Dear Mr. Meissner:
This letter responds to your November 22, 2000, petition requesting that the Federal Transit Administration (FTA) investigate a Sacramento Regional Transit District (SRT) rail car procurement. For the reasons detailed below, I will not be initiating an investigation.
Section 5323(j)(2)(C) of the Federal transit laws (49 U.S.C. 5301, et seq.) sets forth the general requirements for the procurement of rolling stock. This section provides that when rolling stock is procured with FTA funds, the cost of the components and subcomponents produced in the United States must be at least 60 percent of the cost of the components of the rolling stock and the vehicle must undergo final assembly in the U.S. The implementing regulations for rolling stock can be found at 49 C.F.R. 661.11 and the investigative procedures are located at 49 C.F.R. 661.15. In short, there is a presumption that a bidder who has submitted a Buy America certificate is in compliance with that regulation. The regulations allow a third party to protest a bidder’s certification, but require that the protest include both a statement of the grounds on which it rests and any supporting documentation. FTA will then determine if the presumption noted above has been overcome and if so, an investigation will be initiated. A third party has no other rights under the Buy America provision. 49 C.F.R. 661.20.
After reviewing the information presented here, which includes a formal response to the allegations from the manufacturer and from SRT, I have concluded that the presumption of section 661.15(a) has not been overcome; accordingly, FTA will not initiate an investigation. At all times during this process, SRT and Construcciones Y Auxiliar de Ferrocarriles, S.A. (CAF), the parties to this contract, have verified that they are compliant with the domestic content requirements of Buy America. The issues you raised are addressed individually below.
Allegation: The domestic content of the vehicles is below the required 60 percent.
Reply: The pre-award audit and the interim audit and other spot reviews show that the CAF vehicles have a domestic content of more than 60 percent1. Further, CAF has illustrated that the component calculations are in line with the Dear Colleague letter sent out by FTA on March 30, 2001, requiring that all items specifically listed in the appendix to the rolling stock section be categorized as components, not subcomponents. SRT has done a price analysis and audit of certain components and concurred with the accounting principles of CAF. SRT continues to provide assurance to FTA that they will continue to monitor CAF’s activities and compliance to Buy America.
Allegation: Certain items were not included when calculating the cost of components.
Reply: The labor for the carshell and truck was not originally included in calculating the cost of those components; this error has been corrected by CAF. However, despite this error and its correction, the cost of components was and remains above 60 percent domestic content. The updated calculations include the cost of labor and overhead for both of these components. Additionally, contrary to the allegations in the petition, the regulations do not require that either transportation costs or duty costs be included in this case2.
Allegation: Since award, CAF has changed the source of many components from domestic to foreign.
Reply: This is true, but the domestic content at the pre-award audit found CAF to be over 60 percent. Due to concerns raised by this petition, SRT performed an "Interim Buy America Audit" on September 12-15, 2000, and the results were forwarded to FTA. That audit again indicates a U.S. content of over 60 percent. While CAF may have changed suppliers for some components from domestic to foreign, it has also changed some from foreign to domestic. Further, there is no requirement that holds a vehicle manufacturer to the original component or subcomponent sources. There are a number of reasons why a manufacturer would change suppliers, e.g., engineering, availability, or design changes. For this reason, the post-delivery audit is designed to review the percentage of U.S. content of the railcar since the components may change from the "as proposed" to the "as built."
Thank you for your interest in Buy America. If you need further assistance, please contact Meghan Ludtke at (202) 366-4011.
1 The original, preliminary, pre-audited report from CAF included a long list of components, but at the request of the auditor, that list was reduced and certain items were clustered together. That format may have misled the petitioner.
2 The language quoted in the petition concerning both duty and transportation costs references an old version of the regulation. The applicable section is now found at 49 C.F.R. 661.11(m). That section specifically requires that transportation costs be included when calculating component costs in 661.11(m)(1), but in 661.11(m)(2), the section dealing with components manufactured by the vehicle manufacturer, transportation costs are not included. Additionally, while the regulation used to require that duty costs be included, as of 1996, it is no longer a required cost. See also, 61 Fed. Reg. 6300 (1996).
Very truly yours,
Gregory B. McBride
Acting Chief Counsel
cc: Leslie T. Rogers, Region 9 Administrator
Joesba Ormazabal, CAF
Pilka Robinson, General Manager, Sacramento Regional Transit District