How to Survive a U.S. D.O.T. Audit

A Regulatory Primer for Limousine & For-Hire Operators Integrating Vans, Shuttles and Buses into their Fleets

In recent years, limousine operators have been introducing vans, buses and shuttles of various sizes to their fleets, responding not only to consumer demand, but to pursue new business opportunities and accrue tangible business assets to increase company valuations. In some instances, this diversification will help smaller limousine operators who do not rely solely on larger affiliate referrals to address local retail business being lost to Uber and Lyft. These companies are finding new revenue streams shuttling passengers around corporate and college campuses, taking commuters from their homes to a transit hub or office location, and providing group tours or chartered trips (i.e., for local city tours or extended multi-day tours). For companies looking to diversify beyond the taxi and for-hire vehicle business, tax incentives and grants offered by federal, state, and local governments add to the appeal of entering the motor coach industry.

Smaller than a bus or coach, but larger than an SUV, these vehicles carry higher seating capacities that may bring their operation under the jurisdiction of federal regulators. The Federal Motor Carrier Safety Regulations (FMCSRs) require companies that operate vehicles for-hire with a designed seating capacity of more than eight (including the driver), among other commercial motor vehicles (CMVs), to register with the Federal Motor Carrier Safety Administration (FMCSA) and undergo a safety inspection if they operate interstate. Many states, including New York, New Jersey and Connecticut, require all commercial motor vehicle carriers to register with FMCSA and obtain a USDOT number, even if the carrier does not cross state lines.

The FMCSA, which is a sub-division of the U.S. Department of Transportation (U.S. DOT), tracks and regularly audits CMV operations to ensure they comply with the FMCSRs. These regulations include driver qualification, vehicle inspection and maintenance requirements, and driver hours of service (HOS). Failing to comply with these regulations can lead to FMCSA enforcement actions ranging from written warning letters to comprehensive Compliance Reviews (also known as “DOT Audits”), which may result in fines or the carrier being taken out of service.

The limousine industry is fortunate to have the FMCSA’s new administrator, my good friend and former colleague, Raymond P. Martinez. Administrator Martinez for many years worked closely with me when he was the Commissioner of the NYS Department of Motor Vehicles, where he helped the NYC Taxi and Limousine Commission streamline licensing, inspections and other matters that allowed both agencies to synergize better. Before being appointed by the President and confirmed by Congress, Administrator Martinez served for many years as the New Jersey Motor Vehicle Commission’s Chairman and Chief Administrator. In that capacity, he was responsible for the licensing and regulation of the limousine industry. So, the limousine industry can rest assured that Administrator Martinez is well-versed in regulation and understands how the industry works, as well as being a dedicated public servant who has a reputation for engaging in extensive outreach and being tough, but fair.

The Electronic Logging Device (ELD) Mandate

During the Obama Administration, the FMCSA enacted sweeping changes to the records of duty status (RODS) regulations for certain CMV operations. The ELD Rule, which went into effect in December 2017, requires motor carriers to install and use Electronic Logging Devices (ELDs) for more accurate HOS recording. The devices, which range from $200 to $800 a piece, replace paper logs and make it easier to track, manage and share RODS data. Connected to the vehicle’s engine, the ELD records all activities when the vehicle is in use, not just drive time. The device also allows drivers to manually log when they are off-duty or in the sleeper berth.

There are four key components to the ELD Rule. First, it mandates commercial drivers who are required to prepare HOS records of duty status (RODS) to use an ELD, unless they are exempt. The most notable exemptions are for drivers who use paper logs no more than eight days during any 30-day period and drivers of vehicles manufactured before model year 2000. Second, the rule sets ELD performance and data standards and requires FMCSA self-certification of all ELDs. Third, it identifies categories of supporting documents that drivers and carriers are required to keep to show compliance with HOS – such as dispatch and trip records, itineraries, schedules or other documents that show each trips’ starting and ending location, and payroll records or equivalent documents showing payment to a driver. Finally, the rule prohibits harassing drivers based on ELD data and provides recourse for drivers who believe they have been harassed.

The ELD Rule does not change any of the basic hours-of-service rules or exceptions. As of April 1, 2018, companies not in compliance with the ELD Rule are put out of service. Companies who installed Automatic Onboard Recording Devices (AOBRDs) prior to December 18, 2017, may qualify under the “grandfather clause.” Instead of using ELDs, the companies will be allowed to use mobile apps or electronic logbook apps that are non-engine connected until December 16, 2019.

New Entrant Safety Audit

Carriers are expected to comply with all applicable safety regulations from day-one. After registering with the FMCSA, new carriers will have their safety performance monitored for 18-months and be subject to a New Entrant Safety Audit. Most new carriers will undergo a New Entrant Safety Audit within 12 months after beginning operations. Passenger carriers must be audited within the first 120 days. The Safety Audit is meant to ensure new carriers fully understand the safety regulations and have established effective safety management controls. The audit will not be conducted until the company has been operating long enough to generate sufficient records to allow for adequate evaluation of its basic safety management controls – usually, in at least three months.

Before the Safety Audit, there is one thing in particular that new carriers should do to help ensure that their operations pass inspection – namely – “pay attention to detail!” This means performing periodic and routine vehicle inspections and vehicle maintenance, as well as making sure driver files and recordkeeping are thorough and up-to-date. New carriers will automatically fail the Safety Audit for alcohol and drug-related violations, such as failing to have an alcohol and/or drug-testing program, or using a driver who failed to complete required follow-up procedures after testing positive for drugs.

Safety Audits are conducted by a certified U.S. federal safety investigator or an enforcement officer or inspector from the applicable State Department of Transportation. The auditor will review safety management controls to test for compliance with safety regulations. Be prepared to provide documents and records that verify the adequacy of safety management systems, such as records related to drivers, vehicles and general operating procedures.

Auditors have a right to inspect nearly all of a carrier’s records and will probably ask to see: proof of financial responsibility and insurance; accident registers and copies of all accident reports; driver vehicle inspection reports (DVIRs) and vehicle maintenance files; maintenance policies; a current list of drivers; driver qualification files; records of driver duty status and HOS supporting documents; HOS violations countermeasures; driver drug and alcohol testing records; a drug and alcohol policy; proof of drug use and alcohol misuse training for supervisors; drug and alcohol statistical summaries; and agreements with drug testing entities and driver consortium enrollments. Any documents that a carrier is unable to provide during the audit should be provided as soon as possible afterward.

After the Safety Audit, the auditor will review the findings and issue a pass or fail. If the carrier passes, FMCSA will continue to monitor the carrier’s safety compliance and performance. As long as no violations occur during the 18-month new entrant monitoring period, the carrier’s authority will be permanent. If the carrier fails, then it must implement a corrective action plan to fix any violations and safety management practices. Failure to do so will result in the carrier being placed out of service.

Compliance Review

A Compliance Review is an in-depth on-site inspection to determine a motor carrier’s compliance with safety requirements. These reviews cover the full spectrum of compliance areas and could take days or weeks to complete, and the consequences may be severe. Reviews may be triggered by roadside inspections, an accident involving a carrier’s vehicles, or a complaint, among other reasons. Carriers may be subject to a Compliance Review investigation at any time FMCSA safety data indicates problems – even before the carrier completes a New Entrant Safety Audit.

There are two types of on-site inspections: a “focused” review of specific safety performance and/or compliance problems at the carrier’s place of business, and a “comprehensive” review of the carrier’s entire safety operation that reviews the carrier’s compliance with all aspects of FMCSA’s regulations. Both scenarios include a visit from an FMCSA-certified investigator, who will likely perform physical and recordkeeping inspections to diagnose safety performance and compliance problems, and prescribe corrective actions. For a comprehensive review, an FMCSA-certified investigator will request the same documents that are requested in a new entrant safety audit. FMCSA could also conduct an offsite investigation, during which it will request the carrier provide certain documents that will be reviewed remotely to identify specific safety performance and compliance problems.

Carriers will usually be notified of an impending audit ahead of time and have at least 48-hours to prepare. Rarely will an inspector show up unannounced and demand to conduct a Compliance Review, but it could happen. Before a Compliance Review, carriers should diligently review inspection and crash report data, and request corrections if they find errors. The safety compliance department should make sure that the inspection and crash reports belong to the company and should check for incorrect data. Carriers may request a data review of information if it is believed to be erroneous. Remember, all safety-based violations count, not just out-of-service violations.

During the Compliance Review, there are a few things a carrier can do that may help it pass an inspection. First, assign one person who is knowledgeable about the carrier’s operations to be the “point person” for the DOT investigator. Second, be polite and reasonably cooperative with the compliance review. Answer questions in specific terms and provide only the information that is requested, including records and files. Be careful not to make any statements that would represent an admission of a violation.

Finally, when the review is over, the investigator will provide a report summarizing their findings (the Compliance Report). The point person should sign the report to acknowledge receipt; however, they should not sign any other documents generated during the compliance review, such as an admission that violations occurred.

Within 30 days after a compliance review, the company will receive a letter from FMCSA headquarters containing the proposed safety rating and a list of compliance problems that need correcting, if any. FMCSA will finalize the ratings, as “satisfactory, “conditional,” or “unsatisfactory.” A satisfactory rating is final and is effective the same date as the notice. The conditional rating becomes final 60 days after the notice date, 45 days for hazmat or passenger carriers. If the conditional rating is an upgrade from an unsatisfactory rating, then it is final immediately. An unsatisfactory rating becomes final 60 days after the date of the notice, and 45 days after the notice date for hazmat or passenger carriers. Failing to make necessary safety improvements within that time frame will result in the carrier being deemed “unfit” to continue operating in interstate commerce and could have its operating authority revoked. The FMCSA may extend the deadline if the carrier is making good faith efforts to comply.

It is advisable that carriers correct any deficiencies that were discovered during the review and document what corrective action was taken (e.g., most common violations are no fire extinguisher, first aid box or triangle, as well as tires, lights, clean windows). If a Notice of Claim is issued, the FMCSA will take into account any corrective action taken by the carrier in determining the penalty. If feasible, the vehicle inspections should be conducted at a repair facility. Finally, companies have the option of filing a Corrective Action Letter with the FMCSA, outlining what the carrier did (or plans to do) to remedy each of the violations described in the Compliance Review.

Enforcement & Adjudication

Violations of the federal safety regulations discovered in a safety audit or compliance review may result in enforcement action to bring the carrier into compliance. FMCSA may issue a Notice of Violation (NOV) when the violations are severe enough to warrant formal action, but not civil penalties. To avoid further intervention from FMCSA on a NOV, the carrier must take corrective action and provide evidence of compliance, or contest the violations. A Notice of Claim (NOC), on the other hand, is a formal notice used to commence a civil penalty proceeding for failure to comply with applicable federal safety regulations. The FMCSA issues NOCs for violations that are severe enough to warrant assessment and (potentially steep) penalties. The minimum and maximum dollar amounts for these fines are routinely adjusted to reflect inflation. In 2015, the maximum fine went from $11,000 to $16,000 for egregious hours of service violations, and the maximum hazmat fine was increased to $75,000.

The NOC will list the specific violations and a proposed penalty. It will also state how much time the carrier has in order to reply. Please do not ignore the NOC! Failing to respond within the stated time period will result in a default. If a default occurs, the company must pay the entire amount of the fine. Failing to do so will result in suspension of operating authority and penalties of up to $16,000 per day. Once a company receives a NOC, it has a few options. The first option is to accept the charges and pay the penalty in full. Carriers may also be able to arrange a payment plan or plead with the FMCSA to reduce the amount of the penalty. The second option is to challenge the charges in writing and request an administrative hearing or adjudication. The third option is to request binding arbitration. Companies may wish to consult with a lawyer to help them decide which option is best for them.

An Ounce of Prevention…

Benjamin Franklin famously coined the phrase “an ounce of prevention is worth a pound of cure!” This may sound cliché, but it is the major takeaway all limousine and for-hire ground transportation operators should have from this primer. While this article generally addresses the U.S. DOT requirements for certain organizations that operate commercial motor vehicles, there are many nuances and exceptions to the law. Each company, with the assistance of counsel or other transportation experts, should perform an individual assessment to determine whether it is subject to the FMCSA’s jurisdiction, or if it is required to comply with state-specific commercial motor vehicle regulations. The fines and costs associated with non-compliance are significant when compared to the much lower costs of assigning in-house compliance staff, or bringing in an experienced lawyer or consultant before integrating or purchasing vans, buses or shuttles.