement. Washington, DC: The National Academies Press. doi: 10.17226/24780.
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Suggested Citation:"III. APPLICATION OF FTA BUY AMERICA DOMESTIC CONTENT REQUIREMENT." National Academies of Sciences, Engineering, and Medicine. 2017. Updated Guide to Buy America Requirements—2015 Supplement. Washington, DC: The National Academies Press. doi: 10.17226/24780.
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Suggested Citation:"III. APPLICATION OF FTA BUY AMERICA DOMESTIC CONTENT REQUIREMENT." National Academies of Sciences, Engineering, and Medicine. 2017. Updated Guide to Buy America Requirements—2015 Supplement. Washington, DC: The National Academies Press. doi: 10.17226/24780.
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15 be delivered on or after October 1, 2019, all vehicles in that procurement must contain at least 70 percent domestic content. The same criteria (i.e., 65 percent for vehicles to be delivered beginning in FY 2018 and 70 percent for vehicles to be delivered beginning in FY 2020) will apply to determine whether rolling stock compo- nents are considered domestic for purposes of the FTA Buy America provision.136 However, with respect to train control, communication, and traction power equipment (which are considered rolling stock under the FTA Buy America provision) the applicable domestic content criterion is determined based on the date of the construction contract award.137 That is, train control, communication, or traction power equipment delivered on a construction contract must contain 65 percent domestic content for construction contracts awarded in FY 2018 or 2019 or 70 percent domestic content for construction contracts awarded in FY 2020 or thereafter. Not all of the FAST Act changes impose height- ened Buy America requirements on FTA grant recipients. Notably, the FAST Act formally increases the threshold for Small Purchase waivers from $100,000 to $150,000,138 significantly expanding the set of procurements that are not subject to the FTA Buy America provision. The FAST Act also provides that the cost of domestic steel or iron incorporated into foreign rolling stock frames or car shells may be considered domestic for purposes of calculating the domestic content of rolling stock.139 The FAST Act further provides that steel or iron may be considered domestic as long as substantially all of its “manufac- turing processes” take place in the United States, regardless of the origin of the raw materials.140 Finally, whenever FTA denies a project-specific waiver request, the FAST Act requires FTA to certify that the product for which a waiver was requested is available from domestic manufacturers in sufficient quantities and satisfactory quality and to provide a list of known domestic manufacturers from which the product can be obtained.141 FTA is required to publish its waiver denials and certifications of prod- uct availability on the USDOT website. The remainder of this digest addresses the FTA Buy America provision as it exists today. Section III explains the domestic content requirements for steel, iron, manufactured products, and rolling stock. Section IV discusses the potential waivers that are available if the applicable domestic content criteria cannot be satisfied. Section V addresses the proce- dural means by which FTA can ensure compliance with the FTA Buy America provision. III. APPLICATION OF FTA BUY AMERICA DOMESTIC CONTENT REQUIREMENT In the absence of a waiver, the FTA Buy America provision requires that all “manufactured products” used in the performance of an FTA-funded project be “produced in the United States.”142 This general requirement—that most manufactured products contain 100 percent domestic content—is the focus of Section III.A. Congress has specifically provided a Domestic Content waiver for rolling stock, as discussed in Section III.B, making rolling stock a special category of manufactured product for purposes of the FTA Buy America provision, not subject to the 100 percent domestic content require- ment. Another special category involves construc- tion and infrastructure projects, including structures. These are considered manufactured products for purposes of the FTA Buy America provi- sion and are thus subject to the 100 percent domes- tic content requirement discussed in Section III.A, but they have their own special considerations that are addressed in Section III.C. A. Manufactured Products A manufactured product is defined as an item produced as a result of the “manufacturing process.”143 FTA has adopted a two-part test to deter- mine whether a manufactured product (other than rolling stock) complies with the requirement that it be “produced in the United States”: (1) all of its aforementioned “manufacturing processes” must take place in the United States144 and (2) all of its “components” must be of U.S. origin.145 This is commonly understood to require 100 percent domes- tic content for manufactured products.146 On its face, this appears to be a much stricter domestic content requirement than other federal Buy America provi- sions, which typically require only 50 percent domes- tic content plus final assembly of the end product in the United States. 136 Id. at 60,282, 60284. 137 Id. 138 Fixing America’s Surface Transportation Act, Pub. L. No. 114-94, § 3011(2)(E), 129 Stat. 1312, 1475 (Dec. 4, 2015) (codified at 49 U.S.C. § 5323(j)(13)). 139 Id. 140 Id. 141 Id. 142 49 C.F.R. § 661.5(a) (2015); see also 49 U.S.C. § 5323(j)(1) (2016) (referring to “manufactured goods”). 143 49 C.F.R. § 661.3 (2015). 144 49 C.F.R. § 661.5(d)(1) (2015). 145 49 C.F.R. § 661.5(d)(2) (2015). 146 TCRP LRD 31, supra note 2, at 15; see also BPPM, supra note 107, at 42 (“The product itself must be manu- factured in the U.S. with 100 percent U.S. components….”).

16 However, under the FTA Buy America provision a component is considered domestic as long as all of its manufacturing processes take place in the United States, “regardless of the origin of its subcompo- nents.”147 In other words, a manufactured product can incorporate foreign content, but the manufac- tured product will still comply with the FTA Buy America provision as long as the foreign content is at the subcomponent level. Accordingly, most Buy America disputes that involve manufactured prod- ucts revolve around whether foreign content in the manufactured product qualifies as a “subcompo- nent” (i.e., component of a component). This in turn depends on FTA’s definition and interpretation of other terms, including “component,” “end product,” and “manufacturing process.” A “component” of a manufactured product is defined as “any article, material, or supply” that is directly incorporated into the manufactured “end product” at its final assembly location.148 The “manu- facturing process” is defined as the application of processes that “alter the form or function” of the prod- uct’s components, “adding value and transforming” the components into “a new end product functionally different from that which would result from mere assembly” of the components.149 This relatively sophisticated definition of “manufacturing process” prevents manufacturers from circumventing the FTA Buy America provision by importing foreign subcom- ponents to the United States, where they are merely assembled into components, which are in turn merely assembled into the end product. In order to disregard the foreign origin of subcomponents under the FTA Buy America provision, the subcomponents must have been substantially transformed (rather than merely assembled) into domestic components via manufacturing processes at a location in the United States.150 The domestic components, in turn, must have been substantially transformed (rather than merely assembled) into the end product via manufac- turing processes at a location in the United States.151 Whether an element of a manufactured product is a component (which must be domestic) or a subcomponent (whose origin may be disregarded) often depends on whether sufficient manufacturing processes have taken place domestically to alter or transform foreign subcomponents into domestic components. FTA has identified a number of “processes of alteration” that constitute manufac- turing processes, including “welding, soldering,… permanent adhesive joining,” and, in the case of electrical or mechanical products, “the collection, interconnection, and testing of various elements.”152 However, keep in mind that the processes must be more than “mere assembly.”153 Therefore, FTA has rejected attempts to classify components as subcom- ponents where the parts in question are imported into the United States “highly manufactured”, and then undergo “the use of welding solely for purposes of joining the metal pieces together.”154 In that situa- tion, the imported parts have not undergone manu- facturing processes in the United States but have been merely assembled. If the welded assembly is incorporated into a manufactured end product, the imported parts are considered components, not subcomponents, of the end product, and they will not be treated as domestic for purposes of calculat- ing domestic content of the end product. In its 2007 final rule in response to SAFETEA- LU, FTA defined the term “end product” and promul- gated a nonexhaustive list of representative manufactured end products.155 The manufactured end product may be a “product, article, material, supply or system”156 that is “ready to provide its intended end function or use without any further manufacturing or assembly change(s)” once its components have been incorporated via the manu- facturing process at the end product’s final assembly location.157 This represents a change from FTA prac- tice prior to 2007, in which the end product was considered the deliverable item specified in the contract between an FTA grant recipient and its contractor or supplier.158 Under that prior practice, any given item could have been treated as an end product, component, or subcomponent, depending on the contract deliverable.159 The definition of “end 147 49 C.F.R. § 661.5(d)(2) (2015). 148 49 C.F.R. § 661.3 (2015). 149 49 C.F.R. § 661.3 (2015). 150 49 C.F.R. § 661.5(d)(2) (2015). 151 49 C.F.R. § 661.5(d)(1) (2015). 152 Buy America Requirements, 56 Fed. Reg. 926, 929 (Jan. 9, 1991). 153 49 C.F.R. § 661.3 (2015). 154 Letter from Gregory B. McBride, FTA Deputy Chief Counsel, to Stephen Van Ogle, Siemens Transportation Systems, Inc. (Jun. 3, 2003), available at https://www. transit.dot.gov/regulations-and-guidance/buy-america/ siemens-transportation-june-03-2003. 155 Buy America Requirements—End Product Analysis and Waiver Procedures, 72 Fed. Reg. 53,688, 53,696 (Sept. 20, 2007). 156 49 C.F.R. § 661.3 (2015). Under this regulation, the end product may also be a “vehicle,” although the domestic content requirement for rolling stock is addressed in Section III.B. The regulation also provides that the end product may be a “structure,” as discussed in Section III.C. 157 49 C.F.R. § 661.3 (2015). 158 Buy America Requirements—End Product Analysis and Waiver Procedures, 72 Fed. Reg. 53,688, 53,691 (Sept. 20, 2007). 159 Id.

17 product”, adopted by FTA, in 2007 is intended to ensure consistency in application of the FTA Buy America provision from one FTA grant recipient to another, and from one contract to another, so that end products are always evaluated as end products, regardless of the contract deliverable.160 FTA refers to the current practice as a “non-shift approach.”161 Representative manufactured end products iden- tified by FTA in 2007 include “fare collection systems; computers; information systems; security systems; data processing systems; and mobile lifts, hoists, and elevators.”162 The inclusion of so many “systems” in the list of representative manufactured end prod- ucts was, in part, a response to direction by Congress in SAFETEA-LU for FTA to address the applicabil- ity of the FTA Buy America provision to the procure- ment of systems. FTA practice prior to 2007 for the procurement of systems (such as a people-mover system) was to evaluate each “sub-system” identi- fied in the contract as a manufactured product subject to the 100 percent domestic content require- ment.163 However, in the case of certain other systems (notably fare collection systems) FTA eval- uated the entire system as a manufactured end product, so that each machine or device bundled into the system procurement was evaluated as a compo- nent rather than an end product (and thus subject to less stringent domestic content requirements).164 Due to concerns about inconsistent application of the FTA Buy America provision to systems, Congress required FTA in SAFETEA-LU to “address the procurement of systems…to ensure that major system procurements are not used to circumvent the Buy America requirements.”165 In response, FTA defined a “system” end product to be “a machine, product, or device, or a combina- tion of such equipment, consisting of individual components…which are intended to contribute together to a clearly defined function.”166 This defini- tion prevents suppliers from circumventing the FTA Buy America provision by delivering a collection of unrelated equipment (comprised of foreign content) and referring to the collection as a “system” end product in an attempt to have the origin of the foreign content disregarded as subcomponents of the end product. If a purported “system” is merely a collection of what FTA considers to be separate end products, each end product remains subject to the 100 percent domestic content requirement.167 A sample application of the manufactured prod- ucts analysis for the FTA Buy America provision involves the 2013 procurement of water mist fire- suppression systems by the New York Metropolitan Transportation Authority (MTA) for its Second Avenue Subway Project.168 Components of the water mist fire-suppression system included pipe tubing, valves, nozzles, and fittings manufactured in Finland. MTA argued that the end product was the transit facility structure, and that the water mist fire- suppression system was merely a component of the facility. Accordingly, MTA argued that the foreign components of the water mist fire-suppression system were subcomponents of the transit facility structure end product, whose origin could be disre- garded. FTA rejected this analysis and concluded that the water mist fire-suppression system was the end product for purposes of the FTA Buy America provision, because its components “work together to perform a function,” the “system functions indepen- dently” of the transit facility structure, and the system “does not depend on the physical structure to operate.”169 Accordingly, the water mist fire-suppres- sion system did not comply with the 100 percent domestic content requirement of the FTA Buy America provision because of its foreign components. A similar example is a 2014 contract for the reha- bilitation of the heating, ventilation, air conditioning, and cooling (HVAC) system of a bus garage for the Chicago Transit Authority (CTA).170 Relying in part on a 2004 FTA decision in which FTA determined that a rehabilitated bus garage constituted the end product,171 CTA argued that the HVAC system was a component of the rehabilitated bus garage, so that its air handler units were subcomponents whose origin could be disregarded. FTA rejected this analy- sis and the approach taken in its 2004 decision, 160 Id. 161 Id. 162 49 C.F.R. § 661.3, App. A(3) (2015). 163 Buy America Requirements, 56 Fed. Reg. 926 (Jan. 9, 1991) (“[I]t is industry practice to have a contract bro- ken down by sub-systems.”). 164 Buy America Requirements—Amendments to Defi- nitions and Waiver Requirements, 70 Fed. Reg. 71,246, 71,251 (Nov. 28, 2005). 165 SAFETEA-LU, supra note 108, at § 3023(i)(5)(B). 166 49 C.F.R. § 661.3 (2015). 167 Buy America Requirements—End Product Analysis and Waiver Procedures, 72 Fed. Reg. 53,688, 53,693 (Sept. 20, 2007). 168 Letter from Dana C. Nifosi, FTA Chief Counsel, to Thomas Prendergast, MTA, Re: Buy America Investiga- tion Decision: Second Avenue Subway Project’s Water Mist Fire Suppression System (Jan. 6, 2015), available at https://www.transit.dot.gov/regulations-and-guidance/ buy-america/second-avenue-subway-projects-water-mist- fire-suppression. 169 Id. 170 Energy Labs, Inc. v. Edwards Eng’g, Inc., No. 14 CV 07444, 2015 U.S. Dist. LEXIS 71058 (N.D. Ill. June 2, 2015). 171 Letter from Gregory B. McBride, FTA Deputy Chief Counsel, to John Trotta, CTA (Dec. 3, 2004).

18 based largely on FTA’s 2007 final rule that adopted a “non-shift” approach and defined “system” end prod- ucts.172 FTA concluded that, regardless of whether the subject of the procurement was a rehabilitated bus garage, the HVAC system was a system end product for purposes of the FTA Buy America provi- sion. Accordingly, the air handler units were compo- nents of the HVAC system, not subcomponents of the facility, and so the air handler units must be manu- factured in the United States.173 In summary, the nominal 100 percent domestic content requirement for most manufactured prod- ucts still allows for a significant amount of foreign content at the subcomponent level. This does not violate the FTA Buy America provision as long as all of the foreign subcomponents have been substan- tially transformed into domestic components via significant manufacturing processes, so that the end product can truly be said to be composed of 100 percent domestic components. B. Rolling Stock In the FTA Buy America provision, Congress has specifically provided a Domestic Content waiver for “rolling stock (including train control, communica- tion, and traction power equipment…).”174 This is in the nature of a “general waiver,” such as those discussed in Section IV.A, so rolling stock that satisfies the statutory criteria is considered compli- ant with the FTA Buy America provision, and the grant recipient need not request a procurement- specific waiver as long as the statutory criteria are satisfied. As of 2016, rolling stock is considered compliant with the FTA Buy America provision as long as final assembly of the rolling stock takes place in the United States175 and the rolling stock is comprised of more than 60 percent domestic content (calculated based on the cost of its compo- nents and subcomponents).176 As a result of the FAST Act enacted in December 2015, the domestic content requirement for rolling stock is scheduled to increase to 65 percent in FY 2018 and 70 percent in FY 2020.177 FTA’s guidelines for determining whether a component or subcomponent is domestic are addressed in Section III.B.2. After determining the cost of domestic components (and subcomponents, as the case may be), the domestic content percentage (by cost) of the rolling stock end product can be calcu- lated. A rolling stock end product is considered compliant with the FTA Buy America provision if final assembly of the rolling stock end product takes place in the United States and if the cost of its domes- tic components (and subcomponents, as the case may be) satisfies the applicable rolling stock domestic content criterion (i.e., 60 percent domestic content as of 2016, 65 percent domestic content for vehicle procurements with scheduled delivery of the first production vehicle in FYs 2018 or 2019, or 70 percent domestic content for vehicle procurements with scheduled delivery of the first production vehicle in FY 2020 or thereafter).178 In June 2011, FTA confirmed that the rolling stock domestic content criterion must be satisfied for each individual vehicle or rolling stock end product—domestic content is not to be evaluated at the level of the overall project or procurement contract.179 Although the domestic content requirements for rolling stock differ from other manufactured prod- ucts, evaluating Buy America compliance for rolling stock (as with other manufactured products) still depends on what constitutes the end product, its components, and its subcomponents.180 As with other manufactured products, a component of a roll- ing stock end product is defined as “any article, material, or supply” that is directly incorporated 172 Letter from Dana Nifosi, FTA Deputy Chief Coun- sel, to Nathan Walker, CTA, Re: Question for Clarifica- tion on Buy America Requirements (Sept. 5, 2014); Defendants’ Motion to Dismiss Amended Complaint, at Exh. B, Energy Labs, Inc. v. Edwards Eng’g, Inc., No. 14 CV 07444 (N.D. Ill. Oct. 28, 2014). 173 Energy Labs, Inc. v. Edwards Eng’g, Inc., No. 14-CV 07444, 2015 U.S. Dist. LEXIS 71058, at *1 (N.D. Ill. June 2, 2015). 174 49 U.S.C. § 5323(j)(2)(C) (2016). 175 49 U.S.C. § 5323(j)(2)(C)(ii) (2016); 49 C.F.R. § 661.11(a) (2015). 176 49 U.S.C. § 5323(j)(2)(C)(i)(I) (2016); 49 C.F.R. § 661.11(a) (2015). 177 Fixing America’s Surface Transportation Act, Pub. L. No. 114-94, § 3011(2)(A), 129 Stat. 1312, 1474 (Dec. 4, 2015) (codified at 49 U.S.C. § 5323(j)(2)(C)). Section II.G supra summarizes FTA’s September 2016 policy state- ment regarding the phased implementation of the height- ened domestic content criteria. 178 49 C.F.R. § 661.11(a) (2015); see also Notice of Policy on the Implementation of the Phased Increase in Domes- tic Content Under the Buy America Waiver for Rolling Stock and Notice of Public Interest Waiver of Buy America Domestic Content Requirements for Rolling Stock Pro- curement in Limited Circumstances, 81 Fed. Reg. 60,278, 60,281, 60,283 (Sept. 1, 2016). 179 FTA, Buy America—Frequently Asked Questions, https://www.transit.dot.gov/funding/procurement/third- party-procurement/buy-america (“For rolling stock pro- curements, each vehicle must contain at least 60% U.S. content, and final assembly must take place in the U.S”). 180 Notice of Granted Buy America Waiver, 66 Fed. Reg. 32,412, 32,413 (Jun. 14, 2001) (“The Buy America analysis begins with identification of the end product being procured. From that determination flows the discussion of which items are components and which are subcomponents….”).

19 into the rolling stock end product at its “final assem- bly” location.181 Accordingly, Buy America compli- ance for rolling stock also turns on what constitutes final assembly. 1. End Products A rolling stock end product includes “any vehicle” procured by an FTA grant recipient for public use, “which directly incorporates constituent compo- nents at the final assembly location,” after which it can be put to public use with no “further manufac- turing or assembly change(s).”182 FTA defines rolling stock as “transit vehicles such as buses, vans, cars, railcars, locomotives, trolley cars and buses, and ferry boats, as well as vehicles used for support services.”183 This is a nonexhaustive list of rolling stock end products,184 all of which are eligible for the rolling stock Domestic Content waiver. When Congress first established the rolling stock Domestic Content waiver in 1983, it provided that rolling stock includes “train control, communication, and traction power equipment.”185 Therefore, certain manufactured products other than vehicles are exempt from the general rule that all components of manufactured products must be domestic, so long as the products qualify as rolling stock under one of these categories. Train control, communication, or traction power equipment are considered compliant with the FTA Buy America provision if final assem- bly of the end product takes place in the United States and if the cost of its domestic components (and subcomponents, as the case may be) satisfies the applicable rolling stock domestic content crite- rion (i.e., 60 percent domestic content as of 2016, 65 percent domestic content for construction contracts made in FYs 2018 or 2019, or 70 percent domestic content for construction contracts made in FY 2020 or thereafter).186 In its regulations implementing the FTA Buy America provision, FTA has provided nonexhaustive, representative lists of train control equipment,187 communication equipment,188 and traction power equipment189 that may be considered rolling stock for purposes of the rolling stock Domestic Content waiver.190 The current lists of representative rolling stock end products include not only on-board equip- ment but also wayside equipment (i.e., equipment that is not in or on a vehicle).191 This reflects a longstanding practice by FTA to apply the rolling stock Domestic Content waiver to train control, communication, and traction power equipment, regardless of whether the equipment is in or on a vehicle.192 In its 2007 final rule in response to SAFETEA-LU, FTA determined that the rolling stock Domestic Content waiver should continue to apply to such wayside equipment.193 As discussed in Section III.A, as a result of the “non-shift” approach adopted by FTA in 2007, items that are considered rolling stock end products are always rolling stock end products, regardless of the subject of a particular procurement.194 This has implications for the procurement of rolling stock replacement parts. Under FTA’s prior practice, when rolling stock replacement parts were the subject of a procurement, those replacement parts were consid- ered rolling stock end products and as such were subject to the 60 percent domestic content require- ment for rolling stock.195 As a result of the 2007 final rule in response to SAFETEA-LU, rolling stock replacement parts are now considered components 181 49 C.F.R. § 661.11(c) (2015); see also 49 C.F.R. § 661.3 (2015). 182 49 C.F.R. § 661.3 (2015). 183 49 C.F.R. § 661.3 (2015). 184 49 C.F.R. § 661.3, App. A(1) (2015). 185 STAA 1982, supra note 75, at § 165(b)(3); see also 49 U.S.C. § 5323(j)(2)(C) (2016). 186 49 C.F.R. § 661.11(a) (2015); see also Notice of Policy on the Implementation of the Phased Increase in Domes- tic Content Under the Buy America Waiver for Rolling Stock and Notice of Public Interest Waiver of Buy America Domestic Content Requirements for Rolling Stock Pro- curement in Limited Circumstances, 81 Fed. Reg. 60,278, 60,282, 60,284 (Sept. 1, 2016). 187 49 C.F.R. § 661.11(t) (2015). 188 49 C.F.R. § 661.11(u) (2015). 189 49 C.F.R. § 661.11(v) (2015). 190 FTA’s published lists of representative rolling stock end products long predate FTA’s 2007 adoption of a list of representative manufactured end products. Buy America Requirements, 61 Fed. Reg. 6,299 (Feb. 16, 1996) (adopting lists of representative train control, communication, and traction power equipment). 191 For example, train control equipment includes way- side signals, wayside transponders, and wayside magnets. 49 C.F.R. § 661.7(t) (2015). 192 Seal & Co., Inc. v. Wash. Metro. Area Transit Auth., 768 F. Supp. 1150, 1160 (E.D. Va. 1991) (“[A] reasonable reading…leads to the conclusion that [the FTA Buy America provision] applied to the equipment at issue, as equip- ment used to control and communicate with trains and for traction is located outside, as well as within, trains.”); see also TCRP LRD 31, supra note 2, at 17 (summarizing FTA guidance letters in 2003 and 2004, in which FTA applied the rolling stock Domestic Content waiver to procure- ments of wayside communication equipment). 193 Buy America Requirements—End Product Analysis and Waiver Procedures, 72 Fed. Reg. 53,688, 53,695 (Sept. 20, 2007). 194 For a detailed discussion of FTA’s rulemaking history in adopting the “non-shift” approach, and FTA’s consider- ation of the implications for rolling stock procurement, see NCRRP LRD 1, supra note 3, at 62 63. 195 Buy America Requirements—End Product Analysis and Waiver Procedures, 72 Fed. Reg. 53,688, 53,691 (Sep. 20, 2007).

20 or subcomponents if the original parts being replaced were components or subcomponents of a rolling stock end product.196 Further, FTA decided that roll- ing stock replacement parts should be evaluated as components or subcomponents of manufactured end products, under which the origin of subcomponents is disregarded, rather than as components or subcomponents of rolling stock end products.197 This means that a replacement part for a rolling stock component must be manufactured in the United States, although the origin of its subcomponents may be disregarded.198 There is no domestic content requirement for a replacement part for a rolling stock subcomponent.199 In 2012, FTA made a distinction between over- hauls and rebuilds of rolling stock end products for purposes of the FTA Buy America provision.200 An overhaul or refurbishment involves the “systematic replacement or upgrade of systems.” It “is intended to enable the rolling stock to perform to the end of the original useful life” and “not extend the useful life of the vehicle itself.”201 In that situation, the replacement parts are subject to the replacement part standard that accompanied the 2007 adoption of the “non-shift” approach; namely, all replacement parts for rolling stock components must be manu- factured in the United States, although the origin of subcomponents is disregarded. On the other hand, a rolling stock rebuild or reconditioning, however, “creates additional useful life” for the vehicle and typically takes place once the vehicle has “already reached the end of its mini- mum useful life.”202 FTA concluded that a rolling stock rebuild or reconditioning is similar to the procurement of a new rolling stock end product, and therefore it should be eligible for the rolling stock Domestic Content waiver. Therefore, a rolling stock rebuild, like a new rolling stock end product procure- ment, may include up to 40 percent foreign compo- nents and subcomponents (i.e., 60 percent domestic content) as of 2016.203 As discussed in Section II.G, Congress has increased the domestic content crite- ria for rolling stock delivered in FY 2018 and there- after. However, in September 2016, FTA clarified that, for purposes of rebuilds, the domestic content requirement “in effect at the time the vehicle was delivered” will apply to the rebuild contract, although this exception to the heightened domestic content criteria of the FAST Act is “limited to the parties on the original contract.”204 In other words, an FTA grant recipient who procured rolling stock from a manufacturer and obtained initial delivery prior to FY 2018 will be able to enter into a future contract with the same manufacturer to rebuild the previ- ously procured rolling stock, and the 60 percent domestic content requirement will apply. 2. Components and Subcomponents The domestic content calculation is made by first evaluating the cost of the components of the rolling stock end product. As previously noted, a rolling stock component is any product or material that is directly incorporated into the rolling stock end prod- uct at its final assembly location.205 In its regula- tions implementing the FTA Buy America provision, FTA has adopted lists of what constitute typical components of buses206 and typical components of rail rolling stock (e.g., railcars and locomotives).207 Although the published lists are nonexhaustive, they serve as useful guides to breaking down the rolling stock end product for purposes of calculating the cost of its domestic components. FTA has clari- fied that all items on the published lists of typical components must be considered components for purposes of calculating domestic content for rolling stock procurements.208 The published lists of typical rolling stock compo- nents are also intended, in part, to clarify the distinc- tion between components and subcomponents.209 196 Id. at 53,692. 197 Id. 198 Id. (“[A]pplying the ‘manufactured products’ test to the acquisition of replacement components relieves manu- facturers and buyers of the burden of documenting coun- try-of-origin records for an endless number of possible subcomponents, so long as the component itself is manu- factured in the United States.”). 199 Id.; see also 49 C.F.R. § 661.5(d)(2) (2015). 200 Application of Buy America Waivers to Rolling Stock Overhauls and Rebuilds, 77 Fed. Reg. 29, 952, 29,953 (May 21, 2012). 201 Id. 202 Id. 203 Id. 204 Notice of Policy on the Implementation of the Phased Increase in Domestic Content Under the Buy America Waiver for Rolling Stock and Notice of Public Interest Waiver of Buy America Domestic Content Requirements for Rolling Stock Procurement in Limited Circumstances, 81 Fed. Reg. 60,278, 60,282 (Sept. 1, 2016). 205 49 C.F.R. § 661.3 (2015). 206 49 C.F.R. § 661.11, App. B (2015). 212 Griswold, 381 U.S. at 485–86, 85 S. Ct. at 1682, 14 L. Ed. 2d at 515–16. 207 49 C.F.R. § 661.11, App. C (2015). 208 Notice of Granted Buy America Waiver, 66 Fed. Reg. 32,412, 32,413 (Jun. 14, 2001). Older FTA guidance pro- vided that only the cost of “major components” and “pri- mary subcomponents” were to be considered for purposes of evaluating the domestic content of rolling stock. Buy America Requirements, 56 Fed. Reg. 926 (Jan. 9, 1991). 209 Buy America Requirements, 56 Fed. Reg. 926 (Jan. 9, 1991).

21 Unlike other manufactured products, for which the cost of subcomponents is disregarded, Congress specifically provided that the cost of subcomponents is to be considered for rolling stock.210 FTA defines “subcomponent” to include any product or material “that is one step removed from a component…in the manufacturing process and that is incorporated directly into a component.”211 A rolling stock component is considered domestic if it is manufactured in the United States and if the cost of its subcomponents satisfies the applicable rolling stock domestic content criterion (i.e., 60 percent domestic content as of 2016, 65 percent domestic content for vehicles to be delivered in FYs 2018 or 2019, or 70 percent domestic content for vehicles to be delivered in FY 2020 and thereaf- ter).212 If the rolling stock component qualifies as domestic under that test, then the entire cost of that component is treated as domestic when calculating the domestic content of the rolling stock end prod- uct. Otherwise, as long as the rolling stock compo- nent is manufactured in the United States, the cost of its domestic subcomponents and the cost of manu- facturing the component are treated as domestic when calculating the domestic content of the rolling stock end product.213 If the rolling stock component is not manufactured in the United States but includes domestic subcomponents, then the cost of the domestic subcomponents may be treated as domestic only if the subcomponents qualify for tariff exemptions;214 otherwise, the entire cost of the imported component is treated as foreign, even though it includes domestic subcomponents.215 The cost of a rolling stock subcomponent is considered domestic as long as it is manufactured in the United States, regardless of the origin of its sub-subcompo- nents.216 As highlighted in Section III.A, to be consid- ered manufactured in the United States, there must have been sufficient domestic manufacturing processes applied to substantially transform the materials or elements of the component or subcom- ponent into a new and functionally different product than “would result from mere assembly of the elements or materials.”217 The cost of a rolling stock component or subcom- ponent is the actual price that the bidder or offeror must pay to a subcontractor or supplier for the component or subcomponent.218 Costs for transport- ing the component or subcomponent to the final assembly location must be included in the cost of foreign components and subcomponents.219 If a component or subcomponent is manufactured by the bidder or offeror, then the cost of the component or subcomponent includes the cost of both materials and labor, as well as reasonable profit, overhead, and administrative costs associated with its manu- facture.220 Labor costs involved in final assembly of the end product, however, are not to be included.221 In its 1995 guidance for conducting Buy America audits of rail rolling stock procurements,222 FTA offers the following example for calculating the domestic content of rolling stock components. A manufacturer’s cost for obtaining a component from its supplier is $22,000. After subtracting the suppli- er’s 10 percent markup ($2,000) and the supplier’s cost of manufacturing ($5,000), the actual cost of materials in the component is $15,000. If the cost of domestic subcomponents is $9,000, then the compo- nent contains 60 percent domestic content, by cost. The component is thus considered domestic, and its entire $22,000 cost may be treated as domestic for purposes of calculating the domestic content of the end product. If the cost of domestic subcomponents is $8,000, however, then the component contains only 53 percent domestic content by cost. The compo- nent is not considered domestic, but both the cost of its domestic subcomponents ($8,000) and the cost of manufacturing the component in the United States ($5,000) may be treated as domestic for purposes of calculating the domestic content of the end product. A number of real-world examples illustrate how FTA evaluates rolling stock components and subcomponents for purposes of determining compli- ance with the rolling stock Domestic Content waiver. 217 49 C.F.R. § 661.3 (2015). 218 49 C.F.R. §§ 661.11(m)(1),(q) (2015). 219 49 C.F.R. § 661.11(m)(1) (2015). 220 49 C.F.R. § 661.11(m)(2) (2015). 221 49 C.F.R. § 661.11(p) (2015). 222 FTA, conducting Pre-aWard and Post-delivery revieWs For rail vehicle Procurements, Report No. FTA- DC-90-7713-94-1, Rev. B (1995), available at https://web. archive.org/web/20150918092503/http://www.fta.dot.gov/ legislation_law/12921_5424.html. 210 49 U.S.C. § 5323(j)(2)(C)(i) (2016). 211 49 C.F.R. § 661.11(f) (2015). 212 49 C.F.R. § 661.11(g) (2015); see also Notice of Policy on the Implementation of the Phased Increase in Domes- tic Content Under the Buy America Waiver for Rolling Stock and Notice of Public Interest Waiver of Buy America Domestic Content Requirements for Rolling Stock Pro- curement in Limited Circumstances, 81 Fed. Reg. 60,278, 60,282, 60,284 (Sept. 1, 2016). 213 49 C.F.R. § 661.11(l) (2015). 214 49 C.F.R. § 661.11(i) (2015). The cost of such a sub- component that retains its domestic identity is the cost of the subcomponent when last purchased, free on board (f.o.b.) U.S. “port of exportation or point of border crossing as set out in the invoice and entry papers or, if no purchase was made, the value of the subcomponent at the time of” such shipment or exportation. 49 C.F.R. § 661.11(o) (2015). 215 49 C.F.R. § 661.11(j) (2015). 216 49 C.F.R. § 661.11(h) (2015).

22 In 2001, FTA confirmed that a “propulsion system” is not a rolling stock component because the propul- sion system “consists of a traction motor, propulsion gearbox, acceleration and [braking] resistors, and propulsion controls,”223 all of which are listed on FTA’s list of typical components of rail rolling stock.224 Therefore, those items are components of the rolling stock end product (not subcomponents of the end product’s “propulsion system”) for purposes of calculating domestic content. FTA grant recipi- ents cannot subject the components to the less rigor- ous domestic content standard for subcomponents by assembling them into a “system.” Likewise, foreign subcomponents do not become sub-subcomponents by merely assembling them into an “artificial subcomponent” in the United States in order to disregard their country of origin.225 In 2002, FTA confirmed that the underframe, side- walls, and end portals for light rail vehicles were all subcomponents of the car shell (which appears on FTA’s list of typical components of rail rolling stock). The manufacturer contended that the underframe, sidewalls, and end portals were all sub-subcompo- nents of the “car frame,” and that the “car frame” was a subcomponent of the car shell, for purposes of calculating domestic content. FTA concluded that the “car frame” was not the result of the manufac- turing process, but the mere assembly of the three subcomponents “contrived to achieve an artificial calculation” of domestic content.226 In summary, FTA’s formal adoption of nonexhaus- tive lists of typical rolling stock components removes the opportunity for gamesmanship by manufactur- ers in calculating domestic content and helps ensure that the domestic content of rolling stock end prod- ucts is evaluated consistently. 3. Final Assembly Assuming that the applicable rolling stock domes- tic content criterion is satisfied, final assembly of the rolling stock end product still must take place in the United States for the rolling stock end product to comply with the FTA Buy America provision.227 Final assembly of the rolling stock end product involves the joining of its “individual elements brought together for that purpose through application of manufactur- ing processes.”228 Therefore, final assembly must be more than “mere assembly of the elements.”229 In its regulations that implement the FTA Buy America provision, FTA has provided nonexhaus- tive lists of activities that typically must occur to constitute final assembly of certain rolling stock end products;230 namely buses and railcars. (Although not included in its regulations, FTA has also provided a list of typical final assembly activities for wheel- chair-accessible minivans.231) The list of typical final assembly activities for railcars and buses first appeared in a 1997 “Dear Colleague” letter published by FTA.232 With the passage of TEA-21 in 1998, Congress expressly adopted FTA’s list of final assem- bly activities for buses.233 In its 2007 final rule in response to SAFETEA-LU, FTA codified the list of final assembly activities for both buses and railcars in its regulations that implemented the FTA Buy America provision.234 With respect to railcars, final assembly includes, at minimum, the “installation and interconnection” of a specific list of rail rolling stock elements, as well as “inspection and verification of all installation and interconnection work,” and “in-plant testing of the stationary product to verify all functions.”235 227 49 U.S.C. § 5323(j)(2)(C)(ii) (2016); 49 C.F.R. § 661.11(a) (2015). 228 49 C.F.R. § 661.11(r) (2015). In adopting the “manu- facturing processes” standard for final assembly of rolling stock in 1991, FTA rejected its previous standard, which defined final assembly as activities constituting at least 10 percent of the cost of the rolling stock end product. Buy America Requirements, 56 Fed. Reg. 926 (Jan. 9, 1991). 229 49 C.F.R. § 661.3 (2015) (defining “manufacturing processes”). 230 49 C.F.R. § 661.11, App. D (2015). 231 Memorandum from Dorval R. Carter, Jr., FTA Chief Counsel, to Peter M. Rogoff, FTA Administrator (Jun. 28, 2013); see also Letter from Dana C. Nifosi, FTA Chief Coun- sel, to Dennis Summers, MobilityWorks, Re: Final Assem- bly Determination (Nov. 25, 2014), available at https://www. transit.dot.gov/regulations-and-guidance/buy-america/ mobility-works-commercial-november-25-2014. 232 Buy America: Pre-Award and Post-Delivery Audits, Number C 97 03 (Mar. 18, 1997), available at https://www. transit.dot.gov/regulations-and-guidance/policy-letters/buy- america-pre-award-and-post-delivery-audits. 233 Transportation Equity Act for the 21st Century, Pub. L. No. 105-178, § 3035, 112 Stat. 107 (Jun. 9, 1998). 234 Buy America Requirements—End Product Analysis and Waiver Procedures, 72 Fed. Reg. 55,102, 55,103 (Sept. 28, 2007). 235 49 C.F.R. § 661.11, App. D(a) (2015). 223 Notice of Granted Buy America Waiver, 66 Fed. Reg. 32,412 (Jun. 14, 2001). 224 49 C.F.R. § 661.11, App. C (2015). 225 Letter from Gregory B. McBride, FTA Deputy Chief Counsel, to Dennis Hough, Metropolitan Transit Authority of Harris County (Aug. 15, 2002), available at https://web. archive.org/web/20150918093029/http://www.fta.dot.gov/ legislation_law/12316_610.html. 226 Id.; see also Letter from Gregory B. McBride, FTA Deputy Chief Counsel, to Stephen Van Ogle, Siemens Trans- portation Systems, Inc. (Jun. 3, 2003) (concluding that mini- mal welding of the subcomponents into the “car frame” did not transform the subcomponents into sub-subcomponents), available at https://www.transit.dot.gov/regulations-and- guidance/buy-america/siemens-transportation-june- 03-2003.

23 Likewise, with respect to buses, final assembly includes, at minimum, the installation or intercon- nection of a specific list of bus elements, as well as “road testing, final inspection, repairs and prepara- tion of the vehicle for delivery.”236 If a manufacturer’s domestic assembly processes do not include all of the typical final assembly activities identified in the FTA regulations, the manufacturer can still request a specific determination from FTA that the manu- facturer’s domestic activities are sufficient to consti- tute final assembly in the United States (without necessitating a formal waiver).237 FTA’s published lists of “elements” of railcars and buses, which typically must be installed or intercon- nected at the final assembly location, are not identi- cal to FTA’s published lists of typical “components” of railcars and buses. This creates the potential for inconsistency and confusion, as a component, by definition, “is directly incorporated into the end product at the final assembly location,”238 suggesting that all components (not just the typical “elements”) must be installed or interconnected at the final assembly location. Some in the industry have asked FTA to alleviate the potential confusion by merging the two lists, so that all items on the list of typical rolling stock components must be installed or inter- connected at the final assembly location.239 However, in its 2007 final rule in response to SAFETEA-LU, FTA specifically rejected that proposal,240 so that the list of elements that must be installed or intercon- nected at the final assembly location remains distinct from the list of typical rolling stock compo- nents. The two lists serve different purposes: the list of typical components is used to calculate domestic content, and the list of typical elements is used to determine the final assembly location. The differ- ence in the two lists potentially allows some compo- nents that are not on the list of final assembly elements to be interconnected into a system at a location other than the final assembly location, but the system delivered to the final assembly location does not become a component for purposes of calcu- lating domestic content—rather, the interconnected components retain their identity as components. The application of FTA’s final assembly require- ment is illustrated by a 2010 procurement of railcars from a Japanese source by the Washington Metropolitan Area Transit Authority (WMATA).241 The railcars would be designed and engineered in Japan, where four prototype railcars would be manufactured. After initial testing in Japan, the railcars would be disassembled, and the four railcar shells would be shipped to a manufacturing facility in Nebraska. There, the four prototype railcars would be reassembled using all new components (other than the Japanese shells). Specifically, all activities on FTA’s list of typical final assembly activities for railcars would take place at the Nebraska facility. The reassembled prototype rail- cars, with Japanese shells, would have 61 percent domestic content. FTA concluded that this consti- tuted final assembly in the United States, qualifying for the rolling stock Domestic Content waiver of the FTA Buy America provision.242 Likewise, a 2012 procurement by Miami-Dade Transit (MDT) of heavy rail vehicles from an Italian source was approved by FTA, despite the fact that certain in-plant testing of components would take place in Italy, where the vehicles would be designed and engineered.243 MDT confirmed that all “installa- tion and interconnection” work required for rail roll- ing stock would take place in the United States. But, structural fatigue testing, crash testing, and vibra- tion testing, as well as testing of the climatic cham- ber, anechoic chamber, and combined electrical components, would all take place in Italy. The amount of testing taking place in Italy suggested that a significant number of components were likely not of U.S. origin, but MDT confirmed that at least 60 percent of the components of the vehicles would be manufactured in the United States. FTA concluded that the testing taking place in Italy did not constitute in-plant testing of the stationary product (which is a minimum final assembly 236 49 C.F.R. § 661.11, App. D(b) (2015). 237 49 C.F.R. § 661.11, App. D(c) (2015). 238 49 C.F.R. § 661.3 (2015); see also 49 C.F.R. § 661.11(c) (2015). 239 Buy America Requirements—End Product Analy- sis and Waiver Procedures, 71 Fed. Reg. 69,412, 69,423 (Nov. 30, 2006). 240 Buy America Requirements—End Product Analy- sis and Waiver Procedures, 72 Fed. Reg. 55,102, 55,103 (Sept. 28, 2007). 241 Letter from Dorval R. Carter, Jr., FTA Chief Counsel, to Carol B. O’Keefe, WMATA, Re: Determination of Buy America Compliance for the 7000 Series Railcar Procure- ment (Jul. 23, 2010), available at https://www.transit.dot. gov/regulations-and-guidance/buy-america/washington- metropolitan-area-transit-authority-july-23-2010. 242 Id. A nearly identical final assembly proposal was later approved for the Los Angeles County Metropolitan Transportation Authority (LACMTA). Letter from Dorval R. Carter, Jr., FTA Chief Counsel, to G. Kent Woodman, LACTMA, Re: Determination Regarding Final Assembly of Light Rail Vehicles (May 22, 2012), available at https:// www.transit.dot.gov/regulations-and-guidance/buy-america/ los-angeles-county-metropolitan-transportation-authority- may-22. 243 Letter from Dorval R. Carter, Jr., FTA Chief Counsel, to Ysela Llort, MDT, Re: Buy America Determination of Compliance (Apr. 2, 2012), available at https://www.transit. dot.gov/regulations-and-guidance/buy-america/miami-dade- transit-april-02-2012.

24 activity that must take place in the United States), and FTA specifically noted “that component and climate room testing are excluded from the mini- mum final assembly activities” for rail rolling stock.244 Therefore, the proposed approach consti- tuted final assembly in the United States, qualifying for the rolling stock Domestic Content waiver of the FTA Buy America provision. C. Infrastructure and Construction Projects 1. Construction Materials Made Primarily of Steel or Iron On all construction projects funded in part with FTA funds, “the steel, iron, and manufactured goods used in the project [must be] produced in the United States.”245 FTA has interpreted the requirement for domestic steel and iron to apply to “all construction materials made primarily of steel or iron and used in infrastructure projects,” including but not limited to “structural steel or iron, steel or iron beams and columns, running rail and contact rail.”246 Under the FTA Buy America provision, in order for construc- tion materials “made primarily of steel or iron” to be considered domestic, “[a]ll steel and iron manufac- turing processes must take place in the United States, except metallurgical processes involving refinement of steel additives.”247 In 2007, FTA formally adopted a list of typical end products “made primarily of steel or iron,” which includes “structures, bridges, and track work, includ- ing running rail, contact rail, and turnouts.”248 Absent a project-specific waiver, all such primarily steel or iron products used in a construction project must be domestic, even if they represent only a small percentage of the overall construction project. For example, in Conti Enterprises, Inc. v. Southeast- ern Pennsylvania Transportation Authority,249 only one bidder could supply domestic contact rail in conjunction with a major renovation of several tran- sit stations for SEPTA. Therefore, all other bidders were unable to comply with the FTA Buy America provision and were deemed nonresponsive,250 even though the contact rail was only “a small fraction of the overall Stations Project contract.”251 Although some other USDOT agencies have established quantitative thresholds of steel or iron content below which Buy America requirements do not apply,252 “FTA believes that it is not appropriate to attach a percentage” of steel or iron content to its definition of construction materials made primarily of steel or iron.253 “Generally, the definition refers to construction or building materials made either prin- cipally or entirely from either steel or iron.”254 For example, FTA has concluded that bimetallic power rail, which is a combination of an aluminum conduc- tor and a steel cap,255 is not a construction material made primarily of steel or iron,256 but rather is trac- tion power equipment eligible for the rolling stock Domestic Content waiver.257 Notwithstanding the exception for bimetallic power rail, “power or third rail” made primarily of iron or steel remains subject to the 100 percent domestic content requirement.258 The requirement that all construction materials made primarily of steel or iron be domestic does “not apply to steel or iron used as components or subcom- ponents of other manufactured products.”259 Accord- ingly, steel or iron items such as nuts, bolts, and screws incorporated as subcomponents into a compo- nent of a manufactured product could come from any source, foreign or domestic.260 Nuts, bolts, and screws that comprise structural elements of a facil- ity (e.g., anchor bolts), however, could be considered construction materials made primarily of steel or iron, which must be domestic.261 It is worth noting that there is older FTA guid- ance that concluded that items such as elevator 244 Id. 245 49 U.S.C. § 5323(j)(1) (2016). 246 49 C.F.R. § 661.5(c) (2015). 247 49 C.F.R. § 661.5(b) (2015). 248 49 C.F.R. § 661.3, App. A(2) (2015). 249 No. 03 CV 05345, 2003 U.S. Dist. LEXIS 19848 (E.D. Penn. Oct. 14, 2003). 250 Id. at *6. 251 Id. at *1. 252 For example, FHWA has applied its Buy America requirements only to items that are “predominantly” steel or iron, which FHWA has defined to mean items that con- tain 90 percent steel or iron by content. See cancelled 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/con- struction/contracts/121221.cfm. However, FHWA’s adoption of the 90 percent steel-or-iron content criterion was recently invalidated as arbitrary and capricious by the U.S. District Court for the District of Columbia. United Steel, Paper & Forestry, Rubber, Mfg., Energy, Allied Indus. & Serv. Work- ers Int’l Union v. Fed. Highway Admin., 151 F. Supp. 3d 76, 90 (D.D.C. 2015). 253 Buy America Requirements, 61 Fed. Reg. 6,300 (Feb. 16, 1996). 254 Id. 255 Buy America Requirements—Bi Metallic Composite Conducting Rail, 74 Fed. Reg. 30,237 (Jun. 25, 2009). 256 49 C.F.R. § 661.5(c) (2015) (“These requirements do not apply…to bimetallic power rail incorporating steel or iron components.”). 257 49 C.F.R. § 661.11(v)(31) (2015). 258 49 C.F.R. § 661.11(w) (2015). 259 49 C.F.R. § 661.5(c) (2015). 260 FTA, Buy America—Frequently Asked Questions, https://www.transit.dot.gov/funding/procurement/third- party-procurement/buy-america. 261 Id.

25 guide rails and elevator doorframes are “construc- tion materials made primarily of steel or iron,”262 which must be domestic. However, in 2015, FTA reversed course and concluded that elevator guide rails and elevator doorframes are subcomponents whose origin may be disregarded.263 The change in policy is based on a combination of FTA’s 2007 final rule that adopted a “non-shift” approach and FTA’s treatment of transit facilities as manufactured end products, which is discussed in greater detail in the following section. Because the elevator is a compo- nent of the transit facility, its steel and iron parts are subcomponents of the transit facility, and the origin of subcomponents may be disregarded. In a similar manner, FTA has concluded that steel rein- forcement in a shotcrete tunnel liner is a subcompo- nent of the facility’s waterproofing system, and therefore the steel need not be domestic.264 This rela- tively recent change in policy allows a number of foreign steel and iron items to be incorporated into FTA-funded construction projects, as long as they are subcomponents of manufactured end products. 2. Constructed Facilities as Manufactured End Products Although the FTA Buy America provision only applies to steel, iron, and manufactured products, FTA grant recipients should be aware that FTA’s published list of typical “manufactured end prod- ucts” includes “[i]nfrastructure projects not made primarily of steel or iron, including structures (terminals, depots, garages, and bus shelters).”265 Because all components of manufactured products must be domestic under the FTA Buy America provi- sion,266 the implication is that all components of these facilities (not just the construction materials made primarily of steel or iron) must be domestic. Therefore, there may be heightened domestic prefer- ences for construction materials other than steel and iron in FTA-funded construction projects. For example, in 2015, FTA determined that poly- carbonate panels, used to construct a translucent wall, were components of an Operations Building that was being constructed for the Santa Cruz Metropolitan Transit District (SCMTD), and thus the panels were required to be domestic.267 Both FTA and SCMTD agreed that the Operations Build- ing itself was the end product for purposes of the FTA Buy America provision. FTA rejected SCMTD’s suggestion, however, that the translucent wall itself was the component (which would have made the polycarbonate panels subcomponents whose origin could be disregarded), because there were insuffi- cient manufacturing processes applied to the poly- carbonate panels to convert them into a translucent wall. The translucent wall was “almost entirely composed of various polycarbonate panels that are directly incorporated into the Operations Building, without undergoing a physical change in form or function.”268 Therefore, the polycarbonate panels were components of the facility and were required to be domestic in order to comply with the FTA Buy America provision. In some ways, FTA’s treatment of constructed facilities as end products is consistent with its older guidance, under which “the deliverable of the construction contract [was] considered as the end product and the construction materials used therein [were] considered components of the end product.”269 However, in its 2007 final rule in response to SAFETEA-LU, FTA adopted its “non-shift” standard, so that the end product is no longer necessarily the contract deliverable. In the 2007 final rule, FTA also clarified that certain systems are to be considered end products, including “fare collection systems; computers; information systems; security systems; [and] data processing systems.”270 Accordingly, for a given construction project, there may be systems housed within a larger transit facility or structure, so that the FTA Buy America provision must be eval- uated separately for the facility end product and its system end products. An item that is considered a system end product, rather than a component of the facility end product, is subject to heightened domes- tic content requirements, because the parts that comprise a system end product are components that 262 Letter from Gregory B. McBride, FTA Deputy Chief Counsel, to John Trotta, CTA (Dec. 3, 2004). 263 Letter from Dana Nifosi, FTA Chief Counsel, to Eric E. Cannon, KONE Inc., Re: Request for Advisory Opinion Regarding Components of KONE Elevator Guide Rails and Door Frames (Jan. 8, 2015), available at https://www. transit.dot.gov/regulations-and-guidance/buy-america/ kone-elevators-january-08-2015. 264 Letter from Dorval R. Carter, Jr., FTA Chief Coun- sel, to Jay H. Walder, NYMTA (Aug. 3, 2011), available at https://www.transit.dot.gov/regulations-and-guidance/buy- america/nymta-august-03-2011; see also Notice of Proposed Buy America Waiver To Allow Bidder To Certify Compli- ance, 76 Fed. Reg. 40,447 (Jul. 8, 2011). 265 49 C.F.R. § 661.3, App. A(3) (2015). 266 49 C.F.R. § 661.5(d)(2) (2015) (“All of the compo- nents of the product must be of U.S. origin.”). 267 Letter from Dana C. Nifosi, FTA Chief Counsel, to Julie A. Sherman, Hanson Bridgett LLP, Re: Buy America– Santa Cruz Metropolitan Transit District, Polycarbonate Panels (Feb. 9, 2015), available at https://www.transit.dot. gov/regulations-and-guidance/buy-america/santa-cruz- metro-february-09-2015. 268 Id. 269 Buy America Requirements, 46 Fed. Reg. 5,808 (Jan. 19, 1981). 270 49 C.F.R. § 661.3, App. A(3) (2015).

26 must be domestic, rather than subcomponents of the facility whose origin may be disregarded. As previously noted in Section III.C.1, FTA has determined that elevators and escalators perma- nently affixed to a transit facility are components of the facility.271 Key to this determination is the fact that an elevator or escalator “becomes functional and can be used as intended only upon incorpora- tion into the station.”272 Because the final assembly location of elevators and escalators is the construc- tion site, the elevators and escalators are “manufac- tured in the United States” and thus considered domestic, regardless of the origin of their subcompo- nents. FTA has determined, however, that items such as a fire suppression system and an HVAC system are system end products rather than compo- nents of the transit facility, as previously discussed in Section III.A, because the systems are comprised of components that are joined to perform a single function, which functions independently of the facil- ity structure. Therefore, the components of those systems must be domestic. The construction of a Regional Intermodal Trans- portation Center at the Bob Hope Airport in Burbank, California, offers an example of FTA’s process of determining whether an item is a manufactured end product or a component of a facility end product.273 The contractor argued that the electrical system, fire alarm system, and data system were components of the facility, so that electrical conduit and junction boxes would be subcomponents whose origin could be disregarded. FTA rejected this analysis, conclud- ing that the electrical system, fire alarm system, and data system were system end products, similar to the system end products listed in the nonexhaustive list of manufactured end products in FTA’s regula- tions. Therefore, the electrical conduit and junction boxes were components of those systems and must be manufactured in the United States. With respect to rail construction projects, as previously noted, all “track work” made primarily of steel or iron, “including running rail, contact rail, and turnouts,”274 must be domestic, with substan- tially all steel and iron manufacturing processing taking place in the United States. FTA has also concluded that “ties and ballast” and “contact rail not made primarily of steel or iron” constitute manu- factured end products that must all be manufac- tured in the United States out of 100 percent domestic components.275 This represents a change from FTA’s older guidance in which the end product was considered “the deliverable of the construction contract”;276 i.e., the rail construction project itself. On a single rail construction project, there can be several end products for which the FTA Buy Amer- ica provision must be evaluated, potentially expand- ing the number of “components” or construction materials that must be domestic. For example, in 2013, FTA concluded that special- ized concrete blocks, incorporated into the Second Avenue Subway Project for the MTA in order to absorb noise and reduce vibration, were to be evalu- ated as end products.277 FTA concluded that the concrete blocks serve the same purpose as ties, which are identified in FTA’s regulations on the non- exhaustive list of manufactured end products.278 Under FTA’s prior guidance, when the construction project itself was the contract deliverable and thus the end product,279 the concrete block would proba- bly have been considered a component and the origins of its subcomponents could have been disre- garded. Because FTA now considers the concrete block to be a manufactured end product, however, its components (concrete, pad, rubber boot, and plastic insert) must all be domestic. 3. Utility Relocation The FTA Buy America provision applies to an entire construction project that receives FTA funds, not just to the portion of the project that is funded by FTA.280 Furthermore, as a result of adopting its “non- shift” approach in 2007, the end product for purposes of the FTA Buy America provision is no longer 274 49 C.F.R. § 661.3, App. A(2) (2015). 275 49 C.F.R. § 661.3, App. A(3) (2015). 276 Buy America Requirements, 46 Fed. Reg. 5,808 (Jan. 19, 1981). 277 Letter from Michael L. Culotta, FTA Regional Counsel, to Evan M. Eisland, MTA, Re: Buy America Compliance Second Avenue Subway Project (Jun. 20, 2013), available at https://www.transit.dot.gov/regulations-and-guidance/ buy-america/new-york-metropolitan-transportation- authority-june-20-2013. 278 See 49 C.F.R. § 661.3, App. A(3) (2015). 279 See Buy America Requirements, 46 Fed. Reg. 5,808 (Jan. 19, 1981). 280 49 U.S.C. § 5323(j)(1) (2016). 271 Buy America Requirements—End Product Analy- sis and Waiver Procedures, 72 Fed. Reg. 53,688, 53,694 (Sept. 20, 2007). 272 Letter from Dorval R. Carter, Jr., FTA Chief Counsel, to Robin M. Reitzes, City of San Francisco, Subject: Letter of Interpretation–Elevators and Escalators (Dec. 7, 2010), available at https://www.transit.dot.gov/regulations-and- guidance/buy-america/san-francisco-municipal-railway- december-07-2010. 273 Letter from Dana Nifosi, FTA Deputy Chief Counsel, to Rob F. Ragland, McCarthy Building Companies, Inc., Re: Bob Hope Airport–Regional Intermodal Transportation Center, Subject: Clarification Regarding Buy America Act (Jul. 11, 2014), available at https://www.transit.dot.gov/ regulations-and-guidance/buy-america/bob-hope-airport- %E2%80%93-regional-intermodal-transportation-center.

27 necessarily the subject of a procurement. Accordingly, FTA has concluded that utility relocation work in support of an FTA-funded construction project must comply with the FTA Buy America provision, regard- less of whether FTA funds the utility relocation work.281 The applicability of Buy America provisions to utility relocation work became more prominent during congressional debate on MAP-21 in 2012. As previously discussed in Section II.F, some in Congress were concerned that USDOT grant recipi- ents were “segmenting” construction projects into federally funded segments (to which Buy America provisions applied) and nonfederally funded segments (to which Buy America provisions did not apply).282 The version of MAP-21 that passed the U.S. Senate would have applied anti-segmentation language to the FTA Buy America provision, so that if FTA funds were used to fund any contract on a project, then all other contracts on that project would have been subject to the FTA Buy America provision.283 In the version of MAP-21 that was ulti- mately enacted, however, the anti-segmentation language applied only to FHWA, not FTA.284 As a result of MAP-21, in 2013 FHWA announced that utility relocation on federally funded highway projects would be subject to the FHWA Buy America provision, even if no federal funds were used to pay for utility relocation.285 Although MAP-21 did not apply anti-segmentation language to the FTA Buy America provision, FTA has also adopted the position that the FTA Buy America provision applies to all contracts on an FTA-funded project, including utility relocation contracts that do not use federal funds.286 There are many older cases (predating the 2007 rule- making in response to SAFETEA-LU), however, in which FTA treated the FTA-funded contract deliver- able (i.e., the subject of the procurement) as the end product for purposes of the FTA Buy America provi- sion, so that the FTA Buy America provision did not apply to individual contracts in support of the proj- ects that were not funded by FTA.287 Prior to MAP-21, many utilities were not aware that they were required to adhere to Buy America provisions on utility reloca- tion contracts that were not federally funded,288 and substantially all of FTA’s Buy America guidance related to utility relocation has been issued since the passage of MAP-21. In August 2013, FTA issued two decisions that illustrate FTA’s application of the FTA Buy America provision to utility relocation contracts. In one case, the City of Charlotte’s rail line extension project required AT&T to relocate approximately 4.5 mi of its phone and data lines, or its “communications network.” FTA agreed with the City of Charlotte that the end product was the communications network, and its components included “the poles, cable, conduit, manholes, handholes, pedestals, and cabinets.”289 Key to FTA’s determination was the fact that the components “are interconnected and contribute to a clearly defined function.” Because the communications network was the end product, all of its identified components must be manufactured in the United States, although the origin of its subcom- ponents (which included wire, terminals, connectors, splices, clamps, fittings, washers, screws, nuts, and bolts) may be disregarded. Similarly, the Los Ange- les County Metropolitan Transportation Authority (LACMTA) needed to relocate AT&T’s communica- tions network for two rail line extension projects. Referencing its Charlotte decision, FTA agreed with LACMTA that the communications network was the end product, and its components included “the manholes, conduits, air pipes, copper cables of 281 Letter from Peter Rogoff, FTA Administrator, to Jeffrey F. Boothe, New Starts Working Group (Sept. 7 2012), available at https://www.transit.dot.gov/regulations-and- guidance/buy-america/letter-new-starts-working-group- september-07-2012. 282 See 158 cong. rec. H3,045 (May 17, 2012). 283 S. 1813, 112th Cong. §§ 1528, 20017, 35210 (2012). 284 Moving Ahead for Progress in the 21st Century Act, Pub. L. No. 112-141, § 1518, 126 Stat. 405 (Jul. 6, 2012). 285 Memorandum from Gloria M. Shepherd, FHWA Associate Administrator for Infrastructure, to FHWA Division Administrators, Re: Application of Buy America to non FHWA-funded Utility Relocations (Jul. 11, 2013), available at http://www.fhwa.dot.gov/construction/contracts/ 130711.cfm. 286 Letter from Peter Rogoff, FTA Administrator, to Jef- frey F. Boothe, New Starts Working Group (Sept. 7 2012), available at https://www.transit.dot.gov/regulations-and- guidance/buy-america/letter-new-starts-working-group- september-07-2012; see also Richard L. Wong, FTA, and Jomar Maldonato, FHWA, Buy America for Utilities: Federal Perspective, 94th Annual Meeting of the Trans- portation Research Board (Jan. 13, 2015). 287 Rail Project Bidding Altered: Foreign, Domestic Steelmakers Uncertain of Process, american metal market (Jan. 18, 1993) (allowing LACMTA to segment a rail con- struction project into federally funded segments and locally funded segments that were not subject to the FTA Buy America provision); Dale Vargas & Ricardo Pimentel, Light-Rail Deal Gets House Attention: Agreement on Violation of Buy America Regulations Triggers Probe, sacramento Bee (Jan. 31, 1987) (allowing Sacramento to segment a railcar procurement so that only those railcars built with federal funds had to comply with the FTA Buy America provision). 288 Steven J. Troch, Baltimore Gas & Electric, Buy Amer- ica for Utilities: Utility Perspective, 94th Annual Meeting of the Transportation Research Board (Jan. 13, 2015). 289 Letter from Dorval R. Carter, Jr., FTA Chief Counsel, to Bradley J. Thomas, Charlotte Area Transit System (Aug. 8, 2013), available at https://www.transit.dot.gov/ regulations-and-guidance/buy-america/charlotte-area- transit-system-august-08-2013.

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Updated Guide to Buy America Requirements—2015 Supplement Get This Book
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TRB's Transit Cooperative Research Program (TCRP) Legal Research Digest 49: Updated Guide to Buy America Requirements—2015 Supplement examines various statutory and regulatory Buy America requirements that a state or local governmental entity must examine when receiving funds for a public transportation project from one or more USDOT agencies. The purpose of this Legal Research Digest is to update the earlier TRB legal research to provide a comprehensive and current summary of the FTA Buy America provision.

TRB first published its Guide to Federal Buy America Requirements in 2001 as TCRP Legal Research Digest 17. A 2009 supplement to the guide was published as TCRP Legal Research Digest 31, which addressed significant legislative changes to the FTA Buy America provision enacted by Congress in 2005, as well as FTA’s 2007 final rule implementing those changes. In 2015, the FTA Buy America provision was addressed again in National Cooperative Rail Research Program (NCRRP) Legal Research Digest 1, along with other federal transportation grant Buy America provisions that are applicable to federally funded rail projects.

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