Dear Mr. Hough:
This letter responds to an email sent by Siemens Transportation Systems (Siemens) in conjunction with Houston Metro concerning the Buy America compliance of certain Light Rail Vehicles (LRVs). These vehicles have not been purchased with Federal Transit Administration (FTA) funds; however, guidance was requested by both parties so that options on this contract may be federally funded, and so Siemens would know FTA’s position on these matters for future procurements. There are two issues raised here.
Section 5323(j)(2)(C) of the Federal transit laws (49 U.S.C. 5301, et seq.) sets forth the general requirements for the procurement of rolling stock. This section provides that when rolling stock is procured with FTA funds, the cost of the components and subcomponents produced in the United States must be at least 60 percent of the cost of the components of the rolling stock and the vehicle must undergo final assembly in the U.S. The implementing regulations can be found at 49 C.F.R. 661.11. A component is defined as an article directly incorporated into the vehicle at the final assembly location and is considered manufactured if there are sufficient activities to advance the value or improve the condition of the subcomponents. 49 C.F.R. 661.11(c) and (e). A subcomponent is an item one step removed from a component in the manufacturing process and incorporated directly into the component. 49 C.F.R. 661.11(f).
Issue Number One: Car Body as a Domestic Component
Both parties provide different component calculations for the LRVs, but start with an agreed-upon fact -- the car body is a component of the LRV. The regulation cites car shells as typical components of rail rolling stock. 49 C.F.R. 661.11, App. C. For purposes of this letter, we will consider that the car body as discussed in the correspondence is the same as the car shell, as provided in the regulation.
Siemens suggests that the car body is a component of the vehicle and that the front frame, roof, front mask, and "car frame" are subcomponents. Under Siemens’ analysis, the "car frame" is made up of the sub-subcomponent underframe, sidewalls, and end portals, while the underframe consists of three separate underframe sections. Houston Metro also calls the car body a component, but goes on to calculate that all primary elements of the car body are subcomponents, including the sidewalls, end portals, underframe, front mask, front frame, and roof sections.
After reviewing the proposed component and subcomponent breakdowns presented, FTA concurs with Houston Metro’s analysis. Siemens’ approach creates an artificial subcomponent in the "car frame" in that it is merely a number of unique subcomponents assembled in an intermediate step, but not manufactured, as the regulation requires. 49 C.F.R. 661.11(h). The "car frame" in fact, is not an item delivered or manufactured as a distinct subcomponent. In other words, there is no subcomponent "car frame." Any other analysis appears contrived to achieve an artificial calculation.
Issue Number Two: Final Assembly of Trucks As Part of Vehicle Final Assembly
The next issue raised by Siemens concerns its proposal to manufacture complete truck assemblies at an offshore facility, and in a "one-action" process, attach the truck assemblies to car bodies at a final assembly location in the U.S. The question is whether this streamlined procedure meets the Buy America requirements for final assembly, as described in FTA’s Dear Colleague Letter of March 18, 1997. See also, Sect. 3035, Transportation Equity Act for the 21st Century.
Siemens’ current, "typical" process for rail car final assembly fully complies with the minimum requirements of Buy America as delineated in the Dear Colleague letter. Siemens now proposes to build the entire truck assembly overseas. This would circumvent FTA’s requirement that a certain minimum of final assembly activities be performed in the U.S. The truck assembly operations that Siemens currently performs in the U.S. (including interconnection of the motors, brakes, suspension, wheels & axles, to the truck frame), but now proposes to perform offshore, are specifically enumerated in FTA’s March 18 letter. These operations must be performed in the U.S. In short, Siemens proposal to manufacture "fully assembled" truck assemblies overseas, and then attach the truck assemblies to car bodies in a one-step process in the U.S, does not meet the requirements of Buy America for final assembly.
If you have any questions, please contact Meghan G. Ludtke at 202-366-1936.
Very truly yours,
Gregory B. McBride
Deputy Chief Counsel
cc: Eldridge Onco, Regional Counsel