[Federal Register Volume 60, Number 50 (Wednesday, March 15, 1995)]
[Proposed Rules]
[Pages 14178-14179]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-6386]




[[Page 14177]]

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Part VI





Department of Transportation





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Federal Transit Administration



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49 CFR Part 661



Buy America Requirements; Proposed Rule

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

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.

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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 micro-
purchases (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 [[Page 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 
mid-size 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 non-domestic 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. Sec. 5323(j)(2)(A) and 49 CFR 
Sec. 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]
BILLING CODE 4910-57-U