Buy America Requirements
Number 46 FR 5808 01-19-81
DEPARTMENT OF TRANSPORTATION
Urban Mass Transportation Administration
AGENCY: Urban Mass Transportation Administration, DOT.
49 CFR Part 660
Buy America Requirements
46 FR 5808
January 19, 1981
ACTION: Final rule.
SUMMARY: The Urban Mass Transportation Administration (UMTA) is revising its regulations implementing Section 401, "Buy America" of the Surface Transportation Assistance Act of 1978. These revisions are based on comments received on the original emergency final rule published on December 6, 1978 (43 FR 57144) and on our experience in implementing the statutory provision. These revisions clarify the existing regulations and respond to several issues and comments presented to us since the passage of the statute.
EFFECTIVE DATE: The revisions are effective on February 18, 1981.
FOR FURTHER INFORMATION CONTACT:
John Collins or Edward Gill, Office of the Chief Counsel, (202) 426-1906.
TEXT: SUPPLEMENTARY INFORMATION: Section 401 of the Surface Transportation Assistance Act of 1978 provides, with exceptions, that funds authorized may not be obligated for urban mass transportation projects unless articles, materials, and supplies used are of United States origin.
UMTA issued emergency regulations implementing the statute on December 6, 1978, which were effective retroactive to November 6, 1978 (the effective date of the statute). We requested comments on the regulations. We have received approximately fifty written comments and numerous telephonic comments and inquiries concerning the statute, the regulations, and their implementation. We have utilized all of these plus the experience gained in carring out the statute and the regulations in developing the revisions and the discussions in this document.
In addition to these final revisions, we are also issuing a Notice of Proposed Rulemaking which is published elsewhere in this Federal Register.This NPRM will address several issues concerning the implementation of the Buy America statute which we will propose to treat differently than they are treated under the existing regulations. A detailed discussion of these issues is contained in the NPRM
The Administrator has determined that this regulation is a significant regulation under the criteria in the DOT Order for Improving Government Regulations (44 FR 11042, February 26, 1979) since significant public interest was expressed during the previous comment period.
A Regulatory Evaluation has been prepared and has been placed in the public docket, and is available at the Office of the Chief Counsel, Urban Mass Transportation Administration, Room 9320, 400 7th Street, S.W., Washington, D.C. 20590.
The provisions of OMB Circular A-95 apply to this Final Rule. It covers the following programs as listed in the Catalog of Federal Domestic Assistance (CFDA):
20.500 -- Urban Mass Transportation Capital Grants
20.504 -- Mass Transportation Technology
20.507 -- Urban Mass Transportation Capital and Operating Assistance Formula Grants
20.509 -- Public Transportation for Rural and Small Urban Areas.
This regulation will not have a significant economic impact on a substantial number of small entities, within the meaning of the Regulatory Flexibility Act of 1980 (Pub. L. 96-354). Small entities, such as small businesses and small governmental organizations, must already comply with the statutory domestic preference requirement of Section 401, when contracts are awarded that use UMTA funds. The changes made by this regulation do not impose any significant economic impacts beyond those currently required by the terms of the statute and the regulation that was published in 1978 (43 FR 57144). Therefore, this regulation will not have a significant economic impact on a substantial number of small entities.
Environmental Impact Statement
This regulation does not significantly affect the environment. An environmental impact statement is not required under the National Environmental Policy Act of 1969.
Discussion of Comments
Exclusion of Non-Federal Preferences
The preamble to the 1978 regulation stated that a grantee could not impose any local or domestic preference requirements other than the UMTA Buy American requirement. Several commentors questioned UMTA's authority to condition eligibilty for financial assistance upon compliance with the Section 401 regulations and to exclude differing local preference provisions, and differing State and local Buy American provisions. They noted that no provision of the Surface Transportation Assistance Act expressly pre-empted State and local preference legislation. Furthermore, they stated that they failed to find Congressional intent to pre-empt State and local actions in the legislative history of Section 401. They point out that UMTA's position, as reflected in the Section 401 regulations, might force grantees either to violate State law or to forego UMTA financial assistance.
We have received specific guidance from the Congress in the resolution of this issue for the current fiscal year which ends on September 30, 1981. This guidance was published in the Federal Register on October 16, 1980 (45 FR 68655) and is presented here for the convenience of the reader. Congress mandated different treatment of non-Federal local preference laws ("Buy State" or "Buy Local" laws) compared to non-Federal national preference laws ("Buy National" laws). The guidance that applies to all of these non-Federal preference laws after September 30, 1981 will depend on the future instructions from the Congress.
The DOT and Related Agencies Appropriations Act for fiscal year 1981 (Pub. L. 96-400 (94 Stat. 1689)) mandates that UMTA administer our grant program "pursuant to the provisions of section 401, Pub. L. 95-599". The Conference Report for the Act (House Report No. 96-1400 (September 25, 1980) pp. 16-17) clarifies what is meant by this language. The Conferees explained that:
If a contract bid does not fall within the scope of any of the exceptions cited in Section 401 of Public Law 95-599, then the grantee should not be denied UMTA financial assistance simply because of the imposition of a state domestic preference law. The conferees do not intend the term "state domestic preference law" to include so-called "buy-state laws" which require preferences for products manufactured in a particular state or subdivision and any such state laws shall not prevail over Federal law. On the other hand, if the imposition of a state domestic preference law causes the contract bid to fall within the scope of any or all of the exceptions cited in Section 401 of Pub. L. 95-599, then UMTA financial assistance could be denied because State statutes are undoubtedly subject to Federal law prescribing the "Buy America" exceptions of public interest, unavailability and unreasonable cost.
During the period October 9, 1980 to September 31, 1981, state "Buy National" preference provisions that are more restrictive with respect to the procurement of foreign made products than Section 401 will be permitted in contracts awarded using UMTA funds provided that the preference provision and its terms are specifically set out in state law. The Federal exceptions to the application of "Buy National" statutes described in Section 401(b) of the Buy America statute will continue to govern UMTA's participation in such contracts. These exceptions require UMTA to withhold funds from contracts where application of the state "Buy National" law is: not in the public interest, adds unreasonably to the cost of rolling stock, makes materials unavailable, or adds more than 10% to the cost of the contract. If an exception under Section 401(b) is appropriate, it will be granted by UMTA under the procedural provisions of subpart C of 49 CFR Part 660. UMTA will not participate in such contracts if the state law is administered in a manner that is inconsistent with the application of the Federal exceptions. The administration of the state statute must conform to the Federal waiver or we will not help fund the contract. The contracting process must not exclude contractors who have the potential to qualify for the Federal exceptions.
The original policy remains applicable to all other preference provisions. We will continue to decline to participate in contracts governed by:
1. Preference provisions which are not as strict as the Federal requirement.
2. State and local "Buy National" preference provisions which are not explicitly set out under state law. For instance, administrative interpretations of non-specific state legislation will not control.
3. State and local "Buy Local" preference provisions.
The following example illustrates the application of this guidance. State "A" has three types of preference provisions that it wishes to include in an UMTA-funded contract. Preference provision No. 1 permits bids only from manufacturers located within the state. Preference provision No. 2 is a state law which requires all structural steel used in the contract to be manufactured in the United States. Preference provision No. 3 is an administrative regulation, not supported by an explicit state law, which requires manufacturers to use 100% domestic components. Applying the above guidance, No. 1 and No. 3 would make the contract ineligible for UMTA assistance. No. 1 is a "Buy State" provision. No. 3 is an administrative regulation which is not required by a specific state statute. A type No. 2 preference could be included in the bidding documents, but it would be subject to the specific waivers of subpart C. For example, it would have to be waived if it increased the price of the contract by more than 10% (see § 660.32(a)(4)).
Under UMTA's 1978 Buy America regulations, procurement of construction is treated as procurement of a manufactured product in that the deliverable of the construction contract is considered as the end product and the construction materials used therein are considered components of the end product. Thus an UMTA construction project may be considered domestic if more than fifty percent of the value of the construction materials delivered to the jobsite and incorporated into the project is domestic and if the final assembly of the components (construction) takes place in the United States. As can be seen, the UMTA regulations permit bidders to use up to 50% of foreign construction materials without forfeiting the competitive advantages of a domestic bid. The UMTA regulations differ from other Federal laws and regulations that require each construction material used in the project to be domestic, unless a waiver is granted, thus making the use of foreign construction materials far more difficult.
UMTA has received few comments about this unique treatment of construction for purposes of Section 401. Most have been oral inquiries about what the regulations require.
It is useful to view the UMTA treatment of construction in the context of the 1933 Act that governs direct Federal construction. Unlike the UMTA provision, the Buy American Act of 1933 has a separate provision, 41 U.S.C. section 10b tailored to construction contracts. Recognizing that construction is a type of service requiring the use of materials, and is thus functionally different from the procurement of materials, Section 3 (41 U.S.C. § 10(a)) of the 1933 Act requires, ". . . that in the performance of the work the contractor, subcontractors, material men, or suppliers, shall use only . . ." domestic articles, materials and supplies. Section 3 of the 1933 Act does permit the agency head to waive the Buy America requirements to the extent appropriate if he finds, ". . . that in respect to some particular articles, materials, or supplies it is impracticable to make such requirement or that it would unreasonably increase the cost . . ." It should be noted that the "impracticable" grounds permitted for waiver in construction projects under the 1933 Act would be easier to meet than the "public interest" or "unavailable" grounds of Section 2 of the 1933 Act (41 U.S.C. § 10a) and of the Section 401 of the Surface Transportation Assistance Act of 1978.
The Federal Procurement Regulations set forth "Buy American" regulations for construction in a separate Part (41 CFR Part 1-18) from the "Buy American" regulations for the procurement of articles, materials, and supplies (41 CFR Part 1-6).
Unlike the Buy American Act of 1933, Section 401 has no separate provisions directed toward the treatment of construction projects. Instead, the language of Section 401 is confined to the procurement of manufactured and unmanufactured articles, materials and supplies.
For this reason UMTA's emergency regulations do not provide different treatment for construction projects than for equipment acquisition projects. Instead UMTA's regulations provide that, "These regulations apply to all federally-assisted procurements . . . for equipment and construction of facilities in which a third party contract exceeds $500,000 and is financed by funds administered by UMTA. . . ." 49 CFR § 660.11(a). The UMTA grantee is charged to ". . . include in its bid specifications for procurement of equipment and construction of facilities . . . an appropriate notice of the Buy America provision." 49 CFR § 660.21(b). Nowhere in the UMTA regulations is there a special definition of "construction" or "construction material." Instead, the construction project is treated as a manufactured end product whose final assembly takes place at the construction site. Within the Federal Government, this treatment of construction for "Buy America" purposes is unique to UMTA.
The Public Works Employment Act of 1977, 42 U.S.C. 6705(f)(1) and the Clean Water Act of 1977, 33 U.S.C. § 1295 impose domestic preference requirements on other grant programs. Neither of these measures contains specific requirements about the treatment of construction nor does the word "construction" appear within any of these measures. But unlike the UMTA regulations, the Department of Commerce regulations implementing the Public Works Employment Act of 1977, 13 CFR § 317.16(c) and § 317.35(i), and the Environmental Protection Agency regulations implementing the Clean Water Act of 1977, 40 CFR § 35.936-13(d) require that each construction material used in the grant must be domestic unless a waiver is obtained.
However, both of these statutes provide for a waiver upon a finding of "unreasonable cost." Section 401 provides that a waiver be granted if "inclusion of domestic material will increase the cost of the over-all project contract by more than 10 per centum." Thus it is much easier for EPA or Commerce to grant a waiver for an unreasonably expensive component than for UMTA to grant a waiver because a component for a construction contract could not easily be argued to constitute the "overall project contract."
In addition, the Federal Highway Administration follows the approach of these other regulations for construction projects, which poses little complication for FHWA since its regulations are directed only at steel construction materials. On November 24, 1980, FHWA issued a proposed rule which would apply the current UMTA test of "Buy America" to equipment and ferry boats purchased with funds authorized under Title 23 of the United States Code. (See 45 FR 77456).
UMTA will continue the treatment of construction as set forth in the emergency regulations. The statute gives no reason to treat construction procurement contracts differently from equipment procurement contracts. Since items of unknown origin are deemed to be foreign, this means that the contractor can stop his record-keeping when he ascertains that 50% by value of the materials delivered to the jobsite were made in the U.S. The provision would be likely to protect U.S. manufacturers of high cost items, such as steel producers, since their product might account for more than 50% of the material delivered to the jobsite. It avoids problems of tracing the origin of every item that is delivered to the job site. However, we are inviting comments on alternative approaches to this treatment of construction in the NPRM that is being published elsewhere in this Federal Register.
Two questions raised by commentors in regards to construction contracts require clarification.
Construction equipment used by a contractor at a construction jobsite is not covered by the requirement since it is not physically "incorporated into the end-product."
A question was raised whether temporary supporting materials, such as soldier piles, which could be removed at the end of construction without affecting the end-product were included within the scope of the regulation. If an item is used in the construction process as an aid to construction and remains at the construction site but serves no purpose in the completed end product, then the item is not a component since it is not "directly incorporated" into the end product and its origin and cost need not be computed for the purposes of § 660.22. The definition of component in § 660.13 is being revised to clarify this point.
Relation to 1933 Act
One commentor requested clarification of the relationship between the 1933 Buy American Act (41 U.S.C. 10a-10d) and Section 401 of the Surface Transportation Assistance Act of 1978. The 1978 Act applies to direct procurement and to federally-assisted procurements under grants, loans, and cooperative agreements made pursuant to the Urban Mass Transportation Act of 1964, as amended, and sections 103(e)(4) and 142 of Title 23 United States Code, for equipment and construction of facilities. We will not issue separate regulations for direct federal procurement, but will utilize the regulations in Part 660. We are promulgating Part 660 under the authority of the 1978 Act and the 1933 Act.
Types of Contracts
Several questions were raised concerning the applicability of the requirements as set forth in § 660.11. The requirements do not apply to consultant contracts since the regulations do not apply to the procurement of services. They also do not apply to a lease if a lease is considered a purchase of service. Also, under Appendix A to Subpart C of the regulation, a waiver has been granted for operating assistance grants, and the majority of leasing arrangments are undertaken utilizing operating assistance funds. It should be pointed out, however, that the requirements would apply to a lease/purchase agreement in which the third party contract exceeds $500,000.
One commentor requested clarification as to whether the requirements apply to sole-source procurements. Section 660.11 states that the "regulations apply to all federally-assisted procurements." This includes sole-source procurement. This statement in the regulation is adequate and no change is being made.
One commentor felt that engineering services included in the cost of an end product should be excluded from the requirements. These engineering services are not treated separately. If engineering costs are allocated to a component under normal accounting principles, then they increase the cost of that foreign or domestic component. If they are properly allocated to the final assembly of the end-product, then they are included as part of the final assembly test.
Definitions and Applicability
One commentor requested clarification as to what constitutes an end product. The deliverable item specified in the contract is the end product. For example, in a contract for 10 buses that must contain 500 h.p. engines, the 10 buses are the end-products (We will utilize this example throughout this document for clarification).
Section 660.11(b) is being revised to utilize the term "domestic end product." This term is defined in § 660.13 and "domestic end products" are the subject of the specific requirement in § 600.11(b). It must be emphasized that this change does not alter the thrust of the requirements. Only domestic unmanufactured articles, materials and supplies and manufactured articles, materials and supplies that have been manufactured in the United States substantially all from domestic articles, materials, and supplies may be procured with assistance provided by UMTA unless a waiver is granted.
Section 660.11(c) is being revised to indicate that materials of foreign origin "may" be considered for UMTA-assisted procurements rather than "should be considered." There is no UMTA direction to grantees to use foreign materials. This concept emphasizes the fact that the statute provides for domestic preference, but does not set up an absolute "Buy American" requirement.
Section 660.11(f) is being revised to clarify that the location where components are manufactured, mined or produced is critical in determining the origin of the components or end products. The nationality of suppliers or their employees is not a factor. For example, a foreign firm that manufactures a component in the United States (thereby utilizing U.S. labor) would be considered as manufacturing a domestic component.
We have received a request concerning clarification of the concepts of "component" and "final assembly." The current regulation defines component as that which is "directly incorporated" into the end-product. We interpret this phrase to be a test of what comes "through the walls" of the final assembly point. This means that any item shipped to the final assembly point is a "component" in the form that it arrives at the final assembly point. The component must be shipped to the final assembly point. Shipment means the steps that would normally take place in a plant-to-plant shipment, including, but not limited to, packing, labeling, on-loading, and off-loading. Movement of an item that takes place within a plant (by hand, forklift, or assembly line, for example) is not "shipment." In order for an item to be considered a component, it must be "shipped" to the final assembly location, in the manner described and defined above. A sufficient amount of labor and overhead costs must be undertaken at the final assembly location to constitute a legitimate final assembly step. In response to a specific inquiry, UMTA has determined that if at least 10 percent of the cost of each end-product is attributable to work done at the final assembly location, then there is legitimate final assembly. We will continue to review final assembly on a case-by-case basis until the definition of final assembly proposed in the NPRM is finalized.
One commentor requested that UMTA specifically name or delineate the major components of an end product. We have set up tests to determine the origin of components, and these appear to be sufficient. For example, an engine for a bus is a component of that bus if it is directly incorporated into the bus at the final assembly point. On the other hand, the engine is an end product in and of itself if it is ordered as a spare part. Thus, delineation of this item as a component would be misleading and confusing since it is not, in fact, always a component. The commentator also requested that we differentiate between components and major components. There is no differentiation needed since anything directly incorporated into an end product at final assembly is a component, whether it be considered a major item or less than a major item. Section 660.13(c) is being revised to clarify that a component must be directly incorporated into an end product at the point of final assembly. This revision makes the definition compatible with other requirements in the regulations.
One commentor requested that the definition of component in § 660.13(c) be revised to indicate that all parts of an engineered system taken together represent a "component." The definition of "component" tracks the definition used to implement the 1933 Buy American Act. If a "system" is delivered to the final assembly point and is directly incorporated into an end product, then the system is considered a component. If individual parts of the system are delivered to the final assembly point and are incorporated into the end product, then each part is considered a component. The regulation does not contemplate a system being considered a component in and of itself if it is not delivered to the final assembly point and incorporated as a unit into the end product.
One commentor questioned whether the certification required by § 660.21 is required to be submitted by sub-component manufacturers. A sub-component manufacturer is not required to submit the certification to the grantee. However, a prime contractor may require a sub-contractor to certify to him that domestic components will be delivered so that the prime contractor has a means to ensure that there will be adequate domestic component content.
One commentor suggested that we require the bidder to submit information in sufficient detail to permit an analysis of whether the bidder has grounds for submitting the certificate required by § 660.21. This back-up material would include a specific listing of foreign components to be used, a listing of the costs of the components, and a discussion of the method used in arriving at the cost. We are using the certification procedure used in the 1933 Act and we feel that the submission of the certificate is sufficient. The bidder must list foreign end products. A listing of the cost of components is not required at the time of submission of a bid, as long as the bidder certifies that domestic end-products are being provided (see section 660.22). We feel that the enforcement procedure set out in Subpart D of the regulations is sufficient to ensure compliance.
One commentor requested that the regulations be revised to provide bidders with sufficient certainty that a waiver would be sought if the grounds for a waiver exist. As written, § 660.21 permits only grantees to seek a waiver. The commentor felt that this put grantees in the position of being able to exclude bids offering foreign end products by not seeking a waiver. The commentor further stated that it felt that the waiver process should not be used to exclude competitive responsive and responsible bids offering foreign products. Section 660.21 is being revised and will require the grantee to indicate its intention to seek a waiver if the grounds for a waiver exist. This is consistent with the statute since we are required to grant a waiver if we find that the statutory conditions have been met. It should also be pointed out that § 660.31(c) provides that a waiver may be granted by the Administrator on his own initiative when he believes that it would be appropriate.
A question was raised as to whether the cost of shipping a foreign component on a U.S. flag carrier is considered a U.S. component. Since the "Buy America" requirements do not apply to services, the cost of shipping is not a separate component. The cost of shipping must be included as part of the cost of the component being shipped and not as a separate component. A similar question was raised concerning the relationship of the "Buy America" requirements to cargo preference requirements. Again, it must be pointed out that transportation and shipping are not, in and of themselves, components, but are to be considered in determining the cost of a component being shipped.
50 Percent Test
Clarification was requested as to how the 50 percent domestic component cost required under § 660.22 is computed. It is calculated as the cost of domestic components compared to the cost of all components. For example, in a contract bid at $1 million, if all components shipped to the final assembly point cost $600,000 then the cost of domestic components must exceed 50 percent of this or $300,000. The cost of a component is the cost of the component to the bidder or offeror. If a component is manufactured by the bidder or offeror, the cost of the component is the cost of labor and materials incorporated into the component, plus an allowance for profit and administrative overhead costs under normal accounting principles. For example, design costs would be factored into a component cost if a prime contractor hires a sub-contractor to design the component.
However, it should be pointed out that the design and labor costs for making an end-product are not included when calculating component cost but are rather considered as final assembly costs. All of the final assembly costs are used to decide whether meaningful final assembly has taken place in the United States. This is part of the test established in § 660.22(a)(2). Only the cost of the component is computed, but this cost can include the design of the conponent. A new § 660.22(d) is being added to clarify what is meant by component cost.
One commentor requested that § 660.22(a) be revised to reflect that the "substantially all" requirement of Section 401 be satisfied if the cost of domestic components and subcomponents exceed 75 percent of the total cost of the end product.
Before discussing the "75 percent test" versus the "50 percent test" which is used in the regulation, two clarifications are necessary. As mentioned elsewhere in this document, the percentage test applies to component cost and not to subcomponent cost. Also, as mentioned previously, the treatment of subcomponents is being addressed in a separate Notice of Proposed Rulemaking. Secondly, it is again emphasized that cost is determined using the cost of components and not the cost of the end product.
The commentor, in recommending that we utilize the "75% test" rather than the "50% test" felt that the legislative history of Section 401 mandated that we use the "75% test" since this was the original standard utilized to implement the 1933 Buy American Act. Executive Order 10582 which currently governs the implementation of the 1933 Act, mandates that "materials shall be considered to be of foreign origin if the cost of the foreign products used in such material constitutes 50% or more of the cost of all the products used in such materials." The commentor argued that Executive Order 10582 does not apply to Section 401. We disagree. Our reading of the legislative history of Section 401 is that Executive Order 10582 gives broad guidance to agencies in interpreting the Act; whereas the commentor felt that in implementing Section 401, Congress intended us to follow the 1933 Act exclusively. During the debate on the Conference Report on Section 401 (Daily Congressional Record, Vol. 124, pg. S 1894, October 14, 1978), Executive Order 10582 was specifically mentioned, and the fact that it is still in force was emphasized. Senator Randolph stated that it was the conferee's intent that in implementing Section 401, we should not vary from existing Federal procurement practices. Thus, we have followed Executive Order 10582 and utilized the "50% test" and in so doing, carried out the express intent of Congress.
Waivers -- Application
One commentor requested that UMTA waive the requirement for final assembly in the United States if the quantities involved are uneconomical, or if specialized skills or capabilities not readily available or economically available in the United States are required. The statute does not provide for a waiver of the final assembly requirement, as such, and thus we will not grant this general waiver. However, public interest waivers could be considered in this area on a case-by-case basis.
A new paragraph is being added to § 660.31 to provide that a request for a waiver and the subsequent action taken by UMTA on the requests will be available for public inspection.
One commentor requested that § 660.31 be revised to permit a bidder to apply for a waiver directly to UMTA rather than through the grantee. We are not making a change to this requirement since we feel that it is a grantee's responsibility to request the waiver, including the preparation of the justification.
Several commentors requested that we clarify what is meant by "in a timely manner" as used in § 660.31(a). We were requested to insert a date certain for submittal of requests. We are not revising the regulation at this time. It is anticipated that most requests for a waiver will be submitted within 30 days of bid opening. However, we will not insert this time frame in the regulations since there may be circumstances which dictate a request being made more that 30 days after bid opening. These will be considered on a case-by-case basis to determined their reasonableness.
Section 660.31(b) is being revised to clarify that a request for a waiver must be submitted to the UMTA Administrator through the UMTA Regional Administrator.
Waivers -- Types
Section 660.32(b) is being revised to indicate that the Administrator will issue a written determination of whether or not a public interest waiver will be granted, and the reasons for granting the request or denying the request. This change will enable the grantee to be aware of the rationale for a denial of a request for a public interest waiver.
Section 660.32(f) is being revised to indicate that the waivers are separate and distinct from one another. The granting of a waiver or the grounds for a waiver do not depend on any other waiver. There are four separate reasons for the granting of a waiver which are independent of one another.
One commentor suggested that the second sentence of § 660.32(f) be deleted since the statute does not provide for waivers for components. UMTA disagrees with the suggestion since the implementation of the 1933 Act has contained a history of waivers for components. UMTA has used the public interest waiver for those components listed in 41 CFR 12-6.105 (Appendix A, Paragraph (a) of Subpart C of these regulations.)
Several comments were received which recommended that we issue a general public interest waiver in order to honor treaty commitments, off-set agreements with foreign nations, and trade agreements with foreign nations. Our review of these treaties and agreements does not indicate a requirement that we issue a blanket waiver. However, we will continue to review requests for public interest waivers in this area on a case-by-case basis.
Several comments were received which questioned the use of the word "supplies" in the waiver in § 660.32(a)(3) and the criteria for determining whether that waiver will be issued which speaks to the unavailability of domestic end products. In response to this comment, we are revising § 660.32(d) to reflect that our authority to waive the Buy America provision, if no domestic bids are received, flows from both Section 401(b)(1) and Section 401(b)(3). If no domestic bids are received, we believe that it is in the public interest to proceed with the award of the contract. The Federal government cannot force a domestic company to bid.
One commentor requested that the test established for the 10% differential waiver be revised. The commentor felt that only the costs of major foreign and domestic components should be compared rather than the over-all bids. The waiver speaks to inclusion of domestic material increasing the over-all project contract cost. Thus, a bid offering domestic end products must be compared to a bid offering foreign end products to determine if the inclusion of domestic materials would increase the over-all project contract cost by more than 10%. The comparison of the over-all bids includes all costs and this is the only way to determine if the over-all cost of the project contract will be increased by 10% or more.
One commenteor requested that § 660.32(e) be revised to provide that the 10% differential be calculated solely on the actual costs of the materials, supplies or equipment being acquired, exclusive of the service, labor, or other non-material costs of project contracts. The differential is based on the bid price for the end-product. The statutory language speaks to "inclusion of domestic material" increasing "the cost of the overall project contract by more than 10 per centum." In this case "material" means "end product" and thus the differential is applied to the overall project contract bid. "Material" means "end product" because it is possible to have a domestic "end product" which contains foreign components and also have a foreign "end product" containing domestic components. The key in this area is to determine the origin of the end product and apply the differential to the overall project contract to determine if the bid consisting of foreign "end products" qualifies for the waiver.
The rolling stock/tax waiver (Section 401(b)(2)) was the source of six comments. One commentor asked if taxes paid by other than the bidder would be considered. The commentor also asked if taxes paid by the bidder included workman's compensation, corporate tax, and real estate tax. One commentor asked if a multiplication factor that assumed a certain percentage of tax benefits could be developed by UMTA and applied to bids.
Three commentors asked that the types of taxes that were included be expanded. One asked that all direct taxes of suppliers to the bidder be included in the computation. Another commentor asked that workers' taxes paid to state and local governments be included in the computation. A third commentor asked that all taxes be included in the computation such as "payroll taxes, worker's income taxes, social security taxes by the employer and employee, real estate taxes, and the like."
*ERR10*s a practical matter, the rolling stock/tax waiver is useful to a bidder offering a foreign end product only if it does not qualify for one of the other waivers. One situation where this might arise is where a railcar builder is delivering both foreign and domestic end products and is only 5% lower than a railcar builder who offers all domestic end-products. Under the Buy America provisions, the apparent low bidder (foreign) would not be awarded the bid unless it received a waiver. The foreign bidder might seek to use the rolling stock/tax waiver to show that if the lowest domestic bidder and it adjusted their bids to account for taxes paid on domestic products it would still be the low bidder and should receive the award.
The problems inherent in this waiver are manifest. The desire for the specific tax waiver appears only after the bids are opened (since the foreign bidders might have hoped that he would qualify for the 10% differential or that no domestic end products would be offered). UMTA and the grantee would have to evaluate the waiver during the limited amount of time available while the bids are valid. Tax projections of the foreign bidder and the lowest domestic bidder would be speculative since they would be based on future costs, future locations, future profits, and future worker pay scales. Further the bidders might view the information as proprietary. Even if the information could be gathered in the short amount of time it would defy analysis since the taxes would vary with corporate profitability, the state in which the work is done, profits, and worker pay scales.
The rolling stock/tax waiver is unique to Section 401. No other statute has a similar provision.
UMTA has decided to maintain the current guidance that only bidders' direct taxes are included in determining whether or not the waiver will be granted. This approach limits the suppositions as to what future taxes of employees and foreign suppliers will be, and provides guidance to bidders and grantees to assist in determining whether the waiver would apply.
UMTA will monitor the use of the waiver and determine if a study is necessary. The study would address various methods of computations of taxes, and which taxes could be considered.
Waivers -- Issuance
One commentor requested that we delete § § 660.33(b) and 660.34(a) since he felt that we are unable to make waiver determinations before bids are opened. We feel that in certain circumstances we are able to make the necessary determinations prior to a bid opening. For example, the general waivers in Appendix A to § 660.34 have obviously been granted prior to any bid, and we do expect that some request for waivers, especially public interest waivers, could be made prior to bids.
Section 660.33(b) is being revised to clarify the time frame within which UMTA may issue a waiver.
Waivers -- Rural Operating Assistance
A conforming change has been made to Appendix A of § 660.34 to include operating assistance grants given to rural areas under the § 18 grant program. Operating assistance under all of the other UMTA programs has already been excluded.
Waivers -- Spare Parts
Several comments were received concerning the treatment of spare parts under Section 401.
If spare parts are "deliverables," then they are end-products in and of themselves. For example, in a contract for ten buses with 500 h.p. engines and two extra 500 h.p. engines for the buses, the buses and the two extra engines would each be end-products. If the engines for the ten buses were directly incorporated into the buses at the final assembly point, those engines are components. A separately specified spare part is an end-product by itself.
UMTA has decided to issue a general public interest waiver which provides that foreign-sourced spare parts which are end-products will be granted an automatic waiver if their total cost is 10% or less of the overall project contract cost. This waiver is being issued in order to provide for compatibility of parts. It is in the public interest that this compatibility exist since it promotes efficiency and economy.
This general waiver will be added to Appendix A to § 660.34.
One commentor requested that § 660.45 be deleted because it was felt that the interpretation of the statute and rights under the statute are more properly the role and function of the courts. This section does not attempt to usurp the role or function of courts, but merely sets out an administrative interpretation concerning the rights of third parties under the statutory provision.
Accordingly, Part 660 of Title 49 of the Code of Federal Regulations is amended as follows:
1. In § 660.11, by revising paragraphs (b), (c) and (f) and adding a new paragraph (g) to read as follows:
§ 660.11 Applicability.
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(b) Only domestic end products may be procured with assistance provided by UMTA unless the Administrator waives the application of these requirements as set forth in Subpart C of this Part.
(c) Because a domestic preference requirement, rather than an absolute "Buy America" requirement, has been established, materials of foreign origin may be considered for UMTA-assisted procurements.
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(f) The location where components and end products are manufactured, mined, or produced is critical in determining their origin. The nationality of suppliers or the employees of these suppliers does not affect the origin of end products or components.
(g) UMTA will not participate in procurements in which a competitive advantage is given to State or local bidders or to bidders that agree to use State or local products.
2. By revising paragraphs (c) and (e) of § 660.13 to read as follows:
§ 660.13 Definitions.
(c) "Component" means any article, material, or supply, whether manufactured or unmanufactured, directly incorporated into an end product at the point of final assembly. An item used in the construction process as an aid to construction which remains at the construction site but serves no purpose in the completed end product is not a component.
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(e) "End product" means an article, material or supply, whether manufactured or unmanufactured, that is to be acquired by the grantee, with financial assistance derived from UMTA, and that is to be delivered to the grantee, as specified by the third party contract. In construction projects, the deliverable of the construction contract is the end product. Materials delivered to the jobsite and incorporated directly into the construction end-product are components.
3. By revising paragraph (a) and adding a new paragraph (c) in § 660.21 to read as follows:
§ 660.21 Grantee responsibility.
(a) The grantee shall adhere to the Buy America clause set forth in its grant agreement with UMTA. The clause directly affects any third party contract utilizing funds obligated by UMTA after November 6, 1978. These requirements do not apply to any third party contract financed without UMTA funds or to any procurement or construction third party contract not exceeding $500,000. The Buy America clause will be included in any grant or loan agreement entered into by UMTA that exceeds $500,000.
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(c) The grantee shall include in its bid specifications a statement that a waiver from the Buy America provision will be sought if the grounds for a waiver exist.
4. By revising paragraph (c) and adding a new paragraph (d) in § 660.22 to read as follows:
§ 660.22 Determination of origin.
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(c) Transportation costs to the place of incorporation into the end product and, in the case of foreign components, applicable duties, must be included in determining component cost under paragraph (a) of this section.
(d) The cost of a component is the price that a bidder or offeror must pay to a subcontractor or supplier for components. If the component is manufactured by the bidder or offeror, the cost of the component is the cost of labor and materials incorporated into the component and an allowance for profit and administrative and overhead costs attributable to that component under normal accounting principles.
5. By revising paragraph (b) and adding a new paragraph (d) to § 660.31 to read as follows:
§ 660.31 Application for waiver.
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(b) In the case of third party contracts, only a grantee may request a waiver. The request must be in writing, include facts and justification to support the granting of the waiver, and be submitted to the Administrator through the Regional Administrator.
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(d) Each request for a waiver and UMTA's action on the request are available for public inspection under the provisions of 49 CFR Part 601, Subpart C.
6. In § 660.32, by revising paragraphs (b), (d), and (f) to read as follows:
§ 660.32 Types of waivers.
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(b) In determining whether the waiver described in paragraph (a)(1) will be granted, the Administrator considers all appropriate factors including, but not limited to, the cost, "red tape", and delay that would be imposed if the provision were not waived. The Administrator will issue a written determination setting forth the reasons for the granting or denial of the waiver.
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(d) A domestic end product will be presumed unavailable if no responsive and responsible domestic bid has been received and a waiver will be granted by UMTA.
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(f) The statutory waiver provisions of Section 401 of the Act are separate and distinct from each other. End products and components of end products may be granted different waivers.
7. By revising paragraph (b) of § 660.33 to read as follows;
§ 660.33 Relationship of waivers to bid process
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(b) Waivers may be issued for a particular contract at any time based on information available to UMTA.
8. By revising item (a) and adding a new item (c) to Appendix A to § 660.34 to read as follows:
Appendix A -- Compilation of Waivers Issued Under § 660.33(a)
(a) The provision has been waived for all operating assistance grants under Sections 5, 17, and 18 of the UMT Act, and for any operation assistance portions of grants under Section 6 of the UMT Act.
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(c) The provision is waived for foreign sourced spare parts whose total cost is 10% or less of the overall project contract cost.
(49 U.S.C. 1602, note (Sec. 401, Pub. L. 95-599; 92 Stat. 2689); 41 U.S.C. 10a, 10c, and 10d; 49 CFR 1.51).
Dated: January 14, 1981.
Theodore C. Lutz,
This material is reprinted with the permission of LEXIS-NEXIS, a division of Reed Elsevier Inc. No copyright is claimed as to any part of the original work prepared by a government officer or employee as part of that person's official duties.