Utah Transit Authority

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May 28, 2008


 

John M. Inglish
General Manager/Chief Executive Officer
Utah Transit Authority
3600 South 700 West
P.O. Box 30810
Salt Lake City, Utah 84130

Re:  Request for Buy America Waiver

Dear Mr. Inglish:

I write in response to your letter dated May 15, 2008, in which you ask the Federal Transit Administration (FTA) to waive its Buy America requirements for certain “steel rail and rail components, bridge beams, and structural steel (including OCS poles and reinforcing bars).”  The basis for your request is that the inclusion of domestic steel will increase the cost of your steel rail procurement contract by more than 25 percent.  Utah Transit Authority (UTA) procurement documents confirm what you state in your letter—the price of steel rail has increased from the December 18, 2007, price of $1035.28 per ton to the April 10, 2008, price of $1300.77 per ton.  Foreign steel is available at a price of $990.00 per ton, a difference of more than 25 percent.  After careful consideration, I have decided to waive FTA’s Buy America requirements for the standard 115# rail required for UTA’s Mid-Jordan light rail line.  This waiver will save UTA approximately $1.3 million, a difference of more than 25 percent from the lowest responsive and responsible bid offering steel rail produced in the United States.

Background

Due to increases in the cost of steel products manufactured in the United States, UTA asked FTA to waive its Buy America requirements for certain “steel rail and rail components, bridge beams, and structural steel (including OCS poles and reinforcing bars).” 

On October 29, 2007, UTA procured a design-build contractor Kiewit/Herzog/Parsons, a joint venture (KHP), to design and construct the Mid-Jordan extension of UTA’s light rail system.  As part of its proposal to UTA, KHP certified that it would comply with FTA’s Buy America requirements at 49 CFR Part 661. 

Acting as required by this certificate, KHP contracted with track material supplier B&B Diversified Materials (B&B) to purchase steel rail from Rocky Mountain Steel Mills, a Colorado-based manufacturer of steel rail, at a price of $1,035.28/ton, $4,749,864.64 total.

By fax dated April 8, 2008, Rocky Mountain Steel Mill informed B&B that it would not honor its original price quote, but would offer steel rail at $1,300.77 per net ton.  Prices would increase further on May 1, 2008, when Rocky Mountain Steel Mill’s prices would increase by an additional $150 per net ton. 

With the rising price of domestic steel, UTA decided to solicit offers from foreign suppliers.  On May 7, 2008, A&K Railroad Materials, Inc. (A&K) agreed to supply to UTA with steel rail manufactured in China for a price of $990.00 per net ton.  This price is subject to change after May 28, 2008.

Legal Standard

With limited exceptions, FTA may not obligate funds for a project unless all iron, steel, and manufactured products used in the project are produced in the United States.[1]  “The steel and iron requirements apply to all construction materials made primarily of steel or iron and used in infrastructure projects such as transit or maintenance facilities, rail lines, and bridges.”[2]  These items include, but are not limited to, running rail and contact rail.[3]

Pursuant to 49 U.S.C. 5323(j)(2)(D), FTA may waive its Buy America requirements if the inclusion of a domestic item or domestic material will increase the cost of the contract between the grantee and its supplier of that item or material by more than 25 percent or if the materials for which a waiver is requested are not produced in the United States in sufficient and reasonably available quantities and of a satisfactory quality.[4]  After contract award, FTA may grant a non-availability waiver only if the grantee provides sufficient evidence that the contractor’s original certification was made in good faith and that the item to be procured cannot now be obtained domestically due to commercial impossibility or impracticability.[5]

Discussion

It is UTA’s position that FTA can waive its Buy America requirements either on the basis of price differential, or based on the existing design-build contract, a post-award waiver on non-availability grounds.  I will discuss each in turn.

Price Differential

UTA has established the grounds for a price differential waiver for the standard 115# rail required for its Mid-Jordan light rail line because the use of domestic steel rail will increase the cost of the steel rail procurement contract by more than 25 percent.  According to 49 CFR 661.7(d), FTA will grant a price-differential waiver “if the amount of the lowest responsive and responsible bid offering the item or material that is not produced in the United States multiplied by 1.25 is less than the amount of the lowest responsive and responsible bid offering the item or material produced in the United States.”[6]  The amount of the lowest responsive and responsible bid offering steel rail not produced in the United States—$990.00 per net ton—is $310.77 lower than the amount of the lowest responsive and responsible bid offering steel rail produced in the United States—$1,300.77 per net ton.  The amount of the lowest foreign bid—$990.00—multiplied by 1.25 equals $1,237.50.  Therefore, FTA will waive its Buy America requirements for the purchase of up to 5,000 net tons of standard 115# steel rail to be used to construct its Mid-Jordan light rail line.

UTA has asked FTA to waive its Buy America requirements for all steel procured under its design-build contract with KHP.  FTA has a longstanding policy concerning the mechanics of applying a price differential waiver when multiple items are being procured under a design-build contract.  In 1988, FTA’s predecessor agency (Urban Mass Transportation Administration or “UMTA”) stated that “the price differential must be applied independently to each individual item even if there is a single contract for all of these items.  The bid for each non-domestic item must be adjusted by the differential (1.25) and then the adjusted bid price for the foreign item compared to the lowest responsive and responsible bid for a domestic item to determine if the grounds for a waiver exist.”[7]  In 1991, UMTA stated that “[t]he application of the waiver to the over-all bid could skew the entire bid process, especially in the case where the foreign item is of low cost compared to all of the other items being procured. . . .  The calculation of the price differential waiver is applied only to the comparative costs of the items for which both foreign and domestic bids were received.”[8] 

Because UTA only submitted information relating to the price differential between foreign and domestic steel rail, this price differential waiver is limited to the standard 115# rail required for UTA’s Mid-Jordan light rail project and does not apply to the overall design-build contract.  FTA will consider a price differential waiver for rail components, bridge beams, and structural steel (including OCS poles and reinforcing bars) only if UTA provides FTA with information demonstrating that the inclusion of domestic steel would increase the cost of the contract between UTA and its supplier of these items by more than 25 percent.

Post-Award Non-Availability

In addition to price differential, UTA based its request on FTA’s new regulatory language permitting post-award non-availability waivers in certain limited circumstances.  Because UTA has established the grounds for a price differential waiver, FTA need not decide whether a post-award non-availability waiver is appropriate here.  It is useful, however, to discuss the circumstances under which FTA may grant such a waiver. 

FTA “may grant a non-availability waiver . . . in any case in which a bidder or offeror originally certified compliance with the Buy America requirements in good faith, but can no longer comply with its certification.  [FTA] will grant a [post-award non-availability waiver only if the grantee provides sufficient evidence that the original certification was made in good faith and that the item to be procured cannot now be obtained domestically due to commercial impossibility or impracticability.”[9]  When considering the circumstances under which it would grant a post-award waiver, FTA will look to “existing precedents in public contracting law and practice.”[10]  For example, FTA may look to Raytheon Co. v. White,[11] for a definition of “commercial impracticability.”  “FTA believes [the] ‘‘commercially senseless’’ standard, as articulated in Federal case law represents the appropriate standard for determining commercial impracticability in Buy America post-award waivers. Therefore, when questions arise as to what constitutes commercial impracticability or impossibility in a specific post-award waiver request, FTA will rely on the precedents established in Federal contract law for guidance.”[12]  “In determining whether the conditions exist to grant a post-award non-availability waiver, [FTA] will consider all appropriate factors on a case-by-case basis.”[13] 

I hold out the possibility that UTA may qualify for a post-award non-availability waiver.  However, because UTA has submitted information supporting a price differential waiver, FTA need not determine whether the conditions exist to grant a post-award non-availability waiver at this time.

Conclusion

Based on the information above, I have found that using domestic steel rail will increase the cost of the contract between UTA and its supplier of steel rail by more than 25 percent.  Therefore, pursuant to the provisions of 49 CFR 661.7(d), I hereby grant UTA a price differential waiver for up to 5,000 net tons of standard 115# steel rail to be used to construct its Mid-Jordan light rail line.

Feel free to contact Jayme L. Blakesley at (202) 366-0304 or jayme.blakesley@dot.gov with any questions.

Sincerely,

Severn E.S. Miller
Chief Counsel


 

[1] 49 CFR 661.5(a).

[2] 49 CFR 661.5(c).

[3] 49 CFR 661.5(c).

[4] 49 CFR 661.7(c).

[5] 49 CFR 661.7(c)(3).

[6] 49 CFR 661.7(d).

[7] 53 Fed. Reg. 32997, August 29, 1988.

[8] 56 Fed. Reg. 927, January 9, 1991.

[9] 49 CFR 661.7(c)(3).

[10] 71 Fed. Reg. 69412, 69416, November 30, 2006.

[11] 305 F.3d 1354, 1667 (Fed. Cir. 2002).

[12] 71 FR 69416, November 30, 2006.

[13] 49 CFR 661.7(c)(3).