April 6, 2004
Mr. Hans von Lange
952 Haines Road
York, Pennsylvania 17402
Dear Mr. von Lange:
This responds to your letter of January 22, 2004, in which you request a public interest waiver of Buy America for an underfloor wheel truing machine, manufactured in France, for a period of two years and for an upcoming Valley Metro Rail (VMR) procurement. You request a waiver to generate competition in the industry and in the VMR procurement.
VMR expects that it is likely it will receive bid(s) that do meet the Buy America requirements and consequently, does not support the waiver request at this time. Once all bids are received, it will determine whether or not a waiver is necessary.
The Federal Transit Administration's (FTA) general requirements concerning domestic preference for the procurement of manufactured products are set forth in 49 U.S.C. §5323(j). This section provides that all manufactured products procured with FTA funds must be of U.S. origin. You request a waiver under 49 U.S.C. §5323(j)(2)(A). This section provides that the general Buy America requirements may be waived if applying the statute would be inconsistent with the public interest. The implementing regulation provides that the general Buy America requirements may be waived if "their application would be inconsistent with the public interest." It further provides that "[i]n determining whether the conditions exist to grant this public interest waiver, the [FTA] will consider all appropriate factors on a case-by-case basis . . . ." 49 C.F.R. 661.7(b).
Arguments Made in Support of a Waiver
Sculfort, Muller & Pesant (Sculfort) manufactures underfloor wheel truing machines and is represented in the U.S. by Intertran Corporation. According to the request, Hegenscheidt Corporation and Simmons Machine Tool, both owned by Simmons, have a monopoly in the underfloor wheel truing machine market, because their products comply with Buy America, while the competition, including the Sculfort product, do not. Therefore, Intertran argues, the Simmons/Hegenscheidt team dominates the market and a waiver would enhance competition and save both VMR and FTA money and enable Sculfort to establish a market for its machine that could lead to future manufacture in the U.S.
Summary of Comments
FTA posted a request for comments on this matter on our website and received seven comments, one in support of the waiver and six against it. The comment supporting the waiver came from Sterling Construction Company. That comment explained that the purchase of Hegenscheidt by Simmons Tool Corporation has reduced the supply of American-made underfloor wheel profiling equipment to one company. This comment further expressed concern that in the next two years, there will be several new wheel profiling machines required in the transit industry and queried whether FTA would allow single source procurements for this American-made equipment or waive the Buy America requirements.
Penn Machine Company argued against the waiver and explained that Simmons and Hegenscheidt have a long history in the U.S. and has made a commitment to serve the U.S. market and that Intertran needs to develop a manufacturing partner in the U.S. in order to compete. The Southeastern Pennsylvania Transportation Authority commented that the Buy America law is supposed to promote domestic business and has no waiver for situations where there is no competition. San Mateo County Transit District commented that the FTA should rely on the end user to identify a need for more competition, not one of the competitors. An individual and Washington Group International both commented generally, also against the waiver.
John Naumann, President and COO of Simmons Machine Tool commented against the waiver. That comment first explained the nature of the corporate structure of Simmons Machine Tool. Simmons manufactures the Hegenscheidt product in Albany, New York; however, Mr. Naumann pointed out, they remain separate companies, though he acknowledged that they would not bid against each other.
The last point raised by Simmons was that granting this waiver would, in fact, give Sculfort a large competitive advantage and force Simmons to move its manufacturing outside of the U.S. The Sculfort machine is manufactured in France, and Mr. Naumann explains that the circumstances in France are totally different than in the U.S. France provides government subsidies for manufacture, research, and development, and the average hourly compensation for manufacturing is approximately 20 percent lower in France. The Simmons comment also included a letter from the Association for Manufacturing Technology, an association that supports and promotes the welfare of American manufacturers of machine tools and manufacturing technology. This comment explained the decline in manufacturing output in the American machine tool industry generally.
After careful consideration, FTA finds that it is not in the public interest to grant a waiver in order to generate foreign competition for this procurement or for a period of two years, as requested. I agree with the comment from San Mateo County Transit District that FTA should rely on the end user to identify a need for more competition, and in this case, VMR has not requested a waiver. I agree that Simmons has made a commitment to domestic manufacture and granting a waiver that would allow InterTran to certify compliance, while manufacturing in France, is not in the public interest. To do so would undermine the intent of Buy America, which is that FTA funds be used to purchase products manufactured in the U.S.
The statute provides that unless there is more than 25 percent difference between the compliant and non-compliant bid, the compliant bid prevails. FTA has consistently denied public interest waiver requests predicated on a cost saving of less than 25 percent, pointing out that absent a cost savings of 25 percent or more, the statute directs award to a compliant bidder. Therefore, I cannot now find that a need to generate competition among bidders justifies a public interest waiver. I encourage InterTran and Sculfort to find a domestic manufacturing partner.
Accordingly, this waiver request is denied. If you have any questions, please contact Meghan G. Ludtke at (202) 366-1936.
Very truly yours,
Gregory B. McBride
Deputy Chief Counsel