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FMCSA Practice Tips: Safety Audits for New Motor Carriers

June 17, 2022

For the past 20 years, the Federal Motor Carrier Safety Administration (FMCSA) has utilized a “New Entrant Safety Assurance Program” under 49 CFR Part 385, Subpart D for motor carriers receiving USDOT numbers for the first time. A key feature of this program is to give these carriers only provisional registrations for their first 18 months of operation, during which their registrations can be revoked under “expedited action” for any of seven specified violations of FMCSA safety regulations. See 49 CFR 375.308.

The new entrant program has led to unforeseen results in recent years. Until the advent of COVID, new entrant audits were conducted on-site, thus further reducing the frequency of full compliance reviews for established carriers by limited federal and state audit staff. Although “desk audits” more recently have become the norm for new entrants, the number of new entrants seeking their own registrations has increased sharply. This increase results from concerted legal challenges to the ability of truck owner-operators to lease to existing carriers in California and elsewhere, and from freight becoming more readily accessible to small carriers through load boards and transportation brokers. According to an observer in a large midwestern state, the authorities there are seeing 10 times as many new entrants per month as they possibly can cover even with desk audits.

A related procedural pitfall is that FMCSA gives only 20 days’ notice of its intent to conduct a new entrant audit. During that period, the carrier must access the audit questions through an FMCSA portal for which a “DOT PIN” and security questions were assigned to the carrier when its provisional registration initially was granted.  Unfortunately, most carriers don’t realize that the DOT PIN expires if not used within six months. Failure to access the portal and answer the audit questions in a timely manner can result in the carrier’s provisional registration being suspended, or in the carrier’s audit being moved “to the back of the line.” In the meantime, its registration hangs by the thread of “expedited action.”

FMCSA has made its new-entrant problem even worse by limiting the transferability of USDOT numbers from one legal entity to another, even though MC docket numbers are freely transferable through post-closing transfer reports. There is no basis in FMCSA regulations for such a distinction between MC and USDOT numbers. The result of this hair-splitting is that new entrant audits can be required when a carrier operation gets a new USDOT number after a “transfer” in form but not in fact. Examples can include purely housekeeping transactions within a corporate family – such as where a carrier subsidiary merges into its non-carrier parent, where the truckload division of an LTL carrier is spun off into a new legal entity, or where a carrier is acquired through a tax-driven reverse merger into a buyer’s acquisition subsidiary.

Fortunately, FMCSA currently appears to be relaxing its ban on transferring USDOT numbers. Its website now allows an owner-operator to retain his or her USDOT number when incorporating, and the agency recently allowed at least one carrier to retain its USDOT number after a merger within a corporate family. In that instance, the carrier’s transfer report certified that there will be no change in its demonstrably effective safety program and safety management system.

For the sake of greater efficiency and transparency in the handling of new entrant audits, FMCSA should undertake a rulemaking through which intracorporate transactions would explicitly receive a class exemption from the new entrant rules when the involved carrier demonstrates that it has an effective safety program that will not change after the transaction closes. The Surface Transportation Board already has a similar exemption for intracorporate transactions among bus carriers, see 49 CFR 1186.9.

Key Takeaways for Motor Carriers:

  1. Activate your FMCSA portal immediately after your provisional registration is granted – don’t risk missing a new-entrant audit deadline by letting your DOT PIN lapse!
  2. If you are a party to an acquisition, the simplest way to avoid getting a new USDOT number – and thus avoid treatment as a “new entrant” – is to avoid having your operating authority being transferred to, or merged into, a different legal entity.
  3. If such a transfer is necessary, but you can show that an existing safety management program is effective and will remain in place, ask FMCSA for permission to retain your existing USDOT number – thus bypassing “new entrant” treatment.

The views and opinions expressed in the article represent the view of the authors and not necessarily the official view of Clark Hill PLC. Nothing in this article constitutes professional legal advice nor is intended to be a substitute for professional legal advice.

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