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Buy America: Current State, Future Prospects; Analyzing the Potential Impact of a New Environment
BY CLIFF HENKE
Senior Analyst, Transit & Rail Systems
Whether Buy America regulations depart from or continue current policy will depend on how the new administration and congressional leadership will craft their economic agenda.
Concerned about slow growth in U.S. wages and jobs in the wake of the worst economic recession since the 1930s, both Congress and the Obama administration saw a need to attach new conditions to the purse strings as a means to leverage grant assistance for job creation.
As a result, a variety of new policies and regulations came into being, ranging from new rules to incentivize recipients of contracts to create more jobs, internships and training programs to tweaking an old one: Buy America rules.
Rather than delving yet again into the pros and cons of such policies, this article will examine the immediate effects of the rulemaking and guidance on Buy America regulations and whether such rules might change in the wake of November’s election results.
Where Buy America Stands Today
The tougher Buy America provisions in the FAST Act enacted in December 2015 increase the domestic content requirements for federally funded rolling stock procurements, the first such content increases promulgated since 1991.
The legislation increases the minimum required domestic content from the current 60 percent by dollar value of buses, rail vehicles and other manufactured goods purchased with federal transit assistance to 65 percent for such procurements beginning in Fiscal Year 2018 (which begins on Oct. 1 of this year) and rising to 70 percent by the beginning of FY 2020.
The rules also apply to procurements of train control and vehicle location systems, communication systems, traction power equipment and prototypes of vehicles, systems and equipment purchased with federal funds.
In complying with these changes, however, an important question arose: Is the domestic content enforceable at the time that the contract between the procuring agency and supplier is entered into, or upon delivery?
Of course, rules governing pre-award and post-delivery audits of these procurements were not really affected by the new changes, but it was unclear when this content is to be mandated during the transition phase to 70 percent. For example, how would FTA look at contracts that had already been entered into but whose deliveries were expected after the 65 percent or 70 percent requirements became effective? Hundreds of millions of dollars in rolling stock and other procurements could have been affected by how the FTA answered that question.
The answer came when the FTA issued first a proposed Buy America policy guidance, which it then finalized in September 2016. Under the guidance, the content requirements will be based on the scheduled delivery date of the first production vehicle.
In other words, if the first article is delivered after Oct.1, 2017, the domestic content must be greater than 65 percent of its manufactured value; for buses, railcars and other manufactured goods delivered after Oct. 1, 2019, the U.S. content must be greater than 70 percent.
“The revised FTA Buy America policy addresses public transportation industry concerns and maintains the core goal of the program to preserve and create good-paying American jobs,” stated FTA Acting Administrator Carolyn Flowers when the final guidance was announced.
The FTA guidance also provides a limited public interest waiver for solicitations and contracts that were underway when the FAST Act was enacted in 2015. Although not explicitly allowed, the guidance also seems to imply that the general interest waiver applies to options on contracts in force prior to Oct. 1, 2015, which are exercised after that date.
However, the waiver does not apply either to procurements made after that date from statewide purchasing schedules or options that are assigned to other agencies after that date, because each typically must be mutually agreed to by the purchasing agency and manufacturer—essentially a new contract in these cases.
Moreover, FTA issued this warning in its finalized guidance: “FTA will not generally look favorably on waivers that provide for contracts that include the exercise of options for vehicles that will be delivered beyond FY 2020. FTA will act expeditiously on public interest waiver requests that provide the information requested.”
Meanwhile, suppliers and contractors can also continue to seek waivers if using a compliant American product in the manufacturing process cannot be found or if it would increase the cost of the project by more than 25 percent. And all such waivers have not been without expenditure of cost, time and labor. However, another provision of the FAST Act shifts the burden of proof to FTA, which could make them easier to obtain.
Implications for Agencies
While the concerns of the supply side of public transportation are known, many are also concerned about the prospects of higher prices and project delays for public transportation agencies on their capital programs.
The impacts vary by sector. While railcar procurements have been able to deliver orders with higher percentages of domestic content, many share the concerns of bus builders that suppliers often exit and enter the market well after the contract is negotiated, which has an effect on the percentage of domestic content by the time vehicles are delivered, as well as when options are exercised on contracts.
One lot of deliveries might easily comply with the Buy America requirements while the next lot may have a greater challenge. This puts a heavier burden on public transit grant recipients monitoring production and sometimes creates project delays in finding compliant suppliers to replace those that exited the U.S. market.
Because 2012’s MAP-21 Act extended the contract length for rail procurements to seven years, FTA’s guidance that the new requirements of the FAST Act apply to content measured at the time of delivery could further exacerbate the challenge of delivering orders that meet the new Buy America threshold over a full contract term.
Meanwhile, bus manufacturers have had a tougher challenge in meeting even the 60 percent threshold in previous legislation, let alone the FAST Act’s higher mandate; such challenges vary depending on the model being ordered in the procurement.
Of particular concern is that a few key components and systems in the public transit bus supply chain have only one supplier; thus, bus builders alike are very concerned that the higher mandates of the FAST Act, along with other new procurement requirements, might force these suppliers to leave the market altogether, resulting in capital program delays or much higher prices.
This is more than a theoretical concern in other market sectors as well. In San Francisco, a communications modernization program has experienced delays because of lack of available suppliers, despite repeated solicitations. A streetcar project in Charlotte was delayed because the agency could not find a domestic supplier of rail. And although FTA used the Department of Commerce’s manufacturing assistance programs to encourage domestic mills to produce the needed rail, the project was delayed. Tougher content requirements could make such situations more frequent.
Going forward, the implementation of FAST Act provisions with respect to Buy America will be determined by the incoming administration and Congress.
One hint on how the new administration may enforce Buy America is contained in written statements that DOT Secretary-designate Elaine Chao submitted to the Senate Committee on Commerce, Science and Transportation (the committee that will vote on her nomination).
Chao emphasized her priorities in streamlining regulation. In 2009 while she was a distinguished fellow at the Heritage Foundation, she criticized the Buy America provisions contained in the 2009 American Recovery and Reinvestment Act, claiming they were “building a moat around America.” In public transportation, those provisions were the same as in previous law.
A possible area of rollback is the Obama administration’s unprecedented extension of Buy America rules to utilities’ relocation on highway and public transportation infrastructure projects. Those rules have been strongly resisted not only by traditional public transportation goods and service providers but also by the U.S. Chamber of Commerce, Heritage Foundation and several major utilities trade groups and companies. Both the Heritage Foundation and the U.S. Chamber of Commerce also opposed Buy America amendments to the recently enacted water resources bill, calling them “counterproductive” measures that could “drive up public infrastructure costs, unduly burden contractor supply chains and reduce overall project competition.”
Whether—or precisely how—the new Congress and administration will change Buy America provisions in federal public transportation policy, some of which date to the 1930s, remains to be seen.
One thing is very clear, however: Buy America will be considered in the larger context of addressing the plight of many who are still struggling economically, which was a major issue in the 2016 presidential campaign.
This Commentary is by Cliff Henke, who was named APTA’s Outstanding Business Member of the Year in 2012. He is past chair of the Business Member Legislative Committee and vice chair, policy, BRT Council. He also serves as a member of the Business Member Procurement Committee and Authorization Task Force, among other positions.