Disposal of Property and Equipment

Q. Does FTA have any guidance on prohibiting “parts cannibalization” of FTA funded vehicles which have reached the end of their useful life? We have some retired FTA funded DAR vans about to be sold at auction. The contractor on whose lot the vans are parked removed some windshields and bumpers to add to his parts inventory. I realize we need to deal with a local contractual problem, but I find nothing in 5010, 4220, or BPPM relating to keeping a retired vehicle intact for surplus auction.” A. FTA Circular 5010.1C, paragraph 3.f (3) and (4) discuss disposition of equipment that has reached the end of its service life. If the unit has a fair market value (FMV) of more than $5000, then the grantee must reimburse FTA for its share of the proceeds. We would say, then, that if the equipment’s FMV was above $5000 and the removal of parts decreased the FMV, then the agency would have to reimburse FTA for its share of the decrease in FMV caused by the cannibalization. If the equipment’s FMV, however, was less than $5000 to start with, then removal of the parts is irrelevant to FTA since there is no Federal interest in the property.

Q. Our transportation program has recently been forced to downsize, and now I have several buses that I need to get rid of. Can I sell them to a private individual? If so, what is the process and how much of the proceeds will I retain? A. The FTA Best Practices Manual (BPPM), section 1.3.3.10, gives an overview of FTA requirements regarding disposal of equipment. It notes that grantees are required to dispose of equipment such as rolling stock using competitive procedures whenever possible. An example is given there of New York City Transit procedures of advertising the availability of the equipment, preparing descriptive specifications and soliciting quotes from potential buyers. Section 1.3.3.10 of the BPPM is available online at here. The BPPM section 1.3.3.10 also refers to FTA’s Grant Management Circular 5010.1C for further requirements. This Circular is available online here.. Circular 5010.1C, Chapter II, Section 3 – “Equipment” – paragraph f(1) requires FTA approval before disposing of rolling stock before its service life has been reached. It also discusses the issue of reimbursing FTA from the proceeds of the sale.

Q. Vehicles that have reached the end of their useful life have been donated to other public entities. However, a school has requested a vehicle but I understand that schools are not really considered "public"? The vehicles that we wish to donate are Project Mobility vans which are beyond their useful life. A. The FTA Grant Management Guidelines in Circular 5010.1C dated October 1, 1998 would allow you to donate the vehicles to anyone you wish if they have fulfilled their service life and have a unit market value of $5,000 or less. See Chapter II, paragraph 3.f (4). If the vehicles have a unit market value greater than $5,000, we would suggest you contact your FTA regional grant manager for approval to donate them. The Circular is available online here.

Q. Can an agency use a third party contractor to sell vehicles at auction? What procedures have to be followed in terms of opening the auction up to the general public vs. a selected pool of wholesalers (advertising, etc.)? These are non-revenue vehicles that are FTA funded. A. We asked FTA Chief Counsel to comment on your question. There is no problem in using a contractor to conduct the auctions. FTA suggests you could add a requirement to their auction contract to place an ad in the local paper in advance of the sales and/or put a notice on the agency’s internet page. Either could simply say you are auctioning vehicles on x date and tell interested people how to contact the auctioneer (We assume the auctioneer would accept a bid from a private party). Either option would make the buying opportunities generally available.

Q. Could a grantee competitively bid for the services of a 3rd party fleet management company, who in turn conducts an auction to sell the vehicles purchased with FTA funds? These auctions are closed to the general public and open only to selected wholesalers. A. On what to do with the FTA interest, you should consult the regional office. You could competitively bid out a contract to dispose of the equipment, but how would you score the bids? If bidder A promised at least $X and bidder Y promised at least $Y, that would work. Under that scenario, the ultimate buyer doesn’t matter. We would be concerned if you contract only for a sales service that limits competition on behalf of the agency and would need more information on any plan that went that way.

Q. Under the regulations is it possible to transfer title of FTA funded rolling stock that is past useful life and eligible to be disposed of to a 501(C) 3 service group for public use if it does not have a value in excess of $5,000? We presently have 39 1998 / 99 model, 3 year buses for ATA service that are ready to be retired. A. FTA policies regarding the disposition of property, equipment, etc. may be found in the FTA Circular 5010.1C - Grant Management Guidelines, which is available online here. Chapter II, paragraph 3.f.(4) deals specifically with the disposition of equipment that has a unit market value of $5,000 or less: (4) Less than $5,000 value: Equipment with a unit market value of $5,000 or less, or supplies with a total aggregate market value of $5,000 or less, may be retained, sold or otherwise disposed of with no obligation to reimburse FTA, providing useful service life requirements have been met. Records of this action must be retained.

Q. Is there any FTA guidance on the disposal of vehicles that have passed the end of their service life, both in years and miles? A. In addition to the information in this section of the FTA Helpline, there is coverage of this topic in the Best Practices Procurement Manual (BPPM) in Section 1.3.3.10* - "Disposition of Surplus." ____________ *Section 1.3.3.10 of the BPPM is available on the Internet.

Q. I would like to obtain clarification on one of the provisions of the FTA Circular 5010.1C. (Chapter 1, Item 8 - Rolling Stock, subsection 1 - Service life Policy), 2nd sentence of the last paragraph where it states: "Removal of FTA-funded vehicle from revenue service life before its minimum normal service life, except for reasons of fire, COLLISION or natural disaster, leaves the grantee liable to FTA for the federal share of the vehicle's remaining value." Could I interpret this to mean that if we remove the FTA-funded vehicle from revenue service life before its minimum normal service life due to collision, the grantee is not liable to the FTA for the federal share of the vehicle's remaining value at the time of the accident? Our situation in our agency is that we have a federally-funded bus that was removed from revenue service due to collision. This transaction resulted to a total loss of approx. $280K (difference between acquisition cost and remaining book value at the time of the accident). Our agency received a small amount of insurance proceeds. If my interpretation of 5010.1C is correct, our agency is not liable to the FTA for its share of the remaining value of the vehicle at the time of the accident. A. We forwarded your question to FTA's Chief Counsel's Office to be certain you received the correct answer. Their answer is as follows: The grantee either insures or self-insures the Federal interest in a vehicle. Thus, to the extent a grantee has inadequate insurance, it is self-insuring. Thus, if the grantee purchases another vehicle, it need not refund any of the insurance proceeds to FTA if used to acquire the new vehicle. But the grantee needs to add from its own funds sufficient funding to compensate for the balance of the Federal interest lost. Consequently, the grantee must subtract the entire amount of the remaining Federal interest, along with the attributable Federal share thereof, from the cost of the new vehicle, and confine its request for Federal funding of that new vehicle to the balance remaining. If the grantee elects not to buy a new bus, they will owe FTA the Federal share of both the insurance proceeds and a payment equal to the Federal share of the self-insured portion. The actual basis for the requirement is found in 49 USC 5334(g).

Q. We recently auctioned several buses that reached the end of their useful lives and that were originally purchased with mostly federal funding. Is there a formula which requires our Agency to return a portion of the proceeds if the sale price we received exceeds a certain amount. Can you provide this formula that would apply to the proceeds received by sale of the buses and/or related equipment (spare transmissions, engines, etc.)? A. The disposition of property and equipment that was acquired with Federal grant funds is covered in FTA Circular C 5010.1C entitled "Grant Management Guidelines," dated October 1, 1998. The Circular may be accessed here. Disposition of equipment is covered in Chapter II, paragraph 3f, which reads in subparagraph (3): Value Over $5,000: After the service life of equipment is reached, equipment with a current market value exceeding $5,000 per unit, or unused supplies with a total aggregate fair market value of more than $5,000, may be retained or sold, with reimbursement to FTA of an amount calculated by multiplying the total aggregate fair market value at the time of disposition, or the net sale proceeds, by the percentage of FTA's participation in the original grant. The grantee's transmittal letter should state whether the equipment will be retained or sold. Use of the proceeds is discussed elsewhere in this chapter. You should consult this Circular for further guidance concerning disposition of assets acquired with grant funds. The Best Practices Procurement Manual (BPPM), Section 1.3.3.10 "Disposition of Surplus," cites several regulations dealing with disposal of assets and you should be familiar with these as well. The BPPM may be accessed at the FTA HelpLine web site under "On Line Tools and Resources." ____________ Section 1.3.3.10 of the BPPM is available on the Internet.

Q. What is the reasoning behind the law where rolling stock purchased with FTA funds is subject to reimbursement to the FTA if sold for more than $5000 but not if sold for less? I understand that rolling stock which was purchased in whole or part with FTA funds is subject to reimbursement to the FTA. What does not make any sense is why any agency would encourage auctioning a bus for anything over $5000, since once that amount is exceeded, the agency would owe the percentage of the entire auction price back to the FTA. Please consider the example that follows: (A) Bus auctioned for $4975.00 originally 80% FTA funded - Agency owes nothing to the FTA and keeps all $4975. (B) Bus auctioned for $5500, again 80% originally funded by the FTA. The agency then owes 80% of the $5500 sale price for a total of $4400 to the FTA, and retains only $1100. It does not behoove anyone to auction a bus for more than $4999.99 because they will loose money on the deal. A. The common grant rule requires grantees to establish the fair market value of the equipment. This may be done by obtaining an appraisal or by soliciting bids. In either case the expectation is that the method used would be an objective one where the grantee would not "predetermine" the outcome of the valuation based on the $5,000 threshold. The requirement to dispose at fair market value and the $5,000 threshold is a regulatory one imposed by 49 CFR 19.34(g). On the other hand, the Transportation Equity Act (TEA-21) changed the law and provided an alternative option to the disposition process contained in the common grant rule. TEA-21 provides that the sale proceeds of any assets acquired with grant funds can be retained by the recipient and used to reduce the gross project cost of a future grant. If this TEA-21 provision is one that might appeal to your agency you should discuss with your regional FTA office.

Q. Is the donation of a surplus used-bus to non-profit organizations ever allowed? Periodically, we are contacted and asked to donate used equipment to not-for-profit organizations, such as church missions. A. The disposition of property and equipment that was acquired with Federal grant funds is covered in FTA Circular C 5010.1C entitled "Grant Management Guidelines," dated October 1, 1998. Information can be found here. Disposition of equipment is covered in Chapter II, paragraph 3f, which reads: (1) Value Over $5,000: After the service life of equipment is reached, equipment with a current market value exceeding $5,000 per unit, or unused supplies with a total aggregate fair market value of more than $5,000, may be retained or sold, with reimbursement to FTA of an amount calculated by multiplying the total aggregate fair market value at the time of disposition, or the net sale proceeds, by the percentage of FTA's participation in the original grant. The grantee's transmittal letter should state whether the equipment would be retained or sold. Use of the proceeds is discussed elsewhere in this chapter. (4) Less than $5,000 value: Equipment with a unit market value of $5,000 or less… may be retained, sold or otherwise disposed of with no obligation to reimburse FTA, providing useful service life requirements have been met. Records of this action must be retained. (6) Transfer to Public Agency for Non-Transit Use. (See Circular) You should consult this Circular for further guidance concerning disposition of assets acquired with grant funds. The FTA Master Agreement--MA(12), Section 19.g also discusses "Disposition of Project Property" and you should review that document as well. It is also available at the FTA web site noted above.

Q. I was wondering if you could give me a reference for citing the FTA rule on returning/selling property purchased with federal funds upon a breach/termination of a contract. Please note the equipment being purchased is proprietary in nature, and the company furnishing the equipment is requesting to have "first right of refusal" upon the sale of the goods. Can the equipment be sold back to the vendor at a depreciated cost based upon an FTA appraisal? Please cite applicable code sections. I need to include this in our contract with vendor. "The grant is a 5309 capital grant going toward a Compressed Natural Gas (CNG) fueling station. The equipment will be acquired as a turnkey facility and has many proprietary parts associated. A. The FTA Master Agreement, FTA MA(12), Section 19g. deals with "Disposition of Project Property." Paragraph (b) covers the circumstance of disposing of property that is prematurely withdrawn from use, which is the circumstance that your question relates to. We believe if you comply with the requirements set forth in Section 19f. of the Master Agreement, you may give your vendor a "right of first refusal" clause in the contract you are negotiating. We would also point you to FTA Circular 5010.1C, Chapter II, paragraph 3, which deals with "Equipment," including its "Disposition" in subparagraph f. But the Master Agreement Section 19f. would appear to be more specific to your situation. For current year's and prior years' "Master Agreements, go here, and for FTA Circular 5010.1C dated 10-1-98, click here.

Q. When disposing of assets purchased with federal funds, is there a requirement to give grantees first opportunity to buy the items before they are offered to the general public? A. There is no requirement that grantees be given the first opportunity to buy surplus assets before they are offered to the general public. FTA personnel with whom we spoke recommended that you contact your regional FTA program office to request their involvement. We would think that the FTA would be willing to express their support to the other grantee organization in your region that this equipment be sold to your agency rather than a nonpublic entity.