14178 Federal Register / Vol. 60, No. 50 / Wednesday, March 15, 1995 / Proposed Rules

DEPARTMENT OF TRANSPORTATION

Federal Transit Administration

49 CFR Part 661

[Docket No. 94–A]

RIN 2132–AA42

Buy America Requirements

AGENCY: Federal Transit Administration

(FTA), DOT.

ACTION: Notice of proposed waiver from

Buy America requirements for small

purchases and for purchases with

operating assistance.

SUMMARY: FTA proposes to issue a

public interest waiver from the Buy

America requirements for ‘‘small

purchases’’ (as defined in the ‘‘common

grant rule’’) by FTA grantees and made

with capital and planning assistance

and for all purchases by FTA grantees

made with operating assistance.

DATES: Comments must be received by

May 15, 1995.

ADDRESSES: Comments should be

addressed to: Federal Transit

Administration, Office of Chief Counsel,

Docket No. 94–A, Room 9316, 400

Seventh Street, S.W., Washington, D.C.

20590. Comments will be available for

review by the public at this address

from 9:00 a.m. to 5:00 p.m., Monday

through Friday.

FOR FURTHER INFORMATION CONTACT:

Gregory B. McBride, Deputy Chief

Counsel, Office of Chief Counsel, (202)

366–4063.

SUPPLEMENTARY INFORMATION: Elsewhere

in today’s Federal Register, FTA

provides notice of its issuance of a

public interest waiver for micropurchases (i.e., those purchases where

the cost is $2,500 or less) by FTA

grantees. In this notice, to further serve

the same purposes, FTA proposes to

issue a public interest waiver from the

Buy America requirements for ‘‘small

purchases’’ (as defined in the ‘‘common

grant rule’’) by FTA grantees made with

capital and planning assistance and for

all purchases by FTA grantees made

with operating assistance.

The Buy American Act of 1933, 41

U.S.C. 10a–d, established a preference

for domestically produced goods in

direct federal procurements. The first

Buy America legislation applicable to

the expenditure of federal funds by

recipients under FTA and Federal

Highway Administration (FHWA) grant

programs was enacted in 1978: section

401 of the Surface Transportation

Assistance Act of 1978 (Pub. L. 95–599,

92 Stat. 2689) established a domestic

preference for ‘‘articles, materials,

supplies mined, produced, or

manufactured’’ in the United States and

costing more than $500,000.

In January 1983, Congress repealed

section 401 and substituted section 165

of the Surface Transportation Assistance

Act of 1982, Pub. L. No. 97–424, 96 Stat.

2097. This action, among other things,

eliminated the $500,000 threshold.

Congress prohibited the expenditure of

FTA or FHWA funds on steel, cement,

and ‘‘manufactured products,’’ but as

discussed below, included four

exceptions permitting the statute to be

waived. In 1984, Congress removed

cement from section 165, and in 1991

added iron (see section 337 of the

Surface Transportation Assistance and

Uniform Relocation Act of 1987 (Pub. L.

100–17, 101 Stat. 32) and section 1048

of the Intermodal Surface

Transportation Efficiency Act of 1991

(Pub. L. 102–204, 105 Stat. 1914)).

Now codified at 49 U.S.C. 5323(j), the

Buy America requirement that applies

to purchases made with Federal transit

and highway funds provides as follows:

(j) BUY AMERICA.—(1) The Secretary of

Transportation may obligate an amount that

may be appropriated to carry out this chapter

for a project only if the steel, iron, and

manufactured goods used in the project are

produced in the United States.

(2) The Secretary of Transportation may

waive paragraph (1) of this subsection if the

Secretary finds that—

(A) Applying paragraph (1) would be

inconsistent with the public interest;

(B) The steel, iron, and goods produced in

the United States are not produced in a

sufficient and reasonably available amount or

are not of a satisfactory quality;

(C) When procuring rolling stock

(including train control, communication, and

traction power equipment) under this

chapter—

(i) The cost of components and

subcomponents produced in the United

States is more that 60 percent of the cost of

all components of the rolling stock; and

(ii) Final assembly of the rolling stock has

occurred in the United States; or

(D) Including domestic material will

increase the cost of the overall project by

more than 25 percent.

FTA has issued regulations

implementing this provision at 49 CFR

Part 661. These regulations specify that

‘‘for a manufactured product to be

considered produced in the United

States: (1) All of the manufacturing

processes for the product must take

place in the United States; and (2) all

items or material used in the product

must be of United States origin.’’ 49 CFR

661.5(d). This definition is different

from the regulation implementing the

1933 Buy American Act which requires

that manufactured products contain

only a 51 percent domestic content.

In this global economy, it is nearly

impossible to find manufactured

products that are entirely domestic.

Consequently, FTA receives Buy

America waiver requests for thousands

of items, the great majority for reasons

of nonavailability under section

(j)(2)(B), with a few based on price

differential under section (j)(2)(D). (In

Appendix A to 49 CFR 661.7, FTA

adopted the waivers granted under the

Buy American Act of 1933 (41 U.S.C.

10a–d) and included public interest

waivers under section (j)(2)(A) for

microcomputer equipment, certain

Chrysler vehicles assembled in Canada,

and spare parts when purchased as part

of a rolling stock procurement.) As a

general rule, most grantees have many

more procurements for small items than

for large items. Thus, most waivers

granted by FTA are based on the

nonavailability of items such as office

supplies (e.g., pens, paperclips) and

maintenance items (e.g., screws,

bearings, small vehicle replacement

parts, consumables). Many involve

purchases of less than $20, with unit

prices under one dollar and often less

than one cent. These types of things are

generally purchased with Federal and

local operating assistance funds.

The volume of these waiver requests

has resulted in significant delays in

grantees’ procurement processes. They

consume an inordinate amount of

grantee staff time, since documentation

for each waiver request must be

developed and submitted to FTA, where

it is reviewed and acted on. Large

grantees handle thousands of individual

procurements each year. Several

grantees state that in order to comply

with the FTA Buy America

requirements, procurement staffs have

been increased.

One mid-sized grantee has written

that it processes more than 1,000

purchase orders each month. Such

procurements, if subjected to Buy

America scrutiny, could theoretically

result in the generation of more than

12,000 internal documents annually and

an estimated 1,500 requests for waivers.

To fully comply with the requirement

(for procurements of less than $10,000),

this grantee estimated that its

purchasing department staff would have

to be increased by 2–3 persons,

increasing staff costs in excess of

$100,000; two fax machines with phone

lines would have to be procured, with

a one-time cost in excess of $2,000 and

annual telephone costs in excess of

$1,200; and its computerized stock

order system would have to be revised

to recognize and track each order to

make sure it meets the requirement, at

a cost in excess of $10,000. Modifying
Federal Register / Vol. 60, No. 50 / Wednesday, March 15, 1995 / Proposed Rules 14179

its purchase procedures to meet the

requirement would require reducing the

number of purchase orders by ordering

larger quantities. However, the grantee

explained, good business practice

dictates that inventories be kept at the

lowest level possible for several reasons,

including loss prevention control,

minimizing cash in inventory,

maintaining purchasing flexibility to

take advantage of product changes and

improvements, space restrictions for

storage, and shelf life. The grantee also

noted that buying all items in large

quantities also can work against good

faith attempts to include disadvantaged

business participation in the bidding

process.

Grantees have cited other reasons for

their assertion that compliance with

FTA’s current Buy America rule is

unduly difficult and burdensome:

• Small Purchase Procedures.

Grantees do not routinely accumulate

the documentation necessary to justify a

waiver of the Buy America requirements

when procuring goods in accordance

with their small purchase procedures, as

allowed by 49 CFR Part 18, Uniform

Administrative Requirements for Grants

and Cooperative Agreements to State

and Local Governments (known as the

‘‘common grant rule’’). These small

purchase procedures were meant to

reduce paperwork and facilitate

grantees’ effective and efficient

procurement of goods. Because

documentation needed to request a

waiver is usually not required or

compatible with such procedures, the

requirement to request a waiver is often

overlooked. Strict compliance with the

FTA rule would necessitate creation of

documentation not normally needed for

business reasons, preclude the use of

oral quotes where normally appropriate,

and make the use of purchase orders

difficult. Moreover, since the rule

precludes granting a waiver until after

receipt of bids, grantees are forced to

repeat written waiver requests for the

same item, even when it is evident that

a domestic product will not be offered.

• State or Local Purchasing

Procedures. Since many small to midsize transit properties and most states

are required to use a local or state

purchasing department for purchasing

supplies, they have little control over

the procedures used. To comply with

the FTA Buy America requirements,

they must create duplicative local

procurement procedures, thereby

incurring delays and increasing the cost

of their procurements. Ironically, one

State has reported that it cannot take

advantage of the State Highway

Department purchasing office since the

State Highway Department complies

with the FHWA rule, 23 CFR 635.410,

which is inconsistent with the FTA rule.

• Vendor Problems. Compliance with

the FTA Buy America requirements has

also been a problem for vendors who

supply the small items grantees need for

their routine operations. In many

instances, such vendors are distributors

and suppliers rather than

manufacturers; accordingly, they cannot

reasonably be expected to know

whether the items being procured are

produced in the United States or not.

However, under the FTA rule, all

vendors must execute a certification of

either compliance or noncompliance;

for this purpose, some grantees have

included a compliance certification on

all purchase orders. If a vendor declines

to sign the certification, the grantee will

not do business with that vendor. This

approach protects the grantee, but puts

a vendor at risk. Many vendors refuse to

certify compliance with the Buy

America rule when they do not know

the content of the products they are

supplying. Some even refuse to deal

with the FTA grantee, thus reducing

competition. In any case, if the vendor

does not certify compliance, the grantee

is obliged to consider the product nondomestic and to seek a waiver from FTA

for its purchase.

• Confusion with 1933 Buy American

Act. Grantees also report that some

vendors certify compliance with the

Buy America requirement believing it to

be the same as the 1933 Buy American

Act, which requires manufactured

products to be 51 percent domestic in

content. This is contrary to the FTA

regulation, which requires a 100 percent

domestic content. Indeed, there are

instances where grantees themselves do

not know that the FTA regulation

requires 100 percent domestic content

for a manufactured product to be

domestic. Until or unless there is a

complaint, the grantee will not look

behind the certification to verify that the

person who signed it understood the

requirement. Thus, one is not always

certain that a Buy America certification

is correct or that the bids are being

judged by the same standard.

Today’s action is consistent with and

responsive to President Clinton’s

initiative to reinvent government,

known as the National Performance

Review, and three recent actions

designed to simplify government

procedures, especially as to small

purchases. The first is Executive Order

12931 of October 13, 1994, Federal

Procurement Reform, which requires

that Federal agencies review their

procurement requirements with a view

to streamlining them. The second is the

Federal Acquisition Streamlining Act of

1994 (FASA), enacted October 13, 1994,

which has as two of its major

streamlining features the creation of a

Simplified Acquisition Threshold of

$100,000 to replace the existing $25,000

small purchase threshold and the

exemption of ‘‘micro-purchases’’

(purchases valued at $2,500 or less)

from the provisions of the 1933 Buy

American Act. On December 15, 1994,

the Department of Defense, the General

Services Administration and the

National Aeronautics and Space

Administration issued an interim rule

implementing FASA (59 FR 64786,

December 15, 1994). The third is a

proposal by the Office of Management

and Budget (OMB) to apply the

$100,000 Simplified Acquisition

Threshold for direct Federal purchases

to purchases by Federal recipients of

financial assistance under the common

grant rule at 49 CFR Part 18.36 (59 FR

53705, October 5, 1994). FTA also notes

that the Federal Highway

Administration (FHWA), in

administering the same statute as FTA,

already provides a general waiver if the

cost of foreign materials does not exceed

$2,500.

Public Interest Waiver

In light of these considerations, FTA

believes that application of its Buy

America rule to small purchases is not

consistent with the public interest;

accordingly, FTA proposes to issue a

general public interest waiver under 49

U.S.C. § 5323(j)(2)(A) and 49 CFR

§ 661.7(b) to exempt from its Buy

America requirements all ‘‘small

purchases’’ (as defined in the common

grant rule, 49 CFR 18.36(d)) made by its

grantees with FTA financial assistance,

including capital, planning, and

operating assistance and all purchases

by FTA grantees with operating

assistance. This exemption would cover

many small purchases made by FTA

grantees. The goal of this public interest

waiver is to eliminate some of the

procurement delays, ‘‘red tape,’’ and

paperwork from FTA grantees’

procurement processes.

Request for Comments

FTA requests comment on this

proposal to grant a general public

interest waiver. After consideration of

all comments, FTA will publish notice

in the Federal Register of its action.

Issued on: March 10, 1995.

Gordon J. Linton,

Administrator.

[FR Doc. 95–6386 Filed 3–14–95; 8:45 am]

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