01-15023. Notice of Granted Buy America Waiver

AGENCY:

Federal Transit Administration (FTA), DOT.

ACTION:

Notice of dear colleague letter.

SUMMARY:

The Federal Transit Administration (FTA) issued a “Dear Colleague” letter on March 30, 2001, addressing inquiries regarding its Buy America regulations that focused on the calculation of the cost of the components and subcomponents of rolling stock. In order to ensure wide dissemination of this letter, it is published below, together with further explanation in this preamble.

FOR FURTHER INFORMATION PLEASE CONTACT:

Meghan G. Ludtke, FTA, Office of Chief Counsel, Room 9316, [phone] (telephone) or [phone] (fax).

SUPPLEMENTARY INFORMATION:

FTA has received inquiries about the transit industry's calculation of the cost of components and subcomponents of rolling stock under the Buy America provisions. See 49 U.S.C. 5323(j) and 49 CFR 661.11. More specifically, based on information in a 1995 FTA Buy America handbook, there was concern that grantees were identifying the entire propulsion system as one component for purposes of calculating the domestic content of rolling stock. As a result, on March 30, 2001, FTA issued a “Dear Colleague” letter explaining the applicability of the Buy America requirements to the procurement of rolling stock.

A propulsion system normally consists of a traction motor, propulsion gearbox, acceleration and breaking resistors, and propulsion controls. According to the appendices of the Buy America regulations applicable to rolling stock, each of these items should be considered a component. See 49 CFR 661.11, Appendix B and C.

Section 5323(j)(2)(C) of Title 49, U.S.C., sets forth the general requirements for the procurement of rolling stock: The cost of the components and subcomponents produced in the United States must be at least 60 percent of the aggregate cost of all components and the rolling stock must undergo final assembly in the U.S. For a component to be considered domestic, 60 percent of its subcomponents must be of domestic origin and the component itself must be manufactured in the U.S. 49 CFR 661.11(g). A subcomponent is of domestic origin if it is manufactured in the U.S. 49 CFR 661.11(h). Because the standards for designation as “domestic” are different for components and subcomponents, and the requirements for components more stringent, the distinction between the two is important. It is for this reason that FTA included a list of items considered typical components in the appendices of the rolling stock regulations. See Appendix B and C, 49 CFR 661.11. As noted above, this list includes items that are generally included in a propulsion system. To the extent that the 1995 FTA handbook identified the items listed in these appendices as something other than components, it was wrong for purposes of calculating domestic content under 49 CFR 661.11.

To more fully explain the Buy America calculation, we provide the following simplified example: Assume that the aggregate cost of all components on a bus is $100. In order to comply with Buy America, more than $60 worth of the components must be of domestic origin. To determine which components count as domestic, the origin of the subcomponents must be reviewed. If a component has a cost of $10 and more than $6 worth of its subcomponents are manufactured in the U.S., then the entire $10 cost of the component is considered domestic and counts toward the required aggregate domestic content of more than $60.

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 and whether the procurement is governed by the general requirements found at 49 CFR 661.5 or the rolling stock requirements found at 49 CFR 661.11. An end product is “any item * * * that is to be acquired by a grantee, as specified in the overall project contract.” 49 CFR 661.11(s). If a grantee is procuring a new rail car, the car is the end product and the traction motor would be a component of the end product. If that same grantee procures a replacement traction motor for an existing rail car, then the traction motor would be the end product for purposes of Buy America analysis.

The regulation does not require which components be of U.S. origin, only that more than 60 percent of their aggregate cost derive from domestically produced components. The manufacturer determines which costs will be used to reach that required threshold. The “Dear Colleague” letter is consistent with this premise.

The above-referenced “Dear Colleague” letter reads as follows:

March 30, 2001.

Dear Colleague:

Under the relevant Buy America requirements, when procuring rolling stock under 49 U.S.C. Chapter 53, the cost of the components and subcomponents produced in the United States must be at least 60 percent of the cost of all components of the rolling stock. In addition, final assembly of the rolling stock must occur in the United States. 49 U.S.C. 5323(j)(2)(C). Under the regulations, a component is considered of domestic origin if the total cost of its subcomponents meets the 60 percent domestic content requirement mandated by law, and the component is manufactured in the United States. 49 CFR 661.11(g).

To assist grantees with the distinction between the terms “component” and “subcomponent” in the context of rolling stock procurements, the Federal Transit Administration included as appendices to its Buy America regulations, the lists of major components identified by Congress in its committee report accompanying the Surface Transportation and Uniform Relocation Assistance Act of 1987 (STURAA), Pub. L. 97-424. H.R. CONF. REP. 100-27. For example, included in the list of major components of rail rolling stock are traction motors, propulsion gearboxes, acceleration and braking resistors, and propulsion controls. Consequently, the domestic content value of the subcomponents for these components, or any other elements that may be considered components of rolling stock, must be more than 60 percent, and the component must be manufactured in the United States in order to satisfy the Buy America requirements.

In summary, all items included in the list of major components at 49 CFR 661.11, App. B and C, should be considered components, not subcomponents, for the purposes of calculating domestic content for rolling stock procurements.

If you have any questions, please contact our Office of Chief Counsel at [phone].

  Sincerely,

Hiram J. Walker,

Acting Deputy Administrator.

Issued on: June 11, 2001.

Hiram J. Walker,

Acting Deputy Administrator, Federal Transit Administration.