Buy America Requirements

SUMMARY: FTA is issuing a general public interest waiver from the Buy

America requirements for ``small purchases'' made by FTA grantees with

capital, planning, or operating assistance.

EFFECTIVE DATE: This waiver is effective July 24, 1995.

FOR FURTHER INFORMATION CONTACT: Gregory B. McBride, Deputy Chief

Counsel, Office of Chief Counsel, (202) 366-4063.

SUPPLEMENTARY INFORMATION:

Background

On March 15, 1995, FTA issued a general public interest waiver,

under 49 U.S.C. Sec. 5323(j)(2)(A) and 49 CFR 661.7(b), from its Buy

America requirements for purchases of $2,500 or less (known as ``micro-

purchases'') made with FTA financial assistance, including capital,

planning, and operating assistance. 60 FR 14174 (March 15, 1995). FTA

found this waiver to be in the public interest because it simplifies

government procedures and streamlines government procurement

requirements, consistent with the President's National Performance

Review, Executive Order 12931 (Federal Procurement Reform), and the

Federal Acquisition Streamlining Act of 1994 (FASA), Public Law 103-

355, 108 Stat. 3243 (October 13, 1994).

Also on March 15, 1995, FTA proposed in a separate notice to issue

a general public interest waiver under the same authority for ``small

purchases'' made by its grantees with FTA financial assistance,

including capital, planning, and operating assistance, and for all

purchases by FTA grantees with operating assistance. After considering

the comments received, FTA is hereby issuing a general public interest

waiver for small purchases, as defined in the grants management common

rule at 49 CFR 18.36(d), as recently amended by the Office of

Management and Budget (60 FR 19639 (April 19, 1995)), made by FTA

grantees with capital, planning, or operating assistance. The recent

amendment raised the threshold for a ``small purchase'' to $100,000.

The Buy American Act of 1933, 41 U.S.C. Sec. 10a-d, established a

preference for domestically produced goods in direct Federal

procurements. The first Buy America legislation applicable to the

expenditure of Federal funds by recipients under FTA and Federal

Highway Administration (FHWA) grant programs was enacted in 1978:

Section 401 of the Surface Transportation Assistance Act of 1978 (Pub.

L. 95-599, 92 Stat. 2689) established a domestic preference for

``articles, materials, supplies mined, produced, or manufactured'' in

the United States and costing more than $500,000.

In January 1983, Congress repealed section 401 and substituted

section 165 of the Surface Transportation Assistance Act of 1982, Pub.

L. 97-424, 96 Stat. 2097. This action, among other things, eliminated

the $500,000 threshold. Congress prohibited the expenditure of FTA or

FHWA funds on steel, cement, and ``manufactured products,'' but as

discussed below, included four exceptions permitting the statute to be

waived. In 1984, Congress removed cement from section 165, and in 1991

added iron (see section 337 of the Surface Transportation Assistance

and Uniform Relocation Act of 1987 (Pub. L. 100-17, 101 Stat. 32) and

section 1048 of the Intermodal Surface Transportation Efficiency Act of

1991 (Pub. L. 102-204, 105 Stat. 1914)).

The current Buy America requirement, recently codified at 49 U.S.C.

Sec. 5323(j), applies to purchases made with Federal transit and

highway funds:

(j) BUY AMERICA.--(1) The Secretary of Transportation may

obligate an amount that may be appropriated to carry out this

chapter for a project only if the steel, iron, and manufactured

goods used in the project are produced in the United States.

(2) The Secretary of Transportation may waive paragraph (1) of

this subsection if the Secretary finds that--

(A) Applying paragraph (1) would be inconsistent with the public

interest;

(B) The steel, iron, and goods produced in the United States are

not produced in a sufficient and reasonably available amount or are

not of a satisfactory quality;

(C) When procuring rolling stock (including train control,

communication, and traction power equipment) under this chapter--

(i) The cost of components and subcomponents produced in the

United States is more than 60 percent of the cost of all components

of the rolling stock; and

(ii) Final assembly of the rolling stock has occurred in the

United States; or

(D) Including domestic material will increase the cost of the

overall project by more than 25 percent.

FTA issued regulations implementing this provision at 49 CFR Part

661. These regulations specify that ``for a manufactured product to be

considered produced in the United States: (1) All of the manufacturing

processes for the product must take place in the United States; and (2)

All items or material used in the product must be of United States

origin.'' 49 CFR 661.5(d). In contrast, the regulation implementing the

1933 Buy American Act requires that manufactured products contain only

a 51 percent domestic content.

These requirements have resulted in individual Buy America waiver

requests from grantees for thousands of items. As a general rule, most

grantees have many more procurements for small items than for large

items. Many involve purchases of less than $20, with unit prices under

one dollar and often less than one cent. The volume of these waiver

requests has resulted in significant delays in grantees' procurement

processes. They consume an inordinate amount of grantee and FTA staff

time, since documentation for each waiver request must be developed and

submitted to FTA, where it is reviewed and acted on. Large grantees

handle thousands of individual procurements each year. FTA's triennial

reviews reveal that many grantees have difficulty in complying with Buy

America requirements with respect to their small procurements.

Analysis and Comments

During the comment period, FTA received 62 comments, most from

transit authorities, state and local governments, manufacturers, and

suppliers. The commenters, who were nearly unanimous in their support

of the issuance of this public interest waiver, raised a number of key

issues:

Cost savings. Most transit authorities indicated that one to eleven

extra procurement staff are necessary to comply fully with Buy America

requirements, at a cost of up to $540,000 per grantee annually. In

addition, transit authorities spend more than they need to because they

are not able to buy supplies as needed, on a ``just-in-time'' basis.

Instead, because purchasing is difficult under Buy America

requirements, transit authorities are obliged to lump purchases

together and maintain a larger inventory than is needed or practical.

Transit authorities noted that if Buy America requirements were

waived, they would be able to realize further savings by purchasing

more often

[[Page 37931]]

through cooperative state and local government purchasing agreements.

In addition, several commenters believe that a greater number of

vendors will participate in the bidding process if the vendors do not

have to supply Buy America documentation. More vendors should mean more

competition, which should lead to lower overall prices on purchases

made by FTA grantees.

Administrative Burdens

Transit authorities noted that current Buy America requirements

impose a significant administrative burden because each purchase

requires its own Buy America waiver if the purchase involves a possible

non-U.S. product. Several recent initiatives, including Executive Order

12931 of October 13, 1994, on Federal Procurement Reform (60 FR 52387

(April 19, 1995)), direct federal agencies to remove administrative

burdens in procurement processes. In fact, section 1(e) of this

Executive Order directs agency heads to ``ensure that simplified

acquisition procedures are used, to the maximum extent practicable, for

procurements under the simplified acquisition threshold in order to

reduce administrative burdens and more effectively support the

accomplishment of agency missions.'' The Federal Highway

Administration, the only other agency within the U.S. Department of

Transportation with a regulation implementing section 165 of the STAA,

already considers factors such as cost, administrative burden, and

delay when it decides whether to issue a public interest waiver from

Buy America requirements. 23 CFR 635.410(c)(7).

FTA's current Buy America regulation, as applied to purchases under

the simplified acquisition threshold, does not effectively support the

accomplishment of FTA's missions, since the regulation imposes a burden

on small purchases without conferring a commensurate benefit.

Non-Availability of Domestic Products

As noted above, 49 CFR 661.5(d) provides that goods must be 100

percent ``made in the U.S.A.'' to be considered domestic under this

regulation.

This is a difficult and often impossible standard to meet, given

the highly integrated, international nature of manufacturing today.

Most products incorporate at least one foreign component or some

overseas manufacturing. Nearly all FTA waivers are now granted because

domestically produced goods, as defined in the regulations, are not

available. These waivers are based on the determination that ``steel,

iron, and goods produced in the United States are not produced in a

sufficient and reasonably available amount or are not of a satisfactory

quality.'' 49 U.S.C. Sec. 5323(j)(2)(B).

FTA has issued general public interest waivers in the past based on

the difficulty of obtaining goods that are 100 percent made in the

United States. Microcomputers and software were granted a general

public interest waiver because many product components, particularly

microchips, are still made and assembled abroad. FTA also recognized

that the computer industry is becoming increasingly multinational in

nature. Since it is unduly burdensome on transit operators to procure

domestically produced microcomputers and software, FTA issued a general

public interest waiver for these products. 51 FR 36126 (October 8,

1986).

Fifteen-passenger Chrysler vans and wagons were also given a

general public interest waiver even though final assembly took place in

Canada. Commenters pointed out that Ford would be the only entity able

to supply vans and wagons under the Buy America regulation. FTA

concluded that the public had an important interest in competition and

issued the waiver. 49 FR 13944 (April 9, 1984).

Non-availability and public interest are related concepts. If a

domestic product is nearly impossible to procure, it is not in the

public interest to require grantees to give a justification each time

they purchase a non-domestic product. This requirement results in

excess cost, administrative burden, and delay. The consideration of

non-availability in public interest waivers is demonstrated in two

recent FHWA general public interest waivers--one for pig iron and

processed, pelletized, and reduced iron ore (60 FR 15478 (March 24,

1995)), and the other for certain ferryboat equipment and machinery (59

FR 6080, February 9, 1994)). In both cases, the basis for the

nationwide waiver was that the waived product was not produced in the

United States in sufficient and reasonably available quantities which

are of a satisfactory quality. Therefore, FHWA reasoned, imposing Buy

America requirements on these materials is not in the public interest.

The same reasoning may be applied to small purchases by FTA

grantees that are subject to Buy America regulations. Since domestic

goods (as defined in the Buy America regulations) are rarely available

to FTA grantees making small purchases, it is not in the public

interest to impose the Buy America requirements on them.

Clarification of the Term ``Small Purchase''

Several commenters indicated that the definition of ``small

purchase'' needs to be clarified, questioning whether the value of a

small purchase should be determined by a ``unit'' price or a

``contract'' price. The Federal Acquisition Streamlining Act, in which

the small purchase threshold is discussed (see 60 FR 19639), uses

contract price to determine the value of small purchases; accordingly,

for the purposes of this Buy America general public interest waiver,

``contract price'' will be the measure for determining whether a

procurement is a ``small purchase.'' Note, however, that grantees may

not split procurements for requirements that exceed the threshold in

order to avoid Buy America rules that would otherwise apply.

Purchases Over $100,000 Made With Operating Assistance

Several commenters indicated that FTA went too far by proposing to

waive purchases over $100,000 made with operating assistance. They

argued that such a waiver might lead to shifting funds between

operating and capital budgets simply to circumvent Buy America

requirements for purchases over $100,000. After careful consideration,

we agree that operating assistance should be treated the same as

capital and planning assistance for this purpose.

Recent initiatives, including the Federal Procurement Reform

(Executive Order 12931 dated October 13, 1994); the Federal Acquisition

Streamlining Act of 1994; and OMB's final rule applying the $100,000

simplified acquisition threshold for direct Federal purchases to

purchases by Federal recipients of financial assistance under the

common grant rule (60 FR 19639), indicate that streamlining small

purchases is in the public interest. These initiatives, however, do not

indicate that it is in the public interest to expedite larger, more

significant procurements in the same way. In fact, the legislative

history of Buy America indicates that Congress has traditionally been

concerned about developing domestic sources for large procurements.

Complete Waiver of Buy America Requirements

We note that several suppliers of manufactured goods, primarily

Canadian companies, argued that Buy America requirements should be

waived for all transit purchases, since the transit supply industry in

the United

[[Page 37932]]

States is highly integrated. However, as discussed above, Congress and

the Executive Branch have indicated, via several legislative and

regulatory initiatives, that streamlining small purchases is in the

public interest. They have not yet indicated through legislative or

regulatory initiatives that streamlining all transit purchases is in

the public interest.

Concern About Unfairly Priced or Shoddy Foreign Goods

A few commenters (U.S. manufacturers) expressed concern that waiver

of Buy America requirements for small purchases would result in a flood

of unfairly priced or shoddily made foreign goods into the U.S. market.

These concerns are better addressed by solutions other than the

imposition of Buy America requirements. Determination of whether goods

conform to the standards set out in individual contracts and

enforcement of those contract provisions are best left to FTA grantees.

Problems involving unfair trade practices or foreign government

subsidies are addressed by import laws such as Title VII of the Tariff

Act of 1930, as amended (19 U.S.C. Secs. 1671 and 1673 (Imposition of

Countervailing Duties and Antidumping Duties, respectively)). These

problems are beyond the scope of what Buy America was intended to

accomplish.

Impact Analysis

Executive Order 12866 requires that a regulatory impact analysis be

prepared for significant rules, which are defined in the Order as rules

that have an annual effect on the national economy of $100 million or

more, or certain other specified effects.

FTA does not believe that this action will have an annual impact of

$100 million or more or the other effects listed in the Order. For this

reason, FTA has determined that this waiver would not create a major

rule within the meaning of this order.

Regulatory Flexibility Act of 1980

The Regulatory Flexibility Act (5 U.S.C. Sec. 605(b)) requires

that, for each rule with a ``significant economic impact on a

substantial number of small entities,'' an analysis must be prepared

describing the impact of the rule on small entities and identifying any

significant alternatives to the rule that would minimize the economic

impact on small entities.

FTA certifies that this waiver will not have a significant economic

impact on a substantial number of small entities. Instead, it modifies

and updates an administrative and procedural requirement in order to

reduce burden on small entities.

Paperwork Reduction Act

FTA certifies that this action does not impose any additional

reporting or recordkeeping requirements under the Paperwork Reduction

Act of 1980, 44 U.S.C. Chapter 35; in fact, it should reduce the

paperwork required to procure goods.

Public Interest Waiver

In light of these considerations, FTA believes that application of

its Buy America rule to small purchases is not consistent with the

public interest; accordingly, FTA hereby issues a general public

interest waiver under 49 U.S.C. Sec. 5323(j)(2)(A) and 49 CFR 661.7(b)

to exempt from its Buy America requirements all ``small purchases,'' as

defined in the common grant rule, 49 CFR 18.36(d), made by its grantees

with FTA financial assistance, including capital, planning, or

operating assistance.

List of Subjects in 49 CFR Part 661

Buy America, Grant programs--tranportation, Mass Transportation,

Reporting and recordkeeping requirements.

Amendment to 49 CFR Part 661

Accordingly, for the reasons described above, title 49, Code of

Federal Regulations, part 661, is amended as follows:

PART 661--BUY AMERICA REQUIREMENTS--SURFACE TRANSPORTATION

ASSISTANCE ACT OF 1982, AS AMENDED

1. The authority citation for part 661 continues to read as

follows:

Authority: 49 U.S.C. 5323(j) (Pub. L. No. 103-272); 49 CFR 1.51.

2. Appendix A to Sec. 661.7 is amended by revising paragraph (e) to

read as follows:

Appendix A to Sec. 661.7--General Waivers

* * * * *

(e) Under the provisions of Sec. 661.7(b) of this part, a

general public interest waiver from the Buy America requirements for

``small purchases'' (as defined in the ``common grant rule,'' at 49

CFR 18.36(d)) made by FTA grantees with capital, planning, or

operating assistance.

Issued on: July 19, 1995.

Gordon J. Linton,

Administrator.

[FR Doc. 95-18105 Filed 7-21-95; 8:45 am]

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