The Pre-Award Review Requirements

This section explains procedures that will help the recipient conduct the pre-award review in accordance with the Pre-Award and Post-Delivery Rule. It cites relevant portions of the Rule and describes the review process. Sample certifications that the recipient may use as models to demonstrate that the review has been conducted as required by the Rule are presented in Appendix A.

The Pre-Award Buy America
Certification Requirement

This subsection discusses procedures that recipients may follow to demonstrate compliance with the pre-award Buy America certification requirement.

Rail vehicles to be purchased by a recipient must fall into one of two categories under this requirement: (1) vehicles that meet the Buy America domestic content and assembly requirement and (2) vehicles for which a Buy America waiver is available. The procedures for each category are described below.

Buy America-Compliant Rail Vehicles

Most rail vehicles must meet the 60 percent minimum domestic content and U.S. final assembly requirements set forth in the Buy America Rule. Therefore, the recipient must be satisfied that the rail vehicles will meet the requirements. In other words, the recipient must be satisfied that the manufacturer who is proposing to sell the vehicles can and will comply with the content and assembly requirements.

"The recipient is satisfied that the [vehicles meet] … the requirements … after having reviewed … documentation … [listing c]omponent and subcomponent parts; … location, … activities, … [and] cost of final assembly." [1]

Most rail vehicles must meet the 60 percent minimum domestic content and U.S. final assembly requirements set forth in the Buy America Rule. Therefore, the recipient must be satisfied that the rail vehicles will meet the requirements. In other words, the recipient must be satisfied that the manufacturer who is proposing to sell the vehicles can and will comply with the content and assembly requirements.

As a first step in the pre-award review process, the recipient, or a duly appointed analyst, must review the Buy America information that the proposed manufacturer must provide for the review.

The manufacturer’s information must include:

For each component and subcomponent listed, the manufacturer, country of origin, and cost must be identified. The cost may be presented as either a dollar or percentage figure. If a percentage is used, then the percentage is the cost for the component or subcomponent divided by the total material cost for the item to which it belongs.

The cost for parts manufactured in the United States is determined as follows:

To calculate the percent domestic content of an item, sum the total material cost of all parts (domestic and foreign) for the item. Then sum the material cost of all domestic parts for the item only. Next, divide the domestic cost by the total cost to obtain the percent domestic content. In mathematical terms,

Equation: Total domestic material cost divided by total material cost equals percent of domestic content

If the PDC is equal to, or greater than, 0.60, then the entire cost of the item, or purchase price paid, would be used in the listing. Otherwise, the cost used in the list would be TDMC plus the cost of manufacturing the item, since the item was manufactured in the United States.

For example, assume that a vehicle manufacturer pays $22,000 to purchase a component from a supplier who manufactures components in the United States. If the mark-up (MU), for profit, is 10 percent (0.10), then the component supplier’s actual cost for that component is $20,000, or

Equation: Purchase price divided by one plus mark-up equals $22,000 divided by 1.1 equals $20,000 equals actual cost.

Now assume that the component supplier’s cost of manufacturing is $5,000. Therefore, the total cost of materials for the component supplier is $15,000, or $20,000 - $5,000. This is referred to as the total material cost.

Based on the above, we have the following information:

Purchase Price

Profit Margin

Actual Cost

Manufacturing Cost

Total Material Cost

$22,000

10%

$20,000

$5,000

$15,000

Next, let’s assume that the total material cost for all domestic subcomponents is $9,000, this is referred to as total domestic material cost (TDMC). We know from the previous information that the total material cost (TMC) for the component is $15,000. So, if we use our earlier equation and substitute the appropriate numbers,

Equation: Total domestic material cost divided by total material cost equals $9,000 divided by $15,000 equals 0.06 equals percent domestic content.

Since PDC is equal to or greater than 0.60, the vehicle manufacturer may use the full $22,000 (its purchase price), in the Buy America content calculation. If the total material cost for the complete vehicle is $1,000,000, then this single component contributes 2.2 percent toward the domestic content of the vehicle, or

Equation: $22,000 divided by $1,000,000 equals 2.2 percent.

Suppose that the total cost of all domestic subcomponents had been $8,000 (TDMC). If that had been true, then PDC would be 0.53, or 53.3 percent. Since the minimum 60 percent domestic content is not achieved, then the vehicle manufacturer may use only $13,000, or TDMC plus the manufacturing cost ($5,000), in the Buy America content calculation. The component now contributes only 1.3 percent toward the domestic content of the vehicle, or

Equation: $8000 plus $5000 divided by $1,000,000 equals $13,000 divided by $1,000,000 equals 1.3 percent.

The cost for foreign manufactured items with domestic parts is the total material cost for domestic parts only. The component manufacturing cost is not allowed because manufacturing did not take place in the United States.

Thus, in the two examples above, the manufacturer would use the $9,000 or $8,000 figures in the Buy America content calculation. The component would therefore contribute only 0.9 or 0.8 percent toward the domestic content of the vehicle, or

Equation

It should now be evident why vehicle manufacturers would want to use Buy America compliant components in their vehicles.

The manufacturer’s list must identify the domestic subcomponents for components used in the content calculation.

Section Four, "Examples of Complying With the Pre-Award and Post-Delivery Review Requirements," presents samples of domestic content calculations. Section Five, "Frequently Asked Questions About the Pre-Award and Post-Delivery Review," answers questions concerning the domestic content of components and subcomponents and the allowable cost used in the percent domestic content calculations of the vehicle.

To be assured that the manufacturer can comply with the requirements, the analyst must verify that the rail vehicles will contain a minimum of 60 percent domestic products, by cost. Therefore, the analyst must:

To verify domestic content, the analyst needs to subtract the final assembly cost from the actual cost of the vehicle. As mentioned earlier, the vehicle will have some mark-up for profit, or possibly mark-down to stimulate sales. The purchase price needs to be adjusted by this mark-up/mark-down to obtain the actual cost to the manufacturer for producing the vehicle. This may need to be estimated as manufacturer’s may be reluctant to provide detailed information. Once the actual cost is approximated, subtract the final assembly cost. The result will be the approximate cost for all materials, recall TMC from the earlier discussion. Now the analyst can review the listing to check that the 60 percent domestic content was presented properly and realistically.

As an example, assume the manufacturer’s listing indicated that the cost of a component contributed 30 percent to the domestic content of the vehicle. Since the analyst has approximated the TMC, the approximate cost for the component in question can be estimated from the percentage provided on the listing. If this cost seems unrealistic, the analyst would want to further investigate the issue. If all component costs seem unrealistic, then the analyst may need to adjust the mark-up/mark-down assumptions or check that the final assembly cost is accurate, as provided by the manufacturer.

To verify that the final assembly location will be within the United States, the analyst must:

After the analyst has completed the steps described above, the recipient must:

If the manufacturer agrees, the recipient should, but is not required to, keep a copy of the manufacturer’s Buy America information with the Buy America certification in the file.

Buy America-Exempt Rail Vehicles

Although few rail vehicles are exempt from the Buy America domestic content and final assembly requirements, some manufacturers’ vehicles may be eligible for an FTA waiver exempting the vehicles from the requirements. If a waiver does exist for the vehicles the recipient must:

"There is a letter from [FTA], which grants a waiver to the [vehicles] to be purchased …" [2]

The recipient should keep a copy of the FTA waiver letter with the Buy America certification in the files. Appendix C summarizes details of current Buy America waivers.

The Pre-Award Purchaser's Requirements
Certification Requirement

This subsection discusses procedures that recipients may follow to demonstrate compliance with the pre-award purchaser’s requirements certification requirement.

This requirement is intended to eliminate those manufacturers that appear irresponsible and/or incapable of complying with the recipients’ solicitation specifications.

"The [vehicles are] … the same … [as] described in the … specification … and the proposed manufacturer is … responsible … [and has] the capability …" [3]

To comply with the purchaser’s requirements certification, the recipient, or a designated analyst, must check:

To ensure compliance, the analyst should review:

After the review has been completed, the recipient must:

The recipient should keep copies of their solicitation specification, the manufacturer’s bid specification, approvals of any approved equals, and manufacturer qualifications with the purchaser’s requirements certification in the file.


[1] Section 663.25(b), "Pre-Award and Post-Delivery Audits of Rolling Stock Purchases," 49 CFR, Part 663.

[2] Section 663.25(a), "Pre-Award and Post-Delivery Audits of Rolling Stock Purchases," 49 CFR, Part 663.

[3] Section 663.27(a) & (b), "Pre-Award and Post-Delivery Audits of Rolling Stock Purchases," 49 CFR, Part 663.