Pre-Award and Post-Delivery Audits of Rolling Stock Purchases


Printer Friendly Number 56 FR 48384
09-24-91

DEPARTMENT OF TRANSPORTATION
Urban Mass Transportation Administration
AGENCY: Urban Mass Transportation Administration (UMTA, DOT.
49 CFR Part 663

Pre-Award and Post-Delivery Audits of Rolling Stock Purchases
[Docket No. 88-H]
RIN 2132-AA29
56 FR 48384
September 24, 1991
ACTION: Final rule.

SUMMARY: This final rule requires pre-award and post-delivery audits of rolling stock purchased with Federal financial assistance under the Urban Mass Transportation Act of 1964, as amended. Section 319 of the Surface Transportation and Uniform Relocation Assistance Act of 1987 (the STURAA) requires UMTA to issue regulations to ensure that federally funded vehicles meet Federal motor vehicle safety requirements, Federal "Buy America" requirements, and a grantee's bid specifications.

DATES: This rule is effective October 24, 1991. It applies to funds obligated by UMTA on and after October 24, 1991.

FOR FURTHER INFORMATION CONTACT: Albert L. Neumann, Senior Mechanical Engineer, Office of Grants Management, (202) 366-1638; or Theodore A. Munter, Deputy Chief Counsel, Office of Chief Counsel (202) 366-1936.

TEXT: SUPPLEMENTARY INFORMATION:

Outline

This preamble is divided into a number of different sections, briefly outlined below.

I. Background

II. Summary of the NPRM

III. Summary of the Final Rule

IV. Public Comments

V. Issues Raised in Comments
A. Buy America Audits
B. Specification Audits
C. Federal Motor Vehicle Safety Standards
D. Financial Impacts
E. Definitions
F. Effect on Other Federal Regulations

VI. Section-by-Section Analyses

VII. Availability of Final Rule

VIII. Regulatory Impacts
A. Executive Order 12291
B. Regulatory Evaluation
C. Regulatory Flexibility Act
D. Paperwork Reduction Act
E. Executive Order 12612; New 49 CFR Part 663

I. Background

The quality of mass transportation service depends in large part on the quality of the equipment used. Inspection of equipment at the time of its purchase for compliance with the buyer's requirements is essential to ensuring the proper use of Federal financial assistance. UMTA requires a recipient of Federal financial assistance to provide adequate technical inspection of all work in progress when it purchases equipment. UMTA permits this inspection to be done directly by the recipient or through technical consultants. The cost of the technical inspection has always been eligible for UMTA funding. Additionally, UMTA requires that recipients comply with all the terms of their grant agreements, applicable statutes, codes, ordinances and safety standards.

Because Congress was concerned about the quality of mass transportation equipment purchased with Federal financial assistance, and the inspection and verification procedures used in the procurement process, the Surface Transportation and Uniform Relocation Assistance Act of 1987 (the STURAA), Public Law 100-17, mandated pre-award and post-delivery audits with respect to any UMTA grant for the purchase of buses or other rolling stock. Specifically, section 319 of STURAA directs UMTA (as delegated from the Secretary) to require pre-award and post-delivery audits to ensure compliance with Federal motor vehicle safety requirements, the Buy America requirements of section 165 of the Surface Transportation Assistance Act of 1982, as amended, and the recipient's own specified solicitation specifications. Additionally, section 319 provides that UMTA must require independent inspection and audits, noting that a manufacturer's certification of compliance with certain requirements is not sufficient. This final rule implements section 319.

II. Summary of the Notice of Proposed Rulemaking (NPRM)

On October 18, 1988, UMTA published an NPRM in the Federal Register in connection with the requirements of section 319 of the STURAA. To make the regulation comprehensive, the NPRM proposed to extend the applicability of the requirements to two other programs funded by the agency: The interstate transfer provision (23 U.S.C. 103(e)(4)), and funding for the Washington, DC, Metrorail system (section 14 of the National Capital Transportation Act of 1969, as amended).

The NPRM applied to rolling stock in revenue service, affecting procurement of buses, vans, cars, railcars, locomotives, trolley cars and buses, ferry boats, and vehicles for fixed guideways and incline planes. The NPRM did not affect the procurement of vehicles used for maintenance purposes, or other rolling stock not used to carry fare-paying passengers. While Congress made it clear that a certification of an audit from a manufacturer would not meet the requirements of section 319, language in the bill's Conference Report also provided that "(i)t is the intent of the Conferees that any paperwork requirements imposed by this provision will not create a significant cost burden." (House Report 100-27, p. 231.) In an effort to limit the cost burden on grantees, the NPRM proposed allowing the use of certifications by the grantee with independent support documentation wherever possible, similar to other self-certifications UMTA currently uses under the Section 9 program. The NPRM essentially proposed that a recipient conduct the Buy America and bid specification audits, and seek independent verification of motor vehicle safety compliance.

III. Summary of Final Rule

The final rule requires a recipient who will purchase revenue rolling stock with funds obligated by UMTA on or after October 24, 1991, to certify to UMTA that it has or will conduct a pre-award and post-delivery audit to assure compliance with its bid specifications, Buy America, and Federal Motor Vehicle Safety requirements.

Beyond this certification to UMTA, a recipient is required to keep on file separate certifications it makes regarding compliance with Buy America and bid specifications. In addition, such a recipient also is required to keep on file a certification that it received from the manufacturer of the vehicle certification information required to meet Federal Motor Vehicle Safety Standards or a certification from the manufacturer that such standards are inapplicable (except for rolling stock other than motor vehicles, in which case no such certification is necessary). These certifications that are kept on file will be reviewed by UMTA during the triennial review process, or in response to specific complaints.

With regard to the Buy America audit, if a manufacturer is unwilling to share its cost data with a recipient, some other alternative would be necessary to perform the audit. In such cases, UMTA expects that some third party separate from the manufacturer would perform the audit, which would then form the basis for the recipient's certification. Regarding the bid specifications audit, the final rule requires, for UMTA-funded procurements of 10 or more buses or any number of railcars or other rolling stock, that a resident inspector be at the site of the manufacture of the vehicles throughout their construction. At the conclusion of the construction the inspector would prepare a report describing how the vehicles meet the bid specifications. This report, along with a visual inspection and road test of the buses when delivered to the recipient, would form the basis for the recipient's post-delivery bid specification certification. For procurement of 10 or fewer buses, or for procurements of any number of unmodified vans sold by the major automobile companies, no resident inspector is required. Rather, a recipient would make its certification after visually inspecting and road testing the vehicles after their delivery.

The final rule applies to purchases of revenue rolling stock under sections 3, 9, 16(b)(2), and 18 of the UMT Act, grants under the interstate transfer-transit program, and funding of the Washington, DC Metrorail system.

V. Public Comments

General Overview

UMTA received 50 comments in response to the NPRM, as follows:

Transit systems

25

State DOTs

11

Cities and counties

2

Trade associations

4

Suppliers and manufacturers

5

Consultants

2

Members of Congress

1

In general, the commenters supported the goals of section 319 of STURAA and UMTA's efforts to achieve safety, Buy America and bid specification compliance in the NPRM. However, most commenters objected to the actual implementation scheme proposed. The commenters found the requirements to be overly burdensome, redundant, and costly.

The discussion below separately addresses these concerns with respect to the Buy America, bid specification, and motor vehicle safety standard requirements. Each of these three areas raises somewhat unique issues, and each is discussed separately. The discussion also addresses other issues raised, including exempting cars and vans from the NPRM's safety certification requirement, the availability of sanctions against noncomplying contractors, shifting legal liability from manufacturers to recipients, and protection of proprietary information.

V. Issues Raised in the Comments

A. Buy America Audits

In the NPRM, UMTA proposed that the Buy America audits be made by a person who is not an agent or employee of the manufacturer, and that such an audit would be the basis for a recipient to certify to UMTA that the equipment meets the applicable Buy America requirements. The NPRM noted that before a person could make this certification he or she must have reviewed documentation provided by the manufacturer as to the cost of the components and any subcomponents of the rolling stock, their country of origin and the location of final assembly and the activities that will take place at the location. UMTA anticipated that these audits were likely to be done by independent contractors, since the information that must be reviewed is generally considered proprietary.

Overview. Twenty-four commenters addressed a variety of concerns about the NPRM Buy America certification provisions. The commenters greatest concerns were the disclosure of proprietary information and the financial impact of the requirements on recipients and manufacturers. The commenters also questioned the practicability of the NPRM's provisions, that is, requiring a pre-award and a post-delivery Buy America certification; the lack of guidelines for conducting the certifications; the potential for disputes when different transit agencies issue conflicting certification reports for the same vehicle; and whether the penalty provisions were strong enough to ensure compliance. These concerns are discussed in greater detail below.

Disclosure of Proprietary Information. Seven commenters discussed this issue. Both the pre-award and post-delivery requirements would prohibit manufacturers' employees and agents from performing the certifications. Recipients thus could do the certifications in-house or hire independent consultants to perform the audits. According to the commenters, both alternatives had drawbacks.

A few recipients indicated they would perform the Buy America certifications in-house. The majority of commenters, however, stated that they would have to contract out this requirement to consultants because they either lacked the expertise or did not have sufficient personnel to do the certifications.

Several manufacturers and suppliers, on the other hand, stated that they would file legal protests against any requirements to disclose cost breakdown information to recipients before finalizing a contract between them. Their opposition had three bases. First, they argued that recipients should not have the right to access such information when procurements were handled through sealed bids. Second, they contended that disclosure could cause disputes between prime contractors and sub-contractors as well as between prime contractors and recipients if problems or delays occurred before contract finalization. Third, they argued that disclosure could jeopardize contractors' ability to compete effectively on future contracts because recipients and competitors might have access to information from which they could determine how these contractors operate and develop their bids.

Commenters generally preferred either having independent contractors perform the certifications or having UMTA certify manufacturers compliance with Buy America on a nationwide basis. Because they believed using independent consultants would be expensive, particularly for smaller transit agencies, recipients and manufacturers both favored UMTA certification. They contend that UMTA certification provided other advantages as well, including the assurance of independent certifications, reduced paperwork and other administrative burdens on recipients, provision of a centralized source of information on manufacturers whose products meet Buy America standards, elimination of potential disputes regarding compliance, and minimal duplication of effort.

Practicability. Many of the criticisms of the Buy America audit requirements involved their alleged impracticability. For example, one commenter, a consultant with forty years experience at a major motor vehicle manufacturer's truck and coach division, said that Buy America compliance could only be ensured by checking the origin of every part and visually inspecting final assembly operations of all manufacturers.

This commenter believed Buy America certifications would be extremely complex because of the number of parts and suppliers involved, estimating that buses may contain as many as 18,000-20,000 parts. The effort necessary for a meaningful certification, he concluded, would be extremely burdensome in terms of administrative and economic costs. The commenter also said that limiting the inspection requirement to "first tier"components, such as basic engine, compressor and muffler, would still leave approximately 5,000 parts numbers to be checked.

The same commenter estimated that between 200 and 500 suppliers are involved in any given procurement, each of whom would have to supply information about the parts sold to the prime contractor. If so, he concluded that the process of certifying compliance for more complex vehicles would take approximately 50 workdays, or 400 hours, to complete.

Vans, having many fewer parts to inspect, would probably only require 5 workdays, or 40 hours, to certify.

Pre-Award Certification. Other commenters also contended that the magnitude of the NPRM's Buy America certification process made the pre-award requirements impossible to fulfill. They used the time frame established by § 663.21 to make their point. Section 663.21 would require recipients to complete their pre-award Buy America certification before entering into a formal contract with the vendor. In contrast, the commenters said, normal industry practice permits the parties to delay negotiation on final design specifications until after the contract has been granted. Within this context, they argued that any pre-award Buy America certification would be meaningless.

These commenters were concerned that the procurement process could be delayed for months if Buy America compliance were required to be made at the subcomponent level. Some contended that such a requirement would be extremely harmful to recipients required to complete the bid process within a mandatory time frame. The commenters contended that when mandatory deadlines are exceeded, recipients can be required to repeat the entire bid process. Suppliers and manufacturers, on the other hand, argued that sub-component certification would be harmful to them because they would have to hold bids open longer. They said this would adversely affect their liquidity and their ability to bid on other procurements, ultimately driving up costs for everyone.

Second, manufacturers noted that the NPRM's Buy America requirements restricted their ability to make needed design changes or to substitute parts because of the potential effect of any such change on the final product's overall Buy America compliance.

Third, commenters objected to the absence of guidelines in applying the NPRM's Buy America provisions. Specifically, the commenters wanted UMTA to specify whether certification was limited to "first tier" components or extended to the subcomponent level and whether Buy America auditors were required to have particular qualifications.

Fourth, commenters wanted guidance on sharing certification/waiver information and on compliance disputes resolution. Recipients therefore requested the agency to develop a system to disseminate information on earlier certifications and existing manufacturers' Buy America waivers and a methodology for resolving compliance disputes.

Fifth, commenters criticized the NPRM's provisions for requiring both a pre-award and a post-delivery Buy America certification. The commenters characterized this as "costly and duplicative overkill," noting that the statute requires a double check on compliance not primary compliance verification. The commenters contended that section 319 of STURAA could be equally well-served by permitting self-certification at the pre-award stage and using independent reviews and visual inspections at the post-delivery audit stage.

Commenters' Suggestions. Several commenters suggested that UMTA undertake a nationwide manufacturer certification program. A Congressman, for example, called for UMTA to take a larger part in the pre-award audits for both Buy America and FMVSS compliance.

Other commenters suggested that recipients should be allowed to rely on other recipients' certifications as long as no significant changes were made to the vehicle design and final assembly process. Alternatively, other commenters believed that if such a practice were adopted it would lead to disputes when transit agencies differed about whether or not the "same" vehicle complied with Buy America requirements or not.

In the latter group's opinion, the NPRM did not address the question of how to resolve such disputes adequately. One commenter asked if disputants would have recourse to UMTA. Two others suggested establishing a dispute resolution committee within the transit industry which would have the authority to make binding determinations in such disputes. A fourth commenter, on the other hand, stated that the potential for such disputes was another reason why UMTA should provide nationwide Buy America certifications.

Finally, two commenters suggested that a "public necessity" waiver be instituted. They argued that such waivers could permit rolling stock with minor Buy America deviations to be used in revenue service while preserving the manufacturer's duty to correct deviations, which would permit recipients to put needed rolling stock into revenue service without passing title before the required changes were made.

Post-delivery Certifications. Post-delivery certification requirements had their own drawbacks according to the commenters. For example, one large transit agency pointed out that the NPRM's prohibition on accepting uncertified vehicles punished recipients rather than manufacturers, at least when rail rolling stock procurements were involved, because railcar procurement contracts generally provide for periodic payments of up to 80 percent of the contract price during manufacture. The transit agency argued that this practice diminishes manufacturers' incentive to correct deviations and that its negative effects on recipients would be increased by the NPRM's prohibitions against recipients accepting delivery of needed revenue rolling stock. The transit agency therefore encouraged UMTA to strengthen the penalties available to recipients and to permit "post-delivery" certifications to begin earlier.

Another large transit agency also contended that the NPRM's post-delivery certification requirement came too late in the procurement process. This transit agency argued that quarterly reviews during manufacture would ensure compliance and minimize delays in accepting final delivery and getting rolling stock into service.

The criticisms raised by these two transit agencies were echoed by a third, which also called for earlier post-delivery reviews because of the non-acceptance requirement imposed on recipients in § 663.39(a).

Sanctions. Four transit agencies commented on the issue of appropriate penalties against non-complying manufacturers. All were concerned that the NPRM's provisions, contained in § 663.39(a), harmed transit agencies as much as the manufacturers by increasing delays and costs, especially for large orders. According to one commenter, the NPRM appeared to require completed certification for all items before final delivery could be made for any item.

Commenters' Suggestions. Commenters made several suggestions for improving the proposals in the NPRM. One was to provide for UMTA-wide debarment. Another was to require manufacturers to post surety bonds whenever compliance disputes arose, which would cover the cost of the non-complying material, the cost to replace it with complying material, and a penalty of up to 100% of these costs to be imposed at the grantees's discretion. The commenters' third suggestion was to allow recipients to put non-complying vehicles into revenue service but withhold payment until deviations were corrected. Lastly, they asked that § 663.39 be clarified to indicate that recipients could seek any remedies available under the contract or by law.

UMTA Response. While recognizing the many comments on the issue of cost and practicability involved in requiring a recipient to perform Buy America audits, UMTA has decided that the final rule should continue to require, as the NPRM proposed, that the recipient be responsible for performing the Buy America audits of rolling stock purchased with UMTA funds. UMTA believes this approach is consistent with the statute, the requirement that the recipient also perform bid specification audits (discussed below), and best assures compliance with Buy America by requiring the actual purchasers of the rolling stock to be responsible for making certain that the vehicles meet the statutory Buy America requirements.

Regarding consistency with the statute, neither the law nor its legislative history indicate who is to be responsible for the audits. Rather, the statute provides that manufacturer certification is not sufficient, "* * * and independent inspections and auditing shall be required."

We believe it is clear, however, that the bid specification audit (discussed below) should be done by the grantee. Indeed, even in the absence of this statutory provision it is sound business practice -- if not a contract requirement -- that a recipient carefully review a vehicle it is purchasing to make certain the vehicle complies with the specifications set forth in the bid. If Congress did not mean for UMTA or a national contractor to perform these bid specification audits, it is not unreasonable to apply this same standard to the other audits required by the statute: Those for Buy America and compliance with Federal motor vehicle safety standards (discussed below). UMTA believes that there would be considerable administrative difficulties to require a recipient to perform only two of the audits, with UMTA responsible for the other. Moreover, had Congress meant for UMTA to perform the audits it could have explicitly so required. Accordingly, the agency is requiring a recipient to be responsible for each of the audits.

We recognize that this could involve costs that in some instances could be considerable. As the docket notes, a manufacturer can be expected to be reluctant to share proprietary cost data with a recipient involving the very vehicle that the manufacturer is bidding on. Thus the recipient may have to use an independent third party contractor to perform the audit -- and assure the manufacturer that the cost data will be kept confidential. It is important to note, however, that the final rule does not require a recipient to hire a third party to perform the Buy America audit. Rather, the rule recognizes that this is an option that is likely to be often used. On the other hand, a recipient itself could perform the audit if a manufacturer was willing to provide cost information to the recipient.

In this connection, a recipient might be able to keep its Buy America audit function independent by using a "Chinese wall" and assuring the manufacturer that those workers of the recipient performing the Buy America audit are prohibited from disclosing any of the manufacturer's propriety data to anyone working for the recipient. In fact, UMTA particularly encourages manufacturers and grantees involved in a small number of vehicle purchases to use this method to avoid the additional cost of hiring an outside auditor.

UMTA also encourages recipients to share their Buy America audits with each other, or to join together on related vehicle buys and share the cost of the audit function. UMTA would respond on a case-by-case basis to requests to determine whether a previously-audited vehicle that is being purchased by another recipient with some minor modification, would require a new audit.

In response to those comments about the difficulty of performing the Buy America audits, it is important to note that this is a congressional requirement designed to assure compliance with the Buy America statute. Thus, a recipient must be able to certify to UMTA that its rolling stock purchases comply with the Buy America regulation (49 CFR part 661). This congressional mandate was in response to a belief that recipients and manufacturers in some cases were not able to assure total compliance with Buy America requirements, and that an audit in each case would be necessary to assure such compliance. Nor does UMTA believe that such audits necessarily will be unduly burdensome and complicated. In response to complaints UMTA or its contractors have carried out such audits by reviewing manufacturer documentation to determine whether the regulation was being complied with. These audits can be performed in a timely fashion and do not have to cover an unduly large number of components and subcomponents.

The Joint Explanatory Statement of the Conference Committee accompanying the STURAA (Conference Report) (H.R. Rep. No. 27, 100th Cong., 1st Session (1987)), points out that the relevant provisions of the STURAA are intended to cover only the "major components" and "primary subcomponents" listed therein. Therefore, a manufacturer's compliance with the Buy America requirements and the recipient's audit of such compliance, may be limited to these major components and subcomponents, following, inasmuch as possible, the listing provided in the Conference Report and reflected in the Buy America regulation (49 CFR part 661). The audit should list the name and address of each component and subcomponent supplier and the cost of each item, and should provide the overall percentage, by cost, of domestic and foreign parts. Of course, the list presented to the recipient may, in order to protect proprietary information, not reflect the actual cost of items but rather their percentage of the total vehicle cost. After reviewing the audit report, the recipient would certify on the basis of it that the requirements of 49 CFR part 661 have been met, and would keep that certification on file. The audit should also address where final assembly of the vehicles occurred. A recipient of course should make its certification only after it is fully satisfied that the Buy America requirements have been met, and should seek further information or documentation from the manufacturer or auditor if it has reason to question the sufficiency of the documentation it has.

In response to concerns about sanctions, we have revised § 663.39 to make it clear that if the recipient or its agent cannot certify Buy America or bid specification compliance, the recipient is not required to finally accept the rolling stock and may exercise any legal rights it has under the contract or at law. This provision, however, specifically states that it does not prevent a recipient and manufacturer from agreeing to a conditional acceptance of rolling stock pending manufacturer's correction of deviations within a reasonable period of time.

B. Purchaser's Requirements Certification

Overview. Sixteen commenters addressed a variety of concerns related to part 663's purchaser requirements certification provisions. In the NPRM, UMTA had proposed that a recipient be responsible for assuring compliance with its own specifications. Several commenters stated that the pre-award provisions were unworkable and several believed post-delivery operational testing requirements should be limited. On the other hand, many endorsed the idea of doing post-delivery visual inspections on all rolling stock. Costs were not emphasized, in contrast to the concern they caused with respect to the FMVSS and Buy America certifications. Commenters were very concerned, however, that the NPRM lacked flexibility with respect to the acceptability of post-award changes and minor deviations, and about the extent of operational testing and visual inspection required. Some were also concerned about compliance disputes resolution, penalties, and the conflict between the NPRM's post-delivery requirements and rail rolling stock procurement practices.

Deviations. Four commenters criticized the NPRM's pre-award provisions, stating that they were in irreconcilable conflict with actual procurement practices. The NPRM's § 663.21 required pre-award certification to be complete before contract finalization while § 663.29 required the auditor to certify that the recipient was agreeing to purchase the same item set out in the bid specifications. The commenters explained that, in contrast to these requirements, current practice set out relatively general specifications in the IFB or RFP, that the recipient and vendor determined final design specifications during negotiations after the initial contract award, and that the vendor did not select its subcontractors until the final design specifications were agreed upon. The commenters argued that the time frames for the pre-award certification and these industry practices were in direct conflict, and in their opinion the NPRM's requirements could not be satisfied.

Two commenters were concerned about the authority to be given independent auditors. They feared that auditors could become overly concerned about minor deviations and might halt or delay production until deviations were corrected. They worried that such actions would increase costs and delay introduction of new vehicles into revenue service. Commenters did not argue that the post-delivery certifications were impossible. They did, however, make a number of suggestions for improving the provisions to minimize delays and cut costs, which are discussed below.

Six commenters raised the issue of the NPRM's rigidity with respect to later post-award modifications and deviations from bid specifications due to unavailability of parts or changes in technology. They asked that § 663.37's language be changed to reflect the acceptability of substituted parts or the incorporation of new technology. They also asked UMTA to set guidelines for accepting rolling stock with minor deviations.

One commenter suggested revising § 663.37's language to require certification that "rolling stock is in all material respects the same item set out in the contract document." The commenter contended that revising the language in this manner would allow transit agencies to certify rolling stock even when minor deviations were present and clarified that transit agencies could rely on all contract documents for the post-delivery certification, including bid specifications, final design requirements, and change orders.

Commenters also asked that § 663.37 be modified to permit them to perform post-delivery related inspections while the rolling stock was still at the manufacturing plant. They argued that this would eliminate transportation costs to and from the recipient and shorten any delay before the vehicles were placed in revenue service.

Testing and Inspections. Six commenters were concerned about the operational testing and visual inspection requirements imposed by § 663.37. One believed the operational testing requirement was unnecessary and would substantially increase costs. That commenter preferred limiting certification requirements to visual inspection of one prototype vehicle. Two others believed that post-delivery operational testing was acceptable if limited to one vehicle, unless major changes were made to subsequent vehicles on the same procurement. A fourth commenter argued that the NPRM's post-delivery certification came too late to be effective. That commenter proposed requiring periodic checks on compliance from the time the vendor was given notice to proceed throughout the entire manufacturing process until final delivery. The commenter also argued that deviations would be caught when they could most easily be corrected and that this would cut down on post-delivery delays and associated costs. The last two commenters favored post-delivery visual inspection of all vehicles to ensure compliance.

Rail Rolling Stock. Another commenter was concerned that post-delivery certification came too late to serve any useful purpose for rail rolling stock purchases. The primary sources of the commenter's concern apparently centered on manufacturers' accountability for correcting deviations in light of the complexity involved in building railcars together with the practice in rail rolling stock procurements of making periodic payments of up to 80 percent of the contract price prior to delivery. This commenter also preferred periodic inspections during the manufacturing process.

Sanctions. One commenter was concerned that § 663.39(b)'s language was not broad enough. The commenter suggested modifying this subsection to clarify that all other applicable legal and contract remedies were available. The commenter also suggested modifying the section to permit recipients to recover both the cost of deviating materials and the cost of correcting the deviations.

UMTA's Response. After careful evaluation of the commenters' concerns regarding the NPRM's bid specification provisions, and its own re-assessment of section 319, UMTA has concluded the following.

First, commenters were unduly concerned about the NPRM's pre-award bid specification provisions. The NPRM's § § 663.21 and 663.29 were relatively general in their requirements. The NPRM did not require detailed design specifications or prototype vehicles at this stage. The NPRM's only requirement was sufficient congruency between the recipient's bid specifications and the vendor's proposal to support certification that the recipient was purchasing what it asked for in its bid specifications. For example, if bid specifications called for ten diesel-powered, air conditioned buses with seating capacity for forty people, and the contractor's proposal documentation met these requirements at the pre-award stage, the auditor could certify compliance. Furthermore, subsequent agreement to use a particular type of seat or seat covering, or a change order to increase seating capacity to forty-two, would not negate the validity of the original pre-award certification. In light of what we perceive as a misconception of the NPRM's requirements, we have therefore concluded that it is unnecessary to revise the provisions to accommodate a nonexistent time frame conflict. In our opinion, the pre-award certification should flow directly from the recipient's pre-award determination of which vendors are responsive and responsible bidders. We have, however, added a requirement that the pre-award certification include a statement that the manufacturer is capable of constructing the vehicles.

Second, we believe that commenters' concern regarding the acceptability of minor deviations and the threat of delays due to auditors' stop orders was also misplaced for two reasons. First, § 663.39(b) gave recipients the discretion to accept or reject rolling stock which could not be certified due to deviations from the contract's terms. Second, auditors, whether in-house or independent, act as agents of the recipient and the recipient therefore can develop its own criteria for accepting minor deviations or requiring auditors to consult with it before taking any action to halt or delay production. UMTA believes that decisions on how deviations from specification terms should be dealt with are better left to the recipient and auditor. We therefore do not deem it necessary to set guidelines for accepting minor deviations or to modify § 663.37's provisions as suggested.

Third, the NPRM's § 663.37 specified that compliance would be determined in accordance with the terms of the contract, not the terms of the pre-award bid specifications. We have revised this in the final rule, however. Because change orders or modifications normally are reflected in the specifications, compliance certification should be based upon the contract specifications, including any changes reflected in those specifications.

Fourth, we have changed our position with respect to the issue of operational testing and visual inspection requirements. While the NPRM left to the recipient the issue of whether in-plant inspection was necessary, we have decided in the final rule to require the recipient to have an in-plant inspector at the manufacturer site for any procurements of ten or more buses or any number of rail cars or other rolling stock. This is consistent with the statute, which provides that "* * * independent inspections and auditing shall be required." (Emphasis supplied.)

This is also a good business practice that has long been encouraged by UMTA in its grant management circulars. In fact, most recipients already use some form of in-plant inspection in their rolling stock procurements. A recipient could join with other recipients purchasing the same rolling stock in paying for the in-plant inspection. The only requirement regarding this inspection in the final rule is that the inspector not be an agent or employee of the manufacturer.

The inspector would prepare a report providing accurate records of all vehicle construction activities and summarizing how the construction of the vehicles and their operational characteristics met (or did not meet) the terms of the contract specifications.

Upon delivery of the vehicles to the recipient, and after reviewing the report, the recipient would make a visual inspection and road test of the vehicles to make certain that they met the contract specifications. The recipient would then certify to this effect, and keep that certification on file.

For a bus procurement of 10 or fewer buses or for procurement of any number of vans manufactured by the automobile companies (and unmodified), in-plant inspection would not be required. Only a visual inspection and a road test after delivery to the recipient would be required for such purchases. On the basis of this review, a recipient would certify compliance with the specification and would keep that certification on file.

Fifth, regarding the difficulties some commenters perceived in relation to railcar procurement practices and the feasibility of post-delivery compliance certification, we recognize the complexity involved in designing and building rail rolling stock. We also recognize that the level of effort involved in producing railcars probably requires recipients to make substantial periodic payments against the contract price. Nevertheless, we are not convinced that these "facts of railcar procurements" affect the in-plant inspection requirement. At the same time, however, UMTA intends these in-plant inspections to be consistent with current industry practices. This is particularly true in the railcar industry where the construction of a vehicle may stretch out over a period of time. In short, because of the length of the construction period, in-plant inspection in the railcar industry may be more periodic than that for the bus industry, although the resulting report should be equally comprehensive in both cases.

Lastly, we considered the commenters' request for a clarification of the remedies available to recipients under (663.39(b) of the NPRM. We believe the language of that section was sufficient to cover situations which amount to breach of contract, i.e., delivering a vehicle which does not meet the contract's specifications. We nonetheless recognize recipients' concern that this NPRM provision was open to a contrary interpretation limiting recipients to contract remedies when other statutory or common law remedies might also be available. We do not wish to deprive recipients of such alternative remedies and have therefore revised § 663.39 in the final rule to include any other remedies available under the law.

C. Compliance with Federal Motor Vehicle Safety Standards

The commenters addressed a number of concerns regarding the FMVSS certification requirements of part 663. Their concerns included (1) the inapplicability of FMVSS to rail rolling stock, (2) general support for an exemption for cars and vans, (3) the redundancy of the independent testing requirement, (4) the practicability of the safety audit at the pre-award stage, (5) the likelihood that the NPRM's safety audit requirements would lead to recipient liability for negligent certification, and (6) the safety audit's cost to recipients and vendors. Each of these issues is discussed at length below.

Inapplicability of FMVSS to Rail Rolling Stock. Five commenters called attention to the fact that the NPRM's safety certification was tied to the FMVSS and therefore did not apply to rail rolling stock. The comments reflected some confusion as to whether such testing nevertheless would be required for railcars. One commenter stated that testing railcars for FMVSS compliance would be an inappropriate use of scarce transit resources. This commenter made two additional observations: First, that railcars normally are not designed at the time of contract award and, second, that the Federal Railroad Administration, the Association of American Railroads, and local public utility commissions have their own safety standards specifically applicable to railcars. Other commenters realized that the provision for certifying non-applicability of FMVSS, contained in § 663.25(a)(2) of the NPRM, applied to rail rolling stock but they nonetheless requested clarification of this point in the final rule.

Exemptions for Cars and Vans. Fifteen commenters responded to the question in the NPRM about whether cars and vans ought to be exempted from FMVSS certification requirements. All but one commenter favored exempting cars and vans from these requirements. The principal points advocated include the following:

First, the National Highway Traffic Safety Administration (NHTSA) currently requires all motor vehicles to meet certain Federal motor vehicle safety requirements before these vehicles are offered for sale. The commenters pointed out the NHTSA requires manufacturer self-certification of compliance for this purpose, undertaking enforcement actions against noncomplying manufacturers when necessary. The majority of commenters argued that UMTA and recipients should be able to rely on the same certifications, at least for standard, unmodified cars and vans. Several also contended that other governmental agencies accept these self-certifications.

Second, pro-exemption commenters contended that suppliers of vehicles modified to transport the elderly and handicapped would either increase prices or withdraw from the marketplace if forced to absorb the cost of additional, independent safety testing. They argued, third, that Congress was concerned about vehicles in "regular" revenue service, i.e., buses, rather than cars and vans when it adopted section 319 of STURAA.

Other more general comments made by pro-exemption commenters were that: (1) Manufacturer self-certification augmented with State safety inspections ought to meet the safety requirements of section 319 of STURAA and part 663; and (2) legal costs resulting from NHTSA enforcement or judicial proceedings constitute a substantial incentive for manufacturer compliance with Federal motor vehicle safety requirements. These commenters also contended that the effect of negative publicity arising from apparent noncompliance would have a similar effect.

Only one commenter opposed exempting cars and vans from FMVSS certification requirements. That commenter argued that an exemption for cars and vans was inappropriate because of the modifications made to these vehicles for carrying the elderly and handicapped.

Another commenter, while not opposing the idea of exempting cars and vans from the NPRM's FMVSS certification requirements, questioned whether such an exemption could be justified. That commenter pointed out that the language of section 319 made no distinction between cars and vans and other rolling stock. That commenter urged UMTA to find ways to reduce the cost of FMVSS certification and suggested modifying the rule to allow bidders to include evidence of independent compliance testing in their bid documentation. That commenter also proposed making such information acceptable as evidence for certification purposes. Doing so, it argued, would help to eliminate further delays in the procurement process.

Redundancy of the NPRM's Independent Testing Requirement. Seventeen commenters addressed this issue, generally advocating elimination of the NPRM's safety provisions. Also citing NHTSA's requirement that motor vehicle manufacturers certify FMVSS compliance, these commenters argued that vehicle manufacturers have established sophisticated testing programs to comply with this NHTSA mandate. The commenters therefore contended that the NPRM's independent certification requirements would be a waste of both time and money.

The commenters also disfavored independent safety testing because adequate means of sharing certification information were not provided for in the NPRM. The commenters pointed out that § 663.25(b) of the NPRM permitted NHTSA or an independent laboratory to re-issue certification reports in certain circumstances. They noted language in the NPRM's preamble discussing § 663.25 which said, "In order to avoid duplication of effort, this section also provides that a laboratory or NHTSA may reissue a safety certification it issued for one recipient if another recipient is purchasing the same rolling stock," 53 FR 40851. The commenters concluded that § 663.25's attempt to avoid duplication of effort was undermined by the lack of a clearinghouse or some other means of sharing certification information, and that this deficiency would lead to "regulatory overkill" with recipients retesting essentially identical vehicles over and over again simply because they were unaware of previous certifications

Third, the commenters argued that the NPRM's safety provisions exposed recipients to liability for negligent certifications, shifting that burden away from the manufacturers who were in the best position to ensure compliance with Federal motor vehicle safety requirements.

Practicability. Thirty-one commenters questioned the adequacy of various aspects of part 663's safety requirements and their effects on rolling stock procurement practices. The concerns ranged from the NPRM's time frame for completing safety certifications, to the availability of independent testing laboratories (alluded to above), to the adequacy of the NPRM's guidelines for determining when re-testing becomes necessary. The commenters' concerns are addressed more fully below.

The NPRM's § 663.21 required recipients, as part of the preaward audit, to complete safety compliance certifications before entering into a final contact with the vendor. The commenters found this time frame not only unrealistic but also inherently incompatible with existing rolling stock procurement processes. The commenters stated that if the NPRM's provisions were adopted, they anticipated significant delays to result. Where mandatory time limits apply to bid procedures, the commenters warned that many transit agencies would be forced to reprocess whole procurements as a result of the NPRM's requirements. The commenters contended that this would increase administrative costs substantially, nearly doubling paperwork requirements and increasing costs for both recipients and bidders.

The commenters also expressed concern that § 663.21's time frame would reduce the parties' flexibility in negotiating detailed specifications after contract finalization. The commenters pointed out that current procedures permit recipients and vendors to negotiate specific details on components, customized features, and so forth after contract formation.

According to the commenters, vendors decide which subcontractors and suppliers they will use and where final assembly will take place after these post-contract negotiations are complete. The commenters argued that this practice increases vendors' liquidity by permitting them to keep inventories to a minimum, that it allows vendors to keep labor and facilities costs down and take advantage of competitive pricing among suppliers and subcontractors until contract finalization. The commenters argued further that vendors are able to pass their savings along to recipients in the form of lower bids, in turn allowing recipients to increase the productivity of scarce transit dollars. Implementation of § 663.21 with regard to the safety certification would, the commenters contended, either drastically reduce this flexibility or lead to certifications bearing little relation to final procurement products.

With regard to their concern about the availability of independent laboratories capable of performing complete FMVSS certifications, the commenters pointed out that because the Motor Vehicle Safety Act, 15 U.S.C. 1403, requires manufacturer self-certification, most testing facilities are affiliated directly with manufacturers. According to recipients comments, their ability to obtain the necessary independent certifications is undermined seriously by this manufacturer-laboratory affiliation. The situation was further exacerbated by the lack of in-house expertise in all but the largest transit agencies.

Finally, eight commenters were concerned that the NPRM's FMVSS audit requirements did not give adequate guidance on the question of retesting. They asked for clarifications on such questions as (1) how much change, if any, would be permitted before retesting becomes necessary, (2) would all components have to be retested or could retesting be limited to the components directly affected, (3) who would decide if retesting were necessary, (4) who would initiate the retesting process, (5) who would pay for retesting, and (6) who would resolve disputes when one recipient introduced changes to a basic design and decided retesting was unnecessary while another recipient introduced the same changes but decided retesting was necessary.

Liability. As alluded to in earlier parts of this discussion, several recipient-commenters were worried that, because they would have to certify FMVSS compliance before accepting rolling stock, they would also be made liable for any losses resulting from a negligent certification. One commenter, a State transportation department, pointed out that even though it was protected from liability, because the State had not waived its sovereign immunity, the law was uncertain as to whether that protection would extend to its inspectors.

Other commenters on this issue, primarily transit agencies and State transportation departments, believed that shifting the burden of making FMVSS compliance certifications would be inappropriate because vehicle manufacturers are in a better position to detect and correct any flaws in design or construction. They felt that the NPRM did not address this issue adequately.

Costs. Because of the importance of the various cost issues, they are dealt with in a separate section covering financial burdens resulting from the NPRM as a whole.

Commenters' Suggestions. The commenters believed that only two alternatives were capable of satisfying the NPRM's safety requirements. They contended that either manufacturers would have to provide prototypes for FMVSS testing as part of the procurement process or recipients would have to buy vehicles that were already certified. The commenters argued that the first alternative could double procurement costs, especially for smaller transit agencies that only buy one or two vehicles at a time. On the other hand, they concluded that the second alternative could stultify innovations in transit vehicle technology. In their opinion, the NPRM's lack of guidelines for determining what constitutes the "same" vehicle design would magnify the latter effect. The commenters concluded that both these alternatives therefore were undesirable.

Because of perceived inadequacies in the NPRM's safety provisions, commenters made many suggestions to rectify the situation. Many commenters suggested, for example, that UMTA or NHTSA undertake the task of certifying FMVSS compliance. They contended that such a change would ensure independence in the certification process, minimize duplication of effort by transit agencies, and provide a centralized source for information on certified vehicles. A few commenters also suggested that UMTA could require grantees to buy only those vehicles so certified whenever Federal funds are involved.

A second frequent suggestion made by commenters was to permit bidders to include evidence of independent testing in their bid documents. The commenters also recommended that such information should be acceptable evidence for FMVSS certification purposes.

The commenters also proposed exempting small transit agencies or small purchases from the FMVSS requirement. Proponents justified such an exemption based on the disproportionate administrative burdens and costs the NPRM would create in such situations.

Finally, two commenters suggested establishing a committee from the transit industry with the power to hear disputes and make binding decisions resolving them.

UMTA's Response. After careful consideration of the comments, UMTA has decided to substantively revise its proposal in the NPRM. UMTA bases this decision on its assessment of the statutory requirements of section 319 and on its own evaluation of the NPRM's impact on recipients and vendors. In making this decision, UMTA determined that the following factors, drawn from the comments, were important considerations.

First, insufficient numbers of non-manufacturer affiliated testing laboratories and expert consultants are available to ensure that independent certifications can be made. Second, testing costs would be overly burdensome on the majority of transit agencies because of the extensiveness of the testing required and because some of the tests could involve destruction of all or part of the test vehicle. Third, the NPRM's requirement for certification before contract finalization is in direct conflict with customary procurement practices and its imposition would either undermine the parties' flexibility in negotiating customized requirements or result in safety certifications that bear little relationship to the final product supplied. Fourth, the threat of NHTSA enforcement action, tort liability based on negligent certification, and loss of business due to negative publicity arising from noncompliance with FMVSS provides a substantial incentive to manufacturers to comply with FMVSS requirements.

UMTA also considered the option suggested by several commenters that either UMTA or NHTSA take responsibility for FMVSS certification. UMTA concluded that such a significant change in either agency's mandate or responsibility was not what Congress intended in adopting this requirement. Accordingly, we have decided that, since manufacturer certification of compliance is required by NHTSA under the FMVSS, and since Congress did not appear to intend to significantly change the method of compliance of this requirement, a grantee can satisfy the safety audit requirements of section 319 by certifying that it will require the manufacturer to provide, both at the pre-award and post-delivery stage, self certification information necessary to meet the FMVSS. Essentially, this means that a manufacturer would describe in writing the content of the certification label contained on the vehicle pursuant to 49 CFR part 567. (If a new model vehicle is to be built in response to the specification, in which case no FMVSS certification would be available at the pre-award stage, the manufacturer should so state in its statement to the purchaser.) The manufacturer's responsibilities with respect to NHTSA would remain unchanged. We believe the existing sanctions applicable to manufacturers for false or inaccurate certifications under the FMVSS are sufficiently effective that a separate and independent review by an UMTA recipient would be redundant and costly. Nor do we believe such an independent and costly review was meant to be imposed by Congress.

If a vehicle was not subject to the Federal Motor Vehicle Safety Standards, a recipient would so certify based upon a manufacturer's certification to that effect. Finally, in response to comments, this section would clearly specify that it was not applicable to rolling stock that is not a motor vehicle -- such things as rail cars, ferryboats and the like.

D. Financial Impact

Overview. Thirty-seven commenters contended that the NPRM's provisions would significantly increase rolling stock procurement costs. Eleven provided more detailed estimates in terms of dollars and delays, almost all of which related to the FMVSS or Buy America requirements.

Specific Cost Estimates. Regarding FMVSS costs, one commenter estimated that it would take 2-8 weeks and cost $25,000-$150,000 per vehicle, depending on size and complexity, to certify compliance. According to another commenter, 35 Federal Motor Vehicle Safety Standards apply to buses and the average cost of testing would be $5000 per test. The lowest cost estimate for FMVSS certification was $2,500-$10,000 per procurement.

In regard to Buy America costs, one commenter estimated it would take 5 days to certify vans and 50 days to certify buses. A second stated that bus certification would cost $32,000 and railcars between $110,000 and $225,000.

Estimates of the overall cost impact of the NPRM ranged from $40,000-$60,000 per year for in-house certification to $11,680-$66,000 and $81,800-$151,800 per year for third-party certification.

Effect on Small Transit Agencies. Several commenters were concerned that the NPRM would have a disproportionately severe impact on smaller transit agencies. Small transit agencies were defined generally as agencies serving a population of fewer than 200,000 people or which buy fewer than 10 vehicles per year. Because such recipients would be unable to spread costs over a sufficiently large procurement base, the commenters feared that the increased cost per vehicle would seriously impair their purchasing power, forcing them to cut the number of vehicles purchased even though NPRM-related costs were eligible for UMTA funding.

Other Concerns. Commenters believed NPRM costs were unjustified because Congress had intended the certifications to serve as a secondary means of compliance verification. Second, the commenters contended that, although the NPRM called for the recipients to share information, a mechanism for data sharing did not exist and the NPRM did not provide guidance for developing the infrastructure needed to implement that goal. Third, the commenters criticized the NPRM for promoting the establishment of a new group of consultants to perform the work. Fourth, they pointed out that few transit agencies have in-house experts and that few laboratories or consultants were available, apart from those affiliated with rolling stock manufacturers. The commenters contended that all these factors correlated into high implementation costs, assuming some of the NPRM's provisions were even possible.

Commenter Recommendations. As a result of the drawbacks they saw in the NPRM, commenters made a number of suggestions for alleviating its financial impact, some of which have been addressed in other sections of this preamble. Their suggestions included exempting smaller transit agencies from the NPRM's provisions; having UMTA, NHTSA or an independent consultant perform the FMVSS and Buy America certifications for entire classes of vehicles; permitting manufacturers to include certifications done by independent consultants in their bid documentation packages which would suffice for pre-award certifications while visual inspections of final products served for post-delivery certification; requiring manufacturers to post surety bonds to cover the cost of noncomplying materials and the cost of replacing them; and having UMTA certify pre-existing transit agency procedures which meet the requirements of section 319 of STURAA, rather than requiring those agencies to adopt the NPRM's requirements.

The commenters also asked that the final rule be prospective only, exempting procurements in progress from the provisions, and that testing for FMVSS and Buy America compliance be limited to one vehicle per procurement. Lastly, commenters asked UMTA to specify what documents were necessary for certification and set deadlines for vendors to supply such documents to recipients or their independent auditors.

UMTA Response. Because UMTA has decided to withdraw the NPRM's FMVSS certification requirements, one of the more potentially costly elements of part 663 has been eliminated. By requiring a recipient to perform a Buy America audit and by requiring in-plant inspectors for purposes of the bid specification audit, however, there is no question that increased costs will result. These cost issues are discussed in more detail in the final regulatory evaluation, available for review as part of the rule's docket.

It is important to note, moreover, that UMTA has made efforts to lessen the impacts of these costs. For example, the in-plant inspector requirement for the bid specification audits does not apply to procurement of 10 or fewer vehicles or to procurement of standard vans produced by the major automobile manufacturers that are not modified. These exceptions should significantly lessen the impact of the rule on smaller operators. Regarding the Buy America audits, UMTA encourages its grantees to share costs where possible, thereby lessening the cost impact of the requirement.

E. Definitions

Several commenters requested changes or additions to NPRM definitions in order to clarify the proposed regulations' meaning and scope. A number of their suggestions relating to the NPRM's FMVSS provisions were not adopted because those requirements were withdrawn from the final rule.

Pre-award. One commenter asked that the phrase "after a supplier is selected but" be deleted from the definition of "pre-award," set forth in § 663.5(a). The commenter argued that this change would permit certification activities to begin as early as possible in the procurement process, thereby minimizing delays between vendor selection and contract finalization. The suggested definition would be, " 'Pre-award' means that period in the procurement process before the recipient enters into a formal contract with the supplier."

UMTA Response. After careful consideration of the statutory requirements of section 319, UMTA believes that the proposed change would further Congress' purposes in adopting section 319 and alleviate potential delays encountered as a result of part 663's implementation, and it accordingly is reflected in the final rule.

Revenue service. Several commenters suggested that § 663.5(d) be changed to read " 'Revenue service' means operation of rolling stock for the transportation of fare-paying passengers as anticipated by the recipient." The commenters argued that insertion of the word "fare-paying" before the word "passengers" eliminated any suggestion that part 663 applied to non-revenue rolling stock used to carry non-revenue passengers and brought the definition into alignment with the scope of part 663 set forth in § 663.3.

UMTA Response. UMTA considered the proposed change and agrees that it would eliminate any ambiguity regarding part 663's applicability to revenue rolling stock only. We have therefore adopted this language in the final regulation.

Audit. NPRM § 663.9(b) provided that "an audit conducted under [part 663] is separate from the single annual audit requirement established by Office of Management and Budget Circular A-128, "Audits of State and Local Governments," dated May 16, 1985." The term "audit" was not otherwise specifically defined in part 663. One commenter therefore suggested that this term be defined to mean a report containing the necessary certifications of compliance, and that the definition be included in § 663.5.

UMTA Response. UMTA recognizes that the term "audit" is used somewhat differently in the context of part 663 than in general usage. In order to clarify its use, UMTA has therefore adopted the suggested definition and incorporated it in § 663.5.

Independent and Agent. Several commenters asked for clarification of these terms in reference to the person making the compliance certifications. They asked whether the person performing the certifications was intended to be independent of the manufacturer only, or of both the manufacturer and the recipient.

UMTA Response. First, UMTA notes that the term "independent" only appeared in the NPRM in § 663.25(b), in relation to laboratories issuing certifications of FMVSS compliance. With regard to the term "agent", however, UMTA believes that the NPRM's language clearly indicated that UMTA intended the person performing compliance certifications to be independent of the manufacturer, and that no such intention extended to agents or employees of the recipients. UMTA intended that recipients should have the option of performing certifications in-house, using their own personnel, or of hiring third-party consultants.

Same rolling stock. Commenters asked for a definition of this term in relation to the FMVSS provisions set forth in § 663.25(b).

UMTA Response. Inasmuch as the FMVSS requirements are revised in the final regulation, we do not find it necessary to consider this issue.

Significant changes. Commenters asked UMTA to define what constitutes the "same" vehicle or a "significant change" in order to clarify bid specification and Buy America certifications could be applied to more than one vehicle in a contract order or used by other grant recipients purchasing the same rolling stock.

UMTA Response. UMTA encourages recipients to share bid specification and Buy America audit data where vehicles to be purchased are essentially the same, i.e., where minor deviations would not affect the bid specification or Buy America requirement audits. It is impossible, however, to specifically state when a new audit would not be required, and UMTA will review such requests on a case-by-case basis taking into consideration the nature of the changes in the specification.

F. Effect of Part 663 on Other Federal Regulations

A commenter brought to UMTA's attention an issue we had not addressed in the NPRM, i.e., the effect of part 663 on Office of Management and Budget Circular A-102. That Circular directs the States to use their own procurement practices and procedures when procuring property or services under a Federal grant.

UMTA's Response. UMTA does not view part 663 as having any effect on OMB Circular A-102's directive. Part 663 does impose the additional requirement of providing the pre-award and post-delivery certifications it describes. Otherwise, State and local government agencies will continue to follow their own procurement practices. UMTA anticipates that where State agencies already have procedures in place to provide independent verification of manufacturer compliance with Buy America and purchaser requirements provisions that the certifications they issue pursuant to part 663 will probably be little more than formal confirmations of the findings made in accordance with their own procedures. Where satisfactory procedures are not in place, State and local agencies will have to develop them in conformity with the final rule. Furthermore, the fact that part 663 was promulgated pursuant to a statutory mandate means that, in any case of conflict between part 663 and OMB Circular A-102, part 663's provisions will govern.

VI. Section-by-Section Analysis

This final rule includes three parts: Subpart A covering general matters; subpart B covering pre-award audit requirements; subpart C addressing post-delivery audit requirements; and subpart D addressing compliance with Federal Motor Vehicle Safety requirements.

Subpart A contains general information about audit requirements. Sections 663.1 and 663.3 set out the purpose and scope of the regulation. Section 663.5 defines terms used in the regulation, including "audit," "revenue service," and "rolling stock."

Section 663.7 sets out the pre-award and post-delivery requirements. This general certification is the only certification in the rule that must be made to UMTA. The remaining certifications required under subparts B, C, and D must be kept on file by the recipient. UMTA will review these certifications during the triennial review process or in response to specific complaints.

Section 663.9 reflects the language of section 319 of the Act and lists the three components of the required audits, including the subpart D requirement that a manufacturer provide the recipient with its self certification of compliance with the FMVSS. The remaining audits are intended to verify compliance with applicable Buy America and purchaser requirements provisions, and as such are separate from the single annual audit required by the Office of Management and Budget. UMTA does not intend that the standards used for financial audits be used on audits under this final rule. The term "audit" is used only for purposes of consistency with section 319.

Section 663.11 reflects UMTA's position that the costs of testing and auditing rolling stock purchases are eligible costs of an UMTA grant. Section 663.13 provides that this regulation does not change the compliance or verification of compliance provisions of the Buy America regulation in 49 CFR part 661 but is in addition to them. That is, UMTA's authority under 49 CFR part 661 to investigate a manufacturer's certification is unchanged. Moreover, UMTA in this regulation may now investigate a recipient's certification under this part.

Section 663.15 reflects the compliance requirements applicable to all of UMTA's certification requirements, namely, that failure to certify, or failure to certify correctly, could result in the suspension or withholding of Federal funds until appropriate corrective actions have been taken. Failure to take such corrective action could result in the repayment of Federal funds to UMTA.

Subpart B sets out the specifics of the pre-award audits. Section 663.21 specifies that a pre-award audit must be complete before a recipient enters into a formal contract to purchase the rolling stock.

Section 663.23 explains that a pre-award audit consists of two separate certifications regarding Buy America certification and purchase requirements certification, as required by section 319.

As previously noted, the third required audit, for FMVSS compliance, was withdrawn from the final rule and replaced with the subpart D requirement. UMTA will not undertake this certification process because our sister agency, NHTSA, has authority for promulgating and enforcing Federal Motor Vehicle Safety Standards, and therefore has unique qualifications for requiring FMVSS certifications and waivers. Instead, a manufacturer is required in subpart D to provide its certification of compliance with or inapplicability of the FMVSS, and this then forms the basis for the recipient's certification which it keeps on file.

Section 663.25 describes the pre-award Buy America certification. This section is essentially the same as the NPRM. The pre-award Buy America certification must be made by a person who is not an agent or employee of the manufacturer and it must state that there is a letter from UMTA which determines that the rolling stock to be purchased has received a waiver under the Buy America requirements or that the person making the certification is satisfied that the rolling stock to be purchased meets the Buy America requirements of 49 CFR part 661. Before a person can make this certification, the person must have reviewed documentation provided by the manufacturer as to the cost of the components and subcomponents of the rolling stock, their country of origin and the location of final assembly and the activities that will take place at the location. UMTA anticipates that the review required by this section will be performed by an independent contractor in most instances since the information that must be reviewed is generally considered proprietary. However, a recipient may perform the review required by this section if the manufacturer will provide the recipient with the information necessary.

Section 663.27 describes the pre-award purchaser requirements certification. The pre-award certification must be made by a person who is not an agent or employee of the manufacturer, and must state that the rolling stock being purchased meets the requirements set out in the purchaser's bid specifications, which of course must meet all pertinent Federal requirements, including those under the Americans with Disabilities Act. UMTA recognizes that this certification will probably be based on general design specifications contained in the recipient's bid specifications and the vendor's bid documentation package.

Subpart C sets out the requirements of a post-delivery audit. Section 663.31 specifies the time period for the post-delivery audit.

Section 663.33 provides that the post-delivery audit shall consist of a post-delivery UMTA Buy-America certification and a post-delivery purchase requirements certification. The FMVSS requirement is the same as that for the pre-award stage, discussed above.

Section 663.35 describes the post-delivery Buy-America certification. The post-delivery Buy-America certification must be made by a person who is not an agent or employee of the manufacturer and, like the pre-award Buy-America certification, must state that there is a letter from UMTA which determines that the rolling stock to be purchased has received a waiver under the Buy-America requirements or that the person making the certification is satisfied that the rolling stock to be purchased meets the Buy-America requirements of 49 CFR part 661. Before a person can make this certification, the person must have reviewed documentation provided by the manufacturer as to the cost of the components and subcomponents of the rolling stock, their country of origin and the location of final assembly and the activities that took place at that location.

Section 663.37 describes the post-delivery purchaser's requirements certification. This certification must be made by a person who is not an agent or employee of the manufacturer. It must state, in the case of procurement of ten or fewer buses or procurement of any number of unmodified vans from the major automobile manufacturers, that the rolling stock has been visually inspected and road tested and determined to meet the terms of the contract specification. For all other revenue rolling stock procurements, a recipient must certify that an inspector was at the manufacturing site during construction of the vehicles (or periodically in the case of rail cars) and prepared a report regarding how the construction and operation of the vehicles meets the contract specifications. This report, and a visual inspection and road test by the recipient after delivery, forms the basis of the recipient's certification the vehicles meet specification. The recipient keeps this certification on file.

Section 663.39 has also been revised. Former paragraph (a) was withdrawn from the final rule. Former paragraph (b) has been expanded to give recipients an option to accept rolling stock which cannot be certified to meet purchase specification or Buy-America requirements. The revised provision also permits recipients to seek enforcement of any remedies available at law as well as any legal rights under the contract when rolling stock is noncompliant.

Finally, subpart D addresses the requirements relating to FMVSS compliance. A recipient is required to receive from the manufacturer of the vehicles the manufacturer's FMVSS certification of compliance information or inapplicability of such standards, and this forms the basis of the recipient's certification to UMTA. This section notes that no such certification information is necessary for non-motor vehicle rolling stock, such as rail cars, ferryboats and the like.

VII. Availability of Final Rule

Any person may obtain a copy of this final rule by submitting a request to the Urban Mass Transportation Administration, Office of Public Affairs, 400 Seventh Street SW., Washington, DC 20590 or by calling (202) 366-4043.

VIII. Regulatory Impacts

A. Executive Order 12291

This action has been reviewed under Executive Order 12291, and UMTA has determined that it is not a major rule. This rule will not result in an annual effect on the economy of $100 million or more.

B. Regulatory Evaluation

This regulation is not significant under the Department's Regulatory Policies and Procedures. UMTA has prepared a final regulatory evaluation in support of this rulemaking. This final regulatory evaluation is on file as part of the docket to this rulemaking.

C. Regulatory Flexibility Act

In accordance with 5 U.S.C. 605(b), as amended by the Regulatory Flexibility Act, Public Law 96-354, UMTA certifies that this rule will not have a significant economic impact on a substantial number of small entities within the meaning of the Act.

The wide range of agency sizes, modes of operation, and geographical locations makes it difficult to determine the actual economic impact of this rulemaking. However, UMTA has decided to withdraw the FMVSS certification requirement in the NPRM. Moreover, the bid specification in-plant inspection requirement in the final rule does not apply to procurements of 10 or fewer vehicles, or to procurement of standard vehicles -- such as vans -- manufactured by the major automobile companies. Thus, this requirement should not have a significant impact on small entities, which typically do not purchase large quantities of vehicles. These decisions eliminate many of the major areas of concern regarding economic impact raised in the comments.

D. Paperwork Reduction Act

The collection of information requirements of this rule are subject to the Paperwork Reduction Act, Public Law 96-511, 44 U.S.C. chapter 35. Section 319 of the Surface Transportation and Uniform Relocation Assistance Act specifically requires a grantee to perform pre-award and post-delivery audits. The required audits are reflected in this rule which has been submitted to the Office of Management and Budget for review. Information will not be collected under this rule until OMB clearance is received and the OMB clearance number is published in the Federal Register.

E. Executive Order 12612

UMTA has reviewed this final rule in light of the Federalism considerations set forth in Executive Order 12612. Although this rule would have definite Federalism implications because it would impose additional requirements on States, local governments and public transit operators receiving Federal financial assistance from UMTA, this rulemaking is required by statute. UMTA considered the Federalism implications of this rulemaking when it formulated the NPRM. UMTA therefore designed the NPRM to provide recipients with as much flexibility as possible under the law. It has done the same thing in adopting this final rule. UMTA does not expect that this final rule will have a substantial direct effect on the relationship between the Federal Government and the States or the distribution of power and responsibilities among the various levels of government. In addition, UMTA has considered the Federalism implications of this rulemaking on public transit operators which are quasi-governmental or instrumentalities of States and local governments, and UMTA does not expect that this final rule will have a substantial direct effect on the relationship between those public operators and the governmental entities with which they are associated. Accordingly, UMTA has determined that the preparation of a Federalism Assessment under Executive Order 12612 is not warranted.

List of Subjects in 49 CFR Part 663

Government contracts, Grant programs -- transportation, mass transportation.

VI. New 49 CFR Part 663

Accordingly, for the reasons described in the preamble, 49 CFR chapter VI is amended by adding new part 663 to read as follows:

PART 663 -- PRE-AWARD AND POST-DELIVERY AUDITS OF ROLLING STOCK PURCHASES

Subpart A -- General

Sec.
663.1 Purpose.
663.3 Scope.
663.5 Definitions.
663.7 Certification of Compliance to UMTA.
663.9 Audit limitations.
663.11 Audit financing.
663.13 Buy America Requirements.
663.15 Compliance.

Subpart B -- Pre-Award Audits
663.21 Pre-Award Audit Requirement.
663.23 Description of Pre-Award Audit.
663.25 Pre-Award Buy America Certification.
663.27 Pre-Award Purchaser's Requirements Certification.

Subpart C -- Post-Delivery Audits
663.31 Post-Delivery Audit Requirement.
663.33 Description of Post-Delivery Audit.
663.35 Post-Delivery Buy America Certification.
663.37 Post-Delivery Purchaser's Requirements Certification.
663.39 Post-Delivery Audit Review.

Subpart D -- Certification of Compliance with or Inapplicability of Federal Motor Vehicle Safety Standards
663.41 Certification of Compliance with Federal Motor Vehicle Standards.
663.43 Certification that Federal Motor Vehicle Standards do not apply.

Authority: 49 U.S.C. 1608(j); 23 U.S.C. 103(e)(4); Pub. L. 96-184, 93 Stat. 1320; Pub. L. 101-551, 104 Stat. 2733; 49 CFR 1.51.

Subpart A -- General

§ 663.1 Purpose.

This part implements section 12(j) of the Urban Mass Transportation Act of 1964, as amended, which was added by section 319 of the 1987 Surface Transportation and Uniform Relocation Assistance Act (Pub. L. 100-17). Section 12(j) requires the Urban Mass Transportation Administration, by delegation from the Secretary of Transportation, to issue regulations requiring pre-award and post-delivery audits when a recipient of Federal financial assistance purchases rolling stock with funds made available under the Urban Mass Transportation Act, as amended.

§ 663.3 Scope.

This part applies to a recipient purchasing rolling stock to carry passengers in revenue service with funds made available under sections 3, 9, 18, and 16(b)(2) of the Urban Mass Transportation Act, as amended; 23 U.S.C. 103(e)(4); and section 14 of the National Capital Transportation Act of 1969, as amended.

§ 663. 5 Definitions.

As used in this part --

(a) Pre-award means that period in the procurement process before the recipient enters into a formal contract with the supplier.

(b) Post-delivery means the time period in the procurement process from when the rolling stock is delivered to the recipient until title to the rolling stock is transferred to the recipient or the rolling stock is put into revenue service, whichever is first.

(c) Recipient means a recipient of Federal financial assistance from UMTA.

(d) Revenue service means operation of rolling stock for transportation of fare-paying passengers as anticipated by the recipient.

(e) Rolling stock means buses, vans, cars, railcars, locomotives, trolley cars and buses, ferry boats, and vehicles used for guideways and incline planes.

(f) Audit means a review resulting in a report containing the necessary certifications of compliance with Buy America standards, purchaser's requirements specifications, and, where appropriate, a manufacturer's certification of compliance with or inapplicability of the Federal Motor Vehicle Safety Standards, required by section 319 of STURAA and this part.

(g) UMTA means the Urban Mass Transportation Administration.

§ 663.7 Certification of compliance to UMTA.

A recipient purchasing revenue service rolling stock with funds obligated by UMTA on or after October 24, 1991, must certify to UMTA that it will conduct or cause to be conducted pre-award and post-delivery audits as prescribed in this part. In addition, such a recipient must maintain on file the certifications required under subparts B, C, and D of this part.

§ 663.9 Audit limitations.

(a) An audit under this part is limited to verifying compliance with

(1) Applicable Buy America requirements [section 165 of the Surface Transportation Assistance Act of 1982, as amended,]; and

(2) Solicitation specification requirements of the recipient.

(b) An audit under this part includes, where appropriate, a copy of a manufacturer's self certification information that the vehicle complies with Federal Motor Vehicle Safety Standards or a certification that such standards are inapplicable.

(c) An audit conducted under this part is separate from the single annual audit requirement established by Office of Management and Budget Circular A-128, "Audits of State and Local Governments," dated May 16, 1985.

§ 663.11 Audit financing.

A recipient purchasing revenue rolling stock with UMTA funds may charge the cost of activities required by this part to the grant which UMTA made for such purchase.

§ 663.13 Buy America requirements.

A Buy America certification under this part shall be issued in addition to any certification which may be required by part 661 of this title. Nothing in this part precludes UMTA from conducting a Buy America investigation under part 661 of this title.

§ 663.15 Compliance.

A recipient subject to this part shall comply with all applicable requirements of this part. Such compliance is a condition of receiving Federal financial assistance from UMTA. A recipient determined not to be in compliance with this part will be subject to the immediate suspension, withholding, or repayment of Federal financial assistance from UMTA or other appropriate actions unless and until it comes into compliance with this part.

Subpart B -- Pre-Award Audits.

§ 663.21 Pre-award audit requirements.

A recipient purchasing revenue service rolling stock with UMTA funds must ensure that a pre-award audit under this part is complete before the recipient enters into a formal contract for the purchase of such rolling stock.

§ 663.23 Description of pre-award audit.

A pre-award audit under this part includes --

(a) A Buy America certification as described in § 663.25 of this part;

(b) A purchaser's requirements certification as described in § 663.27 of this part; and

(c) where appropriate, a manufacturer's Federal Motor Vehicle Safety certification information as described in § 663.41 or § 663.43 of this part.

§ 663.25 Pre-award Buy America certification.

For purposes of this part, a pre-award Buy America certification is a certification that the recipient keeps on file that --

(a) There is a letter from UMTA which grants a waiver to the rolling stock to be purchased from the Buy America requirements under section 165(b)(1), (b)(2), or (b)(4) of the Surface Transportation Assistance Act of 1982, as amended; or

(b) The recipient is satisfied that the rolling stock to be purchased meets the requirements of section 165(a) or (b)(3) of the Surface Transportation Assistance Act of 1982, as amended, after having reviewed itself or through an audit prepared by someone other than the manufacturer or its agent documentation provided by the manufacturer which lists --

(1) Component and subcomponent parts of the rolling stock to be purchased identified by manufacturer of the parts, their country of origin and costs; and

(2) The location of the final assembly point for the rolling stock, including a description of the activities that will take place at the final assembly point and the cost of final assembly.

§ 663.27 Pre-award purchaser's requirements certification.

For purposes of this part, a pre-award purchaser's requirements certification is a certification a recipient keeps on file that --

(a) The rolling stock the recipient is contracting for is the same product described in the purchaser's solicitation specification; and

(b) The proposed manufacturer is a responsible manufacturer with the capability to produce a vehicle that meets the recipient's specification set forth in the recipient's solicitation.

Subpart C -- Post-Delivery Audits

§ 663.31 Post-delivery audit requirements.

A recipient purchasing revenue service rolling stock with UMTA funds must ensure that a post-delivery audit under this part is complete before title to the rolling stock is transferred to the recipient.

§ 663.33 Description of post-delivery audit.

A post-delivery audit under this part includes --

(a) A post-delivery Buy America certification as described in § 663.35 of this part;

(b) A post-delivery purchaser's requirements certification as described in § 663.37 of this part; and

(c) When appropriate, a manufacturer's Federal Motor Vehicle Safety Standard self-certification information as described in § 663.41 or § 663.43 of this part.

§ 663.35 Post-delivery Buy America certification.

For purposes of this part, a post-delivery Buy America certification is a certification that the recipient keeps on file that --

(a) There is a letter from UMTA which grants a waiver to the rolling stock received from the Buy America requirements under sections 165 (b)(1), or (b)(4) of the Surface Transportation Assistance Act of 1982, as amended; or

(b) The recipient is satisfied that the rolling stock received meets the requirements of section 165 (a) or (b)(3) of the Surface Transportation Assistance Act of 1982, as amended, after having reviewed itself or by means of an audit prepared by someone other than the manufacturer or its agent documentation provided by the manufacturer which lists --

(1) Components and subcomponent parts of the rolling stock identified by manufacturer of the parts, their country of origin and costs; and

(2) The actual location of the final assembly point for the rolling stock including a description of the activities which took place at the final assembly point and the cost of the final assembly.

§ 663.37 Post-delivery purchaser's requirements certification.

For purposes of this part, a post-delivery purchaser's requirements certification is a certification that the recipient keeps on file that --

(a) except for procurements covered under paragraph (c) in this section, a resident inspector (other than an agent or employee of the manufacturer) was at the manufacturing site throughout the period of manufacture of the rolling stock to be purchased and monitored and completed a report on the manufacture of such rolling stock. Such a report, at a minimum, shall --

(1) Provide accurate records of all vehicle construction activities; and

(2) Address how the construction and operation of the vehicles fulfills the contract specifications.

(b) After reviewing the report required under paragraph (a) of this section, and visually inspecting and road testing the delivered vehicles, the vehicles meet the contract specifications.

(c) for procurements of ten or fewer buses, or any number of primary manufacturer standard production and unmodified vans, after visually inspecting and road testing the vehicles, the vehicles meet the contract specifications.

§ 663.39 Post-delivery audit review.

(a) If a recipient cannot complete a post-delivery audit because the recipient or its agent cannot certify Buy America compliance or that the rolling stock meets the purchaser's requirements specified in the contract, the rolling stock may be rejected and final acceptance by the recipient will not be required. The recipient may exercise any legal rights it has under the contract or at law.

(b) This provision does not preclude the recipient and manufacturer from agreeing to a conditional acceptance of rolling stock pending manufacturer's correction of deviations within a reasonable period of time.

Subpart D -- Certification of Compliance With or Inapplicability of Federal Motor Vehicle Safety Standards

§ 663.41 Certification of compliance with Federal motor vehicle safety standards.

If a vehicle purchased under this part is subject to the Federal Motor Vehicle Safety Standards issued by the National Highway Traffic Safety Administration in part 571 of this title, a recipient shall keep on file its certification that it received, both at the pre-award and post-delivery stage, a copy of the manufacturer's self-certification information that the vehicle complies with relevant Federal Motor Vehicle Safety Standards.

§ 663.43. Certification that Federal motor vehicle standards do not apply.

(a) Except for rolling stock subject to paragraph (b) of this section, if a vehicle purchased under this part is not subject to the Federal Motor Vehicle Safety Standards issued by the National Highway Traffic Safety Administration in part 571 of this title, the recipient shall keep on file its certification that it received a statement to that effect from the manufacturer.

(b) This subpart shall not apply to rolling stock that is not a motor vehicle.

Issued on: September 17, 1991.

Brian W. Clymer,

Administrator.

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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.