Buy America Requirements for Federally Funded Rail Projects (2015) / Chapter Skim
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Pages 37-71
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From page 37... ...
37 trainsets would have about 30 percent domestic content.333 In 1999, unlike the 1996 waiver request, FRA decided to publish Amtrak's waiver request in the Federal Register for public noticeand-comment.334 The Railway Progress Institute again provided comment, stating that it would not oppose this waiver request but asked that Amtrak be required to strictly comply with the Amtrak Buy America provision in the future.335 In September 2000, 10 months after receiving the waiver request, FRA again granted Amtrak a Public Interest waiver to purchase the trainsets.336 The Northwest Corridor case study illustrates how FRA's flexibility in granting waivers from the Amtrak Buy America provision may have hastened the deployment of high-speed passenger rail in the Northwest. Operating at a much smaller scale, and with less public scrutiny, than the contemporary Northeast Corridor project, Amtrak was able to deploy European-style high-speed passenger trains almost immediately, to a favorable reception from the riding public.
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38 Amtrak Buy America provision but have evolved over the years into different requirements. Like the Amtrak Buy America provision, the FHWA and FTA Buy America provisions originated with 1978 legislation, specifically the Surface Transportation Assistance Act (STAA)
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39 increased from 10 percent to 25 percent,353 the Domestic Content waiver requirement was increased from 50 percent to 60 percent,354 and grant recipients were required to evaluate domestic content of rolling stock by considering both components and subcomponents.355 In 1994, Congress formally recodified the STAA Buy America provision as two separate Buy America provisions,356 with one applicable to FHWA357 and one applicable to FTA.358 The following sections describe how the FHWA and FTA Buy America provisions are interpreted and administered today and issues that have arisen in recent years related to those statutes.
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40 however, when Congress specified the Price Differential to be 25 percent, the Price Differential exception became much less of a realistic option. FHWA currently permits a grant recipient (e.g., a state DOT)
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41 criteria is satisfied.375 However, the grant recipient must "maintain a running list of non-domestic steel or iron components or subcomponents as a construction project proceeds,"376 to ensure that the minimal use criteria are not exceeded.
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42 used to assure compliance" with the FHWA Buy America provision.386 e. Multiple Funding Sources. -- The FHWA Buy America provision requires FHWA to allow its grant recipients (e.g., state DOTs)
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43 all contracts on a single NEPA "project," Congress similarly attempted to prevent the "segmenting" of highway projects to circumvent the FHWA Buy America provision.
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44 ject by more than 25 percent."408 The legislation also stated that uncertainty over how to apply the Price Differential waiver "for major bridge projects threatens the domestic bridge industry."409 SAFETEA-LU was enacted on August 10, 2005, just a couple of weeks after Caltrans approved a rebid package for the eastern span using no federal funds and no FHWA Buy America provision.410 On October 5, 2005, FHWA published a memorandum reiterating that its practice was to apply the FHWA Buy America provision only to the individual contracts funded with FHWA funds.411 In 2006, Caltrans moved forward with its rebid procedures (including no FHWA Buy America provision and no domestic steel alternative bid price requirement) ,412 and in March 2006 it accepted a low bid of $1.4 billion.413 Although Caltrans was foregoing federal funds in order to avoid the FHWA Buy America provision, Caltrans argued that it could later apply to use the $237 million in federal funds for other parts of the bridge construction.414 Some in Congress viewed this as a deliberate attempt by FHWA and Caltrans to circumvent the FHWA Buy America provision.415 In June 2006416 and again in April 2007,417 FHWA Administrator J
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45 toward its $176 million light-rail project.423 Sacramento was permitted to segment the project by identifying 15 rail cars that would be built using nonfederal funds, and only the remaining 11 rail cars that would be built with federal funds would have to comply with the STAA Buy America provision.424 Likewise, a 1993 rail construction project by the Los Angeles county transportation authority was segmented into federally funded segments (which were required to comply with the FTA Buy America provision) and locally funded segments (which were not)
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From page 46... ...
46 FHWA funds.431 This prompted concern from state DOTs and transportation industry associations that projects would be delayed while utility companies, who had not historically been subject to Buy America requirements, became compliant.432 Therefore, on July 11, 2013, FHWA granted a temporary reprieve to utility companies, delaying application of the FHWA Buy America provision to state-funded utility relocations only through December 31, 2013.433 However, state DOTs and transportation industry associations continue to express concern about how the antisegmentation legislation will be applied. Despite the language of MAP-21, which would apply the FHWA Buy America provision to all contracts on a project, Caltrans has recommended that Buy America provisions should apply on[l]
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47 the signal heads, almost all electrical equipment," etc.439 In November 1983, in its final rule, FHWA agreed "that it is very difficult to identify the various materials and then trace their origin. A manufactured product such as a traffic controller which has many components is particularly difficult to trace."440 Furthermore, despite the fact that the 1982 STAA Buy America provision expressly applied to manufactured products, FHWA concluded that it "does not believe that all manufactured products must be covered," because "FHWA has never covered all manufactured products under its Buy America regulation and Congress did not specifically direct a change in that policy."441 Therefore, FHWA granted a general Public Interest waiver for all "manufactured products other than steel and cement manufactured products."442 (Cement was removed from coverage by Congress in 1984.443)
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From page 48... ...
48 The 2012 clarification that FHWA considers its manufactured products waiver to apply to all but those comprised of 90 percent steel or iron "triggered opposition from various groups in the manufacturing industry," as well as some Congressmen.451 In particular, there was concern that FHWA grant funds were being used to purchase a significant amount of foreign vehicles, including construction equipment and even locomotives, since FHWA grant funds may be used to purchase such vehicles under the Congestion Mitigation and Air Quality Improvement (CMAQ) program.452 Therefore, in July 2013, in the Federal Register, FHWA solicited public comments on whether "FHWA needs to reconsider its criteria for applying Buy America requirements to manufactured products."453 All issues related to the FHWA manufactured products waiver were open for consideration, including whether there were specific categories of manufactured products that should or should not be subject to the waiver, how to define a "predominantly steel or iron product," and whether vehicles should be subject to the waiver.454 Specifically, FHWA solicited comments on the following question: What standard should apply to locomotives, rail cars, and locomotive parts that are purchased for locomotive retrofits?
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From page 49... ...
49 ment in this context is clearly inconsistent with the public interest. …As a result, the option to request a waiver should remain in place.460 In January 2014, FHWA announced that, based on the public comments received, FHWA will probably issue new formal regulations, which may supersede the guidance in its 2012 memorandum.461 As of the publication of this digest, FHWA has not issued a final rule regarding changes to its manufactured products waiver or applicability of the FHWA Buy America provision to rail rolling stock.
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50 justification for the waivers.471 In fact, the notices may have been unclear -- a typical reader may not have understood that the waiver sought was for railroad turnout parts. The notices contained very little product specification or manufacturers information to identify the parts, and there was no project description indicating that these were railroad projects.472 In both cases, public comments were received only after the waiver notice appeared in the Federal Register.
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51 electric vehicles and hybrid vehicles using FHWA funds under the CMAQ program. In March 2012, FHWA addressed a similar request by Merced County, California.483 In all of these cases, FHWA granted a "partial" Public Interest waiver: the grant recipients could purchase the vehicles on the condition that "final assembly" took place in the United States, regardless of domestic content.
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52 Corman Railroad Group (doing business as Railpower Locomotives) commented that "all the final assembly of the Railpower GenSet locomotives and subsystems is performed in the United States," and that it purchased components from other domestic vendors where possible.
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From page 53... ...
53 an FTA-funded construction project must be domestic. In 2007, FTA formally adopted a list of typical steel and iron end products, which includes "structures, bridges, and trackwork, including running rail, contact rail, and turnouts."502 At the same time, FTA formally adopted a list of typical "manufactured end products," which includes "[i]
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From page 54... ...
54 nents of the rolling stock.512 This exception, therefore, envisions that the components of the rolling stock may themselves be manufactured products that are assembled together to create the rolling stock end product.513 If the component is a manufactured product that is manufactured domestically and domestic subcomponents comprise 60 percent of the cost of the component, then the component itself is considered a 100 percent domestic product.514 In that case, the component's entire cost may be treated as domestic for purposes of determining whether the entire rolling stock end product qualifies for the Domestic Content exception, even if up to 40 percent of its subcomponents are foreign. However, FTA has recently stated that all steel and iron subcomponents must be manufactured domestically.515 Subcomponents other than steel and iron are considered domestic as long as they are manufactured in the United States, regardless of the origin of their constituent materials.516 Of all the Buy America provisions potentially applicable to rolling stock, only the Domestic Content exception in the FTA Buy America provision considers the origin of subcomponents.
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From page 55... ...
55 chase foreign goods via a sole-source procurement rather than an open solicitation, then FTA will require its grant recipient to provide evidence that comparable domestic products are truly unavailable in sufficient quantities before FTA will grant a Nonavailability waiver.526 Further, like FRA, FTA has recently entered into an interagency agreement with NIST-MEP to help it identify potential domestic manufacturing sources of rail rolling stock.527 In either open solicitations or sole-source procurements, if the FTA grant recipient's contractor or supplier certifies compliance with the FTA Buy America provision in the accepted bid but after award seeks to provide foreign materials, the bidder is bound by the Buy America compliance certification submitted with its bid.528 FTA will require its grant recipient to provide evidence that comparable domestic products are truly not available in the necessary quantities before FTA will grant a Nonavailability waiver in that situation.529 • Price Differential The FTA Buy America provision may be waived if "including domestic material will increase the cost of the overall project by more than 25 percent."530 FTA regulations implementing this provision clarify that the 25 percent Price Differential is applied to the individual contract between the FTA grant recipient and its presumptive contractor.531 If the lowest bid in response to a solicitation by the FTA grant recipient proposes to include foreign goods, and the bid is otherwise responsible and responsive, then (for evaluation purposes only) the FTA grant recipient is to multiply the entire bid price (not just the cost of the foreign goods in the bid)
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56 tory notice-and-comment requirement to consist of a four-step process:541 • FTA posts waiver requests on its Web site to solicit public comment. • If FTA decides to grant the waiver (based on public comments, information provided by the FTA grant recipient, or FTA's own investigation)
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57 dit includes an independent review (by the FTA grant recipient or someone independent of the manufacturer) of the manufacturer's documentation of proposed components and subcomponents, their cost, and their country of origin.555 Likewise, the postdelivery audit includes an independent review (by the FTA grant recipient or someone independent of the manufacturer)
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58 such as end products or systems that FTA considers subject to the FTA Buy America provision.569 Finally, with respect to bid certification and enforcement, Congress required FTA to clarify how the FTA Buy America compliance certification requirement is to apply to negotiated procurements,570 required FTA to issue formal rules governing the process for granting waivers after the bidder has certified compliance,571 and established potential criminal liability for false certifications.572 Over the next several years, in response to SAFETEA-LU, FTA engaged in a lengthy rulemaking process that transformed the FTA Buy America provision. As a result, the FTA Buy America rules (particularly for evaluating domestic content)
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59 tification) ."579 Because the statute only provided an opportunity to correct incorrect certifications of noncompliance, it was unclear whether bidders should also be allowed to correct inaccurate certificates of compliance.
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60 sider the effect of any postaward waiver on other bidders, such as those who might have been awarded the contract if the low bidder had originally certified noncompliance.592 Most commenters "felt that FTA's proposal was unnecessarily complex or unduly restrictive."593 Nevertheless, in November 2006, FTA implemented its original proposal with the tight restrictions largely unchanged.594 In fact, FTA indicated it would only offer postaward waivers over an initial Buy America certification of compliance when it would be "commercially impracticable" for the bidder to provide the domestic goods, expressly adopting federal case law standards for commercial impracticability to mean "when all means of performance are commercially senseless."595 Thus, a bidder who has certified compliance with the FTA Buy America provision should not anticipate a Nonavailability waiver and should request one only if the bidder can demonstrate that its original bid was reasonable and based on real market prices, and that the prices of domestic goods have become excessive and unreasonable since bid time.
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From page 61... ...
61 cations equipment, motors, wheels and axles, suspensions and frames; the inspection and verification of all installation and interconnection work; and, the testing in plant of the stationary product to verify all functions.603 Under the 1991 rule, the domestic content of all components that are incorporated into the end product at this "final assembly" location would have to be evaluated in order to evaluate the domestic content of the end product and determine whether rolling stock qualified for a Domestic Content waiver. In the late 1990s, FTA amended its regulations to specify a list of typical components of rail rolling stock.604 To a certain extent, providing the list of typical components obviates the need to specifically define "final assembly," since manufacturers understand that even if the identified components (e.g., traction motor, propulsion gearbox, acceleration and breaking resistors, and propulsion controls)
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62 location for installation, the assembled subsystem does not rise to the level of a "component," and the components do not become "subcomponents" for purposes of calculating domestic content. FTA also adopted the suggestion to provide for case-bycase review of "final assembly" compliance,618 so that if a manufacturer does not install or interconnect all of the final assembly elements in the United States, or potentially if the manufacturer contests whether a part should be considered a component, FTA can consider the manufacturer's request to deviate from these "typical" lists without necessitating a formal waiver.
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From page 63... ...
63 the proposed nonshifting standard, items on the list of typical rail rolling stock components would always be considered components.628 By specifying that the rolling stock standard (rather than the manufactured product standard) would now apply to purchases of rolling stock replacement parts, the suggestion was that replacement parts for rail rolling stock would now only need to contain 60 percent domestic content, which would appear to be a significant drop in domestic content from prior practice under the 1991 rule.
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64 subsystems. Under that approach, the distinction between procurement of a single end product and procurement of a system of end products would turn on whether the contract identified the procurement as a collection of subsystems or not.
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65 While the manufactured products rulemaking in response to SAFETEA-LU is lengthy and complex, the new lists implemented by FTA represent an improvement over prior practice in that grant recipients can have certainty about how to evaluate domestic content in most situations. If there is any question about what is the end product (for which domestic content and final assembly must be evaluated)
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66 Nonavailability waiver request for the Chrysler minivan chassis.667 The waiver request was from a domestic manufacturer, ElDorado National, which manufactured minivans using the Chrysler chassis. Although at that time FTA's public noticeand-comment requirements only applied to Public Interest waivers, FTA published this request out of "an abundance of caution because a nonavailability waiver would have a national impact."668 In 2010, Chrysler also requested a Public Interest waiver for both its chassis and its minivans,669 which FTA addressed along with the ElDorado request.
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67 d. Nonavailability Waiver for Computers and Software. -- Compliance with the FTA Buy America provision is streamlined by FTA's longstanding general waiver for much computer hardware and software.
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68 crocomputer; "the rest of the end product must be in compliance" with the FTA Buy America provision.685 At the same time, FTA reiterated that it would continue to consider the waiver to permit the purchase of foreign software. FTA's 2003 clarification of the microcomputer waiver came in the midst of a legal dispute over whether fare collection equipment purchased by the Massachusetts Bay Transportation Authority (MBTA)
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69 FTA should allow its grant recipients to purchase foreign-origin software or input and output devices under this waiver,695 since the justification for the waiver has always been the nonavailability of microchips, and software and input and output devices are available domestically and can be procured independently of microchips. However, in November 2006,696 FTA clarified that the waiver will continue to apply to both microcomputers (which include "a microprocessor, storage, and input/output facility, which may or may not be on one chip"697)
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70 there would be any schedule delays or safety issues associated with the MotivePower bid, relative to the Vossloh bid, and "MBTA has not argued that this procurement involves the introduction of significant new technology."706 After FTA denied the waiver request, MBTA cancelled its solicitation in January 2009, saying that it could not afford to purchase the 28 locomotives at the MotivePower bid price. MBTA was also concerned about a bid protest, "regardless of which company it chose."707 Ultimately, in July 2010, MBTA entered into a contract with MotivePower to supply 20 new locomotives at a price of $114.6 million.708 The MBTA waiver request illustrates the tougher standard for Public Interest waivers under the FTA Buy America provision since SAFETEA-LU, in comparison to the FHWA Buy America provision, where Public Interest waivers have been employed regularly.709 It also illustrates the tougher standard for Nonavailability waivers under the FTA Buy America provision, in comparison to the FRA Buy America provision (where domestic products may be deemed "not reasonably available" based on moderately higher prices and delivery times)
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From page 71... ...
71 minimum final assembly operations,719 including all of the items on FTA's list of elements that must be installed or interconnected at the final assembly location, as well as in-plant testing of the end product, would take place in the United States. In April 2012, FTA concluded that this satisfied its requirements for "final assembly" in the United States.720 FTA's list of minimum final assembly operations do not require in-plant testing of components to take place in the United States, just in-plant testing of the end product.
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