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Frequently Asked Questions Regarding Section 7613 of the National Defense Authorization Act for Fiscal Year 2020

Section 7613 of the National Defense Authorization Act for Fiscal Year 2020 (NDAA 2020), Pub. L. No. 116-92 (Dec. 20, 2019), added new subsection 49 U.S.C. § 5323(u) to federal public transportation law. Section 5323(u) limits the use of Federal Transit Administration (FTA) funds, and in some circumstances local funds, to procure rolling stock from certain transit vehicle manufacturers.

This guidance provides answers to frequently asked questions FTA has received regarding the new law. This is the first iteration of this guidance.  The FTA may add questions and answers to this page as it receives them. All code citations are to title 49 of the United States Code, unless otherwise specified.

The contents of this page do not have the force and effect of law and are not meant to bind the public in any way. This page is intended only to provide clarity to the public regarding existing requirements under the law or agency policies. FTA recipients and subrecipients should refer to FTA’s statutes and regulations for applicable requirements.

Q1: Which manufacturers are affected by the restriction?

Section 5323(u)(1) generally prohibits FTA funding of procurements of rolling stock from any manufacturer that is “owned or controlled by, is a subsidiary of, or is otherwise related legally or financially to a corporation based in” certain foreign countries. A country is covered by the restriction if it—

  • “(i) is identified as a nonmarket economy country (as defined in section 771(18) of the Tariff Act of 1930 (19 U.S.C. 1677(18))) as of [December 20, 2019];
  • “(ii) was identified by the United States Trade Representative in the most recent report required by section 182 of the Trade Act of 1974 (19 U.S.C. 2242) as a foreign country included on the priority watch list defined in subsection (g)(3) of that section; and
  • “(iii) is subject to monitoring by the Trade Representative under section 306 of the Trade Act of 1974 (19 U.S.C. 2416).”

For criterion (i), recipients should consult the U.S. International Trade Administration’s list of designated nonmarket economy countries, available at https://www.trade.gov/nme-countries-list. For criteria (ii) and (iii), recipients should consult the latest version of the U.S. Trade Representative’s Special 301 Report for a list of countries included on the priority watch list and whether such countries are subject to monitoring under Section 306 of the Trade Act of 1974. Recipients should apply general corporate law principles to determine whether a particular transit vehicle manufacturer is “owned or controlled by, is a subsidiary of, or is otherwise related legally or financially to a corporation based in” a country that meets the statutory criteria.

Q2: When does the two-year phase-in of the federal funding prohibition end?

Section 5323(u)(5)(B) states that, subject to some exceptions, “this subsection, including the certification requirement under paragraph (4), shall not apply to the award of a contract or subcontract made by a public transportation agency with any rolling stock manufacturer for the 2-year period beginning on or after the date of enactment of this subsection.” The NDAA 2020 was enacted on December 20, 2019. Therefore, the two-year phase-in period ends on December 20, 2021.  

The general federal funding prohibition and this 2-year phase-in period apply to the “award of a contract or subcontract.” If an FTA recipient executes a contract/subcontract for rolling stock on or before December 20, 2021, that contract is eligible for FTA funding, subject to the limits of 49 U.S.C. § 5325(e). Section 5325(e) limits the length of multi-year contracts for bus procurements to five years and rail procurements to seven years.

Q3: Will options exercised after December 20, 2021, be eligible for FTA funding?

The general federal funding prohibition and the two-year phase-in apply to the “award of a contract.” If a recipient enters into a base contract prior to December 20, 2021, that includes options based on the recipient’s reasonably foreseeable vehicle needs, the base contract and options will be eligible for FTA funding, subject to the limits for multiyear rolling stock contracts of 49 U.S.C. § 5325(e). 

For example, if a recipient enters into a multi-year bus contract with a restricted manufacturer on or before December 20, 2021, the recipient may exercise options acquired in that contract up to five years after the date of contract execution and the cost of the options exercised during that period will be eligible

Q4: Can a recipient assign options to another recipient (i.e., “piggybacking”)?

FTA treats an assignment of options as a new contract for the assignee entity. See, e.g., Notice of Policy on the Implementation of the Phased Increase in Domestic Content Under the Buy America Waiver for Rolling Stock and Notice of Public Interest Waiver of Buy America Domestic Content Requirements for Rolling Stock Procurement in Limited Circumstances (81 FR 60279, 60282) (Sept. 1, 2016). Accordingly, on or before December 20, 2021, if an FTA recipient assigns options under a contract with a restricted manufacturer to another recipient, that assignment of options is eligible for FTA funding, assuming compliance with all other FTA requirements. After December 20, 2021, piggybacking on a contract with a restricted manufacturer will be ineligible for FTA funding.

Q5: How are state schedules treated?

For a state schedule contract that is formed with one or more restricted manufacturers on or before December 20, 2021, FTA recipients may place orders against that contract for the length of the contract, subject to the limits of Section 5325(e).

For example, if a state, on or before December 20, 2021, forms a state schedule contract with one or more restricted manufacturers for buses for a base period of two years, with a maximum of three one-year extensions, orders placed by FTA recipients using that state schedule contract during the base period and any extension exercised by the state are eligible for FTA funding.

Q6: Which entities have a “lifetime” exemption from the rail rolling stock restriction?

Section 5323(u)(5)(A) states that “[t]his subsection, including the certification requirement under paragraph (4), shall not apply to the award of any contract or subcontract made by a public transportation agency with a [restricted rail rolling stock manufacturer] if the manufacturer and the public transportation agency have executed a contract for rail rolling stock before the date of enactment of this subsection.”

Any public transportation agency that formed a contract for rail rolling stock with an otherwise restricted manufacturer prior to December 20, 2019, is permanently exempt from the restrictions of Section 5323(u) for rail rolling stock procured from that particular manufacturer. 

There are four public transportation agencies with a permanent exemption under this provision: the Chicago Transit Authority, the Los Angeles County Metropolitan Transportation Authority, the Massachusetts Bay Transportation Authority, and the Southeastern Pennsylvania Transportation Authority.

Q7: How does FTA interpret the certification requirement relating to rail rolling stock procurements?

As a condition of receiving funds under FTA’s State of Good Repair program (49 U.S.C. § 5337) in any fiscal year, Section 5323(u)(4) requires an operator of rail fixed guideway service to certify in that fiscal year that it “will not award any contract or subcontract for the procurement of rail rolling stock for use in public transportation with a [restricted manufacturer]”. This certification requirement is not limited to procurements occurring under an FTA award; it applies to procurements funded entirely with non-Federal funds.
Section 5323(u)(5)(B) states that the certification required by Section 5323(u)(4) “shall not apply to the award of a contract or subcontract made by a public transportation agency with any rolling stock manufacturer for the 2-year period beginning on or after [December 20, 2019].”

If a recipient enters into a contract for rail rolling stock with a restricted manufacturer on or before December 20, 2021, that contract will not prevent the recipient from making the certification required by Section 5323(u)(4) during the entire term of the contract. If such a contract includes options, the exercise of options will not prevent the recipient from making the certification required by Section 5323(u)(4), even if the options are exercised after December 20, 2021. Assignment of an option under a rail rolling stock contract to another FTA recipient on or before December 20, 2021 will not prevent the assignee from making the certification required by Section 5323(u)(4), even if the option is exercised after December 20, 2021. Assignment of options after December 20, 2021, however, would prevent the assignee from making the certification if the assignee exercises the options.

Q8: Does 49 U.S.C. § 5323(u) apply to leases of rolling stock?

Yes, a lease is a contract for the procurement of rolling stock to which 49 U.S.C. § 5323(u) applies. Therefore, a lease entered into with a restricted manufacturer on or before December 20, 2021, will be eligible for FTA funding for the length of the contract, and a lease entered into after December 20, 2021, will be ineligible for FTA funding.

Q9: Can a recipient use local funds to acquire buses from restricted manufacturers?

Section 5323(u) does not impose any prohibitions or requirements relating to the use of local funds to procure buses from a restricted manufacturer, before or after December 20, 2021.

Q10: Does 49 U.S.C. § 5323(u) apply to replacement parts and maintenance?

Section 5323(u) applies to the award of contracts and subcontracts for the procurement “rolling stock.” If a contract or subcontract for rolling stock also includes replacement parts and maintenance, then Section 5323(u) applies to the entire contract. Contracts for replacement parts or maintenance that are separate from a contract for rolling stock are not affected by Section 5323(u).

Q11: Does 49 USC § 5323(u) apply to monorails?

Yes. Monorails used in public transportation are a kind of “rolling stock” under FTA programs. See, e.g., 49 CFR §§ 661.3, 663.5(e).

Last updated: Wednesday, July 1, 2020