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Report to the Committee on Banking, Housing, and Urban Affairs, U.S. 
Senate: 

United States Government Accountability Office: 
GAO: 

June 2010: 

Transit Rail: 

Potential Rail Car Cost-Saving Strategies Exist: 

GAO-10-730: 

GAO Highlights: 

Highlights of GAO-10-730, a report to the Committee on Banking, 
Housing, and Urban Affairs, U.S. Senate. 

Why GAO Did This Study: 

Rail transit offers society a number of benefits, including reduced 
congestion and pollution and increased mobility. However, rail systems 
and cars are costly: Transit agencies can pay more than $3 million per 
car, often using federal funds. As requested, this report describes 
(1) characteristics of the U.S. market for transit rail cars, (2) the 
federal government’s role in funding and setting standards for transit 
rail cars, and (3) challenges transit agencies face when procuring 
rail cars. GAO analyzed U.S. and worldwide rail car market data for 
commuter, heavy, and light rail systems and interviewed Department of 
Transportation (DOT) officials and domestic and international industry 
stakeholders, including the American Public Transportation Association 
(APTA). 

What GAO Found: 

U.S. demand for transit rail cars is limited and erratic and orders 
tend to be for customized cars. Transit rail cars in the U.S. comprise 
about 5 percent of the worldwide fleet. Transit agencies’ purchases 
vary considerably over time: A large transit agency may replace its 
entire fleet in 1 year, contributing to a spike in the market, whereas 
in other years, there may be only a fraction of that demand for the 
U.S. market. Transit agencies often request custom car designs to 
address not only legacy infrastructure requirements and 
interoperability issues with existing fleets, but also preferences. 
Rail car orders of small size and demand for customized cars can 
increase the price per car by, for example, concentrating design costs 
among fewer cars. 

The federal government provides some funding for transit rail cars and 
has varying levels of involvement in setting design standards for 
transit rail cars. More than half of the transit agencies GAO 
interviewed purchased rail cars with some type of federal funding, 
such as formula or discretionary capital funds. When transit agencies 
use federal funds to purchase rail cars, certain requirements apply, 
such as “Buy America”—which requires, among other things, that rail 
cars be assembled in the United States. The Federal Transit 
Administration (FTA) ensures that these requirements are met by 
overseeing new transit projects and through periodic reviews. The 
federal government’s role in setting design standards for transit cars 
depends on the type of rail. For commuter rail, the Federal Railroad 
Administration has established safety standards that must be met, 
since these cars are intended to run on the same tracks as freight 
rail traffic. For other rail transit, FTA provided funds to help APTA—
the standard-setting industry group—develop voluntary standards, 
including those for safety. However, the Secretary of Transportation 
proposed legislation in December 2009, which was introduced in 
Congress in February 2010, to give FTA more regulatory authority in 
relation to safety. 

Transit agency officials identified several challenges in procuring 
rail cars, including securing funding, given all of their competing 
needs. Manufacturers and transit agencies also face legal and 
regulatory requirements, such as “Buy America” requirements, but have 
generally adapted to challenges posed by them. However, market 
challenges still exist, including the small size of many orders that 
may affect price. Joint procurements, whereby transit agencies combine 
orders, can help them increase their order sizes; however, they can 
only combine orders if a design exists that meets both agencies’ 
needs. While a few transit agencies have become aware of opportunities 
to jointly procure rail cars through informal mechanisms, such as 
industry meetings, there is currently no formal mechanism to identify 
mutually beneficial opportunities for joint procurement. As FTA helps 
fund many procurements, it may be in the best position to help transit 
agencies identify joint procurement opportunities. Furthermore, FTA 
and APTA have efforts under way to standardize light rail cars to make 
rail car procurement more efficient and cost-effective. Standards also 
might be beneficial for other types of systems, such as streetcars, 
particularly for those without existing infrastructure limitations. 

What GAO Recommends: 

GAO recommends that the Secretary of Transportation direct DOT to work 
with APTA to (1) develop a process to systematically identify and 
communicate opportunities for transit agencies with similar needs to 
participate in joint procurement and (2) identify additional 
opportunities for standardization, especially for new systems. DOT 
reviewed a draft of this report, generally concurred with its 
contents, and agreed to consider the recommendations. 

View [hyperlink, http://www.gao.gov/products/GAO-10-730] or key 
components. For more information, contact David J. Wise at (202) 512-
2834 or wised@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

Characteristics of the U.S. Transit Rail Car Market May Have 
Implications for Car Procurement: 

Federal Government Is Involved to Varying Degrees in Funding and 
Setting Design Standards for Transit Rail Car Procurement: 

Although Procuring Rail Cars Can Be Challenging, Standardization and 
Joint Purchasing Have the Potential to Reduce Costs: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments: 

Appendix I: Scope and Methodology: 

Appendix II: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: Phases of the Transit Rail Car Procurement Process: 

Table 2: U.S. Passenger Rail Car Fleet by Mode (Commuter Rail, Heavy 
Rail, Light Rail): 

Table 3: Rail Transit Agencies Interviewed for GAO's Analysis: 

Figures: 

Figure 1: Description of Commuter Rail Cars and a Photograph of a 
Commuter Train in Los Angeles, CA: 

Figure 2: Description of Heavy Rail Cars and a Photograph of Heavy 
Rail Cars in Chicago, IL: 

Figure 3: Description of Light Rail Cars and a Photograph of a Light 
Rail Car in San Diego, CA: 

Figure 4: Size of U.S. Transit Rail System Based on the Number of Cars 
for All Commuter Rail, Heavy Rail, and Light Rail: 

Figure 5: Worldwide Transit Rail Car Fleet Totals by Location, as of 
April 2010: 

Figure 6: Rail Cars Produced for the U.S. Transit Agencies, 1970 
through 2008: 

Abbreviations: 

ADA: Americans with Disabilities Act of 1990: 

AMT: Agence Métropolitaine de Transport: 

APTA: American Public Transportation Association: 

CTA: Chicago Transit Authority: 

DOT: Department of Transportation: 

FRA: Federal Railroad Administration: 

FTA: Federal Transit Administration: 

MBTA: Massachusetts Bay Transportation Authority: 

MTA: Metropolitan Transportation Authority: 

OMB: Office of Management and Budget: 

PCC: Presidents' Conference Committee: 

PRIIA: Passenger Rail Investment and Improvement Act of 2008: 

RFP: Request for Proposals: 

VRE: Virginia Railway Express: 

WMATA: Washington Metropolitan Area Transit Authority: 

[End of section] 

United States Government Accountability Office:
Washington, DC 20548: 

June 30, 2010: 

The Honorable Christopher J. Dodd:
Chairman:
The Honorable Richard C. Shelby:
Ranking Member:
Committee on Banking, Housing, and Urban Affairs:
United States Senate: 

Rail transit offers passengers and society a number of benefits, 
including reduced congestion and pollution, and increased mobility. 
However, these systems are costly and challenging to build and 
maintain. In particular, the cost of individual rail cars--which 
transit agencies purchase to equip new systems and replace existing 
fleets--can be high, typically $1.5 million to $3.4 million per car 
for recent procurements, depending on the number and type of cars 
purchased. In 2008, U.S. transit agencies spent over $2.3 billion on 
rail cars. Transit rail cars can vary substantially in design across 
systems and, sometimes even within systems, requiring manufacturers to 
build customized cars, which can drive up the cost of procurement. In 
fact, procuring standardized vehicles could reduce costs per car up to 
20 percent, according to a recent Department of Transportation (DOT) 
report to Congress.[Footnote 1] This issue affects not only the 54 
U.S. transit agencies operating at least one rail transit line as of 
the end of 2008, but will affect new rail systems, including new 
streetcar systems.[Footnote 2] Since most transit agencies we 
contacted use Federal Transit Administration (FTA)-administered grant 
funds to purchase rail cars, reducing the cost of rail cars would 
allow for more efficient use of federal funds. The Federal Railroad 
Administration (FRA) typically does not fund transit rail cars, but 
the agency does oversee commuter rail safety.[Footnote 3] 

In response to your request, we addressed the following objectives: 
(1) What are the key characteristics of the U.S. market for transit 
rail cars, and how do they compare with international markets? (2) 
What is the federal government's role in funding and setting standards 
for transit rail car procurement and design? (3) What challenges, if 
any, do transit agencies face when procuring transit rail cars, and 
what actions have they and other stakeholders taken to help address 
them? 

To determine the characteristics of the U.S. market for transit rail 
cars, we reviewed two databases--the FTA's National Transit Database 
and the American Public Transportation Association's (APTA) transit 
database--to determine the number and types of passenger transit rail 
cars in the United States. We also interviewed officials from 23 of 
the 54 U.S. rail transit agencies as of 2008. We judgmentally selected 
these agencies on the basis of their size; rail transit modes 
(commuter rail, heavy rail, and light rail); and geographic 
distribution. These transit agencies were operating 33 systems among 
the major transit rail modes, compared with 68 systems operated by all 
U.S. transit agencies. The results of our work are not generalizeable 
to all transit agencies. Furthermore, we interviewed officials from 
existing and potential transit rail car manufacturers, transit agency 
consultants, FTA, and APTA. To determine how the U.S. market for 
transit rail cars compares with international markets, we obtained 
worldwide rail car data from SCI Verkehr in Cologne, Germany, and 
interviewed rail car manufacturers; transit officials from Canada, 
Japan, New Zealand, and Portugal; and European railway associations. 
To assess the reliability of data from FTA's National Transit 
Database, APTA's 2009 Public Transportation Vehicle Database (APTA's 
transit database), and SCI Verkehr, we spoke with officials from each 
organization about data quality control procedures and reviewed 
relevant documentation. For each data set, we determined that the data 
were sufficiently reliable for the purposes of this report. To 
determine the federal government's role in funding and setting 
standards, we reviewed applicable federal law, regulations, and grant 
documents and interviewed FTA officials. Finally, to identify any 
challenges transit agencies face when procuring transit rail cars, we 
met with transit agency officials representing 33 transit systems 
across the country, transit rail car manufacturers, transit agency 
consultants, and FTA and APTA officials. Appendix I contains 
additional information about our scope and methodology, including 
lists of the organizations we contacted. 

We conducted this performance audit from September 2009 through June 
2010 in accordance with generally accepted government auditing 
standards. Those standards require that we plan and perform the audit 
to obtain sufficient, appropriate evidence to provide a reasonable 
basis for our findings and conclusions based on our audit objectives. 
We believe that the evidence obtained provides a reasonable basis for 
our findings and conclusions based on our audit objectives. 

Background: 

The U.S. rail transit system consists of the following three primary 
modes: commuter rail, heavy rail transit, and light rail transit (see 
figures 1 to 3). The numbers in figures 1 through 3 are based on 
National Transit Database information, current for 2008, adjusted by 
GAO for two systems and for a reporting error.[Footnote 4] 

Figure 1: Description of Commuter Rail Cars and a Photograph of a 
Commuter Train in Los Angeles, CA: 

[Refer to PDF for image: photograph and accompanying information] 

Transit rail mode: Commuter rail; 
Number of systems: 24; 
Fleet size (percentage of total rail car fleet): 6,208 (31.3%); 
General characteristics: Commuter rail refers to trains, other than 
intercity passenger trains, that operate on existing rail rights-of-
way, the majority of which are owned by freight railroads. These 
systems are often powered by diesel-electric engines. In general, 
commuter rail systems provide service from outlying suburbs and small 
cities to a central downtown area, with one or two stops in the 
central downtown area. 

Sources: GAO (photograph); FTA’s National Transit Database; and DOT’s 
document entitled 2008 Status of the Nation’s Highways, Bridges, and 
Transit: Conditions and Performance. 

[End of figure] 

Figure 2: Description of Heavy Rail Cars and a Photograph of Heavy 
Rail Cars in Chicago, IL: 

[Refer to PDF for image: photograph and accompanying information] 

Transit rail mode: Heavy rail; 
Number of systems: 15; 
Fleet size (percentage of total rail car fleet): 11,570 (58.3%); 
General characteristics: These systems, which include subways, operate 
on exclusive tracks. Heavy rail systems are electric railways, 
typically drawing power from a third rail. Trains may be four or more 
cars long. 

Sources: GAO (photograph); FTA’s National Transit Database; and DOT’s 
document entitled 2008 Status of the Nation’s Highways, Bridges, and 
Transit: Conditions and Performance. 

[End of figure] 

Figure 3: Description of Light Rail Cars and a Photograph of a Light 
Rail Car in San Diego, CA: 

[Refer to PDF for image: photograph and accompanying information] 

Transit rail mode: Light rail; 
Number of systems: 29; 
Fleet size (percentage of total rail car fleet): 2,063 (10.4%); 
General characteristics: Light rail refers to trains that may operate 
on exclusive tracks or on tracks in the street on the same level with 
pedestrians and car traffic. Light rail systems are typically electric 
railways that draw power from overhead wires. Trains can operate as 
single cars. This category includes streetcars and trolleys. 

Sources: GAO (photograph); FTA’s National Transit Database; and DOT’s 
document entitled 2008 Status of the Nation’s Highways, Bridges, and 
Transit: Conditions and Performance. 

[End of figure] 

Current FTA data include streetcars as part of light rail, but 
streetcars can be distinguished from other light rail cars because 
they are usually smaller and designed for shorter routes, more 
frequent stops, and lower travel speeds. 

Transit agencies in six large cities--New York; Chicago; Washington, 
D.C.; Boston; Philadelphia; and San Francisco--own the majority of 
passenger transit rail cars in the United States. (See fig. 4.) 
Agencies in these six cities manage over 16,000 rail cars, or more 
than 80 percent of all the active U.S. transit rail cars. 

Figure 4: Size of U.S. Transit Rail System Based on the Number of Cars 
for All Commuter Rail, Heavy Rail, and Light Rail: 

[Refer to PDF for image: U.S. map with areas illustrated] 

Depicted on the map are locations with the following number of transit 
cars: 
10; 
100; 
500; 
1,000; 
1,500; 
8,500. 

Sources: GAO and DOT. 

Note: This figure represents transit agencies that reported to the 
National Transit Database in 2008. Some agencies may not be included 
because they were created recently, or are not required to report and 
have not reported voluntarily. For example, the figure does not show 
the New Mexico Rail Runner Express, which was not required to report 
to the National Transit Database and had not reported voluntarily. We 
added the Valley Metro in Phoenix, Arizona, which opened late in 2008 
and had not yet appeared in the National Transit Database but was 
reported in APTA's 2009 Public Transportation Vehicle Database. 

[End of figure] 

The number of transit systems is increasing beyond the large 
metropolitan areas that currently dominate the market, although new 
systems tend to be small. For example, the Utah Transit Authority 
began operating a 45-car commuter rail system for Salt Lake City in 
April 2008. The Puerto Rico Highway and Transportation Authority began 
operating a 74-car heavy rail system in San Juan in December 2004. The 
Valley Metro in Phoenix began operating a 50-car light rail system in 
December 2008. In addition, several new streetcar systems have opened 
within the last decade in cities such as Portland, Oregon; Tampa, 
Florida; and Little Rock, Arkansas. Furthermore, additional cities-- 
such as Oklahoma City, Oklahoma; Boise, Idaho; and Cincinnati, Ohio-- 
have plans for transit-oriented development that include new streetcar 
lines.[Footnote 5] 

Rail car procurements generally take years to complete and can involve 
many technical experts, including consultants. A time frame of 3 to 4 
years is considered quick for a complete procurement, and many take 
much longer. For example, according to officials at one transit 
agency, it can take about 8 years from design to final acceptance for 
heavy rail cars. The procurement process is lengthy because it 
involves four phases: the transit agency's initial design; 
advertising, communication, and contract award; the manufacturer's 
detailed car design, prototype development, and testing; and 
production. (See table 1.) 

Table 1: Phases of the Transit Rail Car Procurement Process: 

Procurement phase: Transit agency's initial design; 
Description: During the initial design period, the transit agency, 
usually with a consultant's help, prepares performance specifications 
describing how it needs its new cars to perform or technical 
specifications directing how the car should be built; 
Approximate time frame: 1 year. 

Procurement phase: Advertising, communication, and contract award; 
Description: The transit agency notifies potential bidders through a 
Request for Proposals (RFP) that it intends to seek bids on new cars 
described in the RFP. The transit agency invites potential bidders to 
meetings where they can ask questions about the specifications and 
suggest ways to improve the design. At the end of this process, the 
bidders are asked to submit proposals. The transit agency awards the 
contract to the car builder who submits the lowest bid, whose bid 
offers the "best value," or who submits the lowest bid from a group of 
builders who all submitted acceptable proposals; 
Approximate time frame: 1 year. 

Procurement phase: Manufacturer's detailed car design, prototype 
development, and testing; 
Description: The car builder prepares detailed engineering designs for 
the new car based on the specifications in the RFP. The manufacturer 
builds and tests pilot cars representing each car to be produced. This 
phase can take up to 3 years, but could take less time if the car 
manufacturer can start with an existing design and use test results 
from a similar car built previously; 
Approximate time frame: Up to 3 years. 

Procurement phase: Production; 
Description: Production times vary with car builder capacity and 
competing orders. Larger plants in the United States can build 200 to 
300 cars per year. This means that for large orders, it may take years 
to complete production. Furthermore, production on a particular 
transit agency's order may not begin until the car builder finishes 
work on previous orders; 
Approximate time frame: Varies by order size and sequencing, but can 
take 4 years or more. 

Source: GAO. 

[End of table] 

Foreign-based companies supply most of the U.S. market for passenger 
rail transit cars. Over the last decade, foreign-based companies, with 
U.S. plants, have produced almost all of the more than 8,000 new rail 
cars purchased by U.S. transit agencies. For example, Bombardier 
(Canada) has been a major builder of commuter cars for U.S. transit 
agencies. Alstom (France) and Kawasaki (Japan) have been major 
suppliers of heavy rail cars, and Siemens (Germany) and Kinki Sharyo 
(Japan) have been major suppliers of light rail cars. U.S.-based rail 
car manufacturers serve niche markets for streetcars or unconventional 
commuter rail cars, with typically sporadic and small orders--fewer 
than 20 cars. 

Characteristics of the U.S. Transit Rail Car Market May Have 
Implications for Car Procurement: 

U.S. Transit Rail Car Demand Is Small and Erratic over Time: 

The U.S. rail car market is a small percentage of the world market for 
rail cars. In particular, the U.S. transit rail car fleet constitutes 
about 5 percent of the worldwide total. Other countries, such as Japan 
and Germany, which have smaller populations than the United States, 
account for a larger percentage of the world transit rail car fleet. 
Officials from rail car manufacturers said that these countries have 
relatively more resources invested in public transit infrastructure 
compared with the United States. The small fleet size of the United 
States also correlates with a small share of the annual world demand 
for newly manufactured cars by U.S. transit agencies due to the 
limited extent of our transit rail systems, relative to other 
countries. See figure 5 for percentages of the worldwide transit rail 
car fleet in different locations. 

Figure 5: Worldwide Transit Rail Car Fleet Totals by Location, as of 
April 2010: 

[Refer to PDF for image: pie-chart] 

Canada/Mexico: 2%; 
United States: 5%; 
Japan: 11%; 
Europe: 35%; 
Rest of world: 47%. 

Source: SCI Verkehr. 

[End of figure] 

In addition to the relatively small overall demand for rail cars in 
the United States, individual rail car orders are often small. Almost 
half of the transit agencies we interviewed procure rail cars in 
relatively small quantities. For example, United Streetcar, a 
streetcar producer, told us that it expects orders of just three to 
six cars at a time. 

The level of U.S. rail car purchases is also uneven over time. See 
figure 6 for the number of rail cars produced per year for U.S. 
transit agencies from 1970 through 2008. 

Figure 6: Rail Cars Produced for the U.S. Transit Agencies, 1970 
through 2008: 

[Refer to PDF for image: line graph] 

1970: 114; 
1971: 168; 
1972: 438; 
1973: 243; 
1974: 108; 
1975: 904; 
1976: 184; 
1977: 491; 
1978: 289; 
1979: 146; 
1980: 260; 
1981: 198; 
1982: 567; 
1983: 679; 
1984: 1,137; 
1985: 442; 
1986: 790; 
1987: 639; 
1988: 363; 
1989: 264; 
1990: 137; 
1991: 121; 
1992: 269; 
1993: 365; 
1994: 171; 
1995: 378; 
1996: 147; 
1997: 298; 
1998: 409; 
1999: 294; 
2000: 420; 
2001: 1,224; 
2002: 1,174; 
2003: 713; 
2004: 714; 
2005: 578; 
2006: 418; 
2007: 622; 
2008: 610. 

Sources: FTA’s National Transit Database and the Metropolitan 
Transportation Authority New York City Transit. 

Note: National Transit Database data for New York City's transit rail 
car procurements may have been inaccurately reported. To correct this, 
we used data from New York City Transit in conjunction with National 
Transit Database data, for the years 2000 through 2008. 

[End of figure] 

The erratic nature of the U.S. market is primarily due to the 
following reasons: 

* Large transit agencies, such as the Metropolitan Transportation 
Authority (MTA) New York City Transit, procuring cars in large orders 
that cause spikes in the market. For example, over half of the cars 
built in 2001 and 2002 were for a MTA New York City Transit 
procurement of over 1,600 cars. 

* Replacements of existing fleets, which are dependent upon the life 
cycle of the fleets. Transit agencies generally do not procure rail 
cars on an annual basis, and transit rail cars typically last 25 years 
or more with a midlife overhaul, depending upon the materials used and 
the car design. Some individual transit agencies may replace their 
fleets of rail cars at the same time. For example, the Bay Area Rapid 
Transit is in the process of purchasing 775 cars to replace and expand 
its entire fleet of 669 cars. 

U.S. Rail Car Designs Have a Great Deal of Customization: 

U.S. rail car designs have a great deal of customization that differs 
among transit agencies due to legacy infrastructure design, 
interoperability concerns with existing fleets, and local preferences. 
In particular, many heavy rail transit agencies have systems that 
require rail cars with customized designs, rather than standard 
designs. Most of these systems were built long ago, and their designs 
have unique characteristics, such as tunnel size, curve radii, and the 
ability to support rail car weight. The unique features of many 
systems can limit the ability of a car manufacturer to produce cars 
for more than one agency from one car design. For example, the 
Washington Metropolitan Area Transit Authority (WMATA) could not 
purchase the Chicago Transit Authority's (CTA) cars because they were 
too tall for WMATA's tunnels, and CTA could not purchase WMATA's cars 
because they were too long to make the sharp turns of the Chicago 
system, according to officials from both agencies. Furthermore, when 
procuring rail cars for existing transit systems, agency officials 
generally must include specifications to ensure that the new cars will 
be interoperable with their existing fleets. In addition to design 
features based on infrastructure requirements, transit agencies may 
also request other local preferences, such as rail car compatibility 
with platform heights, door requirements, and certain safety features. 
This level of specificity in transit rail car design is more common in 
the U.S. market than it is in other countries' markets. Transit 
agency, transit association, and manufacturing officials said that 
rail car designs tend to be more similar among transit agencies in 
Western Europe and within some Asian countries, in part, because some 
countries have established standard performance specifications or 
designs that manufacturers must follow prior to building systems. 

While rail car manufacturer and transit agency officials said that 
unique infrastructure requirements are most prevalent in heavy rail 
systems, light rail and streetcar systems can also have unique 
requirements. For example, transit agency officials said that 
differences, such as the length of the city blocks where the cars 
travel, may influence the car length and overall design for light rail 
and streetcars. Furthermore, although officials from almost half of 
the commuter rail agencies we interviewed said they either had 
borrowed rail cars from another commuter rail agency or had jointly 
purchased cars with another commuter agency, other officials described 
unique infrastructure requirements, such as tunnel size, that 
necessitate customized designs. 

Characteristics of U.S. Transit Agencies' Rail Car Orders Have 
Implications for the Price of Rail Cars: 

According to rail car manufacturer and transit agency officials, 
certain characteristics of U.S. transit agencies' rail car orders have 
implications for the per-car prices that transit agencies pay for 
their cars. Manufacturers said that certain fixed costs related to 
manufacturing start-up and rail car design are key factors in the per- 
car price of an order. Rail car manufacturer officials said that the 
order size necessary to capitalize on economies of scale varies from a 
few cars to over 100 cars, depending upon the transit mode, the degree 
of customization of the car design, and certain production costs. In 
general, as manufacturers and component suppliers--such as door 
manufacturers--produce more cars using the same design and production 
line, the cost per car is reduced due to the manufacturers' ability to 
spread the design and other fixed production costs over a larger 
number of cars. Additionally, if more units are purchased, component 
costs are usually lower on a per-unit basis because suppliers are also 
able to capture greater economies of scale in component production. As 
a result, transit agencies with large orders, such as the MTA New York 
City Transit, have been able to get relatively low per-car prices. 
However, certain characteristics of other U.S. transit agencies' 
demand for rail cars may prevent manufacturers and suppliers from 
capitalizing on these benefits. 

These characteristics include the following: 

* Small orders and customized designs: U.S. rail car orders tend to be 
small and customized, which results in higher per-car costs. First, 
officials from all four of the major manufacturers[Footnote 6] we 
interviewed said that the cost to design cars for a particular 
procurement is a significant up-front cost, and that it is important 
to be able to spread design costs over a number of cars to obtain 
economies of scale. Officials from several manufacturers said that 
designing a rail car on the basis of unique specifications can add 
from $20 million to $100 million to the cost of the order. However, 
the degree of design specificity is also a factor. If the design is 
fairly standard, the design costs will be lower, enabling the 
efficient production of a smaller order of cars. However, if the 
design is highly customized, design costs are greater, and it may be 
very expensive to produce a small order. Second, to build customized 
cars, manufacturers may have to retool their production lines for each 
procurement. This retooling results in start-up costs that are 
embedded in the price per car. Manufacturers said that once there is a 
break in production, expenses are incurred because manufacturers and 
component suppliers may need to reconfigure or retool their production 
line before they can begin producing rail cars and their component 
parts. For example, officials from the Virginia Railway Express (VRE), 
a commuter rail system, said that when they purchased one set of cars 
in 2006, they were able to obtain a price of approximately $1.6 
million per car, which was considered to be a favorable price, because 
the manufacturer had recently finished production of similar cars for 
Chicago's Metra. However, in a later procurement in 2010, VRE paid 
approximately $2.2 million per car, which was significantly higher, in 
part because the manufacturer had to restart the production line for 
this car design.[Footnote 7] The impact of design and start-up costs 
are exacerbated by the small order sizes that are typical in the 
United States. 

* Erratic nature of transit agencies' procurements: The uneven nature 
of the U.S. transit agencies' procurements also impacts the price of 
rail cars. Officials from five of the six manufacturers we interviewed 
said that the erratic nature of U.S. rail car demand reduced their 
ability to maintain continuous production, which likely results in 
higher production costs per rail car. Because transit agencies in the 
United States may procure many cars in some years but few in others, 
manufacturers and component suppliers may have to close production 
facilities or produce other goods during the years that fewer cars are 
procured. Therefore, as we have previously mentioned, they may have 
additional start-up costs when demand recovers, and they increase 
their rail car production capacity to meet this demand. In contrast, 
rail car manufacturers said that in other markets (e.g., Europe), 
there may be a more stable demand, which allows them to maintain more 
consistent operations and avoid the costs of increasing and decreasing 
capacity. For example, according to a transit association official who 
we interviewed, there is a large tramway system in Düsseldorf, 
Germany, that orders about 15 to 20 cars per year. Although this is 
not a large order, it is continuous and helps the manufacturer 
maintain consistent operations. 

Because of the lengthy rail car procurement and manufacturing process, 
manufacturers also face financial risks from the volatile nature of 
the prices of the commodities used to manufacture rail cars; and rail 
car prices reflect these risks. Officials from one transit agency said 
that it can take a transit agency up to 8 years from when the decision 
is made to purchase new cars to when the cars are delivered. However, 
in the United States, contracts for rail cars are usually negotiated 
as a fixed price--meaning that manufacturers bid on a price for a set 
of cars that remains the same, even if certain costs of producing the 
cars change during the lengthy production.[Footnote 8] Rail car 
manufacturers estimate future prices of key commodities, such as 
copper and steel, when entering a proposal to build rail cars, but 
they maintain risk that these commodity prices could change in ways 
they did not expect. Officials from all six of the manufacturers and 
almost half of the transit agencies we interviewed said that 
manufacturers face significant risk related to variable prices for 
commodities such as steel. For example, on the MTA New York City 
Transit's current heavy rail car procurement, the recent fluctuation 
in commodity prices for copper and steel surprised one manufacturer. 
The manufacturer had locked in to a price for the cars in the base 
contract, so the price fluctuations caused the order to be less 
profitable. While manufacturers said that they may engage in hedging 
strategies--such as buying futures contracts on commodities--to 
mitigate these risks, they also said that adequately hedging these 
risks can be difficult. 

Federal Government Is Involved to Varying Degrees in Funding and 
Setting Design Standards for Transit Rail Car Procurement: 

Federal Government Funds Pay for a Portion of Most Transit Agencies' 
Rail Car Purchases: 

Most of the transit agencies we contacted used some type of federal 
funding, such as the New Starts program, to purchase rail cars for 
their systems. 

* FTA's New Starts program provides federal funding for the initial 
rail car purchases needed to support service on a newly constructed 
line or extension.[Footnote 9] 

* Transit agencies can use FTA's Fixed Guideway Modernization Funds 
[Footnote 10] or Section 5307 (Urbanized Area)[Footnote 11] formula 
funds to purchase additional or replacement rail cars. 

* More recently, transit agencies and municipalities have used funding 
from the American Recovery and Reinvestment Act of 2009 (Recovery Act) 
specifically made available for transit projects or Recovery Act 
Transportation Investment Generating Economic Recovery (also known as 
TIGER) grants.[Footnote 12] For example, the city of Houston received 
a Recovery Act grant for $87 million to expand its system and purchase 
additional vehicles. 

Some of the transit agencies we contacted used state or local funds 
for subsequent rail car purchases, either to replace aging rail cars 
or to provide additional capacity to their systems. State or local 
governments fund rail car purchases with local revenues, state grants, 
or bonds--such as those that are repaid from transit agency revenues 
or taxes levied on real estate located in special tax districts. For 
example, according to transit agency officials, over a 10-year period, 
the MTA Long Island Rail Road and the Metro North Railroad purchased 
1,172 rail cars without federal funds. 

When Federal Funds Are Used to Purchase Rail Cars, Transit Agencies 
Must Comply with Federal Procurement Requirements: 

When transit agencies use federal funds, federal procurement 
requirements apply. Transit agency and FTA officials identified some 
of the procurement requirements that apply to transit rail car 
procurements. These requirements center on compliance with "Buy 
America" legislation and on whether contracts are awarded in a manner 
that promotes free and open competition. FTA relies primarily on self- 
certification, but also conducts triennial and periodic procurement 
reviews to help ensure compliance with these requirements. 

The "Buy America" requirement specifies that the cost of rail car 
components manufactured in the United States must be more than 60 
percent of the cost of all component parts, and that the rail cars 
themselves must be assembled in the United States. Under certain 
circumstances, FTA has the authority to grant waivers to transit 
agencies, allowing them to purchase rail cars that may not fully meet 
"Buy America" requirements. Specifically, a waiver can be granted if 
(1) a product manufactured in the United States was not available, (2) 
the cost of U.S.-made rail car component parts was prohibitive, or (3) 
FTA deems a purchase from a foreign manufacturer to be in the best 
interest of the public. For example, FTA granted a waiver for a 
transit agency to purchase diesel-powered transit cars manufactured in 
another country because that type of vehicle was not manufactured in 
the United States. In another case, FTA approved a waiver for a 
transit agency's purchase of a prototype rail car made in another 
country because it would be used for testing the vehicle's 
performance. As part of this agreement, the remainder of the cars in 
the order was assembled in the United States and complied with the 60 
percent domestic content requirement, which is computed on the cost of 
components and subcomponents. According to DOT officials, these 
waivers are considered on a case-by-case basis. 

Transit agencies also must comply with other requirements--described 
in FTA guidance--when they use federal funds to purchase rail cars. 
[Footnote 13] For example, Congress has placed a 5-year limit on 
transit agencies exercising options to purchase additional rail cars 
under an existing contract.[Footnote 14] According to FTA officials, 
this limitation promotes free and open competition because it presents 
other manufacturers with the opportunity to bid on rail car purchases 
that would otherwise go to a single company year after year. 

In addition, to assist transit agencies FTA has issued a manual--the 
Best Practices Procurement Manual--that describes various procurement 
requirements and how they can be met. For example, FTA's guidance 
encourages transit agencies to jointly procure rail cars with other 
transit agencies in order to save money, if possible. However, there 
are certain limitations and procedures that must be followed. FTA's 
manual provides a roadmap on how to conduct joint procurements as well 
as how options to purchase additional vehicles under one contract can 
be assigned to another agency. 

Finally, for FTA New Starts and major capital projects costing over 
$100 million, FTA monitors the project's progress to determine whether 
a project is on time, within budget, in conformance with design 
criteria, constructed to approved plans and specifications, and 
efficiently and effectively implemented. FTA's review of these 
projects includes a review of fleet management plans to ensure that 
transit agencies will be capable of operating and maintaining their 
rail cars, and that the number of rail cars to be purchased is 
justified by the anticipated ridership. FTA also reviews the transit 
agencies' design specifications for rail cars to help ensure that the 
specifications are not so narrowly defined that competition would be 
limited to a single bidder. 

The Federal Government Has a Limited Role in Setting Design Standards 
for U.S. Transit Rail Cars That Varies Depending on the Type of Rail 
System: 

According to FTA officials, their input into transit rail car design 
is limited to ensuring that Americans with Disabilities Act of 1990 
(ADA) requirements are met and does not include applying uniform 
design standards for commuter, heavy, or light transit rail cars. The 
ADA requires that transit agencies make transit systems accessible to 
persons with disabilities, so transit rail cars must be designed so 
that a disabled person can board the car without assistance. FRA sets 
regulations for commuter rail safety and also enforces ADA 
requirements. 

The federal government has had a more active role in setting safety 
standards for some rail cars. Specifically: 

* FRA has established safety standards for commuter passenger rail 
cars that travel on tracks that also carry freight rail traffic. FRA 
enlisted APTA's assistance to help develop safety standards for 
commuter rail cars and then expanded the effort to establish industry 
standards and recommended practices for commuter rail car safety. 
According to FRA and APTA officials, this has led to greater 
uniformity in the design and production of commuter rail cars. This 
greater uniformity could alleviate some of the market difficulties 
that we previously discussed resulting from customized designs. These 
standards and recommended practices do not apply to heavy or light 
rail transit systems because these transit systems do not share tracks 
with freight train traffic, which is generally a prerequisite for FRA 
oversight. 

* While FRA sets safety standards for commuter rail cars, FTA has 
adopted APTA "industry standards" and recommendations for transit rail 
car safety into its safety requirements. Consequently, transit 
agencies are required to follow the industry standards and recommended 
practices for safety, but, unlike FRA, FTA does not have direct 
oversight of compliance or enforcement authority. Instead, FTA 
requires states to set up safety oversight organizations to ensure 
compliance.[Footnote 15] However, in December 2009, the Secretary of 
Transportation proposed legislation that would give FTA the authority 
to establish and enforce minimum federal safety standards for rail 
transit systems that received federal transit funding. This authority 
would provide similar safety oversight for transit rail cars that FRA 
has for commuter rail cars sharing tracks with freight trains. In 
February 2010, legislation was introduced that would provide that 
authority.[Footnote 16] 

Although Procuring Rail Cars Can Be Challenging, Standardization and 
Joint Purchasing Have the Potential to Reduce Costs: 

Rail Car Purchases Compete for Existing Funding with Transit Agencies' 
Other Needs: 

Many of the transit agency officials we interviewed said that securing 
funding is one of the main challenges that they face when procuring 
transit rail cars. As we have previously described, transit agencies 
may use federal, state, and local funds to purchase or replace cars 
but must weigh these purchases against other capital and operating 
needs. When a new line is built, the New Starts program can provide 
specific funding for the purchase of rail cars. For example, in 2005, 
FTA awarded the city of Phoenix, Arizona, $57 million to purchase 36 
light rail vehicles as part of its full funding grant agreement for 
the Valley Metro light rail project.[Footnote 17] However, once a line 
is built, there is no federal program that provides specific funding 
solely for rehabilitating or replacing transit rail cars. Transit 
agencies may use other sources of federal funding, such as Fixed 
Guideway Modernization funds or Section 5307 (Urbanized Area) formula 
funds, to rehabilitate rail cars but often have many other needs 
competing for these same funds, including the purchase of new rail 
cars. 

Transit agency officials we interviewed also cited several challenges 
specifically related to using federal funds to purchase transit rail 
cars. 

* Transit agencies often replace entire fleets or generations of rail 
cars at one time as the rail cars approach their replacement age-- 
typically, 25 years or more.[Footnote 18] Transit agencies receive 
federal funding at a relatively steady level over time, and, 
therefore, it can be difficult to obtain the amount of funding needed 
at one time to replace a fleet or generation of rail cars. 

* Transit rail car procurement can take several years. Some transit 
agency officials told us that they cannot rely on federal funding for 
these purchases because they do not know how much money they will 
receive that far into the future. 

* In addition, some transit agency officials told us that a federal 
requirement intended to encourage competition among manufacturers 
creates challenges. Specifically, the requirement limits agencies' 
ability to exercise options to a 5-year period once a contract is 
signed if federal funds are used. Although this requirement is in 
place to ensure that the rail car market is fair and open, transit 
agency officials report this is burdensome, because if they decide to 
procure new cars after the 5th year, they must the initiate the 
procurement process--which is both lengthy and costly--all over again. 

Legal, Regulatory, and Other Issues Also Create Challenges: 

Some of the transit agencies and manufacturers we interviewed 
identified specific legal and regulatory factors that pose challenges 
in the procurement process. 

* Transit agency officials identified some federal requirements that 
impact their rail car procurements. For example, some officials told 
us that while they support the need for ADA requirements, these 
requirements can be costly to implement. Officials from one agency 
said that when replacing a fleet, the agency needs to buy extra rail 
cars to compensate for the number of seats reduced to meet ADA 
requirements. Nonetheless, the officials indicated they have 
recognized the importance of the accessible service they provide and 
have successfully incorporated ADA requirements into their rail 
designs when they have purchased new cars or rehabilitated existing 
fleets. 

* Likewise, rail car manufacturers have had to adjust operations to 
meet federal requirements. For example, to meet "Buy America" 
requirements, which require final assembly in the United States, some 
manufacturers have decided to build permanent facilities in the United 
States; others have built temporary facilities in the location where 
the order is filled. A manufacturer's decision to build a temporary 
facility can impact transit agencies if, once the cars are built, 
manufacturers close the facilities and transit agencies have to buy 
certain spare parts from overseas or order them from specialty 
manufacturers. Because of the unique designs of rail cars, the parts 
may have to be specially made for the individual car design when 
replacement parts are needed. 

* Some transit agency officials and manufacturers told us that they 
can also face difficulties when following state or local requirements. 
For example, a transit agency and a manufacturer said that a state law 
that requires full disclosure of all information, including 
potentially proprietary information, in the negotiation process can 
make it difficult to conduct negotiations and may limit the numbers of 
proposals received when purchasing new rail cars. Officials from 
another transit agency said that a state law requiring more than 9 
percent sales tax on rail car purchases results in significant costs 
that other transit agencies do not have to pay. 

Another factor that affects some transit agencies--particularly new or 
small agencies--is a lack of experience with the procurement process. 
Given the 25-year expected lifespan of most rail cars, some transit 
agency officials may participate in only one or two procurements in an 
entire career and, therefore, have limited experience and must rely on 
design consultants. For example, the Port Authority Trans Hudson's 
consultant is heavily involved in developing specifications for the 
current procurement to replace its entire fleet. The last time the 
agency procured cars was in 1967, and the staff that worked on the 
procurement are no longer with the agency. Transit agency officials 
with limited procurement experience may not recognize opportunities 
for cost savings when specifying their design requirements, and it may 
not be in the design consultant's best interest to identify and 
encourage the use of standard designs. In addition, since many transit 
agencies procure rail cars in relatively small quantities, these 
agencies may not be in a position to negotiate for rail car prices in 
line with those of the larger agencies. 

Industry Stakeholders Have Identified Opportunities for Economies of 
Scale through Standardization and Joint Purchases: 

Although rail car procurement can be challenging for both 
manufacturers and transit agencies, industry stakeholders, 
manufacturers, and transit agencies have identified opportunities to 
reduce costs through standardization and joint purchases. 

Standardization: 

To a certain extent, increasing the standardization of transit rail 
cars could benefit transit agencies. First, it would enable 
manufacturers to produce rail cars for numerous agencies without 
incurring start-up costs resulting from breaks in the manufacturing 
process. Once there is a break in production, the manufacturer must 
arrange for rail car components to be delivered from suppliers, and 
some of these components have long lead times before they can be 
delivered. Furthermore, time is lost and expenses incurred because 
manufacturers need to reconfigure or retool their production line 
before they can begin producing a rail car. Second, standardization 
can benefit manufacturers and transit agencies by decreasing design 
costs and may enable manufacturers to take advantage of economies of 
scale in the manufacturing process by producing more vehicles with 
similar parts. 

However, there are arguments against standardization. Specifically, 
one rail expert stated that adopting a standard design can discourage 
innovation and inhibit research and development.[Footnote 19] Also, he 
reported that a standard design may include features that are 
unnecessary for all systems and could add to the price of each car. In 
addition, standardization is not possible for all systems. As we have 
previously described, many heavy rail systems have unique 
infrastructure designs. Transit agencies would need to make major 
infrastructure changes in order to use rail cars that are compatible 
with other agencies' cars. According to FTA officials, the cost 
savings associated with the use of a standard design would not offset 
the cost of making these system changes. There may be more 
opportunities to standardize light rail or streetcar systems, 
particularly in new systems where the infrastructure has not yet been 
constructed. 

Although current U.S. transit rail car designs differ substantially 
among systems, past efforts have attempted to standardize transit car 
designs. One successful effort was the Presidents' Conference 
Committee (PCC) streetcar, which was first built in 1934. The 
committee, which consisted of industry representatives, produced a 
standardized design that permitted the use of assembly line techniques 
by multiple manufacturers and allowed for wide variation to meet the 
needs of various transit agencies. The design was widely accepted, but 
U.S. manufacturers stopped producing PCC cars in the 1950s. However, a 
few PCC streetcars are still operating in the United States. For 
example, the Massachusetts Bay Transportation Authority (MBTA) and the 
Southeastern Pennsylvania Transportation Authority both have active 
PCC cars on certain lines. A later effort to create standardized 
transit rail car designs was less successful. In the 1970s, the 
Standard Light Rail Vehicle was promoted by the Urban Mass 
Transportation Administration, which created a committee to develop 
the car design. A company called Boeing Vertol started building cars 
of this design in 1973 for MBTA and the San Francisco Municipal 
Railway, but the cars were prone to problems that led to their early 
retirement. 

Industry associations--including APTA and the Institute of Electrical 
and Electronics Engineers--continue to promote standardization in 
transit rail car procurement to make transit rail car procurement more 
cost-efficient. As part of its standards development program, APTA 
convened two working groups in 2009 to develop (1) technical standards 
and (2) a set of standard terms and conditions for transit agencies to 
use when procuring light rail vehicles. These efforts are funded 
through membership dues and grants from FTA, the Transit Cooperative 
Research Program, and the Joint Program Office of the Department of 
Transportation. The goal of the first working group is to produce a 
set of technical standards that transit agencies can use when 
procuring new light rail vehicles and that FTA could apply to light 
rail cars, rather than establish federal requirements.[Footnote 20] 
These standards may result in reduced design costs for transit 
agencies and allow manufacturers to take advantage of economies of 
scale in the manufacturing process. 

The goal of the second working group is to develop a set of standard 
terms and conditions that agencies can use when procuring light rail 
vehicles. One of the biggest challenges for transit agencies-- 
particularly for agencies with limited procurement experience--is 
writing a contract that makes it easy to identify its terms, including 
each party's financial risks.[Footnote 21] Currently, each agency 
addresses risk in its Request for Proposals (RFP) and contracts in a 
different format, which makes it difficult for manufacturers to 
identify each party's risks and may slow down the procurement process. 
The standard terms and conditions document should (1) reduce 
ambiguities in procurement documents, (2) allow transit agencies and 
manufacturers to save time, and (3) reduce the need for consultants. 
According to APTA officials, they expect to have a draft of the 
standards and a draft of the contract terms and conditions guidance to 
industry stakeholders for their comment by late summer 2010. 

In addition, there appears to be a push for standardizing high-speed 
intercity passenger rail cars. Specifically, the Passenger Rail 
Investment and Improvement Act of 2008 (PRIIA) required Amtrak to 
establish a committee to design, set specifications for, and procure 
standardized next-generation train corridor equipment--such as high 
speed rail.[Footnote 22] Although this effort does not affect transit 
rail cars, it could reduce rail car design costs for intercity 
passenger rail. 

Some manufacturers have also attempted to increase the standardization 
of rail cars, while providing flexibility to their clients. For 
example, officials from one manufacturer told us that their company 
has developed two standard designs that they believe can be customized 
to meet 80 percent of U.S. transit agencies' needs for new light rail 
cars. One is a high-platform car and the other is a low-floor car. The 
design for a low-floor car can also be used for a streetcar. These 
basic designs can be customized by changing the components as 
required--for example, stronger air conditioning systems for vehicles 
to be used in warm weather climates. Another manufacturer has 
developed a basic, more affordable design for commuter rail cars that 
can be customized to meet transit agencies' needs--for example, a 
customer can change seating and interior materials, but not the shape 
of the car. The manufacturer also offers custom designs, but at a 
higher cost. Manufacturers may have more opportunities for 
standardization if transit agencies seek bids based on performance 
specifications that detail agencies' needs in terms of car 
performance, as opposed to design specifications that detail how a car 
should be built. 

Joint Procurement and "Piggybacking:" 

Transit agencies have attempted to decrease costs by jointly procuring 
transit rail cars or "piggybacking" on another transit agency's 
contract to take advantage of economies of scale. A joint procurement 
means that rail cars are purchased by two or more agencies under the 
same contract. For example, the Miami-Dade Transit jointly purchased 
heavy rail cars with the Maryland Mass Transit Administration in the 
1980s. "Piggybacking" means that one transit agency exercises the 
options on another transit agency's contract for rail cars of the same 
design. For example, the Utah Transit Authority piggybacked on San 
Diego Metropolitan Transit System's contract for light rail vehicles. 
In joint procurements, all transit agencies must be named in the 
original contract, and the car designs must not be substantially 
different. In piggybacking, all transit agencies and all potential 
option quantities must be named in the RFPs and again in the contract. 
Transit agencies can benefit from both of these options through 
reduced rail car costs resulting from economies of scale in the 
production process as well as reduced design costs per car and 
procurement costs. 

However, transit agency and FTA officials said that the opportunities 
for joint procurement and piggybacking are limited by several factors: 

* First, some transit agencies--particularly those with heavy rail 
systems--have infrastructure that requires specific rail car features 
that are not common in other systems. For example, officials at the 
Bay Area Rapid Transit in San Francisco explained that their transit 
rail cars must be built from aluminum to meet weight restrictions of 
the infrastructure, whereas most other heavy rail cars in the United 
States are built from stainless steel. 

* Second, transit agencies may have customized design requirements 
based on local preferences that limit their opportunities for joint 
purchases. Officials from one transit agency told us that their riders 
were accustomed to rail cars with passenger-loading in the center of 
the car, and, therefore, they included this feature in their design 
specifications. The transit agency would not be able to jointly 
purchase vehicles with another agency, unless they both had the same 
basic design. 

* Third, transit agency and FTA officials also told us that it is 
difficult for transit agencies to coordinate their purchases and have 
funding available at the same time. 

* Finally, transit agencies are not generally aware of other transit 
agencies' procurement plans, and there is no entity to formally help 
facilitate joint purchases. According to FTA officials, they are aware 
of two informal mechanisms for discussing the potential for joint 
procurement--FTA's semiannual New Starts Construction Roundtable 
conference and APTA meetings. For example, the Agence Métropolitaine 
de Transport (AMT) in Canada identified an opportunity to purchase 
commuter cars at a reduced price at an APTA meeting. According to AMT 
officials, while this was not a joint procurement, they saved money 
because they had a similar design to the New Jersey Transit's commuter 
cars that were currently under production. 

FTA Activities: 

FTA, recognizing the financial benefits of joint procurements, 
piggybacking, and standardized rail cars, has recently looked for ways 
to encourage these activities. FTA studied the feasibility of creating 
an incentive system in conjunction with Section 5307 (Urbanized Area) 
formula grants to encourage and reward transit agencies to take the 
lead on joint or piggybacked procurements for buses and rail cars. As 
part of this study, FTA implemented a pilot program for joint 
procurement of buses. Three of the five pilot projects did not result 
in successful joint procurements, but demonstrated some of the 
difficulties of joint procurement. Specifically, the study found that 
(1) the incentives provided must be significant, (2) it is not 
adequate to increase the federal matching portion of existing formula 
funds, and (3) and it is important to maintain continuous production 
without significant changes to achieve potential savings. FTA did not 
implement a similar pilot of rail cars as part of this study. 

As a result of the study, FTA recommended to Congress, in a 2008 
report,[Footnote 23] three alternatives to provide financial 
incentives to and compensate agencies that jointly procure transit 
rail cars: 

1. FTA would award incentive grants to transit agencies that lead 
joint procurements to cover a portion of their program management cost. 

2. FTA would award additional federal funding on the basis of the 
percentage of the rail car's contract cost for transit agencies that 
participate in a joint procurement. 

3. FTA would increase the federal match for rail cars purchased 
according to federally designated standard terms and 
specifications.[Footnote 24] 

According to FTA officials, Congress authorized a pilot program to 
provide incentives for joint bus procurements in the agency's annual 
authorization. 

Conclusions: 

Rail transit offers society a number of benefits, including reduced 
congestion and pollution and increased mobility. The benefits are 
realized in many cities across the country. However, the relatively 
small and erratic market for transit rail cars in the United States 
can hamper transit agencies as they purchase rail cars for commuter, 
heavy, and light rail transit systems, including streetcars, by 
increasing the cost and difficulty of procuring transit rail cars. 

Design specifications that focus on custom designs suited for single- 
system use have increased the amount of work and related costs needed 
to design and test these cars. However, efforts are under way to 
promote standardized design, including APTA's efforts to develop 
procurement standards for light rail cars and PRIIA's requirement for 
Amtrak to set up a committee to look into designs for high speed rail 
systems. DOT's support of these efforts could pay dividends into the 
future by making rail cars more widely available at a lower cost. In 
particular, systems built in the future may benefit from increased 
standardization if they are not limited by existing infrastructure. 

Joint procurements and piggybacking also have the potential to 
increase the financial advantages of purchasing large numbers of cars. 
These advantages typically have been limited to a handful of larger 
transit agencies, since smaller transit agencies have not purchased a 
sufficient amount of cars to benefit from economies of scale. While 
FTA's procurement guidance encourages joint procurement, it has not 
established a mechanism to assist transit agencies to successfully 
pool their orders, and transit agencies have reported difficulties in 
this area. Often, transit agencies are not aware of the activities of 
other agencies in the procurement arena. Without a process for 
coordinating performance and design standards and a means of 
encouraging joint procurements, current practices may not 
substantially change. A more systematic approach to linking agencies 
with similar infrastructure and rail car needs could identify even 
more of these opportunities. Since FTA helps fund many procurements, 
it may be in the best position to help transit agencies identify joint 
procurement opportunities. 

Recommendations for Executive Action: 

To ensure that federal funds are used efficiently when procuring 
transit rail cars, we recommend that the Secretary of Transportation 
direct the Administrator of the Federal Transit Administration to, in 
conjunction with the American Public Transportation Association, take 
the following two actions: 

1. Develop a process to systematically identify and communicate 
opportunities for transit agencies with similar needs to participate 
in joint procurements of transit rail cars. 

2. Identify additional opportunities for standardization, especially 
for new systems, such as light rail and streetcar systems. 

Agency Comments: 

We provided a draft of this report to the Department of Transportation 
for review and comment. The department provided comments via e-mail, 
generally concurred with the report, and agreed to consider the 
recommendations. The department also provided technical comments, 
which we incorporated in the report as appropriate. 

We are sending copies of this report to interested congressional 
committees, the Secretary of Transportation, and other interested 
parties. In addition, this report will be available at no charge on 
GAO's Web site at [hyperlink, http://www.gao.gov]. 

If you or your staffs have any questions about this report, please 
contact me at (202) 512-2834 or wised@gao.gov. Contact points for our 
Offices of Congressional Relations and Public Affairs may be found on 
the last page of this report. GAO staff who made major contributions 
to this report are listed in appendix II. 

Signed by: 

David J. Wise: 
Director, Physical Infrastructure Issues: 

[End of section] 

Appendix I: Scope and Methodology: 

To determine the key characteristics of the U.S. market for passenger 
transit rail cars, we reviewed rail car databases, interviewed transit 
agency officials, and spoke with officials representing: 

* the Federal Transit Administration (FTA), 

* the American Public Transportation Association (APTA), 

* existing and potential transit rail car manufacturers, and: 

* transit agency consultants. 

We used two databases--FTA's National Transit Database and APTA's 2009 
Public Transportation Vehicle Database (APTA's transit database)--to 
determine the number and modes of passenger transit rail cars in the 
United States. Both data sets describe the rail cars currently owned 
by transit agencies as well as dates the cars were made and the 
companies that built them. Both data sets also include information on 
commuter rail locomotives, although we did not analyze locomotive data 
for this report because locomotives carry no passengers and differ 
from other passenger rail cars in terms of technology and the 
companies that produce them. To assess the reliability of transit rail 
car inventory data from the National Transit Database and APTA, we 
interviewed FTA and APTA officials about data quality control 
procedures and reviewed relevant documentation. We reviewed the data 
for missing information and any obvious errors. We corrected National 
Transit Database data for one transit agency, based on information 
obtained directly from that agency. We determined that the data were 
sufficiently reliable for the purposes of this report. 

We selected 23 transit agencies to interview about topics for our 
three objectives. We conducted site visits at most of these transit 
agencies and interviewed the rest by telephone. To select them, we 
used the National Transit Database, which was current for U.S. transit 
agencies, as of 2008, according to FTA officials. We adjusted this 
database to include additional transit rail service reflected in 
APTA's transit database. Thus, we added 1 agency, the Valley Metro 
Rail of Phoenix, Arizona, that started its first rail service late in 
2008 with a light rail line. We also added commuter rail service, 
started in 2009, by the Tri-County Metropolitan Transportation 
District of Oregon, an agency that had previously operated light rail 
transit, for a total of 54 transit agencies. 

From the list, we judgmentally selected transit agencies on the basis 
of their size, rail transit modes (commuter rail, heavy rail, and 
light rail), and geographic distribution. The 23 agencies we contacted 
collectively managed about 17,600 rail cars (88 percent) of all 19,841 
rail cars managed by U.S. transit agencies. These transit agencies 
represent 42 percent of the 54 transit agencies we identified through 
the previously mentioned transit databases. However, the results of 
our work are not generalizeable to all transit agencies. As shown in 
table 2, our sample agencies managed cars that approximate the 
distribution of rail cars in the U.S. fleet. 

Table 2: U.S. Passenger Rail Car Fleet by Mode (Commuter Rail, Heavy 
Rail, Light Rail): 

Rail car mode: Commuter rail; 
U.S. rail car inventory: 31.3%; 
GAO's selected transit agencies: 32.2%. 

Rail car mode: Heavy rail; 
U.S. rail car inventory: 58.3%; 
GAO's selected transit agencies: 61.4%. 

Rail car mode: Light rail; 
U.S. rail car inventory: 10.4%; 
GAO's selected transit agencies: 6.4%. 

Sources: FTA's National Transit Database and GAO. 

[End of table] 

The 23 transit agencies we contacted, representing 33 types of transit 
systems, were located in 13 states and the District of Columbia and 
were distributed across the country, as shown in table 3. 

Table 3: Rail Transit Agencies Interviewed for GAO's Analysis: 

State: Arizona; 
City: Phoenix; 
Transit agency: Valley Metro; 
Transit system: Commuter rail: [Empty]; 
Transit system: Heavy rail: [Empty]; 
Transit system: Light rail: [Check]. 

State: California; 
City: Los Angeles; 
Transit agency: Los Angeles County Metropolitan Transit Authority; 
Transit system: Commuter rail: [Empty]; 
Transit system: Heavy rail: [Check]; 
Transit system: Light rail: [Check]. 

State: California; 
City: Los Angeles; 
Transit agency: : Southern California Regional Rail Authority; 
Transit system: Commuter rail: [Check]; 
Transit system: Heavy rail: [Empty]; 
Transit system: Light rail: [Empty]. 

State: California; 
City: Oceanside; 
Transit agency: : North County Transit District; 
Transit system: Commuter rail: [Check]; 
Transit system: Heavy rail: [Empty]; 
Transit system: Light rail: [Check]. 

State: California; 
City: Sacramento; 
Transit agency: : Sacramento Regional Transit District; 
Transit system: Commuter rail: [Empty]; 
Transit system: Heavy rail: [Empty]; 
Transit system: Light rail: [Check]. 

State: California; 
City: San Diego; 
Transit agency: : San Diego Metropolitan Transit System; 
Transit system: Commuter rail: [Empty]; 
Transit system: Heavy rail: [Empty]; 
Transit system: Light rail: [Check]. 

State: California; 
City: San Francisco; 
Transit agency: District of Columbia: Bay Area Rapid Transit; 
Transit system: Commuter rail: District of Columbia: [Empty]; 
Transit system: Heavy rail: District of Columbia: [Check]; 
Transit system: Light rail: District of Columbia: [Empty]. 

State: District of Columbia; 
City: Washington; 
Transit agency: Washington Metropolitan Area Transit Authority; 
Transit system: Commuter rail: [Empty]; 
Transit system: Heavy rail: [Check]; 
Transit system: Light rail: [Empty]. 

State: Florida; 
City: Miami; 
Transit agency: Miami-Dade County Transit; 
Transit system: Commuter rail: [Empty]; 
Transit system: Heavy rail: [Check]; 
Transit system: Light rail: [Empty]. 

State: Illinois; 
City: Chicago; 
Transit agency: Chicago Transit Authority; 
Transit system: Commuter rail: [Empty]; 
Transit system: Heavy rail: [Check]; 
Transit system: Light rail: [Empty]. 

City: Massachusetts: Chicago; 
Transit agency: Massachusetts: Metra; 
Transit system: Commuter rail: Massachusetts: [Check]; 
Transit system: Heavy rail: Massachusetts: [Empty]; 
Transit system: Light rail: Massachusetts: [Empty]. 

State: Massachusetts; 
City: Boston; 
Transit agency: Massachusetts Bay Transportation Authority; 
Transit system: Commuter rail: [Check]; 
Transit system: Heavy rail: [Check]; 
Transit system: Light rail: [Check]. 

State: Missouri; 
City: St. Louis; 
Transit agency: Bi-State Development Agency; 
Transit system: Commuter rail: [Empty]; 
Transit system: Heavy rail: [Empty]; 
Transit system: Light rail: [Check]. 

State: New Jersey; 
City: Newark; 
Transit agency: New Jersey Transit; 
Transit system: Commuter rail: [Check]; 
Transit system: Heavy rail: [Empty]; 
Transit system: Light rail: [Check]. 

State: New York; 
City: New York; 
Transit agency: Port Authority Trans Hudson[A]; 
Transit system: Commuter rail: [Empty]; 
Transit system: Heavy rail: [Check]; 
Transit system: Light rail: [Empty]. 

State: New York; 
City: : New York; 
Transit agency: : MTA New York City Transit; 
Transit system: Commuter rail: [Empty]; 
Transit system: Heavy rail: [Check]; 
Transit system: Light rail: [Empty]. 

State: New York; 
City: : New York; 
Transit agency: : MTA Metro North; 
Transit system: Commuter rail: [Check]; 
Transit system: Heavy rail: [Empty]; 
Transit system: Light rail: [Empty]. 

State: New York; 
City: New York; 
Transit agency: Oregon: MTA Long Island Rail Road; 
Transit system: Commuter rail: Oregon: [Check]; 
Transit system: Heavy rail: Oregon: [Empty]; 
Transit system: Light rail: Oregon: [Empty]. 

State: Oregon; 
City: Portland; 
Transit agency: Tri-County Metropolitan Transportation District of 
Oregon; 
Transit system: Commuter rail: [Check]; 
Transit system: Heavy rail: [Empty]; 
Transit system: Light rail: [Check]. 

State: Pennsylvania; 
City: Philadelphia; 
Transit agency: Southeastern Pennsylvania Transportation Authority; 
Transit system: Commuter rail: [Check]; 
Transit system: Heavy rail: [Check]; 
Transit system: Light rail: [Check]. 

State: Utah; 
City: Salt Lake City; 
Transit agency: Utah Transit Authority; 
Transit system: Commuter rail: [Check]; 
Transit system: Heavy rail: [Empty]; 
Transit system: Light rail: [Check]. 

State: Virginia; 
City: Alexandria; 
Transit agency: Virginia Railway Express; 
Transit system: Commuter rail: [Check]; 
Transit system: Heavy rail: [Empty]; 
Transit system: Light rail: [Empty]. 

State: Washington; 
City: Seattle; 
Transit agency: Central Puget Sound Regional Transit Authority; 
Transit system: Commuter rail: [Check]; 
Transit system: Heavy rail: [Empty]; 
Transit system: Light rail: [Check]. 

Sources: GAO and FTA's National Transit Database. 

[A] The National Transit Database lists the Port Authority Trans 
Hudson system as a heavy rail system, so we followed this 
classification in this table. However, under federal law, this system 
is a commuter rail system and, thus, is subject to FRA regulations. 

[End of table] 

In addition, we interviewed two consulting companies working with the 
transit agencies that we interviewed. One contractor, Louis T. Klauder 
and Associates, was serving as a car consultant for the Port Authority 
Trans Hudson at the time of our visit. The other contractor, Virginkar 
& Associates, Inc., was serving as rail car procurement contractor for 
the Los Angeles County Metropolitan Transit Authority at the time of 
our visit. 

To determine how the U.S. market for transit rail cars compares with 
international markets for transit rail cars, we reviewed data obtained 
from SCI Verkehr in Cologne, Germany. To assess the reliability of 
transit rail car inventory data from SCI Verkehr, we interviewed a 
company official about data quality control procedures. We determined 
that the data were sufficiently reliable for purposes of this report. 
Furthermore, with the help of the Department of State, we contacted: 

* domestic and multinational rail car manufacturers; 

* Agence Métropolitaine de Transport--the commuter rail service 
provider for Montreal, Canada; 

* rail officials from Canada, Japan, New Zealand, and Portugal; 

* Korean Board of Audit and Inspection; and: 

* European railway associations, including the Light Rail Transit 
Association, headquartered in the United Kingdom; and UNIFE--the 
Association of the European Rail Industry. 

To determine the key characteristics of the U.S. market for passenger 
transit rail cars and to determine how the U.S market for transit rail 
cars compares with international markets for transit rail cars, we 
judgmentally selected six companies that are existing and potential 
transit rail car builders. Five companies were selected mainly due to 
their status as either a major producer in the U.S. transit rail car 
market or a U.S.-based producer. One company was selected due to the 
relevance of its October 2009 congressional testimony about the U.S. 
rail car market and rail car design standardization initiatives. 
[Footnote 25] These companies were as follows: 

* Alstom Transportation: 

* Bombardier: 

* Kawasaki Rail Car, Inc. 

* Siemens Industry: 

* United Streetcar/Oregon Iron Works: 

* US Railcar LLC: 

To determine the federal government's role in funding and setting 
standards, we reviewed applicable federal law, regulations, guidance, 
and grants and interviewed FTA officials at headquarters and select 
regional offices.[Footnote 26] We also interviewed APTA officials 
regarding the federal government's role in setting design standards. 

To identify any challenges that transit agencies face when procuring 
transit rail cars, we met with transit agencies representing 33 types 
of transit systems across the country, transit rail car manufacturers, 
transit agency consultants, and FTA and APTA officials. 

We conducted this performance audit from September 2009 through June 
2010 in accordance with generally accepted government auditing 
standards. Those standards require that we plan and perform the audit 
to obtain sufficient, appropriate evidence to provide a reasonable 
basis for our findings and conclusions based on our audit objectives. 
We believe that the evidence obtained provides a reasonable basis for 
our findings and conclusions based on our audit objectives. We 
provided a draft of our report to the Department of Transportation and 
incorporated its comments in the report as appropriate. 

[End of section] 

Appendix II: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

David J. Wise, (202) 512-2834 or wised@gao.gov: 

Staff Acknowledgments: 

In addition to the contact named above, Catherine Colwell, Assistant 
Director; Amy Abramowitz; Richard Calhoon; Sarah Jones; Stephanie 
Purcell; Amy Rosewarne; Frank Taliaferro; and Crystal Wesco made 
important contributions to this report. 

[End of section] 

Footnotes: 

[1] Federal Transit Administration, Report to Congress on Incentives 
in Federal Transit Formula Grant Programs: Report of the Secretary of 
Transportation to the United States Congress Pursuant to 49 U.S.C. 
5336(c) (August 2008). 

[2] There were 54 transit agencies operating at least one rail transit 
line in the United States in 2008, according to our analysis of FTA's 
National Transit Database. 

[3] Both FTA and FRA are administrations within DOT. 

[4] The National Transit Database lists the Port Authority Trans 
Hudson as a heavy rail system. The Port Authority Trans Hudson 
operates similarly to a heavy rail system, and we count that system as 
heavy rail in figure 2. However, under federal law, this system is a 
commuter rail system and, thus, is subject to FRA regulations. 

[5] GAO has recent work concerning public transportation investments 
and economic development. See GAO, Affordable Housing in Transit- 
Oriented Development: Key Practices Could Enhance Recent Collaboration 
Efforts between DOT-FTA and HUD, [hyperlink, 
http://www.gao.gov/products/GAO-09-871] (Washington, D.C.: Sept. 9, 
2009). 

[6] "Major manufacturers" are one of the top five producers in at 
least one of the three transit modes. 

[7] Other factors, such as the price of commodities, exchange rates, 
and inflation, may have also contributed to the higher price of the 
rail cars in the second procurement. 

[8] Although most contracts are fixed price for the initial 
procurement of rail cars, many contracts do include options that 
agencies can exercise for additional procurement of cars. It is common 
for terms in the options contracts to be adjustable for certain 
factors, such as commodities prices and general inflation. 

[9] FTA, through its New Starts program, provides state and local 
agencies with funding to design and construct new or extensions of 
fixed guideway systems that use and occupy a separate right-of-way for 
the exclusive use of public transportation services. These systems 
include fixed rail, exclusive lanes for buses and other high-occupancy 
vehicles, and other systems. 49 U.S.C. § 5309(b)(1). 

[10] 49 U.S.C. § 5309(b)(2). 

[11] 49 U.S.C. § 5307. 

[12] Recovery Act, Pub. L. No. 111-5, 123 Stat. 115 (Feb. 17, 2009). 

[13] FTA's grant agreements with transit agencies either specifically 
include procurement provisions in the grant agreements or have 
references to legislation, such as the "Buy America" provision, or to 
FTA and Office of Management and Budget circulars, such as FTA's 
Circular 4220.1F and OMB Circular A-119. 

[14] 49 U.S.C. § 5325(e)(1). 

[15] GAO, Rail Transit: Additional Federal Leadership Would Enhance 
FTA's State Safety Oversight Program, [hyperlink, 
http://www.gao.gov/products/GAO-06-821] (Washington, D.C.: July 26, 
2006). 

[16] The Public Transportation Safety Act would amend chapter 53 of 
Title 49, United States Code, to establish a public transportation 
safety program. H.R. 4643, 111th Cong. (2010). 

[17] A full funding grant agreement establishes the terms and 
conditions for federal funds available for the project, including the 
maximum amount of federal funds available. The total award for the 
full funding grant agreement was $587 million. The local share for the 
rail car purchase was $64 million. 

[18] Under FTA guidance, transit agencies are expected to use transit 
rail cars for a minimum of 25 years, otherwise, transit agencies must 
reimburse FTA for their prorated share of the procurement costs for 
the remaining years. 

[19] William D. Middleton, "Is it time to standardize?," Railway Age 
(June 1994). 

[20] APTA officials said that having a set of industry standards would 
be preferable because changes to the standards could be made more 
easily than if the standards were set out in federal regulations. 

[21] These financial risk issues include whether the transit agency or 
the manufacturer should be responsible for the extra costs resulting 
from problems that arise during the contract. Unknowns, such as 
commodity prices, general inflation, and exchange rates, add risk to 
rail car procurement. Other cost issues, such as indemnification, 
bonding requirements, warranties, and car design specificity, also can 
add risk to a contract. 

[22] Passenger Rail Investment and Improvement Act of 2008, Pub. L. 
No. 110-432, 122 Stat. 4848 (Oct. 16, 2008). 

[23] Report to Congress on Incentives in Federal Transit Formula Grant 
Programs. 

[24] While no new money would be provided with this alternative, cost 
savings could be achieved through reduced procurement costs. 

[25] Testimony of US Railcar LLC before the Committee on 
Transportation and Infrastructure, Subcommittee on Railroads, 
Pipelines, and Hazardous Materials, U.S. House of Representatives 
(Oct. 14, 2009). 

[26] We interviewed officials from FTA Regions 3, 9, and 10--regions 
in which we conducted site visits. 

[End of section] 

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