[Federal Register Volume 60, Number 50 (Wednesday, March 15, 1995)]
[Proposed Rules]
[Pages 14178-14179]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-6386]
[[Page 14177]]
_______________________________________________________________________
Part VI
Department of Transportation
_______________________________________________________________________
Federal Transit Administration
_______________________________________________________________________
49 CFR Part 661
Buy America Requirements; Proposed Rule
Federal Register / Vol. 60, No. 50 / Wednesday, March 15, 1995 /
Proposed Rules
[[Page 14178]]
DEPARTMENT OF TRANSPORTATION
Federal Transit Administration
49 CFR Part 661
[Docket No. 94-A]
RIN 2132-AA42
Buy America Requirements
AGENCY: Federal Transit Administration (FTA), DOT.
ACTION: Notice of proposed waiver from Buy America requirements for
small purchases and for purchases with operating assistance.
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SUMMARY: FTA proposes to issue a public interest waiver from the Buy
America requirements for ``small purchases'' (as defined in the
``common grant rule'') by FTA grantees and made with capital and
planning assistance and for all purchases by FTA grantees made with
operating assistance.
DATES: Comments must be received by May 15, 1995.
ADDRESSES: Comments should be addressed to: Federal Transit
Administration, Office of Chief Counsel, Docket No. 94-A, Room 9316,
400 Seventh Street, S.W., Washington, D.C. 20590. Comments will be
available for review by the public at this address from 9:00 a.m. to
5:00 p.m., Monday through Friday.
FOR FURTHER INFORMATION CONTACT: Gregory B. McBride, Deputy Chief
Counsel, Office of Chief Counsel, (202) 366-4063.
SUPPLEMENTARY INFORMATION: Elsewhere in today's Federal Register, FTA
provides notice of its issuance of a public interest waiver for micro-
purchases (i.e., those purchases where the cost is $2,500 or less) by
FTA grantees. In this notice, to further serve the same purposes, FTA
proposes to issue a public interest waiver from the Buy America
requirements for ``small purchases'' (as defined in the ``common grant
rule'') by FTA grantees made with capital and planning assistance and
for all purchases by FTA grantees made with operating assistance.
The Buy American Act of 1933, 41 U.S.C. 10a-d, established a
preference for domestically produced goods in direct federal
procurements. The first Buy America legislation applicable to the
expenditure of federal funds by recipients under FTA and Federal
Highway Administration (FHWA) grant programs was enacted in 1978:
section 401 of the Surface Transportation Assistance Act of 1978 (Pub.
L. 95-599, 92 Stat. 2689) established a domestic preference for
``articles, materials, supplies mined, produced, or manufactured'' in
the United States and costing more than $500,000.
In January 1983, Congress repealed section 401 and substituted
section 165 of the Surface Transportation Assistance Act of 1982, Pub.
L. No. 97-424, 96 Stat. 2097. This action, among other things,
eliminated the $500,000 threshold. Congress prohibited the expenditure
of FTA or FHWA funds on steel, cement, and ``manufactured products,''
but as discussed below, included four exceptions permitting the statute
to be waived. In 1984, Congress removed cement from section 165, and in
1991 added iron (see section 337 of the Surface Transportation
Assistance and Uniform Relocation Act of 1987 (Pub. L. 100-17, 101
Stat. 32) and section 1048 of the Intermodal Surface Transportation
Efficiency Act of 1991 (Pub. L. 102-204, 105 Stat. 1914)).
Now codified at 49 U.S.C. 5323(j), the Buy America requirement that
applies to purchases made with Federal transit and highway funds
provides as follows:
(j) BUY AMERICA.--(1) The Secretary of Transportation may
obligate an amount that may be appropriated to carry out this
chapter for a project only if the steel, iron, and manufactured
goods used in the project are produced in the United States.
(2) The Secretary of Transportation may waive paragraph (1) of
this subsection if the Secretary finds that--
(A) Applying paragraph (1) would be inconsistent with the public
interest;
(B) The steel, iron, and goods produced in the United States are
not produced in a sufficient and reasonably available amount or are
not of a satisfactory quality;
(C) When procuring rolling stock (including train control,
communication, and traction power equipment) under this chapter--
(i) The cost of components and subcomponents produced in the
United States is more that 60 percent of the cost of all components
of the rolling stock; and
(ii) Final assembly of the rolling stock has occurred in the
United States; or
(D) Including domestic material will increase the cost of the
overall project by more than 25 percent.
FTA has issued regulations implementing this provision at 49 CFR
Part 661. These regulations specify that ``for a manufactured product
to be considered produced in the United States: (1) All of the
manufacturing processes for the product must take place in the United
States; and (2) all items or material used in the product must be of
United States origin.'' 49 CFR 661.5(d). This definition is different
from the regulation implementing the 1933 Buy American Act which
requires that manufactured products contain only a 51 percent domestic
content.
In this global economy, it is nearly impossible to find
manufactured products that are entirely domestic. Consequently, FTA
receives Buy America waiver requests for thousands of items, the great
majority for reasons of nonavailability under section (j)(2)(B), with a
few based on price differential under section (j)(2)(D). (In Appendix A
to 49 CFR 661.7, FTA adopted the waivers granted under the Buy American
Act of 1933 (41 U.S.C. 10a-d) and included public interest waivers
under section (j)(2)(A) for microcomputer equipment, certain Chrysler
vehicles assembled in Canada, and spare parts when purchased as part of
a rolling stock procurement.) As a general rule, most grantees have
many more procurements for small items than for large items. Thus, most
waivers granted by FTA are based on the nonavailability of items such
as office supplies (e.g., pens, paperclips) and maintenance items
(e.g., screws, bearings, small vehicle replacement parts, consumables).
Many involve purchases of less than $20, with unit prices under one
dollar and often less than one cent. These types of things are
generally purchased with Federal and local operating assistance funds.
The volume of these waiver requests has resulted in significant
delays in grantees' procurement processes. They consume an inordinate
amount of grantee staff time, since documentation for each waiver
request must be developed and submitted to FTA, where it is reviewed
and acted on. Large grantees handle thousands of individual
procurements each year. Several grantees state that in order to comply
with the FTA Buy America requirements, procurement staffs have been
increased.
One mid-sized grantee has written that it processes more than 1,000
purchase orders each month. Such procurements, if subjected to Buy
America scrutiny, could theoretically result in the generation of more
than 12,000 internal documents annually and an estimated 1,500 requests
for waivers. To fully comply with the requirement (for procurements of
less than $10,000), this grantee estimated that its purchasing
department staff would have to be increased by 2-3 persons, increasing
staff costs in excess of $100,000; two fax machines with phone lines
would have to be procured, with a one-time cost in excess of $2,000 and
annual telephone costs in excess of $1,200; and its computerized stock
order system would have to be revised to recognize and track each order
to make sure it meets the requirement, at a cost in excess of $10,000.
Modifying [[Page 14179]] its purchase procedures to meet the
requirement would require reducing the number of purchase orders by
ordering larger quantities. However, the grantee explained, good
business practice dictates that inventories be kept at the lowest level
possible for several reasons, including loss prevention control,
minimizing cash in inventory, maintaining purchasing flexibility to
take advantage of product changes and improvements, space restrictions
for storage, and shelf life. The grantee also noted that buying all
items in large quantities also can work against good faith attempts to
include disadvantaged business participation in the bidding process.
Grantees have cited other reasons for their assertion that
compliance with FTA's current Buy America rule is unduly difficult and
burdensome:
Small Purchase Procedures. Grantees do not routinely
accumulate the documentation necessary to justify a waiver of the Buy
America requirements when procuring goods in accordance with their
small purchase procedures, as allowed by 49 CFR Part 18, Uniform
Administrative Requirements for Grants and Cooperative Agreements to
State and Local Governments (known as the ``common grant rule''). These
small purchase procedures were meant to reduce paperwork and facilitate
grantees' effective and efficient procurement of goods. Because
documentation needed to request a waiver is usually not required or
compatible with such procedures, the requirement to request a waiver is
often overlooked. Strict compliance with the FTA rule would necessitate
creation of documentation not normally needed for business reasons,
preclude the use of oral quotes where normally appropriate, and make
the use of purchase orders difficult. Moreover, since the rule
precludes granting a waiver until after receipt of bids, grantees are
forced to repeat written waiver requests for the same item, even when
it is evident that a domestic product will not be offered.
State or Local Purchasing Procedures. Since many small to
mid-size transit properties and most states are required to use a local
or state purchasing department for purchasing supplies, they have
little control over the procedures used. To comply with the FTA Buy
America requirements, they must create duplicative local procurement
procedures, thereby incurring delays and increasing the cost of their
procurements. Ironically, one State has reported that it cannot take
advantage of the State Highway Department purchasing office since the
State Highway Department complies with the FHWA rule, 23 CFR 635.410,
which is inconsistent with the FTA rule.
Vendor Problems. Compliance with the FTA Buy America
requirements has also been a problem for vendors who supply the small
items grantees need for their routine operations. In many instances,
such vendors are distributors and suppliers rather than manufacturers;
accordingly, they cannot reasonably be expected to know whether the
items being procured are produced in the United States or not. However,
under the FTA rule, all vendors must execute a certification of either
compliance or noncompliance; for this purpose, some grantees have
included a compliance certification on all purchase orders. If a vendor
declines to sign the certification, the grantee will not do business
with that vendor. This approach protects the grantee, but puts a vendor
at risk. Many vendors refuse to certify compliance with the Buy America
rule when they do not know the content of the products they are
supplying. Some even refuse to deal with the FTA grantee, thus reducing
competition. In any case, if the vendor does not certify compliance,
the grantee is obliged to consider the product non-domestic and to seek
a waiver from FTA for its purchase.
Confusion with 1933 Buy American Act. Grantees also report
that some vendors certify compliance with the Buy America requirement
believing it to be the same as the 1933 Buy American Act, which
requires manufactured products to be 51 percent domestic in content.
This is contrary to the FTA regulation, which requires a 100 percent
domestic content. Indeed, there are instances where grantees themselves
do not know that the FTA regulation requires 100 percent domestic
content for a manufactured product to be domestic. Until or unless
there is a complaint, the grantee will not look behind the
certification to verify that the person who signed it understood the
requirement. Thus, one is not always certain that a Buy America
certification is correct or that the bids are being judged by the same
standard.
Today's action is consistent with and responsive to President
Clinton's initiative to reinvent government, known as the National
Performance Review, and three recent actions designed to simplify
government procedures, especially as to small purchases. The first is
Executive Order 12931 of October 13, 1994, Federal Procurement Reform,
which requires that Federal agencies review their procurement
requirements with a view to streamlining them. The second is the
Federal Acquisition Streamlining Act of 1994 (FASA), enacted October
13, 1994, which has as two of its major streamlining features the
creation of a Simplified Acquisition Threshold of $100,000 to replace
the existing $25,000 small purchase threshold and the exemption of
``micro-purchases'' (purchases valued at $2,500 or less) from the
provisions of the 1933 Buy American Act. On December 15, 1994, the
Department of Defense, the General Services Administration and the
National Aeronautics and Space Administration issued an interim rule
implementing FASA (59 FR 64786, December 15, 1994). The third is a
proposal by the Office of Management and Budget (OMB) to apply the
$100,000 Simplified Acquisition Threshold for direct Federal purchases
to purchases by Federal recipients of financial assistance under the
common grant rule at 49 CFR Part 18.36 (59 FR 53705, October 5, 1994).
FTA also notes that the Federal Highway Administration (FHWA), in
administering the same statute as FTA, already provides a general
waiver if the cost of foreign materials does not exceed $2,500.
Public Interest Waiver
In light of these considerations, FTA believes that application of
its Buy America rule to small purchases is not consistent with the
public interest; accordingly, FTA proposes to issue a general public
interest waiver under 49 U.S.C. Sec. 5323(j)(2)(A) and 49 CFR
Sec. 661.7(b) to exempt from its Buy America requirements all ``small
purchases'' (as defined in the common grant rule, 49 CFR 18.36(d)) made
by its grantees with FTA financial assistance, including capital,
planning, and operating assistance and all purchases by FTA grantees
with operating assistance. This exemption would cover many small
purchases made by FTA grantees. The goal of this public interest waiver
is to eliminate some of the procurement delays, ``red tape,'' and
paperwork from FTA grantees' procurement processes.
Request for Comments
FTA requests comment on this proposal to grant a general public
interest waiver. After consideration of all comments, FTA will publish
notice in the Federal Register of its action.
Issued on: March 10, 1995.
Gordon J. Linton,
Administrator.
[FR Doc. 95-6386 Filed 3-14-95; 8:45 am]
BILLING CODE 4910-57-U