Q. A capital item is the subject of a potential dispute with the manufacturer. In the process of discussions, the disposition offered by the vendor is "extended warranty, free of charge" to the agency. Under such a scenario, would the free extended warranty constitute purchasing extended warranties with capital funds, within the purview of the base cost? Extended warranties are generally not eligible capital expenses under FTA-funded capital projects. Most warranties should be treated as normal expense of operations.
A. The FTA Best Practices Procurement Manual (BPPM) discusses warranties in section 6.3.5 - Warranties. We believe it will answer your questions about extended
warranties. The language you cited is from an outdated Triennial Handbook that no longer reflects FTA's policy regarding extended warranties. (Revised: June 2010)
Q. Is there a federal Regulation that prevents grant subrecipients from paying for extended warranties if they are utilizing Capital Grant funds to purchase new vehicles?
A. Under Federal transit law, operating assistance and capital assistance are funded at different Federal shares. Historically FTA interpreted extended warranties as falling under maintenance and therefore an operating expense ineligible as a capital expense. However, under current law at 49 U.S.C. § preventive maintenance is an eligible capital expense.
Therefore, extended warranties are still eligible as an operating expense for those recipients receiving operating assistance, and should be an eligible capital expense if the grantee is receiving capital assistance for "preventive maintenance." (Revised: June 2010)
Q. Under warranties, what does FTA allow for transmissions, drive axles, brake systems, basic body structure, interior plastics, air conditioning system and corrosion?
A. FTA Circular 9030.1D, Urbanized Area Formula Program: Program Guidance and Application Instructions, states at Ch. III, §6.e. that an extended warranty is an eligible capital expense. (Revised: June 2010)
Q. We are trying to determine what is a reasonable fleet defect rate. We are currently experiencing a 28% fleet defect on our engines (EGR valves) and a 12% fleet defect on turbo engines. The engines were part of the re-power project work. The engines have been paid for and are now under warranty. However, the vendor handling the warranty is not being very cooperative. Since the engines were purchased with federal dollars, does FTA have a standard on fleet defects? Is there a fleet defect standard at all (buses, fareboxes, engines)?
A. FTA does not have an engineering standard on fleet defects. Many grantees use "fleet defect" clauses in their procurements such as those contained in APTA's "White Book" in the section on general terms and conditions. However, FTA would expect the grantee to maintain continuing control over equipment, correct defects, enforce its contractual rights and maintain the equipment properly to protect the Federal investment as set forth in its grant application circulars and its grant management circular.
(Revised: June 2010)
Q. I cannot find anywhere in the Circulars or the Best Practices the new language of FTA with regards to paying for "standard" warranties. I thought there was a one line in all the circulars that stated "FTA will consider an allowable capital cost industry standard warranties on new vehicles or components".
A. FTA Circular 5010.1D, Grant Management Requirements, at Ch. IV, §3.k.(8) provides:
Warranty standards, when part of rolling stock and equipment contracts, should provide for correction of defective or unacceptable materials or workmanship. These should specify coverage and duration and meet currently available industry standards. General warranty incorporating industry standards and extended warranty are eligible capital costs. (Revised: June 2010)