Massachusetts Bay Transportation Authority

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April 29, 2009


Daniel Grabauskas
General Manager
Massachusetts Bay Transportation Authority
Ten Park Plaza
Boston, Massachusetts 02116-3974

Re: Buy America Compliance Investigation: MBTA Contract No. 640

Dear Mr. Grabauskas:

This is the final decision of the Federal Transit Administration (FTA) in the above-captioned matter. For the reasons stated below, FTA has determined that Scheidt & Bachmann, USA, Inc. (S&B) has met its burden of proving that it complied with FTA’s Buy America requirements when it supplied the Massachusetts Bay Transportation Authority (MBTA) with an Automated Fare Collection (AFC) system pursuant to MBTA Contract No. 640.

Background

CTS’s 2002 Petition

On November 14, 2002, Cubic Transportation Systems, Inc. (CTS) petitioned FTA to investigate S&B’s compliance with the Buy America requirements as they pertain to the MBTA’s procurement of an Automated Fare Collection (AFC) system, MBTA Contract No. 640. After first conducting an investigation, then FTA Deputy Chief Counsel Gregory McBride determined that S&B had demonstrated compliance with FTA’s Buy America requirements for the AFC system by providing FTA with a detailed manufacturing plan and bill of material documents that identified S&B’s plan to manufacture the AFC system in the United States.[1] FTA found that S&B’s manufacturing plans, other documents, and statements represented an assurance that the system would be manufactured in the U.S. as required by FTA’s Buy America regulations.

CTS’s 2006 Petition

FTA initiated the instant investigation by letter dated December 18, 2007[2], in response to a petition filed by CTS on November 1, 2006,[3] and supplemented on January 19[4] and February 21, 2007.[5] CTS alleged that S&B contravened the manufacturing plan that had been approved by FTA in 2002, by performing certain manufacturing activities in Germany. In particular, CTS presented FTA with information alleging S&B may have violated FTA’s Buy America requirements when it:

  1. Performed first article testing in Germany for fare vending machines, money room equipment, and a central computer system;
  2. Manufactured 17 pilot fareboxes in Germany and installed those fareboxes on buses operating on MBTA’s Silver Line; and
  3. Manufactured fare vending machines and gates in Germany and installed this equipment in MBTA’s Airport and Aquarium stations.

S&B’s Reply

By letter dated January 30, 2008, S&B responded to CTS’s allegations. S&B summarized its response as follows:

“it is no secret that as part of the effort to develop the final design for the MBTA AFC system, S&B and the MBTA observed and tested prototype equipment that: (1) was not contemplated as part of the Contract; (2) was built at S&B expense to facilitate the Final Design Review process; (3) remained the property of S&B; and (4) was not, and will not be, delivered to the MBTA under the Contract.”[6]

According to S&B, the facts raised by CTS “relate to the manufacture of approximately 14 component-prototypes that were built at S&B’s expense and that were never intended to be, and were not, delivered as part of the MBTA’s AFC system. . . . None of the component-prototypes upon which CTS’s Petition is based were ever intended to be, or were, delivered to the MBTA under the Contract or incorporated into the AFC system”[7] MBTA and S&B drafted a “Proactive Plan” to provide the MBTA with a hands-on role in determining the final design of the AFC system. According to the terms of the Proactive Plan, “[t]he [prototype equipment] remains the property of [S&B].”[8] S&B admitted, therefore, that prototype equipment was built and tested in Germany. However, S&B asserts that the prototype equipment was built at S&B’s expense and none of the equipment was contemplated for delivery as a component of the AFC system or otherwise.

CTS’s Comments

By letter dated March 3, 2008, CTS commented on S&B’s reply.[9] CTS argued that FTA needed more information to determine whether S&B complied with FTA’s Buy America requirements. In particular, CTS encouraged FTA to request a copy of Change Order 8, in which MBTA agreed to the Proactive Plan for prototype testing, and manufacturing. CTS also asked FTA to obtain shipping documents that would allow FTA to compare the serial numbers of the equipment manufactured in the United States with the equipment installed on MBTA’s Silver Line buses and in its Aquarium and Airport stations. CTS also noted that S&B’s reply did not address the pilot fareboxes that CTS believed to have been manufactured and tested by S&B in Germany and then installed on MBTA Silver Line buses.

FTA’s Request for Additional Information

After reviewing S&B’s reply and CTS’s comments, FTA requested additional information from S&B by letter dated March 13, 2008,[10] to address the following issues raised by CTS:

  1. CTS presented FTA with documentation indicating that S&B performed first article testing in Germany for fare vending machines, money room equipment, and a central computer system. S&B affirmed that it did, in fact, test certain prototype equipment in Germany, but that this equipment (1) was not contemplated as part of the contract between S&B and the MBTA; (2) was built at S&B’s expense; (3) remained the property of S&B; and (4) was not, and will not be, delivered to MBTA. FTA requested information documenting S&B’s points (1) through (4), including change order number 8, for the equipment listed in this paragraph.
  2. CTS presented FTA with information indicating that S&B may have manufactured 17 pilot fareboxes in Germany and installed these fareboxes on buses operating on MBTA’s Silver Line. FTA requested information documenting the location where these fareboxes were produced, whether they were installed on Silver Line buses, and whether these fareboxes remain on Silver Line buses today.
  3. CTS presented FTA with information indicating S&B may have manufactured fare vending machines and gates in Germany and installed this equipment in MBTA’s Airport and Aquarium stations. FTA requested information documenting the location where these vending machines and gates were produced.

MBTA’s Response to FTA’s Request for Additional Documents

On March 28, 2008, MBTA wrote FTA to clarify the MBTA’s understanding of certain points raised in FTA’s request for additional documents.[11] The following are excerpts from MBTA’s letter:

Prototype Equipment

In October 2004, MBTA and S&B agreed to Change Order 8 under the Contract. Among a number of other things, this Change Order implemented an initiative to improve the Contract design review process. S&B agreed to provide, at its risk, a limited amount of prototype equipment that the MBTA could observe performing basic operations.

This prototype equipment was built at S&B’s expense and, therefore, remained S&B’s property at all times. This was expressly provided for in Change Order 8, which stated that “[t]he PTE [i.e., prototype equipment] remains the property of the Contractor.” The prototype equipment was not to be delivered to the MBTA under the Contract or installed as part of the MBTA’s Automated Fare Collection system, and in fact was not. The MBTA’s records indicate that no such equipment was ever delivered or installed. The MBTA reviewed and conducted tests on S&B’s prototype equipment in Germany in early 2005. . .

“Pilot” Fareboxes

Change Order 8 to the Contract also implemented a similar method for agreeing on the design of fareboxes prior to S&B’s manufacturing of production equipment. Like the prototype equipment, S&B agreed to provide “pilot” fareboxes at its expense. As expressly provided for in Change Order 8, which stated that “[t]he fareboxes used for the Pilot Test remain the property of the Contractor,” those fareboxes remained S&B’s property at all times.

The parties agreed that 17 S&B pilot fareboxes would be temporarily installed on MBTA Silverline buses for observation and testing. It was made very clear in the provisions of Change Order 8 that the pilot fareboxes would not become part of the AFC system. Indeed, once production began, fareboxes manufactured in the U.S. were installed by the MBTA in the Silverline buses. By 2006, all pilot fareboxes had been removed by the MBTA from MBTA buses, returned to S&B, and replaced with production fareboxes manufactured in the U.S. The MBTA paid only for the U.S.-manufactured fareboxes.

S&B’s Response to FTA’s Request for Additional Documents

By letter dated March 28, 2008, S&B responded to FTA’s request as follows:

  • (a) In response to FTA’s request for information documenting S&B’s points (1) through (4), above, including Change Order 8, for the fare vending machines, money room equipment, and a central computer system, S&B stated the following: (1) “The original Contract between S&B and MBTA did not contemplate production or use of “prototype” equipment. . . . [T]he use of prototype equipment was introduced in connection with Change Order 8 to the Contract”[12]; (2) and (3) the prototype equipment was used as a means to assist the design approval process, was not paid for by MBTA, and was not to be installed in the AFC System; and (4) The prototype equipment was not and will not be delivered to the MBTA.

  • (b) In response to FTA’s request for information documenting the location where the 17 pilot fareboxes were produced, whether they were installed on Silver Line buses, and whether these fareboxes remain on Silver Line buses today, S&B stated that “[t]he pilot test fareboxes – like the prototype equipment – were built in Germany at S&B’s expense and remained S&B’s property. The fareboxes were temporarily installed in some MBTA Silver Line buses for observation and testing. They were removed and replaced with fareboxes of U.S. manufacture.”[13] Change Order 8 expressly states that fareboxes used for the pilot test remain the property of S&B[14] and that pilot fareboxes would be replaced by series production equipment. According to S&B, by 2006, all of the pilot fareboxes had been removed and replaced with fareboxes manufactured in the United States.

  • (c) In response to FTA’s request for information documenting the location where S&B manufactured the fare vending machines and gates that it installed in MBTA’s Airport and Aquarium stations, S&B submitted manufacturing documents that relate to the initial serial production of fare vending machines, and purchase orders and shipping documents related to the fare gates, and expressed a willingness to produce any additional documents that FTA may wish to review.

FTA gathered additional documentation from S&B between March 28, 2008, and February 4, 2009. These documents include Production Acceptance Testing reports, invoices, shipping lists, and bills of lading. By comparing information in these documents to the serial numbers from fareboxes installed on Silver Line buses and fare vending machines and gates installed at MBTA’s Airport and Aquarium stations, FTA was able to verify that S&B performed manufacturing activities in the United States for each of the fareboxes, gates, and vending machines in question. According to the documentation submitted by S&B, these manufacturing activities took place in Plattsburgh, New York; and in Burlington and Boston, Massachusetts.

Buy America Legal Standard

Section 5323(j) of Title 49, Chapter 53, of the United States Code sets forth FTA’s general Buy America requirements: “The Secretary of Transportation may obligate an amount that may be appropriated to carry out this chapter for a project only if the steel, iron, and manufactured goods used in the project are produced in the United States.” According to FTA’s implementing regulations, “[f]or a manufactured product to be considered produced in the United States: (1) All of the manufacturing processes for the product must take place in the United States; and (2) All of the components of the product must be of U.S. origin. A component is considered of U.S. origin if it is manufactured in the United States, regardless of the origin of its subcomponents.”[15]

When Federal funds are used to purchase a manufactured product, the supplier must sign a Certificate of Compliance with FTA’s Buy America requirements. By so signing, the bidder or offeror certifies that it will comply with the requirements of 49 U.S.C. 5323(j)(1) and the applicable regulations in 49 CFR part 661.[16]

FTA’s regulations establish a presumption that a bidder or offeror who has submitted the required Buy America certificate is complying with the Buy America requirements.[17] However, any party may petition FTA to investigate the compliance of a successful bidder or offeror with the Certificate of Compliance that it submitted with its bid or offer.[18] FTA will initiate an investigation if the information presented in the petition indicates that the presumption has been overcome.[19] “The successful bidder or offeror has the burden of proof to establish that it is in compliance.”[20]

Decision

The question before FTA is whether S&B complied with FTA’s Buy America requirements when, pursuant to MBTA Contract No. 640, as amended, it (1) built and tested prototype equipment in Germany; (2) built 17 fareboxes in Germany and installed them on MBTA’s Silver Line buses; and (3) manufactured fare gates and fare vending machines for MBTA’s Airport and Aquarium stations.

(1) Testing of Prototype Equipment in Germany

CTS alleged that S&B violated FTA’s Buy America requirements when it built and tested certain prototype equipment in Germany. S&B does not dispute the fact that it built and tested these prototypes in Germany. While under the Buy America provisions, all of the manufacturing processes for equipment purchased under a contract involving FTA assistance must take place in the United States,[21] and while testing can be considered as part of the manufacturing process,[22] CTS has failed to prove non-compliance. FTA’s Buy America requirements apply only to goods purchased with Federal funds.[23] The act of testing prototype equipment outside the United States would violate FTA’s Buy America requirements only if the prototype equipment was a deliverable under the contract. Therefore, inasmuch as CTS could not demonstrate that S&B delivered the prototype equipment to MBTA pursuant to the Contract or that the prototype equipment was purchased with Federal funds, I find that S&B did not violate FTA’s Buy America requirements when it tested prototype equipment in Germany.

(2) Silver Line Fareboxes

CTS alleged that S&B manufactured 17 pilot fareboxes in Germany and installed these fareboxes on buses operating on MBTA’s Silver Line. FTA finds that pursuant to Change Order 8, S&B agreed to temporarily install pilot fareboxes in MBTA’s Silver Line buses. It installed the fare boxes in 2005. Such installation would have violated FTA’s Buy America requirements had the pilot fareboxes remained in MBTA’s possession. However, inasmuch as MBTA has removed all 17 pilot fareboxes from its buses, returned them to S&B, and replaced them with production fareboxes manufactured by S&B in the United States,[24] FTA finds no existing violation of its Buy America requirements with respect to the Silver Line fareboxes. What is more, by comparing serial numbers for the replacement fareboxes with invoices, shipping lists, and bills of lading provided by S&B, FTA has verified that S&B performed manufacturing activities in the United States for each of the 17 replacement fareboxes.

(3) Airport and Aquarium Station Fare Vending Machines and Fare Gates

CTS alleged that S&B manufactured fare vending machines and gates in Germany and installed this equipment in MBTA’s Airport and Aquarium stations. FTA has verified that S&B did not, in fact, manufacture these fare vending machines and fare gates in Germany. According to Production Acceptance Testing reports, invoices, shipping lists, and bills of lading provided by S&B, these manufacturing activities took place in Plattsburgh, New York; and in Burlington and Boston, Massachusetts. Therefore, FTA finds that S&B complied with its Buy America Certificate with respect to the fare vending machines and gates that it manufactured and installed in MBTA’s Airport and Aquarium stations.

Conclusion

After careful consideration, and for the reasons outlined above, FTA hereby finds that S&B has met its burden of proving that its AFC system is in compliance with FTA’s Buy America Requirements on MBTA Contract No. 640. CTS’s allegations are unproven: despite testing prototype equipment in Germany, S&B did not deliver the equipment to MBTA; S&B replaced the 17 pilot fare boxes with fare boxes that it manufactured in the United States; and S&B manufactured in the United States the fare vending machines and gates that it installed in MBTA’s Airport and Aquarium stations.

Please feel free to contact Jayme L. Blakesley of my office at (202) 366-0304 or jayme.blakesley@dot.gov with any questions you may have.

Sincerely,


Scott A. Biehl
Acting Chief Counsel


Cc: Scott Heimberg, Esq., Akin, Gump, Strauss, Hauer & Feld, LLP

Eric Marcotte, Esq., Winston & Strawn LLP



[1] Letter from Gregory B. McBride, Deputy Chief Counsel, Fed. Transit Admin., to Michael H. Mulhern, Gen. Manager, Mass. Bay Transp. Auth. (Nov. 14, 2002).

[2] Letter from Severn E.S. Miller, Chief Counsel, Fed. Transit Admin., to Daniel Grabauskas, Gen. Manager, Mass. Bay Transp. Auth. (Dec. 18, 2007).

[3] Letter from Scott M. Heimberg, Counsel, Cubic Transp. Sys., Inc., to James S. Simpson, Admin’r, Fed. Transit Admin. (Nov. 1, 2006).

[4] Letter from Scott M. Heimberg, Counsel, Cubic Transp. Sys., Inc., to James S. Simpson, Admin’r, Fed. Transit Admin. (Jan. 19, 2007).

[5] Letter from Scott M. Heimberg, Counsel, Cubic Transp. Sys., Inc., to Jayme Blakesley, Attorney-Advisor, Fed. Transit Admin. (February 21, 2007).

[6] Letter from Eric J. Marcotte, Counsel, Scheidt and Bachmann, USA, Inc., to Severn E.S. Miller Chief Counsel, Fed. Transit Admin. (Jan. 30, 2008) (emphasis in original).

[7] Letter from Eric J. Marcotte, Counsel, Scheidt and Bachmann, USA, Inc., to Severn E.S. Miller Chief Counsel, Fed. Transit Admin. (Jan. 30, 2008) (emphasis in original).

[8] Letter from Eric J. Marcotte, Counsel, Scheidt and Bachmann, USA, Inc., to Severn E.S. Miller Chief Counsel, Fed. Transit Admin. (Jan. 30, 2008).

[9] Letter from Scott M. Heimberg, Counsel, Cubic Transp. Sys., Inc., to Severn E.S. Miller Chief Counsel, Fed. Transit Admin. (Mar. 3, 2008).

[10] Letter from Severn E.S. Miller Chief Counsel, Fed. Transit Admin., to Eric J. Marcotte, Counsel, Scheidt and Bachmann, USA, Inc. (Mar. 13, 2008).

[11] Letter from Gerald K. Kelley, First Deputy General Counsel, Mass. Bay Transp. Auth., to Severn E.S. Miller, Chief Counsel, Fed. Transit Admin. (March 28, 2008).

[12] Letter from Eric J. Marcotte, Counsel, Scheidt and Bachmann, USA, Inc., to Severn E.S. Miller, Chief Counsel, Fed. Transit Admin. (Mar. 28, 2008).

[13] Letter from Eric J. Marcotte, Counsel, Scheidt and Bachmann, USA, Inc., to Severn E.S. Miller, Chief Counsel, Fed. Transit Admin. (Mar. 28, 2008).

[14] Letter from Eric J. Marcotte, Counsel, Scheidt and Bachmann, USA, Inc., to Severn E.S. Miller, Chief Counsel, Fed. Transit Admin. (Mar. 28, 2008), citing Change Order 8, Attachment A, Section 8.1, modifying Technical Specification § 1.3.1, and Section 8.12, adding new Technical Specification § 9.2.6.

[15] 49 CFR 661.5(d).

[16] 49 CFR 661.6.

[17] 49 CFR 661.15(a).

[18] 49 CFR 661.15(b)

[19] 49 CFR 661.15(b).

[20] 49 CFR 661.15(d)

[21] 49 CFR 661.5

[22] FTA defines “manufactured product” to mean an item produced as a result of the manufacturing process. 49 CFR 661.3. The “manufacturing process” alters the form or function of materials or of elements of the product so as to add value and transform those materials or elements so that they represent a new and functionally different end product. Id. The manufacturing process is more than mere assembly. Id. FTA has explained its concept of alteration as follows: “The processes of alteration may include forming, extruding, material removal, welding, soldering, etching, plating, material deposition, pressing, permanent adhesive joining, shot blasting, brushing, grinding, lapping, finishing, vacuum impregnating and, in electrical and electronic pneumatic, or mechanical products, the collection, interconnection, and testing of various elements.” (emphasis added) This explanation of the nature of “manufacture” is made in 56 Fed. Reg. 926 (1991) with reference to rolling stock, but is applicable to manufactured products as well.

[23] 49 U.S.C. 5323(j)(1).

[24] Letter from Gerald K. Kelley, First Deputy General Counsel, Mass. Bay Transp. Auth., to Severn E.S. Miller, Chief Counsel, Fed. Transit Admin. (March 28, 2008).