The Post-Delivery Buy America Certification Requirement
This subsection discusses procedures that recipients may follow to demonstrate compliance with the post-delivery Buy America certification requirement.
The process for complying with the post-delivery Buy America certification requirement is similar to the pre-award requirement, except that the recipient is now certifying the actual rail vehicles rather than the proposed rail vehicles. As with the pre-award review, the rail vehicles received must fall into one of two categories under this requirement: (1) vehicles meeting the Buy America domestic content and assembly requirements and (2) vehicles for which a Buy America waiver is available. The procedures for each category are described below.
If the Buy America information has not changed since the pre-award review and the recipient is satisfied that this is the case, the recipient may use the pre-award review documentation for the post-delivery review. However, if there is some doubt, another review should be conducted.
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 comply with the requirements. Before certifying that the purchased vehicles meet the Buy America requirements, the recipient or a duly designated analyst must||
|review the Buy America information, which must be provided by the manufacturer. This information must include:|
• A listing of vehicle components and subcomponents used to calculate the percent domestic content (see Appendix B for a listing of typical rail vehicle components)
• The actual final assembly location
• The activities that took place during final assembly
• The actual total cost of final assembly.
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:
• For subcomponents, the cost identified would be the purchase price paid by the component manufacturer.
• For components, depending on the percent domestic content of the component, the cost identified would be either:
- The purchase price paid by the vehicle manufacturer,
- The total domestic subcomponent material cost, plus the cost of manufacturing the component.
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,
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
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:
Total Material Cost
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,
Since PDC is equal to or greater than 0.60, the vehicle manufacturer may use the full $22,000, or 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
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
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
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 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 cost to be used in the domestic content calculations of the vehicles.
To be assured that the rail vehicles are in compliance with the requirements, the analyst must verify that the rail vehicles contain a minimum of 60 percent domestic products, by cost. Therefore, the analyst must:
• Review the component and subcomponent listings to verify 60 percent domestic product content
• Review the total final assembly cost.
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 was within the United States, the analyst must:
• Check that the manufacturer’s final assembly location is located within the United States
• Review the list of final assembly activities, which should include activities such as welding, subassembly activities, component installation, and painting, to ensure that the activities at the final assembly location qualify as final assembly.
After the analyst has completed the steps described above, the recipient must:
• Complete a post-delivery Buy America compliance certification (see sample in Appendix A, Exhibit A-4)
• Keep the Buy America certification on file for future FTA reviews.
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 the vehicles are exempt, the recipient must:
• Obtain a Buy America waiver letter from the FTA for the vehicles
• Complete a post-delivery Buy America exemption certification (see sample in Appendix A, Exhibit A-5)
• Keep the Buy America certification on file for future FTA reviews.
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 Post-Delivery Purchaser's Requirements Certification Requirement
This subsection discusses procedures that recipients may follow to demonstrate compliance with the post-delivery purchaser’s requirements certification requirement.
The purchaser’s requirements certification is meant to help safeguard the recipient by ensuring that the rail vehicles are built to contract specifications. To comply with the certification requirements, the recipient, or its duly appointed analyst, must:
• Send a resident inspector to the manufacturer’s final assembly facility
• Visually inspect and performance test the vehicles.
The resident inspector must complete a manufacturing report, which should include any information that supports or refutes claims made by the manufacturer concerning its capabilities or the vehicle specifications. This information will help support the recipient in any disputes that might arise with the manufacturer.
The resident inspector’s report must include, at a minimum:
• Accurate records of all vehicle construction activities (such as component manufacturing processes, final assembly activities, and quality control data collected)
• A description of how the construction and operation of the vehicles fulfills the contract specifications (the report should reference the above cited manufacturing processes, final assembly activities, and quality control data).
After the resident inspector has completed the report, the recipient, or its analyst, must review the report and conduct the visual inspections and performance tests. To assist the recipient and analyst, sample visual inspection and performance test sheets are presented in Appendix D.
Once the steps described above have been completed, the recipient must:
• Complete a post-delivery purchaser’s requirements certification (see sample in Appendix A, Exhibit A-6)
• File the purchaser’s requirements certification for future FTA reviews.
The resident inspector’s report, visual inspection sheets, and performance test sheets should be included in the file with the purchaser’s requirements certification.
1 Section 663.35(b), "Pre-Award and Post-Delivery Audits of Rolling Stock Purchases," 49 CFR, Part 663.
2 Section 663.35(a), "Pre-Award and Post-Delivery Audits of Rolling Stock Purchases," 49 CFR, Part 663.
3 Section 663.37(a)&(b), "Pre-Award and Post-Delivery Audits of Rolling Stock Purchases," 49 CFR, Part 663.