[Federal Register Volume 71, Number 230 (Thursday, November 30, 2006)]
[Proposed Rules]
[Pages 69412-69427]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-20166]



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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; End Product Analysis and Waiver Procedures; 
Proposed Rule

  Federal Register / Vol. 71, No. 230 / Thursday, November 30, 2006 / 
Proposed Rules  

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DEPARTMENT OF TRANSPORTATION

Federal Transit Administration

49 CFR Part 661

[Docket No. FTA-2005-23082]
RIN 2132-AA90


Buy America Requirements; End Product Analysis and Waiver 
Procedures

AGENCY: Federal Transit Administration (FTA), DOT.

ACTION: Second notice of proposed rulemaking.

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SUMMARY: The Safe, Accountable, Flexible, Efficient Transportation 
Equity Act: A Legacy for Users (SAFETEA-LU) requires the Federal 
Transit Administration (FTA or the Agency) to make certain changes to 
the Buy America requirements. This Second Notice of Proposed Rulemaking 
(SNPRM) proposes a publication process for public interest waivers to 
provide an opportunity for public comment; a clarification of Buy 
America requirements with respect to microprocessor waivers; new 
provisions to permit post-award waivers; clarifications in the 
definition of ``end products'' with regards to components and 
subcomponents, major systems, and a representative list of end 
products; a clarification of the requirements for final assembly of 
rolling stock and a list of representative examples of rolling stock 
items; expanding FTA's list of eligible communications, train control, 
and traction power equipment; and an update of the debarment and 
suspension provisions to bring them into conformity with statutory 
amendments made by SAFETEA-LU.

DATES: Comments must be submitted by January 29, 2007. Late filed 
comments will be considered to the extent practicable. FTA will also 
hold a public hearing in Washington, DC, to receive comments for the 
docket. The date and time of that hearing will be published as a 
separate Federal Register document.

ADDRESSES: You may submit comments [identified by DOT DMS Docket Number 
FTA-2005-23082] by any of the following methods:
    Federal Rulemaking Portal: Go to http://www.regulations.gov. Follow 
the online instructions for submitting comments.
    Web Site: http://dms.dot.gov. Follow the instructions for 
submitting comments on the DOT electronic docket site.
    Fax: 202-493-2251.
    Mail: Docket Management Facility; U.S. Department of 
Transportation, 400 Seventh Street, SW., Nassif Building, PL-401, 
Washington, DC 20590-0001.
    Hand Delivery: Room PL-401 on the plaza level of the Nassif 
Building, 400 Seventh Street, SW., Washington, DC, between 9 a.m. and 5 
p.m., Monday through Friday, except Federal holidays.
    Instructions: You must include the agency name (Federal Transit 
Administration) and Docket number (FTA-2005-23082) or the Regulatory 
Identification Number (RIN) for this rulemaking at the beginning of 
your comments. You should submit two copies of your comments if you 
submit them by mail. If you wish to receive confirmation that FTA 
received your comments, you must include a self-addressed stamped 
postcard. Note that all comments received will be posted, without 
change, to http://dms.dot.gov including any personal information 
provided and will be available to internet users. Please see the 
Privacy Act section of this document.

FOR FURTHER INFORMATION CONTACT: Richard Wong, Office of the Chief 
Counsel, Federal Transit Administration, 400 Seventh Street, SW., Room 
9316, Washington, DC 20590, (202) 366-4011 or [email protected].

SUPPLEMENTARY INFORMATION:

I. Background

    On November 28, 2005, the Federal Transit Administration (FTA) 
published a Notice of Proposed Rulemaking (NPRM) in the Federal 
Register (70 FR 71246) that discussed several proposals mandated by the 
Safe, Accountable, Flexible, Efficient Transportation Equity Act: A 
Legacy for Users (SAFETEA-LU) (Pub. L. 109-59, August 10, 2005), and 
proposed to provide further clarification of existing FTA decisions on 
Buy America. Due to the complexity of many of the Buy America issues 
addressed in the NPRM and the divergence of opinion in important areas, 
FTA issued a final rule that addressed fewer subjects than addressed in 
the NPRM. (71 FR 14112, Mar. 21, 2006.) These more routine topics 
covered in the final rule included: (1) Administrative review; (2) the 
definition of ``negotiated procurement;'' (3) the definition of 
``contractor;'' (4) repeal of the general waiver for Chrysler vans; (5) 
certification under negotiated procurements; (6) pre-award and post-
award review of rolling stock purchases; and (7) miscellaneous 
corrections and clarifications to the Buy America regulations.
    This Second Notice of Proposed Rulemaking (SNPRM) will address six 
issues identified in the NPRM but not covered in the final rule, and 
one new one: (1) A publication process for public interest waivers to 
provide an opportunity for public comment; (2) a clarification of Buy 
America requirements with respect to microprocessor waivers; (3) new 
provisions to permit post-award waivers; (4) clarifications in the 
definition of ``end products'' with regards to (a) components and 
subcomponents, (b) major systems, and (c) a representative list of end 
products; (5) a clarification of the requirements for final assembly of 
rolling stock and a list of representative examples of rolling stock 
items; (6) expanding FTA's list of eligible communications, train 
control, and traction power equipment; and (7) an update of the 
debarment and suspension provisions to bring them into conformity with 
statutory amendments made by SAFETEA-LU.

1. Published Justification for Public Interest Waivers

    In the first NPRM, FTA proposed amending 49 CFR 661.7(b) to 
implement the SAFETEA-LU requirement that FTA publish justifications 
for public interest waivers in the Federal Register and provide for 
notice and comment.
A. Comments Received
    FTA received ten comments, two of which were identical. Four 
commenters stated that FTA's proposal created a two-step process of 
waiver review. These commenters expressed concern that a two-step 
process would cause delay. One commenter noted in particular that the 
proposed process would have the effect of providing multiple 
opportunities for filing comments, would significantly lengthen the 
procurement process, would adversely affect the contract schedule, and 
would introduce additional uncertainty in the procurement process. One 
commenter stated an unduly long processing time would have a negative 
impact on cost and competition. Another commenter expressed concern 
that in cases involving construction contracts, where design and/or 
construction might be underway, and the ``notice and comment process'' 
would delay projects, inducing engineers and builders to offer less 
effective substitutes in order to avoid the delay from a notice and 
comment process.
B. Commenter Proposals
    Four commenters provided alternatives to FTA's proposal. One

[[Page 69413]]

commenter recommended FTA post ``notification of every public interest 
waiver request received by FTA in the Federal Register, with 
information on finding the request on the FTA Internet site and 
submitting comments. After a suitable public comment period has passed, 
FTA should post its decision to the FTA Internet site.'' Similarly, two 
other commenters recommended FTA post notification of all requests for 
public interest waivers in the Federal Register at one time, along with 
a request for public comment, thus, creating a single comment period 
rather than two. Each of these four commenters, however, omitted any 
mention of SAFETEA-LU's requirement to publish waiver ``justification'' 
in the Federal Register for notice and comment. Two other commenters 
noted this, stating that ``the legislators clearly wanted the waiver's 
justification to be published'' with an opportunity to comment on it.
    Commenters offered additional suggestions for streamlining the 
waiver application process. One commenter recommended the following: 
FTA should restrict receipt of comments on the initial waiver request 
to immediately affected parties; to handle comments by e-mail; to 
commit to a fixed time period for releasing the written justification 
in the event a waiver request is granted; to limit the comment period 
to one week after the publication date in the Federal Register; and to 
limit the time for confirmation of FTA's determination to one week. 
Another commenter recommended FTA limit the comment period to ten days 
after Federal Register publication, and that FTA post its final 
decision on the FTA Web site within seven days. One commenter suggested 
that 30 days would be a reasonable time for review of FTA's proposed 
waiver decision with supporting justification.
    Two commenters recommended that FTA publish grantees' written 
waiver requests and justifications in the Federal Register, with an 
opportunity to comment on them. Two other commenters expressed concern 
that FTA not release confidential or proprietary information, which 
might be provided to support a waiver request, during the waiver 
application process. One commenter noted the importance of protecting 
the names of prospective contractors while procurement is underway. 
This commenter specifically recommended FTA not disclose names of any 
prospective contractors in the notice and comment process.
    The majority of commenters also recommended FTA continue its 
internal practice of publishing all waiver decisions on the FTA Web 
site (http://www.fta.dot.gov/legal/buy_america/14328?ENG_HTML.htm), 
including denials. One commenter noted that lessons learned from 
disapprovals lead to a better understanding and application of the Buy 
America requirements.
C. FTA Response
    FTA agrees that SAFETEA-LU requires it to publish its 
``justification'' in the Federal Register for notice and comment. FTA 
disagrees, however, that it should also publish grantees' written 
justifications in the Federal Register. SAFETEA-LU does not require 
this. Moreover, FTA notes that several commenters expressed a 
legitimate concern that publishing a grantee's waiver request and 
justification in the Federal Register could result in an unwanted 
dissemination of confidential business information. Furthermore, FTA 
disagrees with the comment that it should post ``notification of every 
public interest waiver request received in the Federal Register, with 
information on finding the request on FTA's Internet site and 
submitting comments.'' This and other comments that recommend FTA 
publish all requests for public interest waivers in the Federal 
Register, misconstrue the unequivocal language in SAFETEA-LU, which 
requires FTA to publish only a written justification in the Federal 
Register.
    While several commenters complain of a ``two-step'' process for 
waiver approval, none explain how FTA can simultaneously publish a 
notice of waiver request and the justification for it in a single 
Federal Register notice while still providing the public an opportunity 
to comment on the waiver request. As a matter of fact, combining these 
processes would negate any comments received on the waiver request 
because FTA would have already made a decision. Therefore, FTA declines 
to adopt this proposal.
    In addition, as explained in the NPRM, FTA believes the plain 
language of SAFETEA-LU, and its legislative history, expressly requires 
FTA to issue a written justification and publish it in the Federal 
Register, only in instances where the justification supports a waiver 
request. See 49 U.S.C. 5323(j)(3); see also H.R. Conf. Rep. No. 109-
203, at 952 (2005).
    FTA shares the concern of many commenters who state that the 
proposed rule could cause delay by creating a so-called ``two-step'' 
process for waiver approvals. FTA will endeavor to implement a rule in 
a way that minimizes delays. It should be noted that any potential 
delay resulting from the requirement to publish a justification in the 
Federal Register applies only in instances where the justification 
supports granting the waiver, as explained earlier.
    Under the current Buy America process, FTA's Chief Counsel has been 
delegated with the responsibility to issue public interest waivers, 
soliciting comments via the FTA Web site and concurrent notification to 
the American Public Transportation Association (APTA). As FTA explained 
in the first NPRM: ``This process functions well. The relevant 
industries and grantees actively respond and provide valuable 
information to FTA.'' In fact, FTA relies heavily on the public 
comments it receives during the comment period for waiver requests. For 
this reason, FTA disagrees with a commenter's suggestion FTA should 
limit the receipt of comments on the waiver request to ``immediately-
affected parties.'' To the contrary, FTA finds that frequent and wide-
ranging public comment is an invaluable part of the Buy America 
process.
    Because FTA relies on public input in making Buy America 
determinations, SAFETEA-LU's requirement to publish justifications of 
public interest waivers in the Federal Register necessarily creates a 
multi-step process. FTA interprets the term ``justification'' in this 
context as a preliminary decision, which explains the rationale for 
granting a waiver. FTA believes that in order to issue a well reasoned 
justification, it should first receive preliminary comment from the 
public on the waiver request. Such comments would form the basis of the 
justification.
D. FTA Proposal
    Accordingly, FTA believes SAFETEA-LU requires the following 
process: (1) Post notification of the public interest waiver request on 
FTA's Web site and solicit comments on the request; (2) based on the 
comments received, prepare a justification that explains the rationale 
for approving a waiver request; (3) publish the justification in the 
Federal Register for notice and comment within a reasonable time; and 
(4) issue a final decision on FTA's Web site regarding the waiver 
request, based on comments received in response to the published 
justification. It should be noted that upon review of the Federal 
Register comments, FTA may ultimately determine that a waiver is not in 
the public interest, and deny the request. FTA believes that this 
methodology would create a total processing time of about 30 calendar 
days. FTA requests comment on this

[[Page 69414]]

new process for granting public interest waiver requests, including the 
proposed processing time.

2. Microcomputer/Microprocessor Waivers

    In the NPRM, FTA requested comment on its proposal to implement the 
SAFETEA-LU requirement to ``clarify'' that any waiver of the Buy 
America requirements for a microprocessor, computer, or microcomputer, 
applies ``only to a device used solely for the purpose of processing or 
storing data'' and does not extend to the product or device containing 
a microprocessor, computer, or microcomputer.
A. Comments Received
    FTA received sixteen comments on this issue, three of which 
concurred outright with FTA's proposed change to the regulation without 
further substantive comment. Nine commenters appeared to endorse FTA's 
proposed change to the microcomputer waiver, but raised an additional 
issue about ``input/output'' facilities or devices. For example, one 
commenter noted that ``FTA has dropped a significant phrase, `input/
output,' facility from past practices.'' This commenter then 
recommended that ``existing regulatory practices must be continued to 
avoid significant disruption in the industry.'' Four other commenters 
similarly recommended that FTA make clear that input/output devices or 
facilities are covered by the waiver. Citing the Conference Report for 
SAFETEA-LU (H.R. Conf. Rep. No. 109-203, supra), one of these 
commenters noted that in directing FTA to clarify the microprocessor 
waiver, Congress did not intend for FTA to change its current 
regulatory treatment of microcomputer equipment.
    On the other hand, four other commenters opposed including ``input/
output'' devices in the microcomputer waiver and provided comments that 
interpreted this matter entirely differently. The commenters 
congratulated FTA for purportedly ``dropping'' input/output facilities 
or devices from waiver coverage, or, recommended that FTA drop such 
devices from the scope of the waiver. Two of these comments also 
recommended FTA not include ``software'' in the proposed ``definition'' 
of computers, microcomputers, and other equipment covered by the 
waiver. The two comments also appeared to request that FTA clarify that 
what is ``exempt'' under the microprocessor waiver can not be counted 
as either foreign or domestic for purposes of Buy American content 
calculations in rolling stock procurements.
B. Commenter Proposals
    One commenter proposed amending Appendix A to 49 CFR 661.7(b) by 
adding a sentence clarifying that if an ``end product (e.g., a fare 
card system) contains a microcomputer,'' the microcomputer is exempt 
from the requirements of Buy America, but the rest of the end product 
is not. This commenter also recommended that if a microcomputer is 
exempt from Buy America, FTA should make clear whether the device is 
counted as domestic or foreign when calculating the costs of an end 
product.
    Another commenter proposed an alternative version of the 
microcomputer waiver that includes a ``hardware definition'' of 
microprocessor, as follows: ``[t]his general waiver does not extend to 
a product or device which merely uses microprocessor circuit chip(s) 
imbedded in the material or uses one or more printed circuit board 
assemblies consisting of microprocessor circuit chip(s) either as a 
group of separate items or as a single integrated microcomputer unit 
for controlling its end function which is not used solely for the 
purpose of processing or storing data.'' A final comment made note of 
FTA's proposed changes to the microcomputer waiver, but did not appear 
to either approve or disapprove of FTA's proposal.
C. FTA Response
    Regarding the ``input/output'' facility issue raised by nine 
commenters, it is unclear why so many of these commenters believe FTA 
``dropped'' input/output devices from the microcomputer waiver in the 
first NPRM. The current version of the general waiver at 49 CFR 661.7, 
Appendix A, does not include the term ``input/output'' facility. It 
merely states that, ``microcomputer equipment, including software, of 
foreign origin can be procured by grantees.'' 49 CFR 661.7, Appendix A. 
Likewise, FTA's proposed language in the first NPRM does not mention 
``input/output'' facilities or devices. Rather, that term is mentioned 
in a separate definition of a microcomputer, which FTA referred to in 
the NPRM. See 50 FR 18760, May 2, 1985 (``A basic microcomputer 
includes a microprocessor, storage, and input/output facility, which 
may or may not be on one chip.'') (Emphasis added.)
    In clarifying that the waiver applied to devices ``used solely for 
the purpose of processing or storing data,'' as required by SAFETEA-LU, 
commenters may have interpreted this to mean that ``input/output'' 
facilities were somehow excluded from waiver coverage. Such is not the 
case. FTA agrees with the commenter who noted that in directing FTA to 
clarify the microcomputer waiver, Congress did not intend for FTA to 
change its current regulatory treatment of microcomputer equipment. See 
H.R. Conf. Rep. No. 109-203, at 952 (2005) (``In directing the 
Secretary to issue new regulations regarding microprocessors, 
computers, or microcomputers, there is no intent to change the existing 
regulatory treatment of software or of microcomputer equipment.'') 
While it is arguable whether FTA's definitions of ``computer system'' 
and ``microcomputer'' are outdated and should be modified to reflect a 
twenty-year advance in technology, FTA believes Congress' clear intent 
is not to change these definitions in this rulemaking.
D. FTA Proposal
    Accordingly, since FTA's existing regulatory definition of a 
microcomputer already includes an ``input/output facility'' as one of 
its component items, consistent with Congressional intent not to change 
the definitions in this rulemaking, FTA believes it is unnecessary to 
further amend the regulation to reiterate that input/output facilities 
or devices are covered by the waiver. Furthermore, in keeping with the 
above Congressional guidance, FTA does not agree with recommendations 
to eliminate ``software'' from the scope of the microcomputer waiver.
    FTA also disagrees with the recommendation that it should clarify 
whether equipment subject to the microcomputer waiver is counted as 
foreign or domestic in calculating component content in rolling stock 
procurements. That change is unnecessary because FTA's regulation 
already dictate that components subject to the microcomputer waiver are 
counted as domestic in rolling stock procurements. See, 49 CFR 
661.7(f).

3. Post-Award Waivers

    FTA sought comment in the first NPRM on its proposal to create a 
post-award non-availability waiver. Under FTA's current regulation, a 
bidder or offeror that certifies compliance with Buy America is ``bound 
by its original certification'' and ``is not eligible for a waiver of 
those requirements.'' 49 CFR 661.13(c). The proposed language would 
allow grantees to request a non-availability waiver after contract 
award where a bidder or offeror had originally certified compliance 
with the Buy

[[Page 69415]]

America requirements in good faith, but can no longer comply with its 
certification and contractual obligations due to commercial 
impossibility or impracticability. To implement the SAFETEA-LU 
requirement for post-award waivers, FTA proposed amending 49 CFR 
661.7(c)(3).
A. Comments Received
    FTA received eight comments on this proposal, one of which 
concurred with FTA's proposed change to the regulation, without further 
substantive comment. A second commenter noted some minor variations in 
language between the proposed rule in the ``Supplementary Information'' 
section of the NPRM, and the actual proposed amendment of 49 CFR part 
661. This commenter then stated that the actual proposed amendment, 
``appears to address this requirement.'' FTA presumes the commenter is 
referring to the requirement of SAFETEA-LU.
B. Commenter Proposals
    The six remaining commenters endorsed the concept of a post-award 
waiver, but felt that FTA's proposal was unnecessarily complex or 
unduly restrictive. Three commenters proposed the following alternative 
language:

    Waivers based on non-availability may be granted when the 
Administrator or the Administrator's designee is satisfied that the 
applicable certificate of Buy America compliance was made reasonably 
and in good faith and that intervening circumstances have made 
compliance with that certification impossible or commercially 
impracticable.

    Another commenter proposed similar language, as follows:

    The Administrator may grant a non-availability waiver under 
section 661.7(c) in any case in which a contractor has originally 
certified compliance with the Buy America requirements in good 
faith, but can no longer comply with its certification. The 
Administrator will grant this non-availability waiver only if the 
grantee provides sufficient information which indicates that the 
original certification was made in good faith and that the item to 
be procured cannot now be obtained domestically due to commercial 
impossibility or impracticability.

    Five commenters stated that in deciding whether to grant a post-
award waiver, FTA's consideration of the status of other competitors 
was immaterial and beyond the statutory intent of SAFETEA-LU. These 
commenters argued that FTA's proposal forecloses a potential waiver 
when, after contract award and discovery that supplies are unavailable, 
another bidder or offeror who certified compliance is still able to 
supply domestic products or materials. The five commenters argued that 
this would force a grantee and its winning contractor, in spite of 
their good faith, to be ``held economic hostage'' to a frustrated 
competitor who had obtained limited remaining domestic supplies through 
exclusive distribution agreement or other arrangement. According to 
these commenters, the situation would result in significant cost 
increases, as the grantee would be forced to terminate its contract and 
procure with the compliant contractor, with no effective competition to 
assure reasonable pricing.
    Two commenters noted that FTA's discussion of the waiver proposal 
encompassed both commercial impossibility and impracticability ``due to 
price.'' These two commenters argued that the provision should allow 
waiver under any commercial impracticability, not just due to price. A 
third commenter suggested that in determining the monetary value of the 
``commercially impracticable'' criteria, the ``current 25 percent price 
differential figure within the waivers might be a reasonable benchmark 
for consideration.''
    None of the commenters discussed or questioned the meaning of the 
term ``impossibility.'' However, a fourth commenter argued that FTA 
should not require grantees to produce evidence of changed market 
conditions that demonstrate the non-availability of materials or 
supplies after contract award in order to obtain a post-award waiver. 
Furthermore, this commenter stated that the grantee should not have to 
demonstrate the impossibility or impracticability of completing the 
third party contract. The commenter emphasized that such a requirement 
would prove burdensome to grantees, and goes beyond the stated 
provisions of SAFETEA-LU.
C. FTA Response
    FTA agrees with the commenters who recommended that the proposed 
language in the NPRM should be simplified. In fact, FTA favors the 
alternative post-award waiver provision proposed by one commenter, as 
it matches in tone and language the existing non-availability waiver 
found in 49 CFR 661.7(c).
    The intent of Buy America is to safeguard American jobs by 
requiring that ``steel, iron, and manufactured goods used in the [FTA-
funded] project are produced in the United States.'' 49 U.S.C. 5323(j). 
Buy America is not intended to protect any particular contractor or 
supplier. In deciding whether to grant a post-award waiver, therefore, 
FTA should not deliberately ignore the status of other bidders or 
offerors who are Buy America compliant and can furnish domestic 
material or products on an FTA-funded project. Concluding otherwise 
would violate the legislative intent behind Buy America.
    Therefore, commenters' disagreement notwithstanding, FTA believes 
the status of other bidders or offerors on an FTA-funded procurement 
may be a relevant factor in deciding whether to grant a post-award 
waiver. For example, if a winning contractor is unable to comply with 
its Buy America certification due to commercial impossibility or 
impracticability, but a second low bidder who certified compliance is 
available to provide domestic material or products at a reasonable 
price, FTA believes it would be appropriate to take that into account 
when deciding whether to grant the waiver request.
    Moreover, FTA is mindful that a decision on a post-award waiver 
could adversely impact a grantee's project schedule and budget, as 
several commenters have stated. Therefore, it is FTA's intent to 
consider ``all appropriate factors on a case-by-case basis,'' in 
deciding whether to grant a post-award waiver. Such factors may include 
project schedule and budget. It will be the grantee's responsibility to 
point out such factors to FTA in requesting a post-award waiver.
    FTA disagrees with the comment suggesting FTA not require grantees 
to produce evidence of ``impossibility or impracticability of 
completing the third party contract,'' i.e., evidence of changed market 
conditions, which would demonstrate the non-availability of materials 
or supplies after contract award. FTA notes no other commenter made 
this suggestion or otherwise disagreed with the concept of using 
commercial impossibility or impracticability as the applicable standard 
for granting a post-award waiver. In addition, while the commenter 
would have FTA do away with requiring a grantee to produce specific 
evidence of commercial impossibility or impracticability in support of 
a waiver request, the commenter offered no alternative methodology or 
standard which would guard against potential abuse of the post-award 
waiver. Accordingly, FTA does not adopt the commenter's 
recommendations.
    In fact, FTA believes further clarification of what constitutes 
``commercial impracticability'' is warranted but disagrees with the 
several commenters who suggested that impracticability should not be 
limited ``due to price,'' but should apply to any

[[Page 69416]]

commercial impracticability and with the one commenter who suggested 
that in determining the monetary value of what constitutes ``commercial 
impracticability,'' that the ``current 25 percent price differential 
figure,'' referring to the price-differential waiver at 49 CFR 
661.7(d), ``might represent a reasonable benchmark.''
    As stated in this SNPRM, FTA prefers to base any regulatory 
requirements on existing precedents in public contracting law and 
practice. For example, in Raytheon Co. v. White, 305 F.3d 1354, 1667 
(Fed. Cir. 2002), the U.S. Court of Appeals for the Federal Circuit 
defined ``commercial impracticability,'' in part, as follows:

    A contract is commercially impracticable when performance would 
cause ``extreme and unreasonable difficulty, expense, injury, or 
loss to one of the parties.'' Restatement (Second) of Contracts 
Sec.  261 cmt. d (1981). * * *
    A contract is said to be commercially impracticable when, 
because of unforeseen events, ``it can be performed only at an 
excessive and unreasonable cost,'' Int'l Elecs. Corp. v. United 
States, 227 Ct.Cl. 208, 646 F.2d 496, 510 (1981), or when ``all 
means of performance are commercially senseless,'' Jennie-O Foods, 
Inc. v. United States, 217 Ct.Cl. 314, 580 F.2d 400, 409 (1978). 
Whether performance of a particular contract would be commercially 
senseless is a question of fact. Cf. Maxwell Dynamometer Co. v. 
United States, 181 Ct.Cl. 607, 386 F.2d 855, 870 (1967). A 
contractor is not entitled to relief ``merely because he cannot 
obtain a productive level sufficient to sustain his anticipated 
profit margin.'' Natus Corp. v. United States, 178 Ct.Cl. 1, 371 
F.2d 450, 457 (1967).

    FTA believes this ``commercially senseless'' standard, as 
articulated in Federal case law, represents the appropriate standard 
for determining commercial impracticability in Buy America post-award 
waivers. Therefore, when questions arise as to what constitutes 
commercial impracticability or impossibility in a specific post-award 
waiver request, FTA will rely on the precedents established in Federal 
contract law for guidance.
 D. FTA Proposal
    In the new proposal, FTA steps away from the language in the first 
NPRM because it is persuaded by the issues raised by commenters who 
stated the language included in the first NPRM should not be included 
in a final rule. FTA agrees and believes the better approach is to 
require the grantee, in making a request for a post-award waiver, to 
provide specific evidence of a contractor's good faith and evidence 
justifying the post-award waiver. This evidence may include information 
about the origin of the product or materials, invoices, or other 
relevant solicitation documents as requested and that the item to be 
procured cannot now be obtained domestically due to commercial 
impossibility or in practicability. Additionally, when determining 
whether conditions exist to grant a post-award waiver, FTA will 
consider all appropriate factors on a case-by-case basis. FTA requests 
comments on this new proposal to modify the post-award waiver 
procedures.

4. ``End Products''

    FTA's initial NPRM sought comments on two alternative definitions 
of the term ``end product.'' The first proposed definition comes from 
FTA's current, long-standing practice whereby the end product of a 
procurement is the deliverable item specified by the grantee in the 
third party contract. Under this so-called ``shifting'' methodology, 
the same item may be an end-product, a component, or a subcomponent, 
depending on the article specified in the third party contract, with 
resulting differences in the applicability of Buy America requirements 
to the same item based on its characterization as an end product, 
component or subcomponent. Applying this shifting approach, FTA's first 
proposed definition stated: ``End product means any item subject to 49 
U.S.C. 5323(j) that is to be acquired by a grantee, as specified in the 
overall project contract.''
    The second proposed definition was based on the definition of end 
product in the Buy American Act, 41 U.S.C. 10a-10d, as implemented in 
the Federal Acquisition Regulation (FAR) Part 25. Under this second 
definition, FTA proposed to abandon the ``shifting'' methodology in 
favor of one where the end products do not shift, and components and 
subcomponents retain their designation. FTA's second proposed 
definition stated: ``End product means any article, material, supply, 
or system, whether manufactured or unmanufactured, that is acquired for 
public use under a federally funded third party contract.'' A list of 
representative end products is included at Appendix A to this section.
    FTA's second proposed definition includes the term ``system'' and 
mentions a ``list of representative end products.'' FTA will address 
these two important issues separately in the SNPRM; that is, whether a 
``system'' should be included as an end product, and what items should 
be included on a representative list of end products.

4a. ``End Product'' Under the Non-Shift Approach

A. Comments Received
    FTA received twenty-one comments on the definition of ``end 
product.'' Four commenters expressly endorsed retaining some form of 
FTA's current ``shifting'' methodology. All four of these commenters 
are transit operators receiving FTA funds, three of whom are among the 
largest transit operators in the country.
    One of the commenters who specifically supported FTA's first 
proposed definition noted a discrepancy between the proposed rule in 
the ``Supplementary Information'' section of the NPRM, and the actual 
proposed amendment of 49 CFR part 661, to the effect that the proposed 
amendment omits the clause, ``A list of representative end products is 
included at Appendix A to this section.'' FTA agrees that this sentence 
should have been included in the proposed amendment. Furthermore, this 
same commenter stated that the second ``non-shifting'' proposed 
definition of end product ``would substantially reduce much of the 
current flexibility in the Buy America program.'' A second commenter 
stated that to ``rigidly fix the nature of a component at the time a 
vehicle is purchased would create massive uncertainty in the 
marketplace.''
    A third commenter, a large transit operator, expressed ``grave 
concerns'' about abandoning FTA's long standing shifting methodology in 
favor of one where the end products do not shift. According to the 
commenter, such a change in methodology would undermine the basic 
purpose of the Buy America rule, which is to encourage the creation of 
American jobs. The commenter explained that the shifting methodology 
encourages American job creation by providing an incentive for 
manufacturers of end product components to invest in domestic 
facilities for after market support. A manufacturer of rail car 
equipment, for example, would have an incentive to invest in domestic 
facilities in order to achieve Buy America compliance when selling 
former ``components'' as ``end products'' in an after market 
procurement.
    The commenter also stated that the alternative proposal cannot be 
practically implemented. Such a new methodology would necessarily place 
great reliance on the accompanying list of end product items. The 
commenter explained that the burden for transit agencies to track the 
status of rolling stock component items (as either foreign

[[Page 69417]]

or domestic) from the time of their original purchase would be 
untenable given that ``the useful life of a rail car can exceed 30 
years.''
    This commenter argued that the ``non-shift'' methodology would not, 
in fact, create consistency. Again, using the example of a rail car 
manufacturer, the commenter explained that it is the manufacturer who 
decides in each particular case whether a given component should be of 
domestic or foreign manufacture in order for the end product to meet 
the sixty percent domestic content requirement for rolling stock [forty 
percent of the components, by cost, may be foreign]. Thus, any typical 
component of a rail car could be ``of foreign manufacturer in one 
specific instance and * * * of domestic manufacturer in another, even 
when foreign cars are manufactured by the same rail car builder.''
    A fourth commenter, also a large transit operator, raised similar 
arguments to support its endorsement of the shifting approach to end 
products. This commenter also stated that abandonment of the shifting 
methodology would create a disincentive for manufacturers to establish 
domestic facilities to support after market purchases, but added that 
the lack of domestic facilities ``will create longer lead times on 
acquiring replacement parts.''
B. Commenter Proposals
    One commenter suggested FTA revisit its application of the end 
product definition as it applies to construction projects, 
specifically, that the ``deliverable of the project'' as described in 
the contract should be viewed as the end product, with structures such 
as terminals and stations to be considered as components. Furthermore, 
the commenter suggested that FTA should not apply the Buy America 
requirements ``for the minimal use of iron or steel products where the 
cost of the foreign sourced item is less than a particular dollar 
threshold.'' Such an approach, according to the commenter, would be 
consistent with the application of Buy America used by the Federal 
Highway Administration, and would foster uniformity within the U.S. 
Department of Transportation.
    Another commenter appeared to endorse the ``shift'' approach to end 
product analysis and suggested the following definitions:

    ``Any item subject to 49 U.S.C. 5323(j) that is to be acquired 
by a grantee, as specified in the overall project contract and which 
is ready to provide its intended end function or use without any 
further manufacturing or assembly change(s).'' Or,
    ``End product means any article, material, supply, or system, 
whether manufactured or unmanufactured, that is acquired for public 
use under a federally funded third party contract and which is ready 
to provide its intended end function or use without any further 
manufacturing or assembly change(s). A list of representative end 
products is included at Appendix A.''

    This commenter stated that this proposed definition would clarify 
that an end product is something that will not require further changes 
and can function with appropriate mounting and interconnection for its 
input and output without further manufacturing or assembly.
    Of the sixteen remaining commenters, three did not specifically 
comment on the issue of ``shift/non-shift,'' but focused instead on 
whether a ``system'' should be included as an end product, or 
recommended that certain products be included in the list of 
representative end products. Another commenter requested FTA ``strike 
the end product definition as written,'' but did not identify which of 
the two proposed definitions to strike.
    Twelve commenters expressly favored the second definition--the 
``non-shift'' approach--to end product analysis. The primary reason 
given for eliminating the shift methodology, as this commenter put it, 
is to ``achieve reasonable predictability for the business community.'' 
Commenters also stated that knowing particular items will always be 
designated as an end product, a component, or a subcomponent would 
enhance stability in the transit industry, enable proposers to plan and 
price proposals more accurately, and would allow transit agencies to 
obtain better prices.
    One of the twelve commenters addressed the concerns of some 
grantees that abandonment of the ``shift'' approach in rolling stock 
procurements would discourage manufacturers from establishing domestic 
facilities for after market support; and would thereby create an 
overwhelming recordkeeping burden on public transit agencies and 
suppliers. Specifically, the commenter recommended that in adopting a 
``non-shift'' methodology to end product analysis, FTA should retain 
its current practice of treating replacement parts as manufactured 
products rather than as rolling stock.
    The commenter stated that treating replacement parts under the 
rolling stock standard, instead, would prove unworkable and would 
impose crushing recordkeeping requirements on transit agencies. This is 
so because transit agencies would have to track the origins of every 
component and sub-component of their rolling stock end products, no 
matter how old, to determine if they should replace foreign and 
domestic components and subcomponents with like foreign and domestic 
replacement parts--a task that becomes impossible or excessively 
burdensome where vehicles and components may each contain a varied 
combination of foreign and domestic parts.
    On the other hand, treating replacement parts under the 
manufactured product standard rather than the rolling stock standard 
would obviate the need to maintain detailed parts lists, according to 
the commenter. While acknowledging that some in the transit community 
advocate treating replacement parts as manufactured end products, per 
the terms of a contract and current FTA practice, the commenter 
advocated a different approach. Using the example of a replacement bus 
engine, the commenter would treat this as ``a manufactured product 
component, regardless of the individual contract terms.''
    For rolling stock replacement parts, the commenter stated that the 
optimal course of action for maintaining consistency and avoiding undue 
administrative burden ``is in consistently applying the end product, 
component, and sub-component labels.'' Because replacement parts 
manufacturers are already accustomed to having their products treated 
as manufactured products, the commenter states that its approach ``will 
not represent the kind of sea change likely to disrupt the supply 
industry.''
    Addressing the topic of replacement parts, another commenter 
recommended that ``all spare parts be exempt from the Buy America 
requirements.'' While acknowledging that such an approach may 
circumvent the objectives of Buy America, the commenter argued that 
``it will increase competition and should result in lower costs to the 
grantee.''
    Twelve commenters who supported a ``non-shift'' approach expressed 
differences of opinion on a proposed definition of end product. For 
example, five commenters favored FTA's proposed non-shift definition of 
end product, which is based on the Buy American Act, used for direct 
Federal procurements. Three of these commenters stated that consistency 
of definitions in publicly funded contracts is a benefit.
    Seven commenters disagreed with FTA's proposed definition. Some of 
these commenters characterized FTA's proposed definition as overly 
broad or insufficiently descriptive. One commenter proposed an 
alternative definition, as follows:


[[Page 69418]]


``a structure, vehicle, or similar item that has a distinct use, 
function, or purpose, consistent with the representative list at 
Appendix A.''

    However, several commenters specifically disagreed with this 
proposed definition, as it did not include the term ``system.''
    A second commenter proposed a ``non-shift'' definition of end 
product, by specifically amending 49 CFR 661.11(s) to read as follows:

``an end product is a system, structure, vehicle, or similar item 
that has a distinct use, function, or purpose, consistent with the 
representative list at Appendix A subject to 49 U.S.C. 5323(j) that 
is to be acquired by a grantee, as specified in the overall project 
contract.''

    Two commenters, in identical fashion, proposed the following 
definition:

``any material item or assembly that is manufactured or assembled 
for the purpose of performing a specific function, and is usually 
specified as a separate or stand alone assembly or line item 
component in a system, and it is covered by its own individual 
performance warranty and can function independently in differing 
operating environments. A list of representative end products is 
included in Appendix A.''

    In proposing this definition, these two commenters stated that end 
products are usually specified as stand alone assemblies (line item or 
separate descriptions) and are sold with individual performance 
warranties and can function independently in differing service 
environments.
    Two commenters criticized the ``shift'' approach to end product 
analysis, but did not propose alternative definitions. One of these 
commenters stated that FTA's proposed ``shift'' definition is not 
consistent with Congressional intent, as it allows for system end 
products. The other commenter advocated eliminating the ``shift'' 
approach. While not offering a definition of end product, the commenter 
suggested that an ``individual items'' may be considered as end 
products if any of the following criteria are present: (1) Separate 
line item pricing for individual elements is involved; (2) Performance 
warranties for individual or separable product elements are involved; 
(3) The procured items are regularly sold separately; and (4) The 
procured items can function separately.
C. FTA Response
    Upon careful analysis and review of the comments received on the 
end product issue, FTA concurs with the majority of commenters who 
recommended FTA adopt a ``non-shift'' approach to end product analysis. 
FTA finds the commenters'' argument especially compelling that such an 
approach would (1) Foster reasonable predictability and stability in 
the transit business community, (2) enable offerors and bidders to 
price proposals more accurately, and (3) allow transit agencies to 
obtain better prices to be especially compelling. Further, FTA is 
mindful of the concerns expressed by commenters who opposed abandoning 
the current ``shift'' approach, as this change could lead to enormous 
administrative burdens on grantees and result in the potential loss of 
American jobs. FTA believes there is a straightforward solution that 
can address these concerns.
    The commenters who opposed the ``non-shift'' approach focused their 
comments almost entirely on the effect of such a change in the market 
for rolling stock replacement parts. FTA agrees with the ``grave 
concerns'' expressed by some commenters on this issue. Keeping track of 
after market rolling stock components would not only prove to be an 
impossible burden for grantees, it also and could very well discourage 
parts suppliers from sourcing in the United States. However, these 
concerns rest on the assumption that FTA would treat replacement parts 
under the rolling stock standard (i.e., where sixty percent of the 
subcomponents of a component, by cost, must be domestic, but forty 
percent may be foreign-sourced). The better approach, as one commenter 
suggested and others endorsed, is for FTA to continue to treat rolling 
stock replacement parts under the manufactured products standard, which 
requires that one hundred percent of components be of domestic 
manufacture. FTA agrees with this recommendation.
    By continuing to treat replacement parts under the manufactured 
products standard in 49 CFR 661.5, suppliers must still manufacture 
replacement components in the United States, thus preserving American 
jobs. In addition, grantees will not have to engage in the burdensome 
recordkeeping requirements that a change to a rolling stock standard 
for replacement parts would entail. As one commenter stated, 
``[r]eplacement parts manufacturers are already accustomed to their 
products being treated as manufactured products so this will not 
represent the kind of sea change likely to disrupt the supply 
industry.'' FTA agrees, and believes that this approach should 
alleviate grantees' concerns about procuring replacement parts under a 
``non-shift'' end product standard.
D. FTA Proposal
    Here is how FTA believes a ``non-shift'' approach to end product 
analysis would work in rolling stock procurement. First, when procuring 
end products such as rail cars or buses, there would be little or no 
difference in the Buy America requirements under a ``non-shift'' 
approach from the current ``shift'' method. In either case, under FTA's 
Buy America requirements for rolling stock, 49 U.S.C. 5323(j)(2)(C) and 
49 CFR 661.11, sixty percent of all components, by cost, must be of 
U.S. origin, and final assembly of the vehicle must take place in the 
United States. Furthermore, FTA's audit requirements, which state that 
a recipient purchasing rolling stock must conduct, or cause to be 
conducted, a pre-award and a post-delivery audit to verify compliance 
with Buy America would remain the same. See 49 CFR part 663.
    Any change between the ``non-shift'' and ``shift'' approaches to 
end product analysis would occur primarily in the procurement of 
replacement parts. Under FTA's current Buy America methodology, if a 
grantee procures a replacement part for a bus, rail car, or other 
rolling stock end product, then the general requirements for 
manufactured products found at 49 CFR 661.5 apply. In that case, the 
replacement part component, such as a bus engine, ``shifts'' to become 
an end product and all manufacturing processes for the engine must take 
place in the United States. All of the components of the engine must be 
manufactured domestically, regardless of the origin of the 
subcomponents. See decision letter from FTA to Hubner Manufacturing 
Corporation (stating the current Buy America standard for rolling stock 
replacement parts) (March 14, 2000).
    Under the proposed ``non-shift'' methodology, what would change 
specifically is that the replacement part, in this example a bus 
engine, would always remain a component instead of ``shifting'' to 
being an end product. Using the manufactured product standard, this 
would mean the replacement part component, i.e., the bus engine, would 
still have to be manufactured in the United States, but its 
subcomponents could be foreign sourced. To further illustrate this 
concept, under FTA's current ``shift'' methodology, a replacement bus 
engine acquired for a mid-life overhaul is the end product; the pistons 
assemblies are components; and connecting rods are subcomponents, which 
may be foreign sourced. Under the proposed ``non-shift'' model, the 
replacement bus engine remains a component, which

[[Page 69419]]

must be manufactured in the United States. But the replacement piston 
assemblies are now subcomponents, which may be foreign sourced.
    With adoption of a ``non-shift'' approach to manufactured end 
products, similar results would apply. For example, when procuring a 
manufactured end product such as a mobile vehicle lift, there would be 
little or no difference in the Buy America requirements under a ``non-
shift'' approach from the current ``shift'' method. In either case, all 
of the manufacturing processes for the vehicle lift end product must 
take place in the United States and all of the components of the 
product must be of U.S. origin. See 49 CFR 661.5(d)(1). Additionally, a 
component ``is considered of U.S. origin if it is manufactured in the 
United States, regardless of the origin of its subcomponents.'' 49 CFR 
661.5(d)(2).
    As with the example of the bus engine, however, there would be a 
change in the subcomponent requirements for replacement parts for 
manufactured end products such as a mobile vehicle lift. What would be 
considered a component under the current ``shift'' approach would 
become a subcomponent under the ``non-shift'' approach, and may be 
foreign-sourced.
    With products that are made primarily of steel and iron such as 
track-work or a steel bridge, there would be absolutely no change in 
the Buy America requirements between the current ``shift'' approach and 
the proposed ``non-shift'' methodology. In either case, the 
requirements are clear: ``all steel and iron manufacturing processes 
must take place in the United States,'' whether the item is an end 
product, a component, or a subcomponent. See 49 CFR 661.5(b)(emphasis 
added).
    In short, FTA foresees a change in the Buy America requirements 
resulting from adoption of the ``non-shift'' approach to end product 
analysis primarily in the procurement of replacement parts for rolling 
stock and manufactured products. While this change may permit an 
increase in the level of foreign sourced subcomponents for replacement 
parts, FTA believes the benefits of the new approach more than outweigh 
the possible disadvantages. FTA agrees with one commenter who stated 
that for rolling stock replacement parts, in particular, the proposed 
``non-shift'' approach represents ``the optimal course of action for 
balancing consistency and administrative burden.''
    To conclude, FTA believes a ``non-shift'' approach to end product 
analysis will achieve the goals of enhancing consistency, stability, 
and favorable price structures in the transit industry with minimal 
disruption to current practices while still maintaining the legislative 
intent of Buy America.
    Having proposed adoption of the ``non-shift'' methodology, the task 
remains to shape a workable definition of end product. Additionally, in 
drafting a definition of end product, FTA believes the end product 
definition should be consistent with the current definition of 
``component'' in 49 CFR 661.3, which states: ``Component means any 
article, material, or supply, whether manufactured or unmanufactured, 
that is directly incorporated into the end product at the final 
assembly location.'' Thus, FTA seeks comments on its proposal to modify 
the definition of end product in 49 CFR 661.3.

4b. ``System'' as an ``End Product''

    In defining the term ``end product,'' SAFETEA-LU requires that 
``the procurement of systems'' be addressed ``to ensure that major 
system procurements are not used to circumvent the Buy America 
requirements.'' In light of this requirement, the NPRM sought comment 
on whether FTA should continue its longstanding practice of including 
``systems'' as definable end products. Furthermore, FTA sought comment 
on a proposed definition of system, which is based on the ``functional 
test'' for interconnected systems from the Harmonized Tariff Schedule 
of the United States (HTSUS), 19 U.S.C. 1202, heading 8474, used in 
customs law. FTA's proposed definition of system stated: ``System means 
a machine, product, or device, or a combination of such equipment, 
consisting of individual components, whether separate or interconnected 
by piping, transmission devices, electrical cables or circuitry, or by 
other devices, which are intended to contribute together to a clearly 
defined function.''
    In addition, FTA also sought comment on whether the same or 
different Buy America requirements should apply to open architecture 
versus proprietary system end products.
A. Comments Received
    FTA received nineteen comments on the issue of system end products. 
Eight commenters opposed including systems as end products. Two 
comments, which were identical, expressed concern that FTA's proposed 
definition could be ``stretched to include a whole `system' of 
disconnected but related end products, such as buses, garages, access 
roads, bus shelters,'' which could lead to distortions in the Buy 
America requirements. Another commenter objected that including a 
system in the end product definition could result in ``gamesmanship,'' 
thereby eliminating American jobs. A fifth commenter offered similar 
views that including a system as an end product allows ``foreign 
suppliers to circumvent the intent of Congress with respect to Buy 
America compliance.''
    One other commenter, whose views were fully endorsed by a yet 
another commenter, stated that including a system as an end product 
would violate Congress' stated intent in SAFETEA-LU that ``system 
procurements not be used to circumvent Buy America requirements.'' The 
commenter explained that under FTA's historical interpretation of the 
Buy America requirements, ``end products'' are made up of components 
and subcomponents. For manufactured products, components must be 
domestically produced, but subcomponents may be foreign sourced.
    Using the example of fare collection equipment, the commenter 
pointed out that an automated fare collection system is comprised of 
ticket vending machines, fare gates, computers, software, and like 
items. By designating an automated fare collection system as an end 
product, the ticket vending machine, for example, would be a component, 
and must be manufactured domestically. The ticket handling assembly 
that goes into the ticket vending machine would be a subcomponent, and 
may be foreign sourced. Under a ``non-system'' approach to Buy America 
analysis, however, the ticket vending machine is the end product and 
the ticket handling assembly is a component, and both items would have 
to be manufactured domestically.
    The commenter went on to state that including a ``major system'' as 
an end product results in designation of critical equipment as 
components, rather than as end products, thereby dramatically 
increasing the quantity of foreign-manufactured equipment that may be 
incorporated into a procured system. This is so where systems are end 
products and an item ``should be designated properly as a component is 
pushed `downstream' and becomes a subcomponent,'' that may be foreign 
sourced. It is this situation, according to the commenter, that 
Congress sought to avoid.
    The commenter stated further that if equipment must be domestically 
made when not purchased as part of a system, but may be foreign sourced 
when part of a system procurement, then the system procurement ``has 
been used to

[[Page 69420]]

circumvent the Buy America requirement.'' The risk of such 
circumvention is more pronounced when procuring manufactured goods, as 
distinct from rolling stock products. The commenter added that 
``enshrining'' system end products in regulation would induce 
manufacturers to source cheaper products off shore, resulting in ``the 
exportation of American jobs and capital.'' Similarly, the commenter 
faulted FTA's proposed list of representative end products for 
including systems.
B. Commenter Proposals
    The above commenter asserted that the definition of ``end product'' 
is not objectionable if it includes only those items which may be 
considered as a single manufactured product if manufactured in a U.S. 
facility. To facilitate this approach, the commenter proposed 
clarifying the existing regulatory definition of end product as ``any 
item subject to 49 U.S.C. 5323(j) that is to be acquired by the 
grantee, as specified in the overall project contract,'' by adding the 
following language to the regulatory text:

    Notwithstanding the characterization of a system as an end 
product by a grantee in its project contract procuring manufactured 
products, the system shall not be considered the end product where 
(1) The solicitation provides separate line item pricing for 
individual product elements and the owner retains the right to 
materially add or subtract quantities of individual product 
elements, (2) the solicitation provides for performance warranties 
for individual or separable product elements (other than warranties 
relating to degraded mode operation), thereby demonstrating that 
individual elements can fully perform independently, or (3) items 
identified in the solicitation that constitute the system are 
regularly sold separately (other than in the context of replacement 
parts) and can function independently of the system. In 
solicitations where circumstances described in (1), (2), or (3) 
above are present, then those individual items or elements 
identified in the solicitation shall be considered end products 
rather than part of any system.

    In addition, the commenter suggested FTA consider the following 
clarifying language:

    Example of manufacturing products that have sometimes been 
treated by grantees as end products, based upon a system 
characterization, which would no longer be treated as end products 
under this definition include fare collection and distribution, 
security and access control, vehicle location, passenger information 
and signage products (unless such signage provides system-wide 
information rather than just location specific information). 
Further, FTA should eliminate fare collection systems from the 
proposed list of end products in the appendix to the regulation; so 
that it is clear that separable fare collection products with 
separable performance warranties do not constitute an end product 
merely because they are purchased as part of a larger procurement 
described as a ``system.''

    The commenter proposed a representative list of ``proper end 
products'' to include in the regulation, which FTA has summarized, as 
follows:

    End Products: transit/coach/shuttle buses; trolley replicas; 
subway rail cars; light rail cars; destination displays or signs; 
audio annunciation devices; wheelchair restraint devices; mobile 
video surveillance equipment; vehicle power generation devices; 
vehicle fire suppression devices; route or run displays or signs; 
video recorders and cameras; audio recorder, player, or transmission 
device; GPS and vehicle location devices; electrical control and 
multiplexing devices; voice enunciation devices; operator input/
output displays and devices; automatic passenger counting equipment; 
automated gates and turnstiles; vehicle location devices; fareboxes; 
automated ticketing/fare card machines; ticket/fare card validators; 
ticket/fare card encoding equipment.

    Another commenter offered similar views that an end product system 
could be so large, and incorporate so many different levels and types 
of equipment that relatively major items now considered to be 
components, and subject to the Buy America requirements, would become 
subcomponents not subject to the Buy America requirements. The 
commenter added that FTA's proposal is ``contrary to the statutory 
requirement that the definition of end product ensure major system 
procurements are not used to circumvent the Buy America requirements.''
    In contrast to the foregoing, the ten remaining commenters 
recommended including a system as a definable end product. Six 
commenters endorsed FTA's proposed definition of system, which limits 
system end products to those that are intended to provide a ``clearly 
defined function.'' One commenter recommended that the following 
language be added after the clause ``clearly defined function,'' to 
wit: ``necessary to fulfill the function as defined.'' The commenter 
suggested this change would ``minimize the tendency to add ancillary 
items to a ``system.'' Another commenter noted simply that ``[a]ddition 
of this definition [of system] reflects the requirements of SAFETEA-
LU.''
    Of the reasons given in support of FTA's proposal, several 
commenters noted that the concept of system end products has long 
precedent in FTA-funded procurements for both rolling stock and 
manufactured products. These commenters also stated that nothing in 
SAFETEA-LU or its legislative history indicates that Congress intended 
to preclude a system as an end product. Referring to the legislative 
history of SAFETEA-LU, one of these commenters pointed out that 
Congress specifically rejected at least two proposals that would have 
effectively treated all identifiable items or discrete elements of a 
system procurement as end products. According to the commenter, 
Congress rejected these proposals so as not to substantially alter 
current FTA practice. Rather, SAFETEA-LU instructed FTA to develop a 
rule that would cure potential abuses without eliminating system 
procurements, or fundamentally change the agency's long-standing Buy 
America practices.
    This commenter endorsed FTA's proposed definition of ``system,'' 
which employs a functional test to make clear that a system is an end 
product only where the system provides a ``clearly defined function.'' 
The commenter felt FTA's definition ``protects against the bundling of 
a host of unrelated independent functions into a `super system' that 
would undermine the Buy America rules.'' The commenter agreed with 
another comment which recommended FTA provide some examples (based on 
FTA precedents) of ``super systems'' that would not qualify as end 
products. Furthermore, the commenter stated that for manufactured 
items, requiring the end product, ``and all components'' be of U.S. 
manufacture, would ensure that substantial processing and labor all 
occur in the United States.
    A third commenter, who also endorsed FTA's proposed definition of 
system, recommended that FTA make clear in its regulatory guidance that 
if products in a particular application, which must necessarily perform 
on an integrated basis with other products constitute a portion of the 
same acquisition, then the products together constitute a system end 
product. The commenter offered the following examples of ``high-end 
systems'' that should be referenced as end products: (1) Communication 
based train control systems; (2) automatic train supervision systems; 
(3) passenger information and communication systems; (4) CCTV (closed 
circuit television) systems; (5) traction power systems; (6) automatic 
interlocking systems; (7) access control systems; (8) intelligent video 
systems; and (9) intrusion detection systems. Such systems may be 
covered by performance warranties for the system as a whole. The 
commenter stated, however, that discrete elements of a system may also 
be covered by

[[Page 69421]]

warranties, which are intended to ensure a level of functionality in a 
degraded mode that results from the failure of another product in the 
same system. The commenter stated that the existence of such 
``separable warranties'' should not defeat an end product 
characterization. The commenter recommended FTA consider such warranty 
information as an indication that a system is an end product.
    The above commenter also recommended FTA not make any distinction 
between open architecture and proprietary systems. The commenter stated 
the key question to consider is whether products perform and operate on 
an integrated basis. The intellectual property rights, if any, which 
pertain to products is a separate legal question that does not 
necessarily relate to integration of system equipment.
    Another commenter recommended a two-pronged approach to defining 
``system,'' in order to provide a ceiling on what may be bundled into a 
particular end product and to discourage any gamesmanship that 
sidesteps the Buy America requirements. First, the commenter stated the 
representative listing of products in Appendix A of the current 49 CFR 
part 661 should include proper end products, whether or not referred to 
as ``systems.'' Second, the commenter recommended the definition of 
``system'' be expanded to provide guidance on what is not a proper end 
product. For example, ``an entire transit `system' '' that includes 
stations, track work, and vehicles, would constitute an impermissibly 
broad end product system according to the commenter. The commenter 
added that providing such ``negative definitions'' of system in the 
rule would prove more instructive than any positive definition and 
would reinforce the ceiling on bundling. Another commenter fully 
concurred with these comments.
    In similar fashion, one commenter recommended FTA develop a ``list 
of high level systems or end products that are commonly purchased and 
require that systems or end products on this list must be treated as 
end products for the purpose of meeting Buy America requirements even 
if the contract calls for a higher level system of which two or more 
listed items would be components.'' To meet these criteria, the 
commenter recommended that the end product definition be revised to 
read: ``The following is a list of items * * * that are representative 
end products subject to the requirements of Buy America as end products 
even if they are to be acquired by a grantee as part of a larger 
overall project.'' The commenter stated that adoption of its 
recommendation would prevent a grantee from acquiring a 
``transportation system'' of trains, buses, and fare collection 
equipment, and treating these major items as components of system 
procurement. The commenter also suggested that based on its 
recommendations, FTA would have ``no reason'' to distinguish between 
proprietary and open architecture systems.
    Another commenter similarly recommended against creation of ``super 
system'' end products that do not meet the Buy America requirements. 
Such a situation could lead to foreign ``dumping'' of manufactured 
products into the U.S. transit market.
C. FTA Response
    FTA agrees with the majority of commenters who recommended FTA 
should continue its longstanding practice of including a ``system'' as 
a definable end product. Based on the plain language of SAFETEA-LU and 
its legislative history, FTA also agrees with those commenters who 
stated that by requiring FTA to develop a rule to ``ensure that major 
system procurements are not used to circumvent the Buy America 
requirements,'' Congress did not intend to expressly prohibit the 
designation of system end products. Rather, SAFETEA-LU instructs FTA to 
develop a rule that would cure potential abuses, without eliminating 
system procurements or drastically changing FTA's long-standing Buy 
America practices. FTA proposes to contain the potential for abuse by 
defining a ``system'' as the minimum set of components and 
interconnections needed to perform all of the functions specified by 
the grantee in its procurement. All second and subsequent system 
elements proposed by the supplier to meet the site capacity specified 
by the grantee would be additional end products applied to the original 
system. In addition, the second and subsequent sites in a procurement 
addressing multiple geographic sites would be additional end products 
applied to the original system.
    Furthermore, as FTA explained in the NPRM, and as commenters 
subsequently noted, the concept of system end products is of long 
standing at FTA, and is a concept well grounded in Federal public 
contract law. See FTA's Buy America regulation at 49 CFR 661.11(r), 
which addresses ``[i]f a system is being procured as an end product'' 
(emphasis added). See also, Brown Boveri Corp., B-187252, 56 Comp. Gen. 
596, May 10, 1997 (a Government Accountability Office (GAO) case 
involving the Buy American Act, where the end product of the 
procurement was a sodium pump-drive system in a nuclear power plant); 
Matter of: Dictaphone Corp., B-191,383, May 8, 1978, 78-1 CPD 343 (GAO 
decision under the Buy American Act where the end product of the 
procurement was a ``Central Dictation System,'' and the various 
elements of the system, such as transcribers and recorders were 
components of the system, rather than separate end products); and Bell 
Helicopter Textron, Inc. v. Adams, 493 F. Supp. 824, 833 (D.D.C. 1980) 
(the court ruled that the contract end product under the Buy American 
Act was a helicopter ``system'' consisting of five components).
D. FTA Proposal
    For the foregoing reasons, FTA proposes to retain the application 
of a ``system'' in the definition of ``end product.'' FTA agrees with a 
commenter who noted FTA's proposed definition will ``protect against 
the bundling of a host of unrelated independent functions into a `super 
system' that would undermine the Buy America rules.'' Most importantly, 
as FTA explained in the NPRM, FTA will carefully review system 
procurements in Buy America cases to determine whether an integrated 
system actually exists, and, if so, which items of equipment constitute 
the system. This review process will further serve to avoid the problem 
of ``super systems.'' FTA already employs a longstanding model to 
determine if a system is ``too large'' and must be broken down into 
separate, multiple end products. Thus, the concerns expressed by 
commenters that an end product system could be so large, and 
incorporate so many different levels of equipment such as stations, 
track, vehicles, fare collection equipment, etc., so as to circumvent 
the requirements of Buy America, are adequately addressed. Under FTA's 
Buy America methodology, if a purported end product is too large, i.e., 
composed of what FTA traditionally considers as separate end products 
such as structures, vehicles, fare collection equipment, etc., FTA will 
break it down into constituent end products. This reflects FTA's 
understanding that a single procurement may indeed contain multiple end 
products, each of which must independently meet the requirements of Buy 
America. Nonetheless, FTA is mindful that heightened scrutiny of Buy 
America requirements is warranted in the area of system procurements.

[[Page 69422]]

    In response to FTA's request for comment on whether different Buy 
America requirements should apply to open architecture versus 
proprietary system end products, one commenter recommended FTA not make 
any distinction between the two. The commenter stated that the key 
question to consider is whether products perform and operate on an 
integrated basis. The intellectual property rights, if any, which 
pertain to products is a separate legal question that does not 
necessarily relate to integration. FTA agrees with these comments, and 
will not implement a distinction in regulation between open 
architecture versus proprietary system end products.
    FTA received many helpful comments on its proposed definition of 
``system'' to further refine it. For example, commenters suggested FTA 
should consider whether performance warranties apply to an integrated 
system (regardless of whether components are separately warranted); 
whether products perform on an integrated basis with other products in 
a system, or are operated independently of associated products in the 
system; or whether transit agencies routinely procure a product 
separately (other than as replacement or spare parts). Based on these 
suggestions, FTA seeks comments on its proposal to revise the 
definition of ``system'' in 49 CFR 661.3.

4c. Representative List of End Products

    To comply with the SAFETEA-LU requirement to include a 
``representative list'' of end products, FTA sought comment on a 
proposed list of representative end products. As FTA explained in the 
first NPRM, the proposed list is not meant to be all-inclusive. Rather, 
it describes general ``representative'' categories of end products.
A. Comments Received
    FTA received thirteen substantive comments on this issue. Of these, 
nine commenters proposed their own lists of end products, components, 
or subcomponents, which were often extensive and reflected particular 
industries. Comments offering such lists may be viewed online at http://dms.dot.gov/ or physically in the DOT's Docket Management Facility, 
supra, Docket Number 23082, entries: 3-4, 9, 11-13, 16, and 21-22.
    Two comments, which were identical, stated FTA's representative 
list ``in Appendix A can quickly be outdated by technology (e.g., the 
current list refers to wheelchair lifts, but most buses now use 
ramps).'' A third commenter suggested that for ``manufactured end 
products,'' FTA clarifies whether ``infrastructure projects'' include 
``[a]luminum and elastomaric/non-metal products.'' A fourth commenter 
stated FTA's proposed list of end products is ``far from comprehensive 
and is itself subject to interpretation.'' The commenter noted that for 
construction procurements, by including ``lifts, hoists and elevators'' 
as end products along with building structures, the question is raised 
as to the status of ``building components such as roofs, HVAC 
equipment, etc.''
B. Commenter Proposals
    One commenter stated FTA's proposed representative list was overly 
broad, without instructional value, and, therefore, insufficient. 
Instead, the commenter recommended FTA implement a ``comprehensive'' 
list of representative end products, components, and subcomponents in 
Appendix A to 49 CFR part 661. The commenter further stated that 
Appendix A should be ``regularly supplemented as new or changing end 
products, components, sub-components, and manufacturing processes enter 
the marketplace.'' Such proposed supplemental changes should be posted 
for public comment, prior to final decision. The commenter also 
suggested that the list of items in Appendix A should consist of 
concrete examples, rather than mere descriptive terms. The commenter 
proposed a new version of Appendix A, which can be found in the docket 
at entry number 21.
    Three commenters disagreed with the proposal that FTA adopt a 
``comprehensive'' list of end products, components, and subcomponents 
to be constantly updated. These commenters felt that attempting to 
identify a ``comprehensive list'' from the universe of potential end 
products, components, and subcomponents typically acquired in transit 
procurements, and then constantly updating this list, is unrealistic 
and burdensome to grantees. In substantially similar statements, two 
commenters noted that the previous commenter was unable to achieve 
consensus from its membership on this issue, or on its proposed 
``comprehensive list.''
    Instead of a ``comprehensive list,'' the three commenters agreed 
with FTA's inclusion of a ``representative'' list of end products in 
Appendix A. The commenters supported the suggestion FTA include some 
``illustrative'' examples of end products in Appendix A. Commenters 
stated that these examples should be drawn from published FTA 
decisions.
C. FTA Response and Proposal
    FTA agrees with the commenters who recommended FTA implement a 
``representative'' list of end products rather than a ``comprehensive'' 
list as some commenters suggested for two reasons. First, SAFETEA-LU 
requires the Secretary to ``develop a list of representative items that 
are subject to the Buy America requirements'' (emphasis added). By use 
of the term ``representative'' rather ``comprehensive,'' FTA believed 
that Congress did not intend that the list be exhaustive. Second, FTA 
agrees that it would be unrealistic to develop a comprehensive list and 
keep it ``constantly updated'' as some commenters suggested. The 
examples of ``comprehensive'' lists offered by commenters, which were 
often very lengthy, highly detailed, and seldom uniform, exemplify the 
difficulty of creating such a list.
    FTA believes it is impractical to attempt to produce an exhaustive 
``comprehensive'' list of every conceivable end product, component, and 
subcomponent in the transit industry. Instead, the better approach is 
to develop a representative list that is not meant to be all-inclusive. 
An example of this practical approach are the representative lists of 
typical bus and rail car components found in Appendices B and C to 49 
CFR 661.11. FTA's proposed representative list of end products is 
similarly reflective of the broad scope of transit end products with 
which Buy America is concerned.
    Several commenters recommended FTA provide ``illustrative'' 
examples of typical end products. In fact, FTA believes that its 
proposed list accurately reflects the type of end products FTA 
typically reviews in its Buy America practices. For example, FTA 
recently reviewed a procurement for a ``hybrid-electric shuttle bus.'' 
Rather than enumerate this specific vehicle type in the regulation, a 
``hybrid-electric shuttle bus'' is clearly a ``vehicle,'' and, thus, a 
rolling stock end product within the meaning of 49 CFR 661.3 and the 
proposed representative list of end products in Appendix A. Thus, FTA 
believes it is unnecessary to enumerate every conceivable type of bus 
in the list of end products, whether the bus is a trolley replica, 
hybrid-electric, or standard diesel model, as one commenter 
recommended.
    In another example from an actual procurement that underwent Buy 
America review, ``manganese steel frogs'' are a type of special track-
work, and thus, a steel end product. Again, FTA sees no need to 
specifically add the

[[Page 69423]]

term ``manganese steel frog'' or even ``frog'' to the list of 
representative end products, as this type of product is already covered 
under the term ``track-work.'' In short, FTA's proposed representative 
list of general end products is intended to cover innumerable 
designations of specific items.
    FTA seeks comments on its proposal to add an Appendix A to 49 CFR 
661.1 to include a representative list of end products.

5. Definition of ``Final Assembly''

    In the first NPRM, FTA sought comment on its proposal to amend the 
definition of ``final assembly'' in 49 CFR part 661 for rolling stock 
procurements; to incorporate the ``minimum requirements'' of final 
assembly for rail cars and buses as stated in the March 18, 1997, Dear 
Colleague letter, C-97-03 (incorporated as section 3035 of the 
Transportation Equity Act for the 21st Century (TEA-21) (Pub. L. 105-
178)); and to further clarify those requirements. FTA based its 
proposed definition on its March 18, 1997, Dear Colleague letter.
A. Comments Received and Commenter Proposals
    FTA received nine comments on this issue. One comment, which three 
other comments endorsed, recommended several changes to FTA's proposed 
definition, to make it consistent with the lists of typical components 
for rail cars and buses in 49 CFR 661.11(b) and (c). The comment 
proposed the following revisions to FTA's proposed rule (the 
commenter's proposed inserted text is underlined; proposed deletions 
are in brackets):

    Rail Cars: In the case of the manufacture of a new, 
remanufactured, or overhauled rail car, final assembly would 
typically include, as a minimum, [the following operations:] 
installation and interconnection of the typical Rail Car Components 
listed in 661.11 (c), including but not limited to the following 
items: car bodies or shells, car-body wiring, car-borne power 
plants, if any, propulsion control equipment, propulsion cooling 
equipment, friction brake equipment, energy sources for auxiliary 
equipment and controls, heating and air conditioning equipment, 
interior and exterior lighting equipment, coupler equipment and 
coupler control system, communications equipment, pneumatic and 
electrical systems, door and door control systems, passenger seats, 
passenger and cab interiors, destination signs, wheelchair lifts, or 
other equipment required to permit handicapped access to the rail 
car, motors, wheels, axles, [and] gear [units]boxes or integrated 
motor/gear units, suspensions, truck frames and chassis. Final 
Assembly activities shall also include the inspection and 
verification of all installation and interconnection work; and the 
in-plant testing of the [stationary product] rail car to verify all 
functions. In the case of articulated vehicles, the interconnection 
of the car bodies or shells shall also be included as work to be 
performed at the final assembly site.
    Buses: In the case of a new, remanufactured, or overhauled bus, 
final assembly would typically include, at a minimum, the 
installation and interconnection of the typical Bus Components 
listed in 661.11 (b), including but not limited to the following 
items: car bodies or shells, the engine and transmission (drive 
train), axles, propulsion control system, axles. chassis, and 
wheels, including the cooling and braking systems; the installation 
and interconnection of the heating and air conditioning equipment; 
the installation of pneumatic and electrical systems, door systems, 
passenger seats, passenger grab rails, destination signs, wheelchair 
lifts; and road testing. Final Assembly activities shall also 
include final inspection, repairs and preparation of the vehicles 
for delivery. In the case of articulated vehicles, the 
interconnection of the car bodies or shells shall also be included 
as work to be performed at the final assembly site.

    Two other comments, which are identical, recommended the following 
changes to the Bus section of FTA's proposed definition by: (1) Moving 
the word ``chassis'' just after the word ``shells;'' (2) replace the 
words ``suspensions, steering mechanisms and wheels,'' where chassis 
had been; (3) replace the words ``(drive train)'' by ``(propulsion 
components, including inverters and controllers) and energy storage 
device (if used)''--to accommodate hybrid electric buses; and (4) 
replace ``wheelchair lift'' to ``wheelchair lift/ramp''--to accommodate 
low floor bus components. Another commenter recommended FTA's proposed 
reference to ``motors'' and ``gear units'' be modified to read 
``motors, gear units or integrated motor/gearbox.''
    Additionally, a commenter noted that the March 18, 1997, Dear 
Colleague letter contained the following provision, which the commenter 
recommended should be added to the proposed definition of final 
assembly in Appendix D of 49 CFR 661.11:

    If a manufacturer's final assembly processes do not include all 
the activities that are typically considered the minimum 
requirements, it can request a Federal Transit Administration (FTA) 
determination of compliance. FTA will review these requests on a 
case-by-case basis to determine compliance with Buy America.

    This commenter also found the following language in FTA's proposed 
definition to be ambiguous: ``installation and interconnection of car 
bodies or shells.'' The commenter felt that this language could be 
interpreted to mean that various sections of the car body or bus shell 
are to be assembled at the final assembly location. The commenter 
recommended FTA either delete the language or replace it with the 
phrase, ``the installation and interconnection of intercar or bus 
articulations or coupling systems.'' The commenter suggested that the 
term ``suspensions, frames and chassis'' should be clarified. The 
commenter also recommended that the term ``door control systems'' 
replace the current ``door systems.'' Finally, the commenter 
recommended FTA consider a previously rescinded Dear Colleague letter 
issued on September 25, 1997, C-97-18, as it raised ``valid issues 
concerning the need for flexibility in determining compliance with 
final assembly requirements.''
B. FTA Response and Proposal
    FTA concurs with the comment, which FTA quoted in full above, 
recommending several changes to FTA's proposed definition of ``final 
assembly'' for rail cars and buses. FTA notes that several of the 
proposed changes were also mentioned by other commenters, such as using 
the terms ``door control systems'' and ``integrated motor/gear units'' 
in lieu of the designations proposed in the first NPRM. In addition, 
FTA agrees that the definition of final assembly should refer back to 
49 CFR 661.11(b) and (c) for the bus and rail car components that must 
be incorporated into the end product at the final assembly location.
    FTA also agrees with the comment recommending that the following 
language from the March 18, 1997, Dear Colleague Letter should be added 
to the definition of ``final assembly:''

    If a manufacturer's final assembly processes do not include all 
the activities that are typically considered the minimum 
requirements, it can request an Federal Transit Administration (FTA) 
determination of compliance. FTA will review these requests on a 
case-by-case basis to determine compliance with Buy America.

    FTA, however, disagrees with the commenter who stated that the 
phrase ``installation and interconnection of car bodies or shells'' is 
ambiguous. FTA also declines to adopt the language of a previously 
rescinded Dear Colleague letter of September 25, 1997, C-97-18, as the 
commenter suggested.
    Based on the above, FTA seeks comments on its proposal to adopt 
Appendix D to 49 CFR 661.11 per the above commenter's recommendation.

[[Page 69424]]

6. Communication, Train Control, and Traction Power Equipment

    FTA sought comment on three substantive proposals to the Buy 
America requirements for rolling stock in 49 CFR 661.11. In the first 
of these proposals, FTA sought comment on whether it should continue to 
find that the items of communication equipment listed in 49 CFR 661.11 
include wayside equipment, i.e., communication equipment that is not in 
or on a vehicle, but nevertheless subject to the rolling stock 
standard. FTA also sought comment on whether the items of train 
control, communication, and traction power equipment listed in 49 CFR 
661.11(t), (u), and (v) should be deleted and whether any new items 
should be added to these lists to reflect new technology.
    In addition, FTA sought comment on whether the term ``communication 
equipment'' should be clarified in the Buy America regulations to 
reflect continuing changes in technology and advances in systems 
integration. In particular, FTA posed the question whether 
``communication equipment'' should be limited to equipment whose 
primary function is communication ``with or between people'' versus 
``machine to machine'' interface.
A. Comments Received
    FTA received eight comments on these three proposals. Three 
commenters urged FTA not to modify its interpretation of communication 
equipment listed in 49 CFR 661.11 as including wayside equipment. No 
commenter opposed this interpretation.
    Two commenters, who submitted identical comments, agreed with FTA's 
proposal that ``communication equipment'' should be limited to 
equipment whose primary function is to facilitate communication ``with 
or between people'' versus ``machine to machine'' interface. Three 
commenters opposed this proposal. These commenters argued that such a 
distinction is unnecessary, ineffective, or illogical. Several 
commenters pointed out that many communications networks often support 
both capabilities; and that it cannot be said whether equipment 
primarily supports one purpose or the other.
B. Commenter Proposals
    One commenter recommended that FTA change or delete the following 
listed items in 49 CFR 661.11(t), (u), and (v): Under 49 CFR 
661.11(v)(2), ``Primary AC transformer rectifiers'' be changed to 
``Primary AC Rectifier Transformers;'' the language ``at central 
control'' be deleted from 49 CFR 661.11(v)(4), which states ``Traction 
power console and CRT display system at central control;'' and the 
language ``Power rail'' be deleted from 49 CFR 661.11(v)(17), which 
states ``Power rail insulators.'' The commenter also recommended that 
FTA delete the following pieces of equipment entirely in section 
661.11(v): (9) Facility step down transformers; (10) Motor control 
centers (facility use only); (21) Connectors, tensioners, and 
insulators for overhead power wire systems; and (22) Negative drainage 
boards.
    The above commenter and another recommended that the following 
items be added to the lists of equipment in 49 CFR 661.11(t), (u), and 
(v), as follows:
    49 CFR 661.11(t) [train control equipment]: (1) Propulsion Control 
Systems; (2) Cab Signaling; (3) ATO Equipment; (4) ATP Equipment; (5) 
Wayside Transponders; (6) Trip Stop Equipment; (7) Wayside Magnets; (8) 
Cab Displays; (9) Speed Measuring Devices; (10) Car Axle Counters; and 
(11) Communication Based Train Control (CBTC).
    49 CFR 661.11(u) [communication equipment]: (1) Antennas; (2) 
Wireless Telemetry Equipment; (3) Passenger Information Displays; (4) 
Communications Control Units; (5) Communication Control Heads; (6) 
Wireless Intercar Transceivers; (7) Multiplexers; (8) SCADA Systems; 
(9) LED Arrays; (10) [APTA added] Screen Displays such as LEDs and 
LCDs; (11) Fiber-optic transmission equipment; (12) Frame or cell based 
multiplexing equipment; and (13) Communication system network elements.
    49 CFR 661.11(v) [traction power equipment]: (1) Surge Arrestors; 
(2) Protective Relaying; and (3) Bimetallic Power Transmission System 
(BPTS) Equipment.
    One commenter recommended that the following items be added to the 
list of traction power equipment in 49 CFR 661.11(v): Main 
transformers, transfer switches, bonds, and power rail. Another 
commenter suggested the following items be added to the list of 
communications equipment in 49 CFR 661.11(u): (1) Fiber Optic 
Transmission Equipment; (2) Frame or cell-based multiplexing equipment; 
and (3) Communication system network elements. This commenter also 
recommended that aluminum conducting rail, which is referred to as 
Bimetallic Power Transmission System (BPTS), be added to the list of 
traction power equipment in 49 CFR 661.11(v).
    A final commenter proposed various miscellaneous ``corrections and 
clarification'' on such issues as (1) FTA's Buy America Web site be 
binding; (2) a standard ``tariff exemption'' form be added to 49 CFR 
661.11; (3) spare parts be 60% domestic; (4) a U.S. components' 
domestic manufacturing costs count toward a vehicle; (5) administrative 
and overhead costs be counted towards components; (6) the general 
requirements of Sec.  661.5 not apply to remanufactured or overhauled 
vehicles; (7) manufacturers not be required to provide recipients with 
hard copies of Buy America calculations; and (8) grantees not be 
allowed to require both 49 CFR 661.5 and 661.11 requirements on rolling 
stock contract. FTA views these comments to be non-responsive.
C. FTA Response
    FTA agrees with the commenters who recommended that FTA continue 
its longstanding interpretation that items of communication equipment 
listed in 49 CFR 661.11 include wayside equipment, and, thus, are 
subject to the rolling stock standard. FTA notes that no commenter 
opposed this interpretation.
    FTA also concurs with the commenters who argued that 
``communication equipment'' should not be limited to equipment whose 
primary function is to facilitate communication ``with or between 
people'' versus ``machine to machine'' interface. FTA finds commenters' 
argument particularly convincing that communication networks frequently 
support both capabilities (i.e., human to human interaction and machine 
to machine interface) either directly or indirectly and that it cannot 
always be said whether communication equipment primarily supports one 
purpose or the other. FTA's review of prior Buy America decisions 
involving communication equipment support these conclusions. Therefore, 
FTA will not make such a distinction in the Buy America regulations at 
this time. FTA will continue to carefully scrutinize, on a case-by-case 
basis, whether technology may properly be characterized as 
``communication equipment'' within the meaning of the rolling stock 
provisions of 49 U.S.C. 5323(j) and 49 CFR 661.11.
    Regarding proposed changes to train control, communication, and 
traction power equipment in 49 CFR 661.11(t), (u), and (v), 
respectively, FTA notes that only one commenter recommended deleting 
enumerated items. FTA declines to do so, absent a specific showing as 
to why specific items of equipment should be deleted from the lists in 
49 CFR 661.11.
    However, FTA agrees to add certain items of equipment, as 
recommended by several commenters. With respect to two

[[Page 69425]]

proposed items of equipment, ``Propulsion Control Systems'' and ``Cab 
Displays,'' FTA believes the former functions more as part of traction 
power equipment, rather than as train control equipment. With respect 
to ``Cab Displays,'' this type of equipment is already an integral part 
of a vehicle, and does not need to be separately listed.
D. FTA Proposal
    Accordingly, FTA seeks comments on its proposal to amend 49 CFR 
661.11(t), (u), and (v), respectively, by adding the following: (t) 
train control equipment; cab signaling, ATO equipment, ATP equipment, 
wayside transponders, trip stop equipment, wayside magnets, speed 
measuring devices, car axle counters, communication based train control 
(CBTC); (u) communication equipment; antennas, wireless telemetry 
equipment, passenger information displays, communications control 
units, communication control heads, wireless inter-car transceivers, 
multiplexers, SCADA systems, LED arrays, screen displays such as LEDs 
and LCDs, fiber-optic transmission equipment, frame or cell based 
multiplexing equipment, communication system network elements; and (v) 
traction power equipment; propulsion control systems, surge arrestors, 
protective relaying.
    FTA notes that several commenters recommended that aluminum 
composite conducting rail, otherwise known as Bimetallic Power 
Transmission (BPTS) Equipment, which is a combination of an aluminum 
conductor and a stainless steel abrasion-resistant cap, be considered 
as traction power equipment, and added to the list of items at 49 CFR 
661.11(v). FTA's current regulation at 49 CFR 661.11(w) states that 
``[t]he power or third rail is not considered traction power equipment 
and is thus subject to the requirements of 49 U.S.C. 5323(j) and the 
requirements of 49 CFR 661.5.'' Regardless whether BPTS equipment is 
made primarily from aluminum, steel, or some other material, 49 CFR 
661.11(w) expressly precludes it from being considered as traction 
power equipment if it is used as the ``power or third rail''. If BPTS 
third rail is not made primarily of steel, it would be treated as a 
``manufactured product'' under 49 CFR 661.5(d).

7. Statutory Update

    Section 3023 of SAFETEA-LU amended 49 U.S.C. 5323(j)(6) (as 
redesignated by SAFETEA-LU) by striking ``Intermodal Surface 
Transportation Efficient Act of 1991 (Public Law 102-240, 105 Stat. 
1914)'' and inserting ``Federal Public Transportation Act of 2005''. 
This SNPRM proposes to amend 49 CFR 661.18 to conform to this statutory 
change.

XI. Regulatory Analyses and Notices

A. Statutory/Legal Authority for This Rulemaking

    This SNPRM is authorized under the Safe, Accountable, Flexible, 
Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU) 
(Pub. L. 109-59), which amended section 5323(j) and (m) of title 49, 
United States Code and required FTA to revise its regulations with 
respect to Buy America requirements.

B. Executive Order 12866 and DOT Regulatory Policies and Procedures

    This SNPRM is a nonsignificant regulatory action under section 3(f) 
of Executive Order 12866 and, therefore, was not reviewed by the Office 
of Management and Budget. This SNPRM is also nonsignificant under the 
Regulatory Policies and Procedures of the Department of Transportation 
(44 FR 11034, Feb. 26, 1979). This SNPRM imposes no new compliance 
costs on the regulated industry; it merely clarifies terms existing in 
the Buy America regulations and adds terms consistent with SAFETEA-LU.

C. Executive Order 13132

    This SNPRM has been analyzed in accordance with the principles and 
criteria contained in Executive Order 13132 (``Federalism''). This 
SNPRM does not include any regulation that has substantial direct 
effects on the States, the relationship between the national government 
and the States, or the distribution of power and responsibilities among 
the various levels of government. Therefore, the consultation and 
funding requirements of Executive Order 13132 do not apply.

D. Executive Order 13175

    This SNPRM has been analyzed in accordance with the principles and 
criteria contained in Executive Order 13175 (``Consultation and 
Coordination with Indian Tribal Governments''). Because this SNPRM does 
not have tribal implications and does not impose direct compliance 
costs, the funding and consultation requirements of Executive Order 
13175 do not apply.

E. Regulatory Flexibility Act and Executive Order 13272

    The Regulatory Flexibility Act (5 U.S.C. 601-611) requires each 
agency to analyze regulations and proposals to assess their impact on 
small businesses and other small entities to determine whether the rule 
or proposal will have a significant economic impact on a substantial 
number of small entities. This SNPRM imposes no new costs. Therefore, 
FTA certifies that this proposal does not require further analysis 
under the Regulatory Flexibility Act. FTA requests public comment on 
whether the proposals contained in this SNPRM have a significant 
economic impact on a substantial number of small entities.

F. Unfunded Mandates Reform Act of 1995

    This SNPRM does not propose unfunded mandates under the Unfunded 
Mandates Reform Act of 1995. If the proposals are adopted into a final 
rule, it will not result in costs of $100 million or more (adjusted 
annually for inflation), in the aggregate, to any of the following: 
State, local, or Native American tribal governments, or the private 
sector.

G. Paperwork Reduction Act

    This SNPRM proposes no new information collection requirements.

H. Regulation Identifier Number (RIN)

    A regulation identifier number (RIN) is assigned to each regulatory 
action listed in the Unified Agenda of Federal Regulations. The 
Regulatory Information Service Center publishes the Unified Agenda in 
April and October of each year. The RIN number contained in the heading 
of this document may be used to cross-reference this action with the 
Unified Agenda.

I. Environmental Assessment

    The National Environmental Policy Act of 1969 (NEPA), as amended 
(42 U.S.C. 4321-4347), requires Federal agencies to consider the 
consequences of major Federal actions and prepare a detailed statement 
on actions significantly affecting the quality of the human 
environment. There are no significant environmental impacts associated 
with this SNPRM.

J. Privacy Act

    Anyone is able to search the electronic form for all comments 
received into any of our dockets by the name of the individual 
submitting the comments (or signing the comment, if submitted on behalf 
of an association, business, labor union, etc.). You may review DOT's 
complete Privacy Act Statement in the Federal Register published on 
April 11, 2000 (Volume 65, Number 70; Pages 19477-78) or you may visit 
http://dms.dot.gov.

[[Page 69426]]

List of Subjects in 49 CFR Part 661

    Grant programs-transportation, Public transportation, Reporting and 
recordkeeping requirements.

    Accordingly, for the reasons described in the preamble, 49 CFR part 
661 of the Code of Federal Regulations is proposed to be 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) (formerly sec. 165, Pub. L. 97-424; 
as amended by sec.337, Pub. L. 100-17; sec.1048, Pub. L. 102-240; 
sec.3020(b), Pub. L. 105-178; and sec. 3023(i) and (k), Pub. L. 109-
59); 49 CFR 1.51.

    2. Revise Sec.  661.3 to read as follows:


Sec.  661.3  Definitions.

    As used in this part:
    Act means the Surface Transportation Assistance Act of 1982 (Pub. 
L. 97-424), as amended.
    Administrator means the Administrator of FTA, or designee.
    Component means any article, material, or supply, whether 
manufactured or unmanufactured, that is directly incorporated into the 
end product at the final assembly location.
    Contractor means a party to a third party contract other than the 
grantee.
    End product means any vehicle, structure, product, article, 
material, supply, or system, which directly incorporates constituent 
components at the final assembly location, that is acquired for public 
use under a Federally-funded third party contract, and which is ready 
to provide its intended end function or use without any further 
manufacturing or assembly change(s). A list of representative end 
products is included at appendix A to this section.
    FTA means the Federal Transit Administration.
    Grantee means any entity that is a recipient of FTA funds.
    Manufactured product means an item produced as a result of the 
manufacturing process.
    Manufacturing process means the application of processes to alter 
the form or function of materials or of elements of the product in a 
manner adding value and transforming those materials or elements so 
that they represent a new end product functionally different from that 
which would result from mere assembly of the elements or materials.
    Negotiated procurement means a contract awarded using other than 
sealed bidding procedures.
    Rolling stock means transit vehicles such as buses, vans, cars, 
railcars, locomotives, trolley cars and buses, and ferry boats, as well 
as vehicles used for support services.
    System means a machine, product, or device, or a combination of 
such equipment, consisting of individual components, whether separate 
or interconnected by piping, transmission devices, electrical cables or 
circuitry, or by other devices, which are intended to contribute 
together to a clearly defined function. In determining whether a system 
constitutes an end product, or is instead made up of independent end 
products, the Administrator will consider all appropriate factors on a 
case-by-case basis. Such factors may include whether performance 
warranties apply to an integrated system (regardless of whether 
components are separately warranteed); whether products perform on an 
integrated basis with other products in a system, or are operated 
independently of associated products in the system; or whether transit 
agencies routinely procure a product separately (other than as 
replacement or spare parts).
    United States means the several States, the Commonwealth of Puerto 
Rico, the District of Columbia, Guam, American Samoa, the U.S. Virgin 
Islands, and the Commonwealth of the Northern Mariana Islands.

Appendix A to Sec.  661.3--End Products

    The following is a list of representative end products that are 
subject to the requirements of Buy America. This list is 
representative, not exhaustive.
    (1) Rolling stock end products: All individual items identified 
as rolling stock in Sec.  661.3 (e.g., buses, vans, cars, railcars, 
locomotives, trolley cars and buses, ferry boats, as well as 
vehicles used for support services); train control, communication, 
and traction power equipment that meets the definition of end 
product at Sec.  661.3 (e.g., a communication or traction power 
system).
    (2) Steel and iron end products: Items made primarily of steel 
or iron such as structures, bridges, and track work, including 
running rail, contact rail, and turnouts.
    (3) Manufactured end products: Infrastructure projects not made 
primarily of steel or iron, including structures (terminals, depots, 
garages, and bus shelters), ties and ballast; contact rail not made 
primarily of steel or iron; fare collection equipment; computers; 
information, security, and data processing equipment; mobile lifts, 
hoists, and elevators.

    3. In Sec.  661.7:
    a. Revise paragraph (b) and add new paragraph (c)(3) to read as set 
forth below; and
    b. Amend appendix A to Sec.  661.7 by removing paragraphs (b) and 
(c) and adding new paragraph (b) to read as set forth below.


Sec.  661.7  Waivers.

* * * * *
    (b) Under the provision of section 165(b)(1) of the Act, the 
Administrator may waive the general requirements of section 165(a) if 
the Administrator finds that their application would be inconsistent 
with the public interest. 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, unless a general 
exception is specifically set out in this part. 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.
    (c) * * *
    (3) After contract award, the Administrator may grant a non-
availability waiver under this paragraph, in any case in which a bidder 
or offeror originally certified compliance with the Buy America 
requirements in good faith, but can no longer comply with its 
certification. The Administrator will grant a non-availability waiver 
only if the grantee provides sufficient evidence that the original 
certification was made in good faith and that the item to be procured 
cannot now be obtained domestically due to commercial impossibility or 
impracticability. In determining whether the conditions exist to grant 
a post-award non-availability waiver, the Administrator will consider 
all appropriate factors on a case-by-case basis.
* * * * *

Appendix A to Sec.  661.7--General Waivers

* * * * *
    (b) Under the provisions of Sec.  661.7 (b) and (c) of this 
part, a general public interest waiver from the Buy America 
requirements applies to microprocessors, computers, microcomputers, 
or software, or other such devices, which are used solely for the 
purpose of processing or storing data. This general waiver does not 
extend to a product or device which merely contains a microprocessor 
or microcomputer and is not used solely for the purpose of 
processing or storing data.

    4. Amend Sec.  661.11 by removing and reserving paragraph (s), 
adding paragraphs (t)(14) through (t)(22), (u)(18)

[[Page 69427]]

through (u)(30), and (v)(28) through (30), and adding a new Appendix D, 
to read as follows:


Sec.  661.11  Rolling stock procurements.

* * * * *
    (t) * * *
    (14) Cab Signaling;
    (15) ATO Equipment;
    (16) ATP Equipment;
    (17) Wayside Transponders;
    (18) Trip Stop Equipment;
    (19) Wayside Magnets;
    (20) Speed Measuring Devices;
    (21) Car Axle Counters;
    (22) Communication Based Train Control (CBTC).
    (u) * * *
    (18) Antennas;
    (19) Wireless Telemetry Equipment;
    (20) Passenger Information Displays;
    (21) Communications Control Units;
    (22) Communication Control Heads;
    (23) Wireless Intercar Transceivers;
    (24) Multiplexers;
    (25) SCADA Systems;
    (26) LED Arrays;
    (27) Screen Displays such as LEDs and LCDs for communication 
systems;
    (28) Fiber-optic transmission equipment;
    (29) Fiber-optic transmission equipment;
    (30) Frame or cell based multiplexing equipment; 13) Communication 
system network elements.
    (v) * * *
    (28) Propulsion Control Systems;
    (29) Surge Arrestors;
    (30) Protective Relaying.
* * * * *

Appendix D to Sec.  661.11-Minimum Requirements for Final Assembly

    (a) Rail Cars: In the case of the manufacture of a new, 
remanufactured, or overhauled rail car, final assembly would 
typically include, as a minimum, installation and interconnection of 
the typical Rail Car Components listed in Sec.  661.11, Appendix C, 
including but not limited to the following items: car bodies or 
shells, chassis, carbody wiring, car-borne power plants or power 
pick-up equipment, energy management and storage devices, 
articulation equipment, propulsion control equipment, propulsion 
cooling equipment, friction brake equipment, energy sources for 
auxiliary equipment and controls, heating and air conditioning 
equipment, interior and exterior lighting equipment, coupler 
equipment and coupler control system, communications equipment, 
pneumatic systems, electrical systems, door and door control 
systems, passenger seats, passenger interiors, cab interiors, 
destination signs, wheelchair lifts (or other equipment required to 
permit handicapped access to the rail car), motors, wheels, axles, 
gear boxes or integrated motor/gear units, suspensions, truck frames 
and chassis. Final Assembly activities shall also include the 
inspection and verification of all installation and interconnection 
work; and the in-plant testing of the rail car to verify all 
functions. In the case of articulated vehicles, the interconnection 
of the car bodies or shells shall be included as work to be 
performed by the manufacturer as part of vehicle delivery.
    (b) Buses: In the case of a new, remanufactured, or overhauled 
bus, final assembly would typically include, at a minimum, the 
installation and interconnection of the typical Bus Components 
listed in Sec.  661.11, Appendix B, including but not limited to the 
following items: car bodies or shells, the engine and transmission 
(drive train), axles, energy management and storage devices, 
articulation equipment, propulsion control system, chassis, and 
wheels, cooling system, and braking systems; the installation and 
interconnection of the heating and air conditioning equipment; the 
installation of pneumatic system and the electrical system, door 
systems, passenger seats, passenger grab rails, destination signs, 
wheelchair lifts or ramps and other equipment required to make the 
vehicle accessible to persons with disabilities, and road testing. 
Final Assembly activities shall also include final inspection, 
repairs and preparation of the vehicles for delivery. In the case of 
articulated vehicles, the interconnection of the car bodies or 
shells shall be included as work to be performed by the manufacturer 
as part of vehicle delivery.
    (c) If a manufacturer's final assembly processes do not include 
all the activities that are typically considered the minimum 
requirements, it can request a Federal Transit Administration (FTA) 
determination of compliance. FTA will review these requests on a 
case-by-case basis to determine compliance with Buy America.


Sec.  661.18  [Amended]

    5. Amend Sec.  661.18 introductory text by removing ``the 
Intermodal Surface Transportation Efficiency Act of 1991'' and in its 
place add, ``the Federal Public Transportation Act of 2005''.

    Issued in Washington, DC this 22nd day of November, 2006.
James S. Simpson,
Administrator.
[FR Doc. E6-20166 Filed 11-29-06; 8:45 am]
BILLING CODE 4910-57-P