[Federal Register Volume 60, Number 141 (Monday, July 24, 1995)]
[Rules and Regulations]
[Pages 37930-37932]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-18105]




[[Page 37929]]

_______________________________________________________________________

Part III





Department of Transportation





_______________________________________________________________________



Federal Transit Authority



_______________________________________________________________________



49 CFR Part 661



Buy America Requirements; Final Rule

  Federal Register / Vol. 60, No. 141 / Monday, July 24, 1995 / Rules 
and Regulations   

[[Page 37930]]


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: Final rule; General public interest waiver from Buy America 
requirements for small purchases.

-----------------------------------------------------------------------

SUMMARY: FTA is issuing a general public interest waiver from the Buy 
America requirements for ``small purchases'' made by FTA grantees with 
capital, planning, or operating assistance.

EFFECTIVE DATE: This waiver is effective July 24, 1995.

FOR FURTHER INFORMATION CONTACT: Gregory B. McBride, Deputy Chief 
Counsel, Office of Chief Counsel, (202) 366-4063.

SUPPLEMENTARY INFORMATION:

Background

    On March 15, 1995, FTA issued a general public interest waiver, 
under 49 U.S.C. Sec. 5323(j)(2)(A) and 49 CFR 661.7(b), from its Buy 
America requirements for purchases of $2,500 or less (known as ``micro-
purchases'') made with FTA financial assistance, including capital, 
planning, and operating assistance. 60 FR 14174 (March 15, 1995). FTA 
found this waiver to be in the public interest because it simplifies 
government procedures and streamlines government procurement 
requirements, consistent with the President's National Performance 
Review, Executive Order 12931 (Federal Procurement Reform), and the 
Federal Acquisition Streamlining Act of 1994 (FASA), Public Law 103-
355, 108 Stat. 3243 (October 13, 1994).
    Also on March 15, 1995, FTA proposed in a separate notice to issue 
a general public interest waiver under the same authority for ``small 
purchases'' made by its grantees with FTA financial assistance, 
including capital, planning, and operating assistance, and for all 
purchases by FTA grantees with operating assistance. After considering 
the comments received, FTA is hereby issuing a general public interest 
waiver for small purchases, as defined in the grants management common 
rule at 49 CFR 18.36(d), as recently amended by the Office of 
Management and Budget (60 FR 19639 (April 19, 1995)), made by FTA 
grantees with capital, planning, or operating assistance. The recent 
amendment raised the threshold for a ``small purchase'' to $100,000.
    The Buy American Act of 1933, 41 U.S.C. Sec. 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. 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)).
    The current Buy America requirement, recently codified at 49 U.S.C. 
Sec. 5323(j), applies to purchases made with Federal transit and 
highway funds:

    (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 than 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 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). In contrast, the regulation implementing the 
1933 Buy American Act requires that manufactured products contain only 
a 51 percent domestic content.
    These requirements have resulted in individual Buy America waiver 
requests from grantees for thousands of items. As a general rule, most 
grantees have many more procurements for small items than for large 
items. Many involve purchases of less than $20, with unit prices under 
one dollar and often less than one cent. The volume of these waiver 
requests has resulted in significant delays in grantees' procurement 
processes. They consume an inordinate amount of grantee and FTA 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. FTA's triennial 
reviews reveal that many grantees have difficulty in complying with Buy 
America requirements with respect to their small procurements.

Analysis and Comments

    During the comment period, FTA received 62 comments, most from 
transit authorities, state and local governments, manufacturers, and 
suppliers. The commenters, who were nearly unanimous in their support 
of the issuance of this public interest waiver, raised a number of key 
issues:
    Cost savings. Most transit authorities indicated that one to eleven 
extra procurement staff are necessary to comply fully with Buy America 
requirements, at a cost of up to $540,000 per grantee annually. In 
addition, transit authorities spend more than they need to because they 
are not able to buy supplies as needed, on a ``just-in-time'' basis. 
Instead, because purchasing is difficult under Buy America 
requirements, transit authorities are obliged to lump purchases 
together and maintain a larger inventory than is needed or practical.
    Transit authorities noted that if Buy America requirements were 
waived, they would be able to realize further savings by purchasing 
more often 

[[Page 37931]]
through cooperative state and local government purchasing agreements. 
In addition, several commenters believe that a greater number of 
vendors will participate in the bidding process if the vendors do not 
have to supply Buy America documentation. More vendors should mean more 
competition, which should lead to lower overall prices on purchases 
made by FTA grantees.

Administrative Burdens

    Transit authorities noted that current Buy America requirements 
impose a significant administrative burden because each purchase 
requires its own Buy America waiver if the purchase involves a possible 
non-U.S. product. Several recent initiatives, including Executive Order 
12931 of October 13, 1994, on Federal Procurement Reform (60 FR 52387 
(April 19, 1995)), direct federal agencies to remove administrative 
burdens in procurement processes. In fact, section 1(e) of this 
Executive Order directs agency heads to ``ensure that simplified 
acquisition procedures are used, to the maximum extent practicable, for 
procurements under the simplified acquisition threshold in order to 
reduce administrative burdens and more effectively support the 
accomplishment of agency missions.'' The Federal Highway 
Administration, the only other agency within the U.S. Department of 
Transportation with a regulation implementing section 165 of the STAA, 
already considers factors such as cost, administrative burden, and 
delay when it decides whether to issue a public interest waiver from 
Buy America requirements. 23 CFR 635.410(c)(7).
    FTA's current Buy America regulation, as applied to purchases under 
the simplified acquisition threshold, does not effectively support the 
accomplishment of FTA's missions, since the regulation imposes a burden 
on small purchases without conferring a commensurate benefit.

Non-Availability of Domestic Products

    As noted above, 49 CFR 661.5(d) provides that goods must be 100 
percent ``made in the U.S.A.'' to be considered domestic under this 
regulation.
    This is a difficult and often impossible standard to meet, given 
the highly integrated, international nature of manufacturing today. 
Most products incorporate at least one foreign component or some 
overseas manufacturing. Nearly all FTA waivers are now granted because 
domestically produced goods, as defined in the regulations, are not 
available. These waivers are based on the determination that ``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.'' 49 U.S.C. Sec. 5323(j)(2)(B).
    FTA has issued general public interest waivers in the past based on 
the difficulty of obtaining goods that are 100 percent made in the 
United States. Microcomputers and software were granted a general 
public interest waiver because many product components, particularly 
microchips, are still made and assembled abroad. FTA also recognized 
that the computer industry is becoming increasingly multinational in 
nature. Since it is unduly burdensome on transit operators to procure 
domestically produced microcomputers and software, FTA issued a general 
public interest waiver for these products. 51 FR 36126 (October 8, 
1986).
    Fifteen-passenger Chrysler vans and wagons were also given a 
general public interest waiver even though final assembly took place in 
Canada. Commenters pointed out that Ford would be the only entity able 
to supply vans and wagons under the Buy America regulation. FTA 
concluded that the public had an important interest in competition and 
issued the waiver. 49 FR 13944 (April 9, 1984).
    Non-availability and public interest are related concepts. If a 
domestic product is nearly impossible to procure, it is not in the 
public interest to require grantees to give a justification each time 
they purchase a non-domestic product. This requirement results in 
excess cost, administrative burden, and delay. The consideration of 
non-availability in public interest waivers is demonstrated in two 
recent FHWA general public interest waivers--one for pig iron and 
processed, pelletized, and reduced iron ore (60 FR 15478 (March 24, 
1995)), and the other for certain ferryboat equipment and machinery (59 
FR 6080, February 9, 1994)). In both cases, the basis for the 
nationwide waiver was that the waived product was not produced in the 
United States in sufficient and reasonably available quantities which 
are of a satisfactory quality. Therefore, FHWA reasoned, imposing Buy 
America requirements on these materials is not in the public interest.
    The same reasoning may be applied to small purchases by FTA 
grantees that are subject to Buy America regulations. Since domestic 
goods (as defined in the Buy America regulations) are rarely available 
to FTA grantees making small purchases, it is not in the public 
interest to impose the Buy America requirements on them.

Clarification of the Term ``Small Purchase''

    Several commenters indicated that the definition of ``small 
purchase'' needs to be clarified, questioning whether the value of a 
small purchase should be determined by a ``unit'' price or a 
``contract'' price. The Federal Acquisition Streamlining Act, in which 
the small purchase threshold is discussed (see 60 FR 19639), uses 
contract price to determine the value of small purchases; accordingly, 
for the purposes of this Buy America general public interest waiver, 
``contract price'' will be the measure for determining whether a 
procurement is a ``small purchase.'' Note, however, that grantees may 
not split procurements for requirements that exceed the threshold in 
order to avoid Buy America rules that would otherwise apply.
Purchases Over $100,000 Made With Operating Assistance

    Several commenters indicated that FTA went too far by proposing to 
waive purchases over $100,000 made with operating assistance. They 
argued that such a waiver might lead to shifting funds between 
operating and capital budgets simply to circumvent Buy America 
requirements for purchases over $100,000. After careful consideration, 
we agree that operating assistance should be treated the same as 
capital and planning assistance for this purpose.
    Recent initiatives, including the Federal Procurement Reform 
(Executive Order 12931 dated October 13, 1994); the Federal Acquisition 
Streamlining Act of 1994; and OMB's final rule applying the $100,000 
simplified acquisition threshold for direct Federal purchases to 
purchases by Federal recipients of financial assistance under the 
common grant rule (60 FR 19639), indicate that streamlining small 
purchases is in the public interest. These initiatives, however, do not 
indicate that it is in the public interest to expedite larger, more 
significant procurements in the same way. In fact, the legislative 
history of Buy America indicates that Congress has traditionally been 
concerned about developing domestic sources for large procurements.

Complete Waiver of Buy America Requirements

    We note that several suppliers of manufactured goods, primarily 
Canadian companies, argued that Buy America requirements should be 
waived for all transit purchases, since the transit supply industry in 
the United 

[[Page 37932]]
States is highly integrated. However, as discussed above, Congress and 
the Executive Branch have indicated, via several legislative and 
regulatory initiatives, that streamlining small purchases is in the 
public interest. They have not yet indicated through legislative or 
regulatory initiatives that streamlining all transit purchases is in 
the public interest.

Concern About Unfairly Priced or Shoddy Foreign Goods

    A few commenters (U.S. manufacturers) expressed concern that waiver 
of Buy America requirements for small purchases would result in a flood 
of unfairly priced or shoddily made foreign goods into the U.S. market. 
These concerns are better addressed by solutions other than the 
imposition of Buy America requirements. Determination of whether goods 
conform to the standards set out in individual contracts and 
enforcement of those contract provisions are best left to FTA grantees. 
Problems involving unfair trade practices or foreign government 
subsidies are addressed by import laws such as Title VII of the Tariff 
Act of 1930, as amended (19 U.S.C. Secs. 1671 and 1673 (Imposition of 
Countervailing Duties and Antidumping Duties, respectively)). These 
problems are beyond the scope of what Buy America was intended to 
accomplish.

Impact Analysis

    Executive Order 12866 requires that a regulatory impact analysis be 
prepared for significant rules, which are defined in the Order as rules 
that have an annual effect on the national economy of $100 million or 
more, or certain other specified effects.
    FTA does not believe that this action will have an annual impact of 
$100 million or more or the other effects listed in the Order. For this 
reason, FTA has determined that this waiver would not create a major 
rule within the meaning of this order.

Regulatory Flexibility Act of 1980

    The Regulatory Flexibility Act (5 U.S.C. Sec. 605(b)) requires 
that, for each rule with a ``significant economic impact on a 
substantial number of small entities,'' an analysis must be prepared 
describing the impact of the rule on small entities and identifying any 
significant alternatives to the rule that would minimize the economic 
impact on small entities.
    FTA certifies that this waiver will not have a significant economic 
impact on a substantial number of small entities. Instead, it modifies 
and updates an administrative and procedural requirement in order to 
reduce burden on small entities.

Paperwork Reduction Act

    FTA certifies that this action does not impose any additional 
reporting or recordkeeping requirements under the Paperwork Reduction 
Act of 1980, 44 U.S.C. Chapter 35; in fact, it should reduce the 
paperwork required to procure goods.

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 hereby issues a general public 
interest waiver under 49 U.S.C. Sec. 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, or 
operating assistance.

List of Subjects in 49 CFR Part 661

    Buy America, Grant programs--tranportation, Mass Transportation, 
Reporting and recordkeeping requirements.

Amendment to 49 CFR Part 661

    Accordingly, for the reasons described above, title 49, Code of 
Federal Regulations, part 661, is amended as follows:

PART 661--BUY AMERICA REQUIREMENTS--SURFACE TRANSPORTATION 
ASSISTANCE ACT OF 1982, AS AMENDED

    1. The authority citation for part 661 continues to read as 
follows:

    Authority: 49 U.S.C. 5323(j) (Pub. L. No. 103-272); 49 CFR 1.51.

    2. Appendix A to Sec. 661.7 is amended by revising paragraph (e) to 
read as follows:

Appendix A to Sec. 661.7--General Waivers

* * * * *
    (e) Under the provisions of Sec. 661.7(b) of this part, a 
general public interest waiver from the Buy America requirements for 
``small purchases'' (as defined in the ``common grant rule,'' at 49 
CFR 18.36(d)) made by FTA grantees with capital, planning, or 
operating assistance.

    Issued on: July 19, 1995.
Gordon J. Linton,
Administrator.
[FR Doc. 95-18105 Filed 7-21-95; 8:45 am]
BILLING CODE 4910-57-P