Disposal of Property and Equipment
Q. Does FTA have any guidance on prohibiting “parts cannibalization” of FTA funded vehicles which have reached the end of their useful life? We have some retired FTA funded vans about to be sold at auction. The contractor on whose lot the vans are parked removed some windshields and bumpers to add to his parts inventory. I realize we need to deal with a local contractual problem, but I find nothing in Circulars 5010, 4220, or BPPM relating to keeping a retired vehicle intact for surplus auction.”
A. FTA Circular 5010.1D, “Grant Management Requirements, October 1, 2008, Chapter IV, subsection 3, http://www.fta.dot.gov/documents/C_5010_1D_Finalpub.pdf, discusses disposition of equipment that has reached the end of its service life. If the unit has a fair market value (FMV) of $5000 or more, then the grantee must reimburse FTA’s share of the fair market value of the FTA assisted equipment, even though the grantee’s contractor removed some parts of that equipment. Any unit of the equipment with a FMV of $5000 or more that experienced a decrease in its FMV due to removal of the parts would require reimbursement of FTA’s share of that decrease caused by the cannibalization. The amount of decrease would be determined by an evaluation based on sales of other comparable rolling stock that is beyond its useful life. Because there is no Federal interest in any unit of grant assisted property with a FMV of $5,000 or less, the grantee may do what it wishes with that property, including removing parts as it sees fit. (Revised: July 2010)
Q. Our transportation program has recently been forced to downsize, and now I have several buses that I need to get rid of. Can I sell them to a private individual? If so, what is the process and how much of the proceeds will I retain?
A. The Federal Transit Administration’s (FTA) enabling legislation, Department of Transportation (DOT) Common Grant Rules, and FTA Grant Management and Third Party Contracting Circulars, and FTA Master Agreement, all discuss disposition of project property.
DOT’s enabling legislation at 49 U.S.C. § 5334(h) permits the transfer and the sale of FTA assisted property provided FTA approval is obtained.
If a grantee is instructed to sell its unneeded FTA assisted property the DOT Common Grant Rules at 49 C.F.R. § 18.32(d)(5) and 49 C.F.R. § 19.34(f)(6) direct the grantee to sell that property for the highest return. Accordingly, if a private individual were to offer the highest return, the grantee could sell its unneeded buses to that individual.
See FTA Circular 4220.1F, “Third Party Contracting Guidance” at http://www.fta.dot.gov/documents/FTA_Circular_4220_-_Third_Party_Contracting_Guidance_-_7-1-10_final.pdf, for competitive procurement procedures to use in offering FTA assisted property for sale. A grantee with adequate e-commerce procedures may use those procedures in offering FTA assisted property for sale.
FTA Circular 5010.1D, “Grant Management Requirements,” October 1, 2008, http://www.fta.dot.gov/documents/C_5010_1D_Finalpub.pdf, provides guidance on property disposition requirements. Upon sale of FTA assisted property, especially if the useful life of that property has not expired, the grantee will need to return to FTA’s proportionate share of the remaining Federal interest in that property. Also, even if the “useful life” of the property has expired, if a unit of that property has sold for $5,000 or more, FTA would be entitled to its proportionate share of the proceeds of that sale. In this case, it appears that the buses being sold would not be replaced because the grantee is downsizing. If that is the case, FTA’s proportionate share of the sales proceeds should be returned to FTA in cash. For many years, FTA’s Master Agreement has included Property Management provisions in Section 19; see http://www.fta.dot.gov/documents/16-Master.pdf. (Revised: July 2010)
Q. Vehicles that have reached the end of their useful life have been donated to other public entities. However, a school has requested a vehicle but I understand that schools are not really considered "public"? The vehicles that we wish to donate are Project Mobility vans which are beyond their useful life.
A. If the Project Mobility vehicles to be donated have fulfilled their service life and have a current unit market value of less than $5,000 or less, which may be likely, the grantee may dispose of them no further obligation to FTA. 49 C.F.R. § 18.32(e)(1) and 49 C.F.R. § 19.34. See, FTA Circular 5010.1D, “Grant Management Requirements,” Chapter IV, subsection 3.l, dated October 1, 2008, which can be accessed at http://www.fta.dot.gov/documents/C_5010_1D_Finalpub.pdf.
(Revised: July 2010)
Q. May an agency use a third party contractor to sell vehicles at auction? What procedures have to be followed in terms of opening the auction up to the general public vs. a selected pool of wholesalers (advertising, etc.)? These are non-revenue vehicles that are FTA funded.
A. Provided the grantee and its third party contractor comply with FTA’s Third Party Contracting requirements, the grantee may use a third party contractor to conduct the auctions. Because the DOT Common Grant Rules at 49 C.F.R. § 18.32(d)(5) and 49 C.F.R. § 19.34(f)(6) direct the grantee to sell that property for the highest return, FTA suggests that the auction contract include a requirement to place an advertisement in the local paper in advance of the sale and/or put a notice on the agency’s internet page saying that on “x” date the vehicles are being auctioned on behalf of the grantee and telling interested people how to contact the auctioneer (We assume the auctioneer would accept a bid from a private party). Either option would make the buying opportunities more generally available, increasing the possibility of a higher return.
(Revised: July 2010)
Q. Could a grantee competitively bid for the services of a third party fleet management company that would conduct an auction to sell vehicles purchased with FTA funds? These auctions are closed to the general public and open only to selected wholesalers.
A. A grantee may use competitive bidding that complies with FTA requirements to acquire the services of a fleet management company to manage the sale of FTA assisted vehicles. Nevertheless, whether the grantee sells its FTA assisted vehicles or a fleet management company sells the FTA assisted vehicles, the Common Grant Rule requires that “proper sales procedures must be established to ensure “the highest possible return” through competition. 49 C.F.R. § 18.32(d)(5) and 49 C.F.R. § 19.34(f)(6). To achieve a fair competitive process, there would need to be a sufficient number of wholesalers likely to be interested in acquiring the vehicles, and objective evaluation and selection standards would need to be established. We would be concerned if the grantee’s third party contracts were only for a sales service that limits competition to selected wholesalers. We would need more information to be assured that Federal requirements could be met.
You should consult the regional office about how the Federal interest in the proceeds of the sale should be treated. (Revised July 2010)
Q. Is it possible to transfer title of FTA funded rolling stock that is past its useful life and eligible to be disposed of to a 501(C)(3) service group for public use if it does not have a value in excess of $5,000? We presently have 39 1998 / 99 model, 3 year buses for ATA service that are ready to be retired.
A. FTA policies regarding the disposition of property, equipment, etc. may be found in FTA Circular 5010.1D, “Grant Management Requirements,” October 1, 2008, which is available online http://www.fta.dot.gov/documents/C_5010_1D_Finalpub.pdf.
Chapter IV, paragraph 3.l(5) states specifically that rolling stock and equipment that has a unit market value of less than $5,000 may be retained, sold, or otherwise disposed of with no obligation to reimburse FTA. Records of any action of that type must be retained. (Reviewed: July 2010)
Q. Is there any FTA guidance on the disposal of vehicles that have passed the end of their service life, both in years and miles?
A. FTA Circular 5010.1D, “Grant Management Requirements,” November 1, 2008, Chapter IV, Paragraphs 3.l(4) and (5) provide guidance on the disposition of vehicles that have passed the end of their service life, both in years and miles. The grantee has no obligation to FTA for any vehicle having a fair market value of less than $5,000. FTA, however, does have a Federal interest in the proceeds of any disposition of a vehicle having a value of $5,000 or more. See, http://www.fta.dot.gov/documents/C_5010_1D_Finalpub.pdf (Revised: July 2010)
Q. I would like to obtain clarification on the provisions of the FTA Circular 5010.1D, “Grant Management Requirements,” November 1, 2008 (Chapter IV, section 3, “Equipment, Supplies, and Rolling Stock,” subsection l “Disposition,” paragraph 11, “Casualty, Fire, Natural Disaster, and Misused Property”), stating:
“When project property is lost or damaged by fire, casualty, or natural disaster, the fair market value shall be calculated on the basis of the condition of the equipment or supplies immediately before the fire, casualty, or natural disaster, irrespective of the extent of insurance coverage. If any damage to project property results from abuse or misuse occurring with the grantee’s knowledge and consent, the grantee agrees to restore the project property to its original condition or refund the value of the Federal interest in that property.”
Could I interpret this to mean that if the grantee removes the FTA-funded vehicle from revenue service life before its minimum normal service life due to collision and the damage to the vehicle did not result from abuse or misuse occurring with the grantee’s knowledge and consent, the grantee is not liable to the FTA for the federal share of the vehicle's remaining value at the time of the accident?
Our situation in our agency is that we have a federally-funded bus that was removed from revenue service due to collision resulting in a total loss of approximately $280K (the difference between our acquisition cost and remaining book value at the time of the accident). Our agency received a small amount of insurance proceeds. If my interpretation of Circular 5010.1D is correct, our agency is not liable to the FTA for its share of the remaining value of the vehicle at the time of the accident.
A. FTA Circular 5010.1D, “Grant Management Requirements,” November 1, 2008, expressly states in Chapter IV, Paragraph 3.l(12) that “The Federal interest [in damaged project property] is not dependent on the extent of insurance coverage or on the insurance adjustment received.” In effect, the grantee either insures or self-insures the Federal interest in a vehicle. FTA’s position is that if the grantee purchases another vehicle, the grantee need not refund any of the insurance proceeds to FTA if the grantee uses those proceed to acquire the new vehicle. When the grantee needs to add from its own funds sufficient funding to compensate for the balance of the Federal interest lost, the grantee must subtract the entire amount of the remaining Federal interest, along with the attributable Federal share thereof, from the cost of the new vehicle, and confine its request for Federal funding of that new vehicle to the balance remaining.
If the grantee elects not to buy a new vehicle, the grantee will owe FTA the Federal share of both the insurance proceeds and a payment equal to the Federal share of the remaining Federal interest in the vehicle that it has self-insured. The actual basis for the requirement is found in 49 U.S.C. § 5334(h).
FTA’s Master Agreement accompanying the underlying grant for the project has long held that FTA’s Federal interest in FTA assisted property is based on the fair market value of that property immediately before the fire, casualty, or natural disaster, although FTA reserves the right to consider another method of valuation in exceptional circumstances. (Revised: July 2010)
Q. We recently auctioned several buses that reached the end of their useful lives and that were originally purchased with mostly federal funding. Is there a formula which requires our Agency to return a portion of the proceeds if the sale price we received exceeds a certain amount. Can you provide this formula that would apply to the proceeds received by sale of the buses and/or related equipment (spare transmissions, engines, etc.)?
A. The disposition of property and equipment that was acquired with Federal grant funds is covered in FTA Circular C 5010.1D, "Grant Management Requirements,” dated November 1, 2008, which may be accessed at http://www.fta.dot.gov/documents/C_5010_1D_Finalpub.pdf. Disposition of equipment is covered in Chapter IV, paragraph 3.l(4), which reads as follows:
(4) Fair Market Value of Less than $5,000 Value. Fair Market Value of Over $5,000. After the service life of project property is reached, rolling stock and equipment with a current market value exceeding $5,000 per unit, or unused supplies with a total aggregate fair market value of more than $5,000, may be retained or sold. Reimbursement to FTA shall be an amount calculated by multiplying the total aggregate fair market value at the time of disposition, or the net sale proceeds, by the percentage of FTA’s participation in the original grant. The grantee’s transmittal letter should state whether the equipment will be retained or sold. Use of sales proceeds are discussed elsewhere in Chapter IV of this circular. (Reviewed: July 2010)
Q. What is the reasoning behind the law where rolling stock purchased with FTA funds is subject to reimbursement to the FTA if sold for more than $5000 but not if sold for less?
I understand that rolling stock that was purchased in whole or part with FTA funds is subject to reimbursement to the FTA. What does not make any sense is why any agency would encourage auctioning a bus for anything over $5000, since once that amount is exceeded, the agency would owe the percentage of the entire auction price back to the FTA. Please consider the example that follows:
(A) Bus auctioned for $4975.00 originally 80% FTA funded - Agency owes nothing to the FTA and keeps all $4975.
(B) Bus auctioned for $5500, again 80% originally funded by the FTA. The agency then owes 80% of the $5500 sale price for a total of $4400 to the FTA, and retains only $1100. It does not behoove anyone to auction a bus for more than $4999.99 because they will lose money on the deal.
A. The Common Grant Rules require grantees to establish the fair market value of the equipment. This may be done by obtaining an appraisal or by soliciting bids. In either case the expectation is that the method used would be an objective one where the grantee would not "predetermine" the outcome of the valuation based on the $5,000 threshold. The requirements to dispose at fair market value and the $5,000 thresholds are imposed by DOT regulations at 49 C.F.R. § 18.32(e) and 49 C.F.R. § 19.34(g).
On the other hand, 49 U.S.C. § 5334(h)(4) provides an alternative to the disposition process contained in the Common Grant Rules by permitting the grantee to retain the sale proceeds of any assets acquired with grant funds and using those proceeds to reduce the gross project cost of a future grant. If this alternative appeals to your agency, you should discuss it with your regional FTA office. (Revised: July 2010)
Q. Is the donation of a surplus used bus to non-profit organizations ever allowed? Periodically, we are contacted and asked to donate used equipment to not-for-profit organizations, such as church missions.
A. If the fair market value of equipment requested by a private nonprofit organization is less than $5,000 and the useful life of that equipment as calculated under FTA standards has expired, a grantee may donate the equipment to the requesting organization or otherwise as it chooses.
FTA is not authorized under 49 U.S.C. § 5334(h)(1) to permit the transfer of project equipment to a private nonprofit organization that does not also qualify as a “local governmental authority.” Except in the very unusual circumstance that a church mission were to qualify as a “local governmental authority,” a transfer of FTA assisted equipment having a fair market value of $5,000 or more to a church mission would not be authorized under 49 U.S.C. § 5334(h)(1).
However, a grantee may donate the equipment to a State agency that manages FTA’s Elderly Individuals and Individuals with Disabilities Program or FTA’s New Freedom Program. The State agency, then, could make the bus available to a church mission if the church mission were pursuing activities in support of either of those programs.
(Revised: July 2010)
Q. I was wondering if you could give me a reference for citing the FTA rule on returning/selling property purchased with federal funds upon a breach/termination of a contract. Please note the equipment being purchased is proprietary in nature, and the company furnishing the equipment is requesting to have "first right of refusal" upon the sale of the goods. Can the equipment be sold back to the vendor at a depreciated cost based upon an FTA appraisal? Please cite applicable code sections. I need to include this in our contract with vendor. " The grant is a 5309 capital grant going toward a Compressed Natural Gas (CNG) fueling station. The equipment will be acquired as a turnkey facility and has many proprietary parts associated.
A. The FTA Master Agreement, FTA MA(16), Subsection 19.h. contains the disposition requirements for FTA grants. Within that subsection, subparagraph (2)(b) addresses disposition requirements for property that is prematurely withdrawn from use. See, http://www.fta.dot.gov/funding/grants_financing_92.htm
The common grant rules require a grantee that sells grant financed equipment to obtain “the highest possible return” when that equipment is sold. 49 C.F.R. § 18.32(d)(5) and 49 C.F.R. § 19.34(f)(6). Offering a right of first refusal to the original seller would be contrary to these requirements unless there were some consideration for doing so. Furthermore, such a right would, in effect, encumber the property, with the result that FTA would be needed, as stated in Section 19.f. of the Master Agreement, In this case, however, it is possible that FTA could approve such a right of first refusal if properly justified and documented, particularly if the equipment were especially needed for the project and the condition were essential to the vendor.
FTA Circular 5010.1D, “Grant Management Requirements,” November 1, 2008, Chapter IV, subsection 3.l, also contains guidance on the disposition of equipment; see http://www.fta.dot.gov/documents/C_5010_1D_Finalpub.pdf. (Revised: July 2010)
Q. When disposing of assets purchased with Federal funds, is there a requirement to give grantees the first opportunity to buy the items before they are offered to the general public?
A. In many cases there is no need to offer the grantee the first opportunity to buy surplus assets because the common grant rules permit grantees liberal uses of project property. For example, the common grant rules provide that the grantee may use the equipment in the program or project for which it was acquired as long as needed, whether or not the project or program continues to be supported by Federal funds. When the equipment no longer needed for the original program or project, it may be used in other activities currently or previously supported by a Federal agency. 49 C.F.R. § 18.32(c)(1) and 49 C.F.R. § 19.34(c). The grantee may also use the real property for the originally authorized purposes as long as needed for those purposes, 49 C.F.R. § 18.31(b) and 49 C.F.R. § 19.32(a). Nongovernmental grantees, with FTA approval, may also use real property for other federally projects or programs when the recipient determines that the property is no longer needed for the purpose of the original project and those projects or programs have purposes consistent with those authorized for support by DOT.
Absent these circumstances, there is no requirement that the grantee be given the first opportunity to buy its surplus assets before they are offered for sale to the general public. In lieu of a sale of the surplus property, 49 U.S.C. § 5334(h) authorizes FTA to permit the transfer of that property to a local governmental authority to be used for a public purpose.
You should contact your regional FTA program office for property disposition instructions. (Revised: July 2010)
Q. Is there a specific methodology FTA requires agencies use to determine the fair market value of a vehicle?
A. For certain assets, FTA calculates its Federal interest on the basis of straight-line depreciation; the fair market value of other assets is determined on market surveys. For real property, FTA determines the fair market value on appraisals. Acceptable methodologies are described in FTA Circular 5010.1D, “Grant Management Requirements,” November 1, 2008,Chapter IV. (http://www.fta.dot.gov/documents/C_5010_1D_Finalpub.pdf) (Revised: July 2010)
Q. If new buses are acquired through a bid process and the new buses are to replace buses that have met their useful life, what is the timeframe to dispose of the buses being replaced?
A. FTA Circular 9300.1B addresses the disposition of FTA assisted vehicles, whose useful life has expired. (http://www.fta.dot.gov/documents/Final_C_9300_1_Bpub.pdf)
FTA does not require transit agencies to immediately dispose of assets upon the expiration of their stated service lives. Instead, FTA permits grantees to keep those vehicles in service, and to use FTA assistance for their vehicle's capital maintenance costs, including rebuilding and overhauls. FTA does require that vehicles in a grantee’s contingency fleet be properly stored, maintained, and identified in the grantee’s contingency plan.
If you have any additional questions regarding the availability and use of FTA funds for this program, please feel free to contact your grant representative in FTA's regional office. (Revised: July 2010)
Q. What are the guidelines concerning the merger of FTA 5310 funded vehicles (as an asset) from one nonprofit organization to a different nonprofit organization? FTA 5310 funded vehicles from one organization are being merged with a different nonprofit organization that also has FTA 5310 funded vehicles in its inventory. In this proposed company merger, it is assumed that one organization will cease to exist and its inventory of FTA funded vehicles will be acquired by the other organization.
A. FTA awards its direct Section 5310 grants to States, which in turn, make subawards to various subrecipients, as stated in documentation it provides to FTA. The merger described would require an amendment to the Program of Projects for its 5310 grant that the State or States involved have filed with FTA.
In addition, the State or States would need to obtain new subagreements with the nonprofit organizations involved. Please review FTA Circular 9070.1F, “Elderly Individuals and Individuals with Disabilities Program Guidance and Application Instructions,” March 29, 2007, http://www.fta.dot.gov/documents/C9070.1F.pdf and contact the FTA Regional Office for State or States involved for additional guidance. (Revised: July 2010)
Q. What is the FTA regulation on buses that have been in a fire and will cost more to repair than the value of the bus remaining life? Also how do you get rid of this type of bus without any penalty?
A. Much depends on the facts-involved. FTA’s Master Agreement at Subsections 19.h and i. have long provided, as a general rule, that in the case of a fire, the “fair market value shall be calculated on the basis of the condition of the equipment . . . immediately before the fire . . . , irrespective of the extent of the insurance coverage.” In addition, if the grantee receives insurance coverage, the grantee will apply those proceeds to the cost of replacement equipment of return the unused Federal interest to FTA. FTA’s standard practice is to retain the Federal interest in the damaged vehicle, so that its investment in the replacement vehicle is subtracted by the value of that Federal interest. Nevertheless, FTA is willing to consider another method of valuation in exceptional circumstances. Because we are unable offer a blanket answer due to these case-specific nuances involved therefore, we refer grant-specific questions to the appropriate regional office. (Revised: July 2010)
Q. Portions of an existing transit station are going to be demolished before their useful life (an elevator, portions of a platform and floor slab) due to the construction of a commuter rail line. The transit station is being expanded to accommodate this new line. The elevator and platforms will be replaced by the new project. Do we need to pay back FTA the value of the station elements that are being modified and disposed of before their useful life? The station that is being modified was constructed in the last 10 years. The new project requires a portion of the station to be demolished before the useful life. An elevator, concrete platform and floor slab will be removed.
A. You will need to communicate with the FTA regional office that managed the original grant for this transit station. They will advise you whether any reimbursement of FTA is required under these circumstances. (Reviewed: July 2010)
Q. I have a question pertaining to the disposal of real property before the end of its useful life. Say I have a building that was funded with 80% federal funds and has not reached the end of its useful life. The building sits upon land that was wholly funded with local dollars. The depreciated book value of the building is $100,000 and of that $80,000 is the remaining Federal share. Say the building and the land are appraised separately. The appraised Fair Market Value (FMV) of the building is only $50,000 due to the recent unprecedented drop in property values. If I sell the building before the end of its useful life for its appraised FMV of $50,000, is the Federal share still $80,000? In other words, if I apply the entire $50,000 to another transit project, must I pay back FTA $30,000?
A. It is very important that you first request disposition instructions from the FTA Regional Office, and an important part of the disposition issue is to discuss how you would like to utilize the funds. FTA does not want the money back. FTA prefers that the proceeds from the disposition be applied to another transit project. (Posted: December, 2011)
Q. What is a Grantee's requirement for damage to a bus from an accident that has exceeded its useful life? How do you calculate any obligation to FTA?
Background: One of our buses was recently involved in an accident. The bus has exceeded its useful and was scheduled for replacement. At this time we are uncertain if the bus will be repaired or deemed non-repairable by the insurance company. Is there an obligation due to FTA and if so how do we calculate it? Is it based on the fair market value prior to the accident?
A. FTA Circular 5010.1D, "Grant Management Requirements, October 1, 2008, Chapter IV, subsection 3, http://www.fta.dot.gov/documents/C_5010_1D_Finalpub.pdf, discusses disposition of equipment that has reached the end of its service life. In light of the particular circumstances affecting this bus we would recommend that you contact your FTA Regional Office and resolve the issues with the FTA grant representative. (Posted: June, 2012)