Re: Buy America Compliance
Dear Mr. Perkins:
Thank you for your April 21, 2000, request for reconsideration of the Federal Transit Administration’s (FTA) February 10, 2000, response to your inquiry regarding Buy America compliance of lift equipment to be installed in the Bay Area Rapid Transit (BART) Concord Shop Expansion Project. That response accurately reflected FTA’s position on this question since promulgation of its Buy America regulation in 1978.
The Buy America regulations require that all manufactured products used in FTA-funded projects be produced in the U.S. A manufactured product is considered domestic if all of the manufacturing processes for the product take place in the U.S. and all of the components of the product are of U.S. origin. 49 C.F.R. 661.5(d)(1). A component of a manufactured product "is considered of U.S. origin if it is manufactured in the United States, regardless of the origin of its subcomponents." 49 C.F.R. 661.5(d)(2).
Under this regulatory scheme, the first issue is identification of the "product" subject to the manufacturing process requirement. Depending on the particular procurement at issue, literally thousands of individual manufactured items, themselves made up of many thousand more manufactured sub-items, may go into the ultimate product being procured by an FTA grant recipient. Indeed, the question is one of perspective: any given item, from a screw to a maintenance garage, may be viewed as an end product, a component, a subcomponent, or less. Accordingly, FTA’s rule looks at the end product being acquired in a given case. Here, the procurement contract was for the garage; accordingly, the vehicle lift to be installed in the garage was a component. Further, the end product must be the result of a manufacturing process. In this case, the hoist will ultimately be a fixture of the garage, and installation of the hoist is part of the manufacturing process. The construction of the garage as a whole, is the subject of the procurement and the end product.
As noted, this was not a novel interpretation. On December 6, 1978, FTA defined "end product" as "an article, material or supply, whether manufactured or unmanufactured, that is to be acquired by the grantee, with financial assistance derived from [FTA], and that is to be delivered to the grantee, as specified by the third party contract." 43 FR 57146. On January 19, 1981, when discussing construction contracts specifically, FTA determined that the "procurement of construction is treated as procurement of a manufactured product in that the deliverable of the construction contract is considered as the end product and the construction materials used therein are considered components of the end product." 46 FR 5809. Further, when asked to clarify the definition of "end product," FTA concluded that "the deliverable item specified in the contract is the end product. For example, in a contract for 10 buses that must contain 500 h.p. engines, the 10 buses are the end-products." 46 FR 5810.
On January 9, 1991, FTA affirmed that
[a]n end product is ‘any item’ . . . that is to be acquired by a grantee, as specified in the overall project contract. The key determinant is the grantee’s specification. For example, if a grantee is procuring a new rail car, the car is the end product and the propulsion motor would be a component of the end product. If that same grantee is procuring a replacement propulsion motor for an existing rail car, that propulsion motor would be the end product. 56 FR 928.
And finally, FTA’s own Best Practices Procurement Manual addresses the exact factual situation at issue here:
FTA treats the procurement of a construction project as the procurement of a "manufactured product" subject to 49 CFR 661.5. Final assembly of the project takes place at the construction site, and items directly incorporated into the project at the job site are considered "components." For instance, if the deliverable under a particular contract is the building of a passenger terminal, the terminal itself is the end product, and the main elements incorporated into the terminal, e.g., shelters, elevators, and platforms, are components of the end product. These main elements are generally specified in the construction contract. 8.1.4 Buy America (1/98).
As you can see, the position you suggest would overturn 22 years of consistent administration of the Buy America requirements. It would also raise serious difficulties of its own. For example, every segregable part of the end product being acquired would itself be considered an end product subject to the requirement that 100 percent of its components be of U.S. origin and perhaps require an individual certification. The resulting burden would be enormous: given the realities of the modern commercial marketplace, hundreds of waiver requests would have to be submitted for any given construction contract, and certifications would have to be collected by subcontractors and sub-subcontractors, creating an overwhelming paperwork burden for our grantees. The rule’s focus on the particular procurement contract at issue permits the fair and practicable administration of the Buy America requirements.
Thank you for your letter. I hope this further explanation is helpful. Should you have any additional questions, please contact Meghan G. Ludtke in the Office of Chief Counsel at (202) 366-4011.
Nuria I. Fernandez
cc: Renee Marler, Regional Counsel