Small Purchase Exception to Resident Inspector Requirement Under Pre-Award and Post-Delivery Audits of Rolling Stock Purchases

Printer Friendly Number 59 FR 43778

VOL. 59, No. 164
Rules and Regulations
Federal Transit Administration
49 CFR Part 663

Small Purchase Exception to Resident Inspector Requirement Under Pre-Award and Post-Delivery Audits of Rolling Stock Purchases
59 FR 43778
DATE: Thursday, August 25, 1994
ACTION: Regulatory guidance.


SUMMARY: This document provides guidance on the Federal Transit Administration's (FTA) regulation requiring audits of rolling stock purchased with FTA funds to assure compliance with the bid specification requirements. For procurements of 11 or more vehicles, the regulation requires that an inspector be present during construction of the vehicles at the manufacturing site to assure compliance with the bid specifications; an exception is thus provided for purchases of ten or fewer vehicles. FTA explains in this document that the exception also applies to the purchase of ten or fewer vehicles by a subrecipient under the umbrella of a Statewide procurement.

EFFECTIVE DATE: August 25, 1994.

FOR FURTHER INFORMATION CONTACT: George Izumi, Office of Grants Management, Federal Transit Administration, (202) 366-6475; or Daniel Duff, Office of Chief Counsel, Federal Transit Administration, (202) 366-4011.



In accordance with section 12(j) of the Federal Transit Act, as amended, FTA issued a regulation requiring a pre-award and post-delivery audit for an FTA grant involving the purchase of buses and other rolling stock. Under the regulation, a recipient of Federal financial assistance under sections 3, 9, 16, or 18 of the Act must certify that its rolling stock procurements comply with the bid specifications.

Section 12(j) provides that "manufacturer certification shall not be sufficient, and independent inspections and auditing shall be required." Accordingly, as part of the post-delivery certification process, 49 CFR 663.37(a) requires the recipient to have a "resident inspector" at the manufacturing site during the period of manufacture to assure such compliance, and provides that the inspector cannot be an agent or employee of the manufacturer.

Section 663.37(c) provides, however, that the "resident inspector" requirement under the regulation does not apply to the purchase of ten or fewer vehicles, in which case the recipient [*43779] itself must assure compliance with the specifications.


FTA's section 18 (nonurbanized area formula) and section 16 (elderly and persons with disabilities formula) programs are administered by the States. States also may receive funds under the section 3 (capital) program. The States receive grant funds from FTA, and in turn make the funds available to subrecipients that provide transportation services at the local level.

Some States make arrangements with vehicle manufacturers on behalf of a number of local subrecipients. These smaller operators prefer the efficiency and convenience of this process, through which they can purchase vehicles in a more timely manner and at a more reasonable cost than if each acted independently. However, the question has arisen whether, when a subrecipient purchases 10 or fewer vehicles under such a Statewide procurement, it must employ a resident inspector at the manufacturing site. Affected States and subrecipients have expressed concern that the application of the resident inspector requirement in this situation would impose a considerable cost burden on them. They contend that the exception in section 663.37(c) covers such small purchases under a Statewide procurement.


As the preamble to the final rule (56 FR 48384, September 24, 1991) indicates, the purpose of the exception at 49 CFR 663.37(c) is to provide a recipient of FTA funds procuring a small number of vehicles relief from the cost burden associated with the requirement that an inspector be present at the manufacturing site; indeed, a section of the preamble addresses the rule's economic impact on small entities, and concludes that it will not have a significant impact on a substantial number of such entities because of policies adopted in the final rule, including the exception to the in-plant inspection requirement provided for small purchases. This rationale applies equally to a purchase of ten or fewer vehicles by a subrecipient of a State, even where the purchase or purchase order is made under the umbrella of a Statewide procurement. Moreover, the unique role of the States in administering the FTA's nonurbanized and elderly and persons with disabilities programs should not prevent a subrecipient under those programs from being afforded the same relief from a regulatory cost burden currently available to larger recipients under the formula and capital programs. Accordingly, we intend this guidance to make clear that the existing exception from the resident inspector requirement for purchases of ten or fewer vehicles at 49 CFR 663.37(c) applies to separate purchases of ten or fewer vehicles by a subrecipient under a Statewide procurement using section 3,16, or 18 funds.

We emphasize that the exception does not relieve grantees from the audit requirement altogether. Instead, recipients or subrecipients must verify, independent of the manufacturer, that the vehicles meet the bid specification requirements by road testing and visually inspecting the vehicles to make certain that they comply with the bid specifications.

Issued on: August 22, 1994.

Gordon J. Linton,



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