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, 60278-60285 [2016-21007]

Agencies

• Federal Transit Administration
• DEPARTMENT OF TRANSPORTATION

[Federal Register Volume 81, Number 170 (Thursday, September 1, 2016)]
[Rules and Regulations]
[Pages 60278-60285]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-21007]


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DEPARTMENT OF TRANSPORTATION

Federal Transit Administration

49 CFR Part 661

[Docket Nos. FTA-2016-0019 & FTA-2016-0020]


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

AGENCY: Federal Transit Administration, DOT.

ACTION: Notice of final policy and public interest waiver.

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SUMMARY: This final policy consists of the Federal Transit 
Administration's (FTA) policy statement regarding its implementation of 
the phased-in increase in domestic content for rolling stock under the 
FTA's Buy America statute, as amended by the Fixing America's Surface 
Transportation (FAST) Act. Through this final policy, FTA is providing 
guidance to transit agencies and transit vehicle manufacturers 
regarding how they are to implement the FAST Act's statutory 
amendments. Additionally, FTA is providing notice of public interest 
waivers of Buy America domestic content requirements for rolling stock 
procurements in limited circumstances.

DATES: The final policy takes effect on September 1, 2016.

FOR FURTHER INFORMATION CONTACT: Cecelia Comito, Assistant Chief 
Counsel, Office of the Chief Counsel, phone: (202) 366-2217, or email, 
Cecelia.Comito@dot.gov.

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Introduction
II. Proposed Policy Guidance and Public Interest Waiver
    A. Proposed Policy
    B. Proposed Public Interest Waiver
III. Response to Comments
    A. What date controls the percentage of domestic content?
    B. How do the new requirements apply to options, joint 
procurements, and piggyback procurements?
    C. Do the increased domestic content requirements extend to 
subcomponents?
    D. Do the changes also apply to train control, communication, 
and traction power systems?
    E. Does the increase in domestic content requirements apply to 
remanufactured, overhauled, or rebuilt transit vehicles?
    F. Do the FAST Act amendments apply to passenger ferry vessels?
    G. How do the new rules apply to reimported domestic steel and 
iron?
    H. Will FTA issue public interest waivers for vehicle 
procurements underway when the FAST Act was enacted?
IV. Final Policy Guidance and Public Interest Waivers
    A. Final Policy Guidance
    B. Final Public Interest Waivers

I. Introduction

    This Notice provides guidance and clarification to transit agencies 
and transit vehicle manufacturers regarding FTA's implementation of the 
FAST Act's amendments to 49 U.S.C. 5323(j)(2)(C).
    Section 3011 of the FAST Act (Pub. L. 114-94, enacted December 4, 
2015) amended the rolling stock waiver in 49 U.S.C. 5323(j)(2)(C) to 
require a two-step increase in the domestic content of rolling stock as 
follows:
    When procuring rolling stock with FTA financial assistance 
(including train control, communication, traction power, and rolling 
stock prototypes), the cost of components and subcomponents produced in 
the United States for fiscal years 2016 and 2017, is more than 60 
percent of the cost of all components of the rolling stock; for fiscal 
years 2018 and 2019, is more than 65 percent of the cost of all 
components of the rolling stock; and for fiscal year 2020 and each

[[Page 60279]]

fiscal year thereafter, is more than 70 percent of the cost of all 
components of the rolling stock.
    Given the potential effect of the FAST Act changes to vehicle 
procurements by the statutory use of the term ``produced,'' transit 
agencies and transit vehicle manufacturers asked FTA to provide 
specific guidance on the applicability of the FAST Act's new Buy 
America provisions to contracts entered into before, on, or after 
October 1, 2015, the effective date set forth in section 1003 of the 
FAST Act.
    Under existing law (49 U.S.C. 5325(e)), recipients of FTA financial 
assistance may enter into rolling stock contracts for up to five years 
for buses and seven years for railcars. In FTA Circular 4220.1F, 
``Third Party Contracting Guidance,'' FTA permits these five- and 
seven-year periods to cover the recipient's ``material requirements'' 
for rolling stock and replacement needs from the effective date of the 
contract through the end of the fifth or seventh year. FTA does not 
require that ``the recipient must obtain delivery, acceptance, or even 
fabrication in five or seven years--instead, it means only that FTA 
limits a contract to purchasing no more than the recipient's material 
requirements for rolling stock or replacement parts for five or seven 
years, based on the effective date of the contract.'' See FTA Circular 
4220.1F, Chapter IV, page 23. Under this rule, options for vehicles 
must be exercised within the five- or seven-year contract term, 
although the vehicles may be produced and delivered after the contract 
term.

II. Proposed Policy and Public Interest Waiver

A. Proposed Policy Guidance

    The FAST Act identified two points in time: (1) ``when procuring 
rolling stock,'' which FTA's proposed policy interpreted as the date 
the vehicle procurement contract was signed; and (2) ``the cost of 
components and subcomponents produced in the United States for fiscal 
years . . .'', which FTA interpreted as the delivery date of the 
vehicle.
    Individual and Joint Procurements. FTA proposed to implement the 
FAST Act by requiring that if a recipient (or a group of recipients 
under a joint procurement) enters into a contract for rolling stock 
after the effective date of the FAST Act, i.e., October 1, 2015, the 
new FAST Act provisions for domestic content of the rolling stock would 
apply based on the delivery date of the vehicle. Thus, for vehicles 
delivered in FY2018 and FY2019, the domestic content would have to be 
more than 65 percent, and for vehicles delivered in FY2020 and beyond, 
the domestic content would have to be more than 70 percent. These 
higher domestic content requirements would apply to all contracts 
signed after the effective date of the FAST Act unless FTA issues a 
waiver, which FTA addressed in a separate Federal Register Notice (81 
FR 20051, April 6, 2016).
    In its proposed policy statement, FTA proposed that the FAST Act 
amendments would not apply to a contract entered into before the 
effective date of the FAST Act, i.e., October 1, 2015, even if the 
contract provides for the delivery of vehicles after FY2017. In 
addition, the policy statement proposed to continue to permit options 
to be exercised for those contracts entered into before October 1, 
2015, even if the vehicles would be delivered outside the five- or 
seven-year contract term, consistent with Circular 4220.1F.
    However, recipients who were not direct parties to a contract 
executed before October 1, 2015, would not be allowed to exercise 
options (a/k/a ``piggybacking'') on those contracts and thereby could 
not take advantage of the lower domestic content requirement. Because 
the assignment of options to a third party results in the third party 
and the vendor entering into a new contract that would be entered into 
after the effective date of the FAST Act, FTA proposed to apply the 
increased domestic content requirements to vehicles scheduled for 
delivery in FY 2018 and beyond.
    State Purchasing Schedules. In the proposed policy statement, FTA 
recognized that some recipients and subrecipients purchase rolling 
stock from a State purchasing schedule (i.e., an arrangement that a 
State has negotiated with multiple vendors in which those vendors 
essentially agree to provide an option to the State, as well as 
subordinate and local governmental entities allowed to participate in 
the schedule, to acquire specific property or services in the future at 
established prices). Because the purchasing schedule does not commit 
the State to procuring a minimum number of vehicles, a ``contract'' 
does not exist until a State, recipient, or subrecipient enters into a 
purchase order with a vendor listed on the schedule.
    Therefore, the proposed policy statement proposed to retain the 60 
percent domestic content requirement for purchase orders placed against 
State purchasing schedules before October 1, 2015, regardless of the 
ultimate delivery date(s). However, for purchase orders placed against 
State purchasing schedules on or after October 1, 2015, FTA proposed to 
adopt the elevated FAST Act content requirements.
    This interpretation is consistent with the language of the statute, 
follows Congress' intention to increase the domestic content for 
vehicles produced in FY2018 or later, and adheres to basic principles 
of statutory construction.
    Calculation of Domestic Content for Components and Subcomponents. 
In its proposed policy statement, FTA proposed to adjust the 
calculation for determining whether a component is of domestic origin 
under 49 CFR 661.11 to mirror the increase in domestic content for 
FY2018 and beyond. Currently under 49 CFR 661.11(g), ``for a component 
to be of domestic origin, more that 60 percent of the subcomponents of 
that component, by cost, must be of domestic origin, and the 
manufacture of the component must take place in the United States. If, 
under the terms of this part, a component is determined to be of 
domestic origin, its entire cost may be used in calculating the cost of 
domestic content of an end product.''
    Thus, for vehicles to be delivered in FY2018 and 2019, FTA proposed 
that more than 65 percent of the subcomponents of that component, by 
cost, must be of domestic origin, and for FY2020 and beyond, more than 
70 percent of the subcomponents of the component must be of domestic 
origin. The existing requirement that manufacture of the component take 
place in the United States would continue to apply, as well as the 
provision that states that if a component is determined to be of 
domestic origin, its entire cost may be used in calculating the 
domestic value of the rolling stock, regardless of the value of its 
individual subcomponents.

B. Proposed Public Interest Waiver

    FTA recognized that the FAST Act amendments may produce significant 
hardship for two categories of recipients and manufacturers: (1) 
Recipients who entered into contracts or placed purchase orders against 
State schedules between October 1, 2015 and December 4, 2015 (i.e., the 
effective date of the Act and its enactment date, respectively); and 
(2) recipients who entered into contracts after December 4, 2015, as a 
result of solicitations for bids or requests for proposals that were 
advertised before December 4, 2015.
    Under 49 U.S.C. 5323(j)(2)(A), the Secretary of Transportation may 
waive the Buy America requirements if the Secretary finds that applying 
the Buy America requirements would be ``inconsistent with the public 
interest.''

[[Page 60280]]

This function has been delegated to the FTA Administrator by 49 CFR 
1.91, and section 661.7(b) of FTA's implementing regulation (49 CFR 
part 661) provides: ``In determining whether the conditions exist to 
grant this public interest waiver, the Administrator will consider all 
appropriate factors on a case-by-case basis . . . . When granting a 
public interest waiver, the Administrator shall issue a detailed 
written statement justifying why the waiver is in the public interest. 
The Administrator shall publish this justification in the Federal 
Register, providing the public with a reasonable time for notice and 
comment of not more than seven calendar days.''
    In a separate Notice accompanying the proposed policy statement 
(Docket FTA-2016-0020), FTA sought comment on a general public interest 
waiver for those affected parties (81 FR 20051, April 6, 2016). FTA 
proposed a public interest waiver for the following categories of 
contracts: (1) For contracts entered into between the FAST Act's 
effective date and date of enactment (i.e., from October 1, 2015 
through December 4, 2015), the increased domestic content requirements 
for FY2018 and beyond would not apply, regardless of when the vehicles 
were delivered; and (2) for contracts entered into after December 4, 
2015 as a result of solicitations for bids or requests for proposals 
that were advertised before December 4, 2015, the increased domestic 
content requirements for FY2018 and beyond would not apply, regardless 
of when the vehicles were delivered.

III. Response to Comments

    FTA received comments from 24 entities in Docket FTA-2016-0019 and 
comments from 14 entities in Docket FTA-2016-0020 from a broad cross-
section of transit agencies, transit vehicle manufacturers, transit 
industry trade associations, the passenger vessel industry, an alliance 
of domestic manufacturing interests, compliance auditors, and the 
general public. The comments and proposals were diverse. The comments 
and questions can be categorized into the following primary categories:

A. What date controls the percentage of domestic content?

    Numerous commenters objected to the proposed policy statement's use 
of the delivery schedule as the determining factor. Some suggested that 
domestic content should be based on the solicitation date, which 
establishes the transit agency's domestic content expectations for 
prospective bidders, and allows suppliers to begin identifying domestic 
suppliers. They claimed that using the solicitation date of an 
invitation for bids or a request for proposals provides certainty to 
transit vehicle manufacturers, as transit agencies and transit vehicle 
manufacturers cannot forecast when a contract will be signed or when 
the vehicles will be delivered.
    As an alternative to the solicitation date, a significant number of 
commenters proposed that FTA apply the domestic content requirements 
based upon the date a contract was entered into, for three primary 
reasons--consistency in vehicle components to avoid cardinal changes 
and increased pricing risks, reduction of administrative burdens, and 
consistency with the approach Congress used in implementing the last 
legislative increase in domestic content, which took place in 1987.
    According to transit vehicle manufacturers, their vehicle bid 
quotes are based on the price of components known at the time the 
vehicle manufacturer receives the transit agency's solicitation and 
begins planning its supply chain by contacting potential suppliers. 
According to commenters, FTA's proposed policy had the potential of 
requiring three different component calculations based on a multi-year 
delivery schedule stemming from a single contract--one for vehicles 
delivered during FYs 2016-2017, another for FYs 2018-2019, and a third 
for FYs 2020 and beyond. This would require the vehicle manufacturer to 
identify new and potentially untried domestic suppliers for each 
successive configuration, integrate those new components in the midst 
of an ongoing production line, and incur the risk of price increases 
for those new components, as well as the possibility that the 
replacement or substitution of components might be characterized by 
some competitors as a ``cardinal change.'' Commenters also noted that a 
vehicle scheduled for delivery during the FY 2018-2019 time frame with 
a 65 percent domestic content requirement could find itself subject to 
a 70 percent domestic content requirement if delays and slippages 
beyond the control of the transit agency and the transit vehicle 
manufacturer resulted in the vehicle being delivered in FY 2020 or 
later. They requested a constant domestic content level that would 
exist for the duration of the production contract.
    In addition, transit agencies expressed concerns regarding the 
administrative costs and burdens of performing three separate pre-award 
audits and three separate post-award audits on three potentially 
different vehicle configurations. As a term and condition of 
assistance, recipients of FTA funding must conduct a pre-award and 
post-delivery audit on every rolling stock model they procure. If 
domestic content was based on the delivery date, a transit agency with 
a multi-year delivery schedule faced the possibility that their 
vehicles could have three different levels of domestic content, which 
they would need to verify and confirm. In addition, unforeseen delays 
in production could result in a vehicle delivery occurring in a 
subsequent fiscal year with a higher domestic content obligation.
    Several commenters pointed out that when Congress elevated the 
domestic content requirement from 50 percent to 60 percent in section 
337 of Title III of the Surface Transportation and Urban Relocation 
Assistance Act of 1987 (Pub. L. 100-17) (STURAA), Congress provided 
that a vehicle's domestic content percentage would be based on the date 
the procurement contract was signed. Commenters suggested that FTA 
follow that approach.
    Finally, one commenter requested clarification on the Notice's use 
of the term ``advertised'' when referring to ``solicitations for bids 
or requests for proposals that were advertised before December 4, 
2015.'' FTA will address this request in the discussion of the public 
interest waiver, below.
    FTA's Response:
    Basing domestic content standards on the date the solicitation is 
made available to the public and potential bidders or on the date the 
contract is executed is contrary to language in the FAST Act. Using the 
date of solicitation would allow transit agencies to lock in a lower 
domestic content threshold for a contract that may be signed at a date 
when the higher domestic content standards are in effect, contrary to 
the statutory language. FTA believes Congress provided adequate advance 
notice in the FAST Act regarding the increase in domestic content, such 
that manufacturers and vendors have sufficient time to amend open 
solicitations for bids prior to the submission of bid proposals or the 
execution of a contract, and in fact, FTA is aware of transit agencies 
that have amended solicitations after they have been published. FTA 
also is aware that some vehicle manufacturers have indicated through a 
survey of pre-award audit data that they are already capable of meeting 
a higher domestic content threshold.
    FTA does not find the request to follow the language used in 
earlier revisions to domestic content requirements to be persuasive. 
When

[[Page 60281]]

Congress enacted STURRA in 1987, it amended the statutory language in 
the authorizing statute to increase the domestic content requirement 
from 50 percent to 55 percent effective October 1, 1989, and section 
337(a)(1)(B) increased the domestic content from 55 percent to 60 
percent effective October 1, 1991. Specifically, section 337(a)(2)(B) 
provided that the amendments shall not apply with respect to any 
supplier or contractor or any successor in interest or assignee which 
qualified under the provisions of section 165(b)(3) of the Surface 
Transportation Assistance Act of 1982 prior to the date of enactment of 
this Act under a contract entered into prior to April 1, 1992.
    UMTA (FTA's predecessor agency) quickly published an implementing 
Notice that stated:

    The Buy America domestic content requirement for buses, rolling 
stock and associated equipment will be increased from its existing 
50 percent to 55 percent at the end of three years, and to 60 
percent at the end of five years, except that any company that has 
met the existing Buy America requirement would be exempted from 
these increases for all contracts entered into before April 1, 1992. 
In addition, the rolling stock price differential waiver is 
increased from its current 10 percent to 25 percent, and the 
definition of ``components'' is specifically to include 
``subcomponents.'' UMTA will be revising its Buy America regulation 
to reflect these changes. (52 FR 15440, April 28, 1987)

    UMTA then published a Notice of Proposed Rulemaking to implement 
these new provisions (53 FR 32994, August 29, 1988), issuing its Final 
Rule on January 9, 1991 (56 FR 926). In the Final Rule, UMTA stated 
that it ``believes that Congress intended to apply the increased 
domestic content requirements on an accelerated basis to firms entering 
the marketplace after April 2, 1987, and that it intended to 
grandfather existing firms that had complied with previous Buy America 
requirements regardless of the number of contracts or the product 
supplied (e.g., a bus versus a rail car).''
    Although Congress had the precedent of the timing language used in 
STURAA when it drafted the FAST Act, Congress declined to reintroduce 
that language.
    However, FTA finds the requests that the domestic content of a 
vehicle be fixed upon a single date that establishes the domestic 
content level for the duration of the contract to be persuasive, for 
the reasons articulated by the commenters. For those reasons, the 
applicable domestic content percentage will be based on the scheduled 
delivery date of the first production vehicle (i.e., the first vehicle 
intended to carry passengers in revenue service), final acceptance 
notwithstanding. This approach is closest to the FAST Act's statutory 
language and to Congress' clear direction. If the delivery date slips 
into a subsequent FY due to unforeseen circumstances, FTA will address 
those situations on a case-by-case basis. (Note that FTA is basing the 
domestic content requirement on the delivery date of the first 
production vehicle, rather than on the delivery date of a prototype 
unit, for several reasons. First, prototype units are constructed by 
the manufacturer for the limited purpose of design qualification 
testing, and may not necessary represent the finalized car design or 
car content. Second, prototypes are produced for testing purposes, and 
do not typically enter revenue (i.e., passenger) service in their 
prototype configuration. Finally, prototype units are delivered several 
months before the scheduled delivery date of the first production model 
and may not necessarily represent the final vehicle configuration, 
although the scheduled delivery date of the first production unit will 
undoubtedly control the components contained in the prototype unit. 
Consistent with the FAST Act, however, prototype units must contain an 
identical percentage of domestic content as the production units.)
    This approach of using the date of first production vehicle 
delivery best reflects the statutory language of the FAST Act, while 
providing the consistency in componentry and relieving the need to 
conduct multiple pre-award and post-delivery audits raised as concerns 
by numerous commenters. The FAST Act's phased-in approach provides 
adequate notice to transit agencies and transit vehicle manufacturer 
suppliers of the domestic content requirements.

B. How do the new requirements apply to options, joint procurements, 
and piggyback procurements?

    FTA received numerous comments regarding the effect of the higher 
domestic content provisions on options, joint procurements, and 
piggyback procurements. One commenter objected to extending the 
domestic content percentages throughout the life of a multi-year 
contract, including the exercise of any options, believing that 
Congress intended to increase domestic content as soon as possible, and 
that allowing the exercise of options would lock in a lower domestic 
content threshold well through FY 2020 and beyond. In contrast, several 
transit agencies and vehicle manufacturers proposed that the domestic 
content for rolling stock extend to the exercise of options for 
additional vehicles of identical manufacture, citing the benefits to 
rolling stock manufacturers and transit agencies, such as the 
predictability of pricing, the availability of components, consistency 
within the supply chain, and facilitating the ongoing manufacturing of 
rolling stock. They also cited the retroactive effect of such an 
approach, stating that applying a higher domestic content standard to a 
pre-existing contract that established a lower threshold was 
inconsistent with public interest and general principles of contract 
law.
    One commenter sought clarity regarding the applicability of the 
proposed policy guidance to joint procurement contracts executed prior 
to the effective date of the FAST Act.
    Several commenters objected to FTA's proposed guidance that would 
not allow recipients to piggyback on another agency's contract unless 
the vehicles being produced under the original contract met the 
domestic content requirements at the time the optioned vehicles are 
delivered.
    FTA's Response:
    FTA's proposed policy recognized the differences between the 
exercise of options by the original parties to a contract or a joint 
procurement between two or more purchasers and a single vehicle 
manufacturer, and piggyback procurements by third parties who were not 
parties to the original contract. With regard to the exercise of 
options, FTA is persuaded that the predictability of pricing and 
consistency within the supply chain outweighs any risks that the FAST 
Act is being circumvented. Therefore, FTA is modifying its final policy 
guidance to reflect that the date of the delivery of the first 
production vehicle under the contract controls the domestic content of 
all vehicles delivered under the contract, including vehicles delivered 
pursuant to the exercise of options. The exercise of options by the 
original parties to the contract or joint procurement establishes a 
predictable contract price for the buyers, and provides a standardized 
component list for the transit vehicle manufacturer, while at the same 
time it allows the transit vehicle manufacturer to keep its production 
line open, ensuring American jobs. However, only the original parties 
to a contract (including signatories to a joint procurement) are 
entitled to the benefits of exercising rights under that procurement.
    FTA is not persuaded by the commenters who objected to FTA's 
limitations on the use of piggyback

[[Page 60282]]

procurements during this transition period. The right to exercise an 
option does not create a contractual obligation until that contract is 
actually signed. Thus, assigning contract options to a third party will 
result in a new contract between that third party and the transit 
vehicle manufacturer, negating commenters' concerns that an increase in 
domestic content might be viewed as a ``cardinal change.'' Third 
parties seeking the assignment of procurement options (a/k/a 
``piggybacking'') have no contractual or statutory right to that 
option, and FTA considers that procurement to be a ``new'' contract and 
therefore subject to the applicable FAST Act standard based upon the 
scheduled delivery date of the first production vehicle under the new 
contract.

C. Do the increased domestic content requirements extend to 
subcomponents?

    In its April 6 publication, FTA proposed to extend the elevated 
domestic content requirements to the subcomponents that constitute a 
component. FTA received relatively little comment on this specific 
provision. Several commenters proposed that a component's domestic 
content be based upon the date the component was offered in response to 
a solicitation, rather than upon the component's actual date of 
manufacture or the vehicle's intended delivery date. In support of 
their position, transit vehicle manufacturers said that they solicit 
bids for vendors for specific vehicle components. The prices submitted 
by those bidders are based upon quotes received from their suppliers 
and sub-suppliers, and the transit vehicle manufacturer has limited 
ability to leverage that bidder to increase the domestic content of its 
subcomponents. In addition, changing suppliers midway through a 
production schedule would be disruptive to production schedules, 
particularly if a manufacturer must switch to an untested supplier 
solely to meet a gradual increase in domestic content. In contrast, the 
association supporting domestic manufacturing expressed concerns that 
maintaining fixed domestic component and subcomponent levels throughout 
the life of the contract discourages new rolling stock suppliers from 
entering the market.
    FTA's Response:
    With the exception of components manufactured by the transit 
vehicle manufacturer itself, the vehicle manufacturer has little 
influence over the subcomponent content of a given component, and given 
the prevalence of multi-year vehicle delivery schedules, the effective 
date for a component's domestic content will be based upon the 
requirements in the contract. For solicitations advertised after the 
effective date of this Notice, however, the solicitation must include 
the appropriate statutory domestic content percentages for both 
components and subcomponents.
    FTA is sensitive to the position that the elevated domestic content 
requirements eventually will encourage new entrants into the vehicle 
supply chain. All contracts signed after the FAST Act's effective date, 
including piggyback procurements and procurements off a state's 
procurement schedule, will be subject to the higher domestic content 
standards, resulting in more domestic suppliers entering the supply 
chain and the incorporation of more domestic content into vehicles 
funded with FTA financial assistance.

D. Do the changes also apply to train control, communication, and 
traction power systems?

    For purposes of Buy America, rolling stock includes train control, 
communication, and traction power equipment. 49 U.S.C. 5323(j)(2)(C). 
See also 49 CFR 661.11(t), (u), and (v). One commenter pointed out that 
the delivery of components on a construction contract differs from the 
delivery schedule of a rolling stock contract. Unlike rolling stock 
procurements where the transit agency is contracting for a fleet of 
homogenous transit vehicles, a construction contract may encompass a 
communication system, a traction power system, and a train control 
system, all of which may have differing construction schedules and 
varying component lists. Attempting to impose a domestic content based 
on when components are delivered to a job site, or the completion date 
of a particular construction segment may force the substitution of 
materials midway through a construction project, or in a worse-case 
scenario, may force the removal and replacement of components if delays 
push the completion of the contract into a subsequent fiscal year. The 
commenter proposed that the contracting date for the construction 
project would be a better determinant of the domestic content 
requirement, rather than one based on the installation date of each 
component or the completion of a particular portion of a construction 
contract.
    FTA's Response:
    FTA agrees with the commenter that there are significant 
differences between procurements for identical units of rolling stock, 
and a construction contract consisting of multiple deliverables, and 
therefore, the contracting award dates for train control, 
communication, and traction power systems will determine the contract's 
domestic content percentage. If a contract was signed in FY2016 or 
FY2017, the resulting components must consist of at least 60 percent 
domestically-manufactured components. If a construction contract is 
awarded during FY 2018 or FY 2019, the contract must include a domestic 
content percentage for that project that exceeds the 65 percent 
threshold. And if a construction contract is awarded in FY 2020 or 
beyond, the percentage of domestically-manufactured components must 
exceed 70 percent.

E. Does the increase in domestic content requirements apply to 
remanufactured, overhauled, or rebuilt transit vehicles?

    A transit vehicle rebuilder proposed that the FAST Act amendments 
should not apply to overhauls, rebuilds or remanufacture of any buses 
procured prior to the effective date of the FAST Act. The commenter 
also asked that the requirements be applied consistently throughout the 
duration of a contract so that the resulting vehicles will have 
consistent Buy America content. The commenter argues that the FAST Act 
amendments should not be interpreted in any manner that decreases 
transit agencies' abilities to complete their intended overhauls by 
forcing a higher standard of American content at the time of overhaul 
than when the bus was originally manufactured.
    FTA's Response:
    Consistent with the commenter's recommendation, FTA agrees that the 
domestic content in effect at the time the vehicle was delivered will 
apply to any future contracts for overhaul, rebuild, or remanufacturing 
projects, limited to the parties on the original contract.

F. Do the FAST Act amendments apply to passenger ferry vessels?

    FTA received two comments from the passenger ferry vessel industry 
and a ferry operator that proposed an implementation process for ferry 
vessels that based the domestic content requirement on the date of 
vessel contracting, rather than on the delivery date of the vessel. 
Commenters argued that it can be hard at the time of the contract's 
execution to anticipate with specificity exactly when the constructed 
ferry vessel will be finished, pass required regulatory inspections and 
sea trials, and be delivered to the customer. For vessels scheduled to 
be delivered over a multi-year program, they noted the difficulty and 
inefficiency in

[[Page 60283]]

maintaining multiple component lists for identical vessels that would 
be delivered across different fiscal years.
    FTA's Response:
    FTA acknowledges that the long lead times associated with issuing 
design specifications, obtaining Coast Guard and other regulatory 
approval, bid solicitations, and construction of a ferry vessel exceed 
that required for other traditional types of rolling stock. 
Accordingly, for ferry vessels, the date on which a transit agency 
signs the procurement contract will govern the domestic content for all 
vessels delivered under that contract.

G. How do the new rules apply to reimported domestic steel and iron?

    One commenter asked that FTA address the applicability of section 
3011 of the FAST Act, which added 49 U.S.C. 5323(j)(5), allowing the 
inclusion of steel and iron produced in the United States and 
incorporated into a rolling stock frame or car shell outside the United 
States, provided that the frame or car shell is imported back into the 
United States for final assembly.
    FTA's Response:
    Consistent with the statutory provision, the cost of any domestic 
steel and iron may be included in the calculation of the transit 
vehicle's domestic content, provided that the average cost of the 
vehicle exceeds $300,000, as provided by the FAST Act. Manufacturers 
may include the cost of domestic steel and iron on vehicles produced 
after October 1, 2015, the effective date of the FAST Act.

H. Will FTA issue public interest waivers for vehicle procurements 
underway when the FAST Act was enacted?

    In a Notice published concurrently with the proposed policy 
statement (81 FR 20051, April 6, 2016), FTA invited the public to 
comment on a proposed public interest waiver that would apply the 
current domestic content standard to rolling stock contracts entered 
into between October 1, 2015 (the effective date of the FAST Act) and 
December 4, 2015, (the date on which the Act was enacted), and for 
contracts entered into after December 4, 2015, as a result of 
solicitations for bids or requests for proposals that were advertised 
before December 4, 2015.
    FTA received 14 comments on the proposed waiver from: A transit 
industry trade association, a passenger vessel trade group, several 
public transportation agencies, numerous transit vehicle manufacturers 
and remanufacturers, and Buy America consultants, all of whom supported 
the proposed waiver. Among the cited benefits of a waiver were the 
avoidance of additional costs to transit agencies that would have to 
rewrite and re-advertise existing solicitations to incorporate the new 
domestic content thresholds, the administrative costs to vehicle 
manufacturers who would need to identify and solicit new domestic 
suppliers, and most importantly, predictable delays in the acquisition 
of new transit vehicles, which would pose a disservice to transit 
riders.
    The passenger vessel group asked that FTA extend the waiver to 
ferry vessel procurements for which the vessel design was substantially 
complete before the enactment of the FAST Act; vehicle remanufacturers 
asked that the waiver extend to contracts for rebuilds, overhauls, and 
remanufacturing entered into prior to the enactment date of the FAST 
Act; and several transit agencies and vehicle manufacturers asked that 
the waiver extend to contract options assigned to another transit 
agency if the contract was entered into prior to the FAST Act's 
enactment date.
    FTA's Response:
    Based on the foregoing discussion of the FAST Act's implementation 
and input from commenters, FTA believes that a request for a public 
interest waiver to address contracts signed before the date the FAST 
Act was enacted is reasonable, and is extending the waiver to contracts 
for ferry vessels and to contracts for the remanufacturing, rebuilding, 
and overhaul of a recipient's existing fleet. However, as stated 
previously, FTA will not extend pre-FAST Act domestic content 
percentages to options exercised by a third party after the effective 
date of the Act.
    Further, to avoid the disruption of ongoing contract solicitations 
and to facilitate the delivery of transit vehicles to the public, FTA 
is extending the waiver to contract solicitations advertised on or 
after December 4, 2015, provided the contract is awarded within 60 days 
after the publication date of this Notice. If a solicitation was 
advertised (i.e., published or distributed to potential bidders in 
manner that constitutes constructive notice) on or after the enactment 
date of the FAST Act and the parties are unable to execute a contract 
within 60 days of this Notice, the solicitation must be amended to 
reflect the applicable domestic content standard that will be in effect 
when the first production vehicle is scheduled to be delivered. If 
compliance with this requirement would pose an undue hardship, FTA will 
evaluate requests for a waiver on a case-by-case basis.
    A request for a public interest waiver should set forth the 
detailed justification for the proposed waiver, including information 
about the history of the procurement and the burden on the recipient 
and/or the industry in complying with the FAST Act. Public interest 
waivers should be narrowly tailored and FTA will not generally look 
favorably on waivers that provide for contracts that include the 
exercise of options for vehicles that will be delivered beyond FY2020. 
FTA will act expeditiously on public interest waiver requests that 
provide the information requested.

IV. Final Policy Guidance and Public Interest Waiver

A. Final Policy Guidance

    Individual and Joint Procurements of Buses and Railcars. For 
rolling stock contracts entered into on or after October 1, 2015, i.e., 
the effective date of the FAST Act, the applicable domestic content 
percentage under section 5323(j)(2)(C) will be based on the scheduled 
delivery date of the first production vehicle (i.e., the first vehicle 
intended to carry passengers in revenue service), final acceptance 
notwithstanding. Thus, if a recipient or group of recipients as part of 
a joint procurement enter into a contract for rolling stock on or after 
October 1, 2015, then the new FAST Act provisions applicable for the 
date of delivery of the first production vehicle shall apply. 
Accordingly, if the first production vehicle is delivered in FY2018 or 
FY2019, the domestic content must be more than 65 percent, and if the 
first production vehicle is delivered in FY2020 or beyond, the domestic 
content must be more than 70 percent. These delivery provisions apply 
to contracts entered into on or after October 1, 2015, unless a waiver 
is granted. If the delivery date of the first production vehicle is 
delayed such that it will be delivered in a year with a higher domestic 
content, FTA will address those situations on a case-by-case basis.
    The FAST Act amendments do not apply to contracts entered into 
before October 1, 2015, even if the contract provides for the delivery 
of the first production vehicle after FY2017. For contracts entered 
into before October 1, 2015, all vehicles delivered under the original 
contract base order and any properly exercised options by recipients 
who are direct parties to the contract may contain a domestic content 
of more than 60 percent, per the pre-FAST Act requirements. Recipients 
who are not direct parties to a contract executed before October 1, 
2015, however, may

[[Page 60284]]

not exercise assigned options (a/k/a ``piggybacking'') on such 
contracts.
    Procurements of Ferry Vessels. Due to the long lead time in 
establishing vessel design specifications, obtaining Coast Guard 
certifications and other regulatory approval, and the bid solicitation 
and review process that exceeds that required for other traditional 
types of rolling stock, the date on which a transit agency signs the 
vessel contract will govern the domestic content for all vessels 
delivered under that contract. Therefore, for vessel contracts signed 
during FYs 2016 or 2017, the vessels must contain a minimum of 60 
percent domestic content; contracts signed in FYs 2018 or 2019 must 
require no less than 65 percent domestic content; and contracts signed 
in FY 2020 or beyond must mandate a domestic content of no less than 70 
percent.
    Train Control, Communication and Traction Power Equipment. For 
purposes of Buy America, rolling stock includes train control, 
communication, and traction power equipment. 49 U.S.C. 5323(j)(2)(C). 
See also 49 CFR 661.11(t), (u), and (v). The domestic content 
requirement in effect on the date a contract was signed for train 
control, communication, and traction power equipment will control. If 
the contract is signed in FY2016 or FY2017, the contract shall require 
an overall domestic content that exceeds 60 percent; if a contract is 
signed in FYs 2018 or 2019, the contract must include an overall 
domestic content percentage that exceeds 65 percent; and if a contract 
is signed in FY2020 or beyond, the domestic content must exceed 70 
percent.
    State Purchasing Schedules. Some recipients purchase rolling stock 
from a State purchasing schedule. A State purchasing schedule is an 
arrangement that a State has established with multiple vendors in which 
those vendors agree to provide essentially an option to the State and 
its subordinate governmental entities and others it might include in 
its programs, to acquire specific property or services in the future at 
established prices. Because the purchasing schedule does not commit the 
State to procuring a minimum number of vehicles, a ``contract'' does 
not exist until a State, recipient or subrecipient enters into a 
purchase order with a vendor listed on the schedule.
    Therefore, for purchase orders placed against State purchasing 
schedules before October 1, 2015, for the delivery of rolling stock in 
FY2018 and beyond, the increased domestic content requirements will not 
apply. For purchase orders placed against State schedules on or after 
October 1, 2015, for rolling stock that will be delivered in FY 2016 or 
2017, the domestic content requirement must exceed 60%. For purchase 
orders placed against State schedules for rolling stock that will be 
delivered in FYs 2018 or 2019, the domestic content must exceed 65%, 
and for purchase orders placed against State schedules for rolling 
stock that will be delivered in FY 2020 or beyond, the domestic content 
must exceed 70%.
    Calculation of Domestic Content. FTA will adjust the calculation 
for determining whether a component is of domestic origin under 49 CFR 
661.11 to accommodate the increase in domestic content for FY2018 and 
beyond. Currently under 49 CFR 661.11(g), ``for a component to be of 
domestic origin, more that 60 percent of the subcomponents of that 
component, by cost, must be of domestic origin, and the manufacture of 
the component must take place in the United States. If, under the terms 
of this part, a component is determined to be of domestic origin, its 
entire cost may be used in calculating the cost of domestic content of 
an end product.''
    Thus, for vehicles to be delivered in FY2018 or 2019, for a 
component to be of domestic content, more than 65 percent of the 
subcomponents of that component, by cost, must be of domestic origin, 
and for FY2020 or beyond, more than 70 percent of the subcomponents of 
the component must be of domestic origin. The requirement that 
manufacture of the component take place in the United States still 
applies. Additionally, if a component is determined to be of domestic 
origin, its entire cost may be used in calculating the cost of content 
of an end product.
    Cost of Domestic Steel and Iron for Rolling Stock Frame or Car 
Shell. Section 3011 of the FAST Act, which added 49 U.S.C. 5323(j)(5), 
allows domestic content to include steel and iron produced in the 
United States and incorporated into a rolling stock frame or car shell 
outside the United States, provided that the frame or car shell is 
imported back into the United States for final assembly. Consistent 
with the statutory provision, the cost of any domestic steel and iron 
may be included in the calculation of the transit vehicle's domestic 
content, provided that the average cost of the vehicles exceeds 
$300,000, as provided by the FAST Act. Manufacturers may include the 
cost of domestic steel and iron on vehicles produced after October 1, 
2015, the effective date of the FAST Act.

B. General Public Interest Waivers

    FTA is issuing two general public interest waivers to address two 
categories of recipients and manufacturers: (1) Recipients who entered 
into contracts or placed purchase orders against State schedules 
between October 1, 2015 and December 4, 2015; and (2) recipients who 
have entered into contracts after December 4, 2015, as a result of 
solicitations for bids or requests for proposals that were advertised 
before December 4, 2015. In addition, FTA is issuing a third public 
interest waiver for recipients who solicited contracts on or after 
December 4, 2015, provided they enter into a contract within 60 days of 
publication of this Notice.
    Under 49 U.S.C. 5323(j)(2)(A), the Administrator may waive the Buy 
America requirements if the Administrator finds that applying the Buy 
America requirements would be inconsistent with the public interest. 
``In determining whether the conditions exist to grant a public 
interest waiver, the Administrator will consider all appropriate 
factors on a case-by-case basis . . . When granting a public interest 
waiver, the Administrator shall issue a detailed written statement 
justifying why the waiver is in the public interest. The Administrator 
shall publish this justification in the Federal Register, providing the 
public with a reasonable time for notice and comment of not more than 
seven calendar days.'' 49 CFR 661.7(b).
    Public interest waiver for contracts entered into between October 
1, 2015 and December 4, 2015. FTA grants a general public interest 
waiver for contracts entered into between the FAST Act's effective date 
and date of enactment (i.e., between October 1, 2015 and December 4, 
2015). For these contracts, the increased domestic content requirements 
for FY2018 and beyond will not apply, regardless of when the first 
production vehicle is delivered. However, consistent with FTA's policy 
statement above, parties to the contracts may exercise options under 
the contract, but recipients will not be permitted to piggyback on the 
contracts.
    Public interest waiver for contracts entered into after December 4, 
2015 as a result of solicitations advertised before December 4, 2015. 
FTA grants a general public interest waiver for contracts entered into 
after December 4, 2015 as a result of solicitations for bids or 
requests for proposals that were advertised (i.e., published or 
distributed to potential bidders in a manner that constitutes 
constructive notice) before

[[Page 60285]]

December 4, 2015. Under these circumstances, the increased domestic 
content requirements for FY2018 and beyond will not apply, regardless 
of when the first production vehicle is delivered. However, consistent 
with FTA's policy statement above, parties to the contracts may 
exercise options under the contract, but recipients will not be 
permitted to piggyback on the contracts.
    Public interest waiver for contract solicitations advertised on or 
after December 4, 2015 and entered into within 60 days of publication 
of this notice. To avoid the disruption of ongoing contract 
solicitations and to facilitate the delivery of transit vehicles to the 
public, FTA is extending the waiver to contract solicitations 
advertised on or after December 4, 2015, and entered into within 60 
days after the publication date of this Notice. If a solicitation was 
advertised (i.e., published or distributed to potential bidders in a 
manner that constitutes constructive notice) after the enactment date 
of the FAST Act and the parties are unable to execute a contract within 
60 days of this Notice, the solicitation must be amended to reflect the 
applicable domestic content standard that will be in effect when the 
first production vehicle is scheduled to be delivered. If compliance 
with this requirement would pose an undue hardship, FTA will evaluate 
requests for a waiver on a case-by-case basis.
    Recipients may apply to FTA for individual public interest waivers 
for contracts that do not fall within the scope of a general public 
interest waiver. A request for a public interest waiver should set 
forth the detailed justification for the proposed waiver, including 
information about the history of the procurement and the burden on the 
recipient and/or the industry in complying with the FAST Act. Public 
interest waivers should be narrowly tailored and FTA will not generally 
look favorably on waivers that provide for contracts that include the 
exercise of options for vehicles that will be delivered beyond FY2020. 
FTA will act expeditiously on public interest waiver requests that 
provide the information requested.

V. Effective Date

    Because the statute is self-effectuating, the changes are effective 
upon the FAST Act's enactment. FTA will be initiating a subsequent 
rulemaking updating 49 CFR part 661 to reflect these changes; however, 
today's Policy Statement and Waiver represents FTA's implementation of 
the FAST Act provisions during this interim period.

    Dated: August 26, 2016.
Ellen Partridge,
Chief Counsel.
[FR Doc. 2016-21007 Filed 8-31-16; 8:45 am]
 BILLING CODE 4910-57-P