Buy America Handbook-Conducting Pre-Award and Post-Delivery Audits for Rolling Stock Procurements, 4959-4963 [2017-00873]

Agencies

• Federal Transit Administration
• DEPARTMENT OF TRANSPORTATION

[Federal Register Volume 82, Number 10 (Tuesday, January 17, 2017)]
[Notices]
[Pages 4959-4963]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-00873]


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DEPARTMENT OF TRANSPORTATION

Federal Transit Administration

[Docket No. FTA-2015-0020]


Buy America Handbook--Conducting Pre-Award and Post-Delivery 
Audits for Rolling Stock Procurements

AGENCY: Federal Transit Administration, DOT.

ACTION: Notice of availability of Handbook.

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SUMMARY: The Federal Transit Administration (FTA) has placed in the 
docket and on its Web site guidance, in the form of a Handbook, on 
complying with FTA's Buy America pre-award and post-delivery audit 
requirements for revenue service rolling stock procurements, from the 
solicitation phase through final acceptance of the rolling stock. The 
Handbook explains and illustrates how to calculate domestic content of 
rolling stock, and is intended for use by recipients of FTA funding, 
auditors, manufacturers, and suppliers (including subcontractors).

DATES: The Handbook becomes effective February 16, 2017.

FOR FURTHER INFORMATION CONTACT: For program questions, Patrick 
Centolanzi, FTA Office of Program Management, at (202) 366-0234 or 
Patrick.Centolanzi@dot.gov. For legal questions, Cecelia Comito, FTA 
Office of Chief Counsel, at (202) 366-4011 or Cecelia.Comito@dot.gov.

SUPPLEMENTARY INFORMATION: 

Table of Contents

I. Overview
II. Comment Summary
    A. General
    B. Section 1--Introduction
    C. Section 2--Pre-Award Audit
    D. Section 3--Post-Delivery Audit
    E. Section 4--Domestic Content Calculations
    F. Section 5--Frequently Asked Questions
    G. Appendices

I. Overview

    FTA's objective in implementing 49 CFR part 661 (Buy America 
Requirements) and 49 CFR part 663 (Pre-Award and Post-Delivery Audits 
of Rolling Stock Purchases) is to support and promote the United States 
(U.S.) manufacturing industry and U.S. jobs. As guidance on the pre-
award and post-delivery audit requirements for rolling stock 
procurements, FTA published two separate Buy America handbooks in May 
1995--i.e., one for rail vehicle procurements and one for bus 
procurements.
    Over the past several years, FTA has conducted Buy America 
Compliance Reviews, during which FTA observed and monitored the pre-
award and post-delivery audit processes for fourteen capital grants. 
One primary finding was that FTA should provide more guidance and 
clarity on conducting pre-award and post-delivery Buy America audits as 
required in FTA's Buy America regulations (49 CFR parts 661 and 663).
    As a result of that finding, FTA is issuing a new Buy America 
Handbook, entitled Conducting Pre-Award and Post-Delivery Audits for 
Rolling Stock Procurements (Handbook), which replaces the two Buy 
America handbooks on this subject from 1995. On June 16, 2015, FTA 
issued a notice of availability of the proposed handbook in the Federal 
Register (80 FR 34487) and requested public comment on the Handbook. 
The comment period closed on August 17, 2015. FTA received comments 
from 28 entities, including trade associations, State DOT's, 
metropolitan planning organizations, public transportation providers, 
manufacturers, and individuals. This notice addresses the comments 
received and explains the changes FTA made to the proposed handbook in 
response to the comments.
    The updated Buy America Handbook explains to recipients how to 
verify and document compliance with FTA's Buy America pre-award and 
post-delivery audit requirements. In addition, the Handbook encourages 
recipients, manufacturers, and suppliers to adopt certain best 
practices to ensure compliance with the pre-award and post-delivery 
audit requirements. The Handbook applies only to rolling stock 
procurements that are subject to the pre-award and post-delivery audit 
requirements set forth in 49 CFR part 663.
    This notice provides a summary of the comments received regarding 
the proposed Handbook and the changes made to the Handbook in response 
to those comments. The Handbook is not included in this notice; 
instead, the Handbook is available on FTA's Web site, at https://www.transit.dot.gov/buyamerica, and in the docket, at 
www.regulations.gov (Docket No. FTA-2015-0020). Paper copies of the 
Handbook may be obtained by

[[Page 4960]]

contacting FTA's Administrative Services Help Desk, at (202) 366-4865.

III. Comment Summary

A. General

    Several commenters suggested changes for provisions in the Handbook 
that are identical to regulatory provisions in 49 CFR parts 661 and 
663. FTA has not accepted any of these suggested changes as the rules 
can only be amended through the rulemaking process. However, where a 
careful read showed that the Handbook was not consistent with the 
regulations, we have made those changes to the Handbook to ensure the 
Handbook tracks the regulations. In addition, some commenters took the 
opportunity of a public comment process on the Handbook to make 
recommendations for amendments to FTA's Buy America regulation. FTA 
expects to update the Buy America regulation in the near future, and 
will consider comments received to the Handbook when developing the 
notice of proposed rulemaking.
    A number of comments were outside the scope of the notice and thus 
are not addressed here. For example, a commenter recommended we include 
language in the Handbook from the DRIVE Act, which did not become law; 
however, we have updated the Handbook to reflect changes to 49 U.S.C. 
chapter 53, as amended by the Fixing America's Surface Transportation 
(FAST) Act, Public Law 114-94, Dec. 4, 2015. A number of commenters 
made editorial suggestions, which in many cases we accepted. Further, 
commenters asserted in a number of instances that the proposed Handbook 
went beyond the Buy America regulations. While we have not discussed 
each instance in this notice, we have thoroughly and carefully reviewed 
the Handbook to ensure it does not implicitly or explicitly require 
more than what is required by the regulations.
    Throughout the document, FTA has made edits consistent with changes 
the FAST Act made to 49 U.S.C. 5323(j). For example, the Handbook no 
longer refers to ``more than 60 percent of the cost'' and instead 
refers to ``more than the minimum percentage set forth in 49 U.S.C. 
5323(j)(2)(C)(i),'' or similar language, to reflect the phasing in of 
higher minimum domestic content percentages for rolling stock between 
FY 2016 and FY 2020. As a second example, in section 1.2, Background, 
we added language from a new provision in 49 U.S.C. 5323(j)(5) that 
permits the cost of steel or iron that is produced in the United States 
and used in rolling stock frames or car shells that are produced 
outside of the United States to be included in the calculation of the 
domestic content of the rolling stock when the average cost of a 
vehicle in the procurement exceeds $300,000.

B. Section 1--Introduction

    Section 1 of the proposed Handbook is an introductory chapter that 
provides a brief overview of the pre-award and post-delivery audit 
requirements set forth in 49 CFR parts 661 and 663, summarizes the 
contents of each subsequent section of the Handbook, and includes lists 
of relevant legal references, definitions, and acronyms.
    Several commenters suggested that FTA clarify the Handbook applies 
only to new vehicles, and not to overhauls, rebuilds, or refurbished 
vehicles. We have clarified this in Subsection 1.1, Scope, and this 
notice therefore does not respond to comments inquiring as to how 
various provisions in the Handbook apply to overhauls, rebuilds, or 
refurbished vehicles, as those comments are outside the scope of the 
Handbook. We have also clarified that while Buy America requirements 
apply to support vehicles, the pre-award and post-delivery audit 
requirements apply only to vehicles used in revenue service.
    Several commenters sought clarification on some of the defined 
terms used in the Handbook. Most of these comments related to terms 
that are defined in 49 CFR parts 661 and 663, and, as stated 
previously, FTA cannot make changes to those definitions outside of a 
rulemaking process. FTA has reviewed the definitions to ensure they are 
consistent with the regulations and made edits as appropriate. One 
commenter sought clarity on the use of the word ``independent'' in the 
definition of the term auditor; we have amended the definition to be 
consistent with the use of the term in the text of the Handbook, and 
the definition now states the auditor must be independent from the 
manufacturer and the manufacturer's agents.

C. Section 2--Pre-Award Audit

    Section 2 describes the pre-award audit requirements set forth in 
49 CFR 663.21-27 and explains that the recipient must ensure the pre-
award audit is complete before the recipient enters into a formal 
contract for the purchase of rolling stock. Pursuant to 49 CFR 663.23, 
the pre-award audit must include: A Pre-Award Buy America 
Certification, a Pre-Award Purchaser's Requirements Certification, and, 
where appropriate, a Pre-Award Certification of Compliance with or 
Inapplicability of Federal Motor Vehicle Safety Standards (FMVSS).
    Two commenters sought clarity on how to determine whether an 
auditor is ``qualified.'' FTA has not attempted to define who is a 
``qualified'' auditor in the Handbook, and instead relies on its 
recipients to make that determination. One commenter asked what 
``independent from the procurement process'' means; specifically, 
whether an entity that develops and writes the specifications for a 
procurement would be barred from conducting Buy America audits. The 
original intent was that the auditor be independent from the 
manufacturer; we have amended the text of the Handbook by removing the 
requirement that an auditor be independent from the procurement 
process.
    Several commenters had questions related to Buy America waivers. 
Two commenters asked what timeframe should be allowed to request, and 
be granted, a Buy America waiver. Some commenters wanted to know how 
far in advance a Buy America waiver should be requested before the 
contract is awarded. FTA cannot provide a definitive timeline for 
processing waiver requests, and recommends recipients make those 
requests as soon as they can. One commenter stated the Handbook was not 
clear as to whether waivers applied to components or to the whole 
vehicle. Another commenter questioned the assertion in the Handbook 
that a price differential waiver may be granted if including the 
domestic material would increase the cost of the overall project by 
more than 25 percent, stating the regulation provides the waiver may be 
granted if the price of a single component is increased by 25 percent. 
The discussion of Buy America waivers in section 2.2.1 of the Handbook 
has been revised to clarify the applicability of the three statutory 
waivers in 49 U.S.C. 5323(j)(2) to rolling stock procurements. By 
statute, the procurement of rolling stock is subject to a waiver from 
the requirement that manufactured goods must contain 100 percent 
domestic content. Section 5323(j)(2)(C) allows FTA to waive Buy America 
requirements for rolling stock procurements by permitting domestic 
content less than 100 percent. The Buy America statute also includes 
three additional waivers: Public interest waivers; non-availability 
waivers; and price differential waivers. The procedures for applying 
for each statutory waiver are set forth in 49 CFR 661.7. Only waivers 
based on public interest or non-availability may be granted for a 
component or subcomponent in the case of the

[[Page 4961]]

procurement of rolling stock. 49 CFR 661.7(f).
    Public interest and non-availability waivers under 49 CFR 661.7(f) 
may be granted for components and subcomponents of rolling stock, and 
if a waiver is granted, the component or subcomponent will be 
considered to be of domestic origin for purposes of calculating the 
domestic content of the vehicle. Generally, recipients, not the 
manufacturer, must apply for the Buy America waiver. However, a 
potential bidder, offeror or supplier may seek a public interest or 
non-availability waiver for a component or subcomponent.
    Several commenters expressed concern about the level of 
documentation that recipients should review and maintain. The language 
in the Handbook in section 2.2.1. and 2.2.2, listing the documents the 
recipient must review and maintain for the procurement, closely tracks 
the regulation at 49 CFR part 663, in particular Sec. Sec.  663.23, 
633.25, and Appendix D to 49 CFR 661.11. Further, an auditor must 
review the manufacturer's documentation that provides support for the 
stated costs of the components, subcomponents, and final assembly. This 
is part of the auditing process--verifying that the represented costs 
are accurate. If the manufacturer declines to provide supporting 
documentation for component and subcomponent costs, the Buy America 
domestic content cannot be verified, and the auditor will need to 
include this information in the pre-award audit report. The auditor 
needs to review enough supporting documentation to be satisfied that 
the vehicles will be compliant with Buy America requirements. FTA has 
amended the Handbook text in subsection 2.2.2. to provide guidance on 
maintaining confidentiality of manufacturer's proprietary information.
    Commenters had similar questions about auditors reviewing 
documentation related to final assembly. Notably, the list of items to 
review is a suggested list (``. . . the auditor may perform due 
diligence through a variety of methods, including . . .''). One 
commenter suggested that including proposed final assembly costs in the 
Pre-Award Buy America Compliance Certification is not required by the 
regulation. Section 663.25 of title 49, CFR, specifically requires the 
recipient or its auditor to review ``a description of the activities 
that will take place at the final assembly point and the cost of final 
assembly.'' For pre-award, FTA acknowledges these will be estimated 
costs, and the Handbook uses the words ``proposed'' and ``estimated.''
    Some manufacturers also had concerns about how they could confirm 
their suppliers' compliance with Buy America, stating they rely on 
their supplier's certification of compliance, particularly given the 
large number of suppliers, components and subcomponents. Some objected 
to the recommended best practices identified in subsection 2.2.3.4. for 
confirming compliance. To the extent the manufacturer is asserting that 
components and subcomponents should be calculated as part of the 
domestic content of a vehicle, the manufacturer needs to be confident 
that its suppliers have provided compliant parts. The manufacturer will 
need to determine whether to take additional steps to confirm 
compliance with Buy America. FTA has provided some recommendations in 
the Handbook; this is neither an exhaustive list nor a list of required 
activities. One commenter suggested that FTA should require 
manufacturers to obtain executed certifications of compliance from 
their suppliers, as opposed to FTA simply recommending that 
manufacturers obtain such certifications. FTA has not made this a 
requirement in the past and it is not a requirement in the regulations, 
so we have maintained the provision in the Handbook as a 
recommendation.
    One commenter objected to language in subsection 2.3.2.2. that 
suggests recipients should verify a manufacturer's financial viability 
as part of the review to certify compliance with the pre-award 
requirements. The commenter asserted this statement does not belong in 
the Buy America Handbook. Under 49 CFR 663.27, Pre-award purchaser's 
requirements certification, the recipient must keep on file a 
certification that the proposed manufacturer is a ``responsible 
manufacturer with the capability to produce a vehicle that meets the 
recipient's specification set forth in the recipient's solicitation.'' 
Financial viability is an important characteristic of a ``responsible 
manufacturer,'' and FTA has retained the language.

D. Section 3--Post-Delivery Audit

    Section 3 describes the post-delivery audit requirements set forth 
in 49 CFR 663.31-39. It explains that the recipient must ensure the 
post-delivery audit is complete after the rolling stock is delivered to 
the recipient but before title to the rolling stock is transferred to 
the recipient, or before the rolling stock is put into revenue service, 
whichever comes first. Pursuant to 49 CFR 663.33, the post-delivery 
audit must include: A Post-Delivery Buy America Certification, a Post-
Delivery Purchaser's Requirements Certification (based upon a review of 
the Resident Inspector's Report pursuant to 49 CFR 663.37), and a Post-
Delivery Certification of FMVSS Compliance or Inapplicability, where 
appropriate. This section explains the requisite processes and 
documentation requirements for each of the post-delivery audit 
certifications listed above.
    This section also describes best practices to aid recipients, 
manufacturers, and suppliers in achieving compliance with the post-
delivery audit requirements, including guidance on how to prepare the 
requisite Resident Inspector's Report and supporting documentation, in 
accordance with 49 CFR 663.37, and procedures for effectively verifying 
compliance with the domestic content and U.S. final assembly 
requirements.
    Several commenters noted inconsistencies in how the proposed 
Handbook described the post-delivery period. We have amended the 
Handbook to track the language used in the regulation. In response to 
comments, we have clarified that Post-Delivery Domestic Content 
Monitoring (also described as ``intermediate audits'') is a recommended 
best practice that would occur after the vehicle manufacturer delivers 
the first vehicle to the recipient and until the vehicle manufacturer 
transfers title to the last vehicle to the recipient or the recipient 
puts the last vehicle into revenue service, whichever is first. 
Specifically, FTA added subsection 3.1.3.4 to the Handbook to address 
the concerns regarding post-delivery monitoring raised by the 
commenters.
    Several commenters expressed concern regarding the possibility of 
having to produce proprietary information to show Buy America 
compliance. FTA has amended the Handbook to address these concerns, in 
sections 2 and 3 and an added ``FAQ'' in section 5. If a manufacturer 
is concerned about releasing proprietary information, the manufacturer 
and recipient may agree that the recipient will contract with an 
external consultant to conduct the manufacturer's Buy America 
certification review. Alternatively, the recipient may be able to keep 
its Buy America audit function independent by using a ``firewall'' and 
assuring the manufacturer that those employees of the recipient 
performing the Buy America audit are prohibited from disclosing any of 
the manufacturer's proprietary data. Further, the review of

[[Page 4962]]

documents may occur at the manufacturer's place of business. There is 
no requirement that the recipient or its auditors obtain copies of the 
documents; they need simply to review them. Whether conducted by a 
contractor or the recipient's employees, the manufacturer may require 
the reviewer to sign a non-disclosure agreement prior to reviewing the 
documents.
    We also have amended the Handbook to track the regulation with 
regard to the information the recipient must keep on file. The 
recipient is not required to maintain a list of components and 
subcomponents and their costs for a procured vehicle--the recipient is 
required to review that information (as provided by the manufacturer), 
or have an independent auditor review that information, and certify 
that it is satisfied that the rolling stock meets the Buy America 
requirements.
    One commenter asked if a Post-Delivery Audit is required if FTA 
granted a waiver from the Buy America requirements. There may be 
situations in which a full or partial audit would still be required, 
and FTA will address post-delivery audit requirements in the letter 
granting any waiver from Buy America requirements. In the event FTA 
issues a general waiver for a certain class of vehicles, if the Federal 
Register notice describing the waiver does not discuss pre-award or 
post-delivery audit requirements, recipients are encouraged to contact 
their FTA regional office for assistance. The same commenter asked for 
what purpose is the cost of final assembly used. Reviewing the cost of 
final assembly helps to verify the manufacturer is completing the 
activities that are required in final assembly, and the regulation at 
49 CFR 663.25(b) requires recipients or their auditors to verify these 
costs.
    As with other sections of the Handbook, FTA has made edits to 
clarify intent, to ensure consistency with the regulations, and to 
improve readability.

E. Section 4--Domestic Content Calculations

    This section provides guidance on how to calculate domestic content 
correctly for rolling stock procurements in accordance with 49 CFR 
661.11, providing guidance relevant to both the pre-award audit and the 
post-delivery audit.
    The introductory portion of this section has been amended to better 
explain how to conduct a proper Domestic Content Calculation consistent 
with 49 CFR 661.11. FTA has observed that some recipients and vendors, 
or their agents or auditors, are calculating the domestic content 
amount by dividing the total costs of the domestic components by the 
estimated value of the vehicle, found by subtracting certain costs from 
the Contract Total Price of the vehicles. This calculation is not 
consistent with 49 CFR 661.11 and fails to demonstrate compliance. 
Additional information is included to add instruction for doing a 
proper Domestic Content Calculation consistent with 49 CFR 661.11.
    Commenters generally objected to the inclusion of the total 
contract price or total vehicle cost in the analysis, as those values 
are not relevant to the Buy America domestic content calculations, 
which are based on vehicle material costs. FTA agrees with commenters 
and we have removed the subsections addressing these values, and have 
also removed references to the total contract price and total vehicle 
cost from the rest of the Handbook.
    In response to comments, we have made edits to subsection 4.3, 
which provides a sample Domestic Content Worksheet with detailed step-
by-step instructions for how to fill out the worksheet and calculate 
domestic content. Commenters generally sought clarification on the 
required domestic content and how that calculation affects the step by 
step analysis in the worksheet. Similarly, the commenters raised 
questions about how the cost of the components (foreign and domestic) 
and subcomponents affect the calculations. We have included references 
to the regulations as well as additional text to add clarity to the 
spreadsheets.
    A number of commenters objected to the list of ``Non-Recurring 
Expenses'' or NREs, described in subsection 4.4. As with the total 
contract price and total vehicle price, FTA agrees with commenters that 
these values are not necessary for the calculation of domestic content 
for Buy America purposes. Given the regulation describes the cost of a 
component or subcomponent as the price a bidder or offeror pays, the 
NREs are already captured in the retail price of the component or 
subcomponent.
    As with other sections of the Handbook, FTA has made edits in 
section 4 for clarity and consistency with the regulations.

F. Section 5--Frequently Asked Questions

    Section 5 addresses some of the most frequently asked questions 
(FAQs) about pre-award and post-delivery audits. Among numerous other 
topics, the FAQs concern what types of rolling stock are not subject to 
the pre-award and post-delivery audit requirements; how to calculate 
domestic content; and the responsibilities of the resident inspector. 
The majority of comments to this section addressed inconsistencies or 
perceived inconsistencies between the FAQs and the rest of the 
Handbook, the regulations, or the statute. FTA has carefully reviewed 
section 5 and made edits as appropriate. In addition, for clarity, we 
have added the regulatory citations to the FAQs where appropriate, and, 
at the suggestion of commenters, added an FAQ related to 
confidentiality of manufacturer's proprietary information.

G. Appendices

    The proposed Handbook contained four appendices. The appendices 
provide sample forms, spreadsheets and format for a resident 
inspector's report. These are samples only and, with the exception of 
the two Buy America certification forms (B.1 and B.2) in Appendix B, 
which are required by the regulations, recipients may choose to use 
their own forms, spreadsheets, and format for the resident inspector's 
report, provided the recipient's forms, etc., contain the information 
required by the regulations.
    In the proposed Handbook, FTA included Appendix A, which contained 
domestic content calculation worksheets, including one worksheet for 
rail vehicles and one worksheet for buses. Commenters noted that some 
of the identified ``components'' in Appendix A are not included in 
Appendices B and C to 49 CFR 661.11. Commenters asserted that, absent a 
rulemaking, the components included in Appendix A of the Handbook 
should track the appendices to section 661.11. While Appendices B and C 
to section 661.11 note that the list of components is not exhaustive, 
FTA agrees that the Handbook is not the appropriate vehicle to 
``officially'' expand on that list. Given that Appendix A contained 
information not consistent with the regulations, and that Section 4 
contains step-by-step instructions for calculating domestic content, we 
have removed Appendix A in its entirety and re-numbered the other three 
appendices accordingly.
    Appendix A in the final Handbook, as so re-numbered, contains 
sample compliance checklists for recipients, manufacturers, and 
suppliers to use in order to ensure that the Pre-Award and Post-
Delivery Buy America Certifications and Purchaser's Requirements 
Certifications are properly completed. This appendix also contains a 
sample Resident Inspector's Report, which the recipient must review 
before

[[Page 4963]]

completing its Post-Delivery Purchaser's Requirements Certification. In 
response to comments, FTA made edits for clarity and for consistency 
with the regulations.
    Appendix B contains sample pre-award and post-delivery certificates 
and forms. These samples are intended to aid recipients, manufacturers, 
and suppliers in complying with the 49 CFR parts 661 and 663 
requirements, and these samples may be utilized and filled out by these 
parties, where appropriate. In response to comments, FTA made edits for 
clarity and for consistency with the regulations.
    Appendix C contains a sample pre-award audit report and a sample 
post-delivery audit report, including necessary certifications and 
recommended supporting documentation. In response to comments, FTA made 
edits for clarity and for consistency with the regulations. FTA also 
made edits to simplify the sample reports.


Ellen Partridge,
Chief Counsel.
[FR Doc. 2017-00873 Filed 1-13-17; 8:45 am]
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