Peter Kirby, Esq.
Fasken Martineau DuMoulin LLP
Stock Exchange Tower
Suite 3700, P.O. Box 242
800 Place Victoria
Montreal, Quebec, Canada H4Z 1E9

Subject: Applicability of FTA’s Buy America Rules to a Bike Sharing System

Dear Mr. Kirby:

I write in response to the November 9, 2010 letter you wrote on behalf of your clients Alta Bicycle Share (Alta) and Public Bike System Company (PBSC).  You asked the Federal Transit Administration (FTA) for a letter interpreting the applicability of the Buy America rules of 49 U.S.C. 5323(j), as implemented at 49 C.F.R. Part 661, to bicycle sharing systems like those produced and operated by your clients.  FTA’s response follows.

Background

A bicycle sharing system provides bicycles for use by members of the public on a free or pay basis through bicycle stations located at selected points throughout an urban area.  An example of a popular bicycle sharing system is Capital Bikeshare in Washington, DC.

According to Alta and PBSC, the typical bicycle sharing system is comprised of inter-related and inter-connected parts that typically include bicycles, subscriber keys, stations, a control center, and repositioning vehicles.  The bicycles are standardized to accommodate most riders and designed for safety, reliability and durability.  Keys allow subscribers to access the bicycles.  The stations are modular and typically include platforms, a terminal (comprised of solar panels, a battery, and an automated rental kiosk), bicycle docks, and a map.  The control center monitors the stations to identify stations where bicycles need to be added or removed.  Repositioning vehicles move bicycles between stations as needed.

You have asked FTA for guidance about how to apply the Buy America rules to a bicycle sharing system.  It is my understanding that several FTA grantees, including the Chattanooga Area Regional Transportation Authority and the Metropolitan Area Planning Council for Metropolitan Boston, intend to use FTA funds to purchase bicycle sharing systems, which renders these purchases subject to FTA’s Buy America rules.  Also, I understand prior bicycle sharing systems have been purchased with funds from the Federal Highway Administration (FHWA).  

Buy America

Before discussing the Buy America rules that apply to FTA-funded projects, it is important to note that FTA and FHWA have separate and distinct Buy America rules.  FTA’s rules originated with a provision in the Surface Transportation Assistance Act of 1978  and are currently codified at 49 U.S.C. § 5323(j) and implemented by regulation at 40 C.F.R. Part 661.  FHWA’s Buy America rules are codified at 23 U.S.C. § 313 and implemented by regulation at 23 C.F.R. § 635.410.  A key difference: Since it issued a public interest waiver in 1983 rulemaking, FHWA has not applied its Buy America rule to manufactured products.

FTA may not fund a project unless the steel, iron, and manufactured goods used in the project are produced in the United States. 

For steel and iron, all manufacturing processes must take place in the United States.   This requirement applies to all construction materials made primarily of steel or iron, including structural steel or iron, and steel or iron beams, columns, running rail, and contact rail.   The steel and iron requirements do not apply to steel or iron used as components or subcomponents of other manufactured products. 

For manufactured products, the requirement is two-fold: (1) all manufacturing processes for the product must take place in the United States, and (2) all of the components of the product must be of U.S. origin.  A component is considered of U.S. origin if it is manufactured in the United States, regardless of the origin of its subcomponents. 

Key definitions include the following: 

End product means any vehicle, structure, product, article, material, supply, or system, which directly incorporates constituent components at the final assembly location, that is acquired for public use under a federally funded third-party contract, and which is ready to provide its intended end function or use without any further manufacturing or assembly change(s). 

Component means any article, material, or supply, whether manufactured or unmanufactured, that is directly incorporated into the end product at the final assembly location. 

System means a machine, product, or device, or a combination of such equipment, consisting of individual components, whether separate or interconnected by piping, transmission devices, electrical cables or circuitry, or contribute together to a clearly defined function.  Factors to consider in determining whether a system constitutes an end product include: Whether performance warranties apply to an integrated system (regardless of whether components are separately warranteed); whether products perform on an integrated basis with other products in a system, or are operated independently of associated products in the system; or whether transit agencies routinely procure a product separately (other than as replacement or spare parts). 

The following is a list of representative manufactured end products that are subject to the requirements of Buy America.  Note that this list is representative, not exhaustive.

Manufactured end products: Infrastructure projects not made primarily of steel or iron, including structures (terminals, depots, garages, and bus shelters), ties and ballast; contact rail not made primarily of steel or iron; fare collection systems; computers; information systems; security systems; data processing systems; and mobile lifts, hoists, and elevators. 

Discussion

Alta and PBSC have submitted for FTA review the position that “the applicable end product is the bike share system and the bicycle stations are components of that end product.”  This position is too broad.  While it is true that certain systems may be classified as end products for purposes of Buy America, FTA may break up certain “super systems” like a bicycle sharing system into separate and distinct “end products.”  

Some systems may be classified as end products.  For example, the representative list of end products contained in FTA’s Buy America regulations includes fare collection systems, information systems, security systems, and data processing systems.  This is consistent with FTA’s longstanding position that certain systems are properly classified as end products. 

Even though some systems are end products, Congress has made it clear that major systems procurements may not be used to circumvent the Buy America requirements.  Based on concerns that classifying certain systems as end products posed a risk to Buy America, the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU) required FTA “to ensure that major system procurements are not used to circumvent the Buy America requirements.”  FTA initiated a rulemaking and sought public comment on this issue.  “Although many commenters expressed concerns that manufacturers could abuse the definition of “system” to incorporate a large degree of non-domestic subcomponents into a single “end product” procurement, a majority of commenters encouraged FTA to continue its longstanding practice of including a “system” as a definable end product.”   Based on these comments, FTA decided to retain its longstanding interpretation.

Despite retaining its longstanding interpretation that certain systems may be end products, FTA retained the right to intervene if it decides that a major system procurement is being used to circumvent Buy America: “If a purported end product is too large, i.e., composed of what FTA traditionally considers as separate “end products” such as structures, vehicles, fare collection equipment, etc., FTA will break it down into separate end products.”

In our analysis, a bicycle sharing system is too large—it consists of too many elements that could be separately procured and independently operated—to be considered an end product and, therefore, must be broken down into separate end products.  As described by Alta and PBSC, a typical bicycle sharing system is composed of what FTA traditionally considers as separate end products—vehicles, fare collection equipment, information systems.  In fact, it is akin to an entire public transportation system in that it includes many end products located throughout a metropolitan area.  If FTA were to consider a public transportation system or a bicycle sharing system, in total, to be an end product for purposes of Buy America, the result would be a near total circumvention of Buy America.  The only activities that would take place in the United States would be the assembly of the stations from modular parts.  All other items that comprise the system, including vehicles, could be produced elsewhere.

To eliminate the possibility that a bicycle sharing system procurement could be used to circumvent the Buy America requirements, FTA declines to adopt the interpretation proposed by Alta and PBSC.  A bicycle sharing system is too large to be considered an end product.  At a minimum, bicycle sharing systems must be broken into the following items that are typically considered end products: vehicles (bicycles and repositioning vehicles), fare collection system, station modules (like platforms, solar energy, and docking stations), and a control center.  As with public transportation systems, certain systems found in Alta-PBSC bicycle sharing systems (e.g., fare collection and information systems) may be properly categorized as end products.

Conclusion

For the foregoing reasons, I find that a bicycle sharing system is not properly classified as an end product for purposes of applying FTA’s Buy America rules.  Feel free to contact Jayme L. Blakesley at jayme.blakesley@dot.gov or Richard Wong at richard.wong@dot.gov if you have questions.  

Sincerely,

Dorval R. Carter, Jr.
Chief Counsel