Robert A. Johnson
Director of Materials Management
Massachusetts Bay Transportation Authority
Ten Park Plaza, Suite 3910
Boston, MA 02116

Dear Mr. Johnson:

I write in response to your letter dated November 17, 2011, and subsequent conversations between Massachusetts Bay Transportation Authority (MBTA) and the Federal Transit Administration (FTA), about the MBTA's plan to overhaul its Green Line light rail vehicles (LRV). You have asked whether it is appropriate for MBTA to apply the rolling stock waiver of 49 U.S.C. § 5323(j)(2)(C), as implemented at 49 C.F.R. § 661.11, to your procurement. If applicable, each overhauled LRV could contain up to 40 percent foreign produced components. For the reasons outlined in this letter, FTA will permit MBTA to apply the rolling stock waiver to tbe instant procurement, but will publish guidance proposing to apply the manufactured product standard of 100 percent U.S. content to all subsequent rolling stock overhauls.

According to your letter, MBTA issued a Request for Proposals (RFP) number CAP 77-09 to overhaul selective systems of 86 of its Green Line LRV s, with an option to overhaul up to 20 additional LRVs. MBTA advertised the overhaul as a rolling stock procurement and required all proposers to adhere to the Buy America certification requirements of 49 C.F.R. §§ 661.11 and 661.12.

Through subsequent communication between FTA and MBTA, I learned that the 86 LRVs to be overhauled were placed into service in 1986 and 1987; the additional 20 LRVs subject to the option were placed into service in 1997. The procurement includes the overhaul of door systems, friction brakes, air distribution systems, trucks, car body structure and pantographs, and replacement of articulation bellows, flooring, interior panels, HV AC, lighting, and motor alternators.

Based on the facts presented in your letter, the purpose of the overhaul is to allow the LRV s to achieve their expected useful life. It is unclear whether or to what extent the procurement may extend the useful life of the affected rolling stock.

To determine how to apply FTA's Buy America rules to your procurement, I must determine whether the procurement is a rebuild or overhaul, and whether the rolling stock waiver applies equally to both.

Rebuild v. Overhaul

FTA discusses rolling stock rebuilds [FN1] and overhauls in Chapter IV of Grant Management Circular 5010.1D and throughout Urbanized Area Formula Program Circular 9030.1D. A rolling stock rebuild is a reconditioning at the end of a vehicle's useful life that creates additional useful life. A vehicle to be rebuilt must have reached the end of its minimum useful life. An eligible rail car rebuild must extend the vehicle's useful life by a minimum of ten years, and a bus rebuild must extend the vehicle's useful life by a minimum of four years. [FN2]

A rolling stock overhaul (sometimes called a refurbishment) is a form of preventative maintenance involving "systematic replacement or upgrade of systems whose useful life is less than the useful life of the entire vehicle in a programmed manner." [FN3] In contrast to a rolling stock rebuild, an overhaul does not extend the useful life of the vehicle itself. Instead, it focuses on the useful lives of the systems that comprise the vehicle, enabling the entire vehicle to perform to the end of its original useful life. [FN4]

Buy America

With few exceptions, Buy America prohibits FTA from funding a project unless "the steel, iron, and manufactured goods used in the project are produced in the United States." [FN5] These general requirements do not apply to the procurement of rolling stock if the cost of components produced in the United States is more than 60 percent of the cost of all components of the rolling stock and final assembly takes place in the United States. [FN6]

There is no direct law and little FTA guidance on how to apply Buy America requirements to overhauls and rebuilds. The statutory provision on Buy America (49 U.S.C. § 5323(j)) and implementing regulations (49 C.F.R. Part 661) do not include the terms overhaul or rebuild. FT A Circulars do discuss rebuilds and overhauls, but lack explicit instructions for how to apply the Buy America requirements to each level of activity.

Lack of clear guidance on rebuilds and overhauls notwithstanding, FTA provided instructions on how to apply Buy America rules to the purchase of rolling stock replacement parts when it updated its Buy America regulations in 2007. [FN7] In that rulemaking, with the purpose of simplifYing country-of-origin rules for the procurement of replacement parts, FTA adopted "non-shifting" characterizations of replacement parts as components or subcomponents and stated that a procurement of replacement parts would be considered a procurement of manufactured products:

Under the new approach, procurements for replacement parts, whether components or subcomponents of the original end product, would retain their characterization and the requirements applicable to manufactured products would apply. This new approach would apply consistently to the procurement of replacement parts for rolling stock as well as to manufactured products. [FN8]

Although it did not use the terms rebuild or overhaul, FTA intended to treat rebuilds as procurements of rolling stock and to treat overhauls as procurements of replacement parts. Thus, FT A intended to allow use of the rolling stock waiver for rebuilds, but to require 100 percent U.S. content for overhauls.

Decision

Based on the facts presented in your letter, FTA would consider MBTA's procurement to be preventative maintenance, the purpose of which is to allow the LRV s to achieve their expected useful life. As such, the procurement is an overhaul, not a rebuild. FTA's interpretation of Buy America rules is that rolling stock rebuilds are procurements of rolling stock and are covered by the rolling stock waiver that allows up to 40 percent foreign content; rolling stock overhauls are essentially procurements of replacement parts, which are manufactured products and therefore subject to the general requirements of 49 C.F.R. 661.5. The rolling stock waiver of 49 C.F.R. § 661.11 does not apply to rolling stock overhauls. Thus, overhauls must have 100 percent U.S. content.

However, as you observe in your letter, the industry has developed a longstanding practice of applying the rolling stock waiver to both rebuilds and overhauls. This practice has continued without FTA intervention, the 2007 rulemaking notwithstanding. Therefore, despite FTA's intentions, the persistence of prior practice indicates that the rulemaking documents were insufficiently clear. For this reason, I will permit MBTA to continue the existing practice by applying the rolling stock waiver to the instant procurement.

Please note that this interpretation applies to the present procurement only. To bring industry practices in line with the 2007 rulemaking, FTA will propose guidance setting forth its expectation for grantees to apply the manufactured products standard of 49 C.F.R. § 661.5 to the purchase of all components for rolling stock overhauls. Consistent with the existing regulations, the guidance will propose to limit the rolling stock waiver to rebuilds and purchases of new rolling stock. FTA will clarify this interpretation by publishing a policy statement in the Federal Register and allowing for public comment in accordance with 49 U.S.C. § 5334(1).

If you have questions about this decision, please contact Jayme Blakesley at (202) 366-0304 or jayme.blakesley@dot.gov.

Sincerely,

Dorval R. Carter, Jr.
Chief Counsel

FN1. In the context of the Americans with Disabilities Act, the regulations use the term "remanufacture" to have a similar meaning to rebuild. Any light rail vehicle, rapid rail vehicle, bus, or other non-rail vehicle that is remanufactured so as to extend its useful life for five years or more shall, to the maximum extent feasible, be readily accessible to and usable by individuals with disabilities, including individuals who use wheelchairs. 49 C.F.R. §§ 37.75 (non-rail vehicles), 37.83 (rail vehicles).

FN2. FTA Circular 5010. ID, ch.IV § 3.g; see also ch.l § 5.bbb (definition of"rebuild").

FN3. FTA Circular 5010.ID, ch.I § 5.qq.

FN4. FTA Circular 5010. ID, ch.IV § 3.h.

FN5. 49 U.S.C. § 5323(j)(1).

FN6. 49 U.S. C.§ 5323(j)(2)(C), as implemented at 49 C.F.R. § 661.11.

FN7. 72 Fed. Reg. 53,688; 72 Fed. Reg. 55,102 (making a minor correction to 72 Fed. Reg. 53,688).

FN8. 72 Fed. Reg. 53,688, 53,692.