Transit Equipment Warranties Should Be Enforced

PSAD-80-12: Published: Dec 7, 1979. Publicly Released: Dec 7, 1979.

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The Urban Mass Transportation Administration (UMTA) either distributed or approved for distribution more than $10.3 billion in capital assistance to state and local authorities through fiscal year 1978 and has made operating assistance grants to many authorities which have provided up to 50 percent of operating loss in providing transit service. Contracts for the purchase of transit vehicles normally include warranties in which the contractor agrees to correct certain defects in material or workmanship for a stipulated time or mileage period. Also, billback agreements generally enable transit authorities to make necessary repairs in-house and be reimbursed by the contractor for the costs of labor and materials use. GAO reviewed nine projects which were estimated to cost $882 million with $655 million of that sum coming from federal sources.

GAO estimated that, on the basis that warranties cost about 2 percent of the contract price, about $17.6 million was paid for warranties on the projects under review. Some transit authorities did not take full advantage of warranty clauses in various equipment contracts. Full reimbursement for warranty work was not obtained from equipment manufacturers for three general reasons: (1) warranties expired before all the equipment was placed in operation; (2) better warranty enforcement and recordkeeping procedures were needed; and (3) contract warranty provisions were inadequate. Because state and local transit authorities were bearing costs for warranty work that should have been paid by equipment manufacturers, the federal government was paying for the inefficiency through operating assistance grants.

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