OIG to FTA: Improve Rolling Stock Procurement Oversight

According to a USDOT OIG report, there were “weaknesses” in the FTA’s Buy America guidance that hindered its oversight of SEPTA’s compliance with Buy America rolling stock requirements. (CRRC Rendering)

Six recommendations to improve the Federal Transit Administration’s (FTA) oversight of future rolling stock procurements were made as part of a new audit report released by the U.S. Department of Transportation Office of the Inspector General (USDOT OIG).

The report (download below), “FTA’s Oversight of SEPTA’s Compliance With Buy America Rolling Stock Requirements Faced Several Challenges,” was released July 31. It found “weaknesses” in the FTA’s Buy America guidance that hindered its supervision of SEPTA’s (Southeastern Pennsylvania Transportation Authority) compliance.

In 2017, SEPTA awarded a $138 million contract to the state-owned China Railway Rolling Stock MA Corporation (CRRC MA) for 45 bilevel railcars to be used on its Regional Rail lines. Between October 2014 and October 2021, FTA awarded SEPTA $90.5 million to procure the cars.

In 2022, three members of the House Transportation and Infrastructure Committee asked the USDOT OIG to examine the FTA’s oversight of “(1) SEPTA’s certification of CRRC MA’s adherence to FTA’s Buy America requirements and (2) SEPTA’s calculation of the total value of foreign components for determining compliance with FTA’s Buy America requirements,” according to the 35-page OIG report.

What did the USDOT OIG find? “Specifically, FTA does not require recipients to retain supporting documentation for pre-award audits or to verify suppliers’ Buy America information, nor does FTA have regulations to address domestic shipping costs,” USDOT OIG reported. “Without clear guidance, FTA could not rely on SEPTA to provide oversight of rolling stock procurements and risks that recipients miscalculate domestic content costs—raising concerns about whether FTA’s Buy America rules are being met. In December 2022, FTA initiated an enhanced compliance review of SEPTA to verify compliance with Buy America rolling stock standards, but the Agency faced challenges in obtaining sufficient data from both SEPTA and CRRC MA. Although FTA suspended funds for the CRRC MA contract, the absence of policy on when to initiate an enhanced Buy America compliance review and take corrective action, limits the Agency’s ability to address delays or compliance issues on future FTA-funded projects.”

To improve FTA’s future oversight of rolling stock procurements, USDOT OIG recommended that the Federal Transit Administrator:

• “1. Initiate actions to establish requirements for recipients (or third-party auditors) for how manufacturers’ rolling stock documentation will be reviewed when conducting pre-award and post-delivery audits.
• “2. Initiate actions to establish requirements for recipients (or third-party auditors) to maintain pre-award and post-delivery audit documentation in a manner that protects manufacturers’ sensitive data while also providing supporting evidence of the work described in the audit.
• “3. Amend FTA’s Master Agreement to clarify that recipients must obtain the same level of access as third-party auditors would have to confidential information to improve oversight and transparency into manufacturers’ adherence to Buy America rolling stock requirements. 
• “4. Initiate actions to establish requirements for recipients (or their auditors) to document their verification of suppliers’ Buy America information.
• “5. Develop and implement Buy America policies or guidance as to how to account for hardware and domestic shipping costs when computing domestic content percentages.
• “6. Develop and implement Buy America policies or guidance detailing when to initiate Buy America rolling stock compliance reviews and apply the corrective actions (i.e., specific conditions and remedies for noncompliance) described in the Uniform Grant Guidance.”

To address FTA’s oversight of SEPTA’s compliance with Buy America rolling stock requirements for the CRRC MA contract, OIG recommended that the Federal Transit Administrator:

• “7. For the $30.8 million in questioned costs relating to CRRC MA suppliers’ certificates, work with SEPTA to confirm Buy America compliance for those suppliers and determine if any amount is unsupported or unallowable under Buy America rules. Should any amount be found to be unsupported or unallowable, provide a justification for accepting the costs or take appropriate corrective actions.
• “8. Complete FTA’s enhanced Buy America review and take correction actions as deemed necessary to address any instances of noncompliance with Buy America rolling stock requirements on the CRRC MA contract, including but not limited to deobligating unexpended funds. Implementing this recommendation could put up to $35.5 million in funds to better use.”

“Effective stewardship of the $90.5 million awarded to SEPTA largely depended on FTA’s ability to rely on SEPTA to ensure CRRC MA’s compliance with Buy America requirements,” the USDOT OIG concluded. “While FTA has some Buy America rolling stock oversight processes and guidance in place, we identified significant weaknesses in them. By increasing focus on the issues identified in this report, including pre-award audit documentation, suppliers’ certifications, and domestic content calculations, FTA will be better positioned to ensure grantees responsibly manage their use of Federal taxpayer dollars.”

The USDOT OIG reported that FTA concurred with recommendations 1 through 6 and “provided appropriate planned actions and completion dates.” FTA “partially concurred with recommendations 7 and 8 because SEPTA has canceled its contract with CRRC MA,” according to the USDOT OIG, which noted that FTA’s “proposed alternative actions meet the intent of recommendations 7 and 8.” The USDOT OIG said it considers all recommendations resolved.

SEPTA in April terminated its $185 million contract with CRRC MA, citing four years of delays, poor workmanship and quality controls and zero deliveries. SEPTA so far had paid $50 million to CRRC.