Cubic Transportation Systems, Re: MBTA

Steven A. Diaz, Esq.
2000 L Street, NW
Suite 200
Washington, D.C. 20036

Re: Massachusetts Bay Transportation Authority
RFP No. CAP 35-01 Automated Fare Collection System

Dear Mr. Diaz:

By letter dated November 18, 2002, on behalf of your client, Cubic Transportation Systems, Inc. ("Cubic"), you submitted a petition for reconsideration of the Federal Transit Administration’s ("FTA") initial decision dated November 14, 2002, issued by Deputy Chief Counsel Gregory McBride, in which he determined that Scheidt & Bachmann ("S&B"), the apparent successful offeror, had demonstrated compliance with FTA Buy America regulations in the procurement captioned above.

As a preliminary matter, I note that your petition is submitted jointly by Cubic and three other companies. FTA’s Buy America regulations, at 49 CFR 661.15(o), establish, in part, the following standard for treatment of requests for reconsideration: "Reconsideration of an initial decision of FTA may be requested by any party involved in an investigation." Parties involved in the investigation were Cubic, S&B, and the Massachusetts Bay Transportation Authority ("MBTA"), the procuring agency. Because the companies that joined with Cubic in the petition for reconsideration were not parties to the investigation, we deny the request as to them for lack of standing under the regulation.

Section 661.15(o) provides for reconsideration of an agency decision in the following limited circumstances:

FTA will only reconsider a decision only if the party requesting reconsideration submits new matters of fact or points of law that were not known or available to the party during the investigation.

In accordance with this requirement, I will address Cubic’s assertions concerning "new matters of fact or points of law" below.

New Matters of Fact

1. "The Decision relies on facts previously unknown to Cubic which show noncompliance."

Cubic asserts that it had no knowledge during the investigation that S&B’s fare gate supplier, a Belgian company that currently manufactures abroad, intends to manufacture the fare gates in the United States. This assertion is contradicted by the record. For example, prior to the investigation, Cubic attached to its submission to FTA dated July 24, 2002, S&B's proposal, on page 81/162 of which appears the following:

1.G.7 Tripod Fare Gate
The Fare Gate Equipment will be manufactured and assembled in the USA.

This identical statement is repeated on page 83/162 of the proposal, paragraph 1.G.8, "Accessible Fare Gate," and on page 86/162, paragraph 1.G.10, "Bi-Parting Leaf Gate."

In addition, during the investigation, FTA forwarded to Cubic a redacted copy of S&B's initial submission to FTA, dated August 29, 2002. The following paragraphs, in relevant part, appear in Exhibit I of that submission:

5.B.3 Gate Manufacturing Proces

The gates will be designed and manufactured in the United States by Automatic Systems, which is a Belgian based company with offices in Montreal, Canada and Port Washington, NY.

For the MBTA contract Automatic Systems is in the process of establishing a manufacturing facility in the United States.  The likely location of the plant will be Plattsburgh, NY or Burlington, VT.  The gates and components for the project will be manufactured and assembled there.

I note, moreover, that Cubic cited S&B’s Exhibit I on page 9 of its "Closing Brief" to FTA dated

September 19, 2002:

In its Response to the FTA investigation, S&B states that Automatic Systems, "a Belgian [Sic.] [sic] based company with offices in Montreal, Canada and Port Washington, NY
. . . is in the process of establishing a manufacturing facility in Plattsburgh, NY or Burlington, VT."

Cubic’s assertion that it had no knowledge during the investigation of S&B’s plan for a U.S. source of fare gates is not supported by the record. Accordingly, I find that Cubic has not asserted a "new matter of fact" that satisfies the regulatory requirement in section 661.15(o). Nevertheless, for advisory purposes only, I address Cubic’s specific argument.

Cubic speculates that S&B’s proposed supplier of fare gates may be unable to establish a manufacturing capability in the United States in the time necessary for S&B to satisfy the performance requirements of the RFP and still comply with the applicable Buy America requirements. Cubic concludes that "there are enormous practical obstacles in the path of such a compliance plan which make its success less than likely." Even accepting this argument, however, Cubic has neither alleged nor shown that S&B cannot comply with the requirement that the fare gates be produced in the United States. Rather, as stated in the agency’s initial decision, FTA reviewed S&B’s manufacturing plan for compliance with Buy America and found S&B’s plan to be credible.

New Points of Law

In its Request for Reconsideration, Cubic argues that FTA committed various "errors of law" in it decision. Asserting an "error of law," however, is not a proper ground for reconsideration under section 661.15(o), which states that reconsideration may be warranted where a party "submits . . . points of law that were not known or available to the party during the investigation." Cubic has failed to meet this standard. While Cubic disputes FTA’s reasoning, Cubic does not allege a specific "point of law" that was not known or available to Cubic during the investigation and that would, accordingly, justify reconsideration of the agency’s initial decision.

Nevertheless, for advisory purposes only, I address Cubic’s specific arguments in paragraphs 2 through 4, below, concerning "errors of law."

2. "The Decision is based on an error of law in that it fails to require 100% domestic content."

Cubic argues that FTA has improperly applied rolling stock standards to the subject procurement and has improperly "mixed and matched" rolling stock and non-rolling stock Buy America standards in a manner that is improper and prejudicial to Cubic. Cubic argues that "to be symmetrical, logical and fair, if one is to import the rolling stock definition of an end product one must also import the rolling stock definition of ‘component’ (including an analysis of subcomponents.)"

Cubic fails to cite a specific instance in the decision where FTA has "mixed and matched" rolling stock and non-rolling stock standards. In fact, as explained in the initial decision, FTA applies the same definition of end product to acquisition of a "system" whether the system is analyzed under the rolling stock or the manufactured product section of the regulation. The ensuing component/subcomponent analysis must then diverge in line with the differing statutory and regulatory schemes for treatment of rolling stock and manufactured products.

Cubic also objects to FTA’s long-held position that Buy America analysis begins with identification of the end product being procured, e.g., if a bus is being procured, the engine is a component; but if a new engine is being procured, the engine is the end product. Similarly, the coin hopper posited by Cubic can be a subcomponent, a component, or end product, depending on what is being procured. This is not a conundrum or dilemma as Cubic asserts. As a matter of logic, one cannot identify the components in a procurement until the end product they comprise has been identified; accordingly, it would be absurd to hang an artificial label for all time and purposes on each manufactured product. There is no more fair or feasible way to conduct the Buy America analysis than to start where the regulation says to start: with the end product being procured.

Cubic also objects to FTA’s not discussing its analysis of the MKV20. As noted at page 14 of Cubic’s jurisdictional statement, "the MKV20 is a component of the FVM responsible for ‘magnetic coding’ designed to code high coercivity (HiCo) magnetic stripe tickets. S&B has incorporated a German manufactured and assembled MKV20 component into their proferred FVM." Since the FVM is a component of the automated fare collection system, the origin of its subcomponents is irrelevant to the manufactured product analysis under Buy America.

3. "The Decision is based on an error of law because its findings are inconsistent with the ‘end product’ defined in the RFP."

Cubic argues as follows:

[I]n the absence of a showing of a material and direct change of functionality due to interconnection in the separate major pieces of equipment purchased in a fare collection "system" being purchased through a single master contract and then interconnected or merely used in tandem (there is, after all, not even a physical connection between the fare gates and any of the other equipment specified in the RFP, for example) it simply makes no sense to ignore the separate items within a procurement which each constitute an end product for Buy America purposes.

In short, Cubic disagrees with FTA’s reading of the RFP. I do not find Cubic’s reading persuasive. It is true that a procurement for delivery of a list of unrelated end products, replacement parts for example, results in a component/subcomponent analysis for each of the end products. Here, however, as explained in FTA’s initial decision, the procurement was for all of the components needed for an automated fare collections system and, FTA found, included sufficient contractual obligations beyond delivery of those components to demonstrate that the ultimate obligation of the contractor was to ensure the delivery, design, proper installation and testing (working with a station contractor) of a fully functioning system, the functioning of which the contractor was obligated to guarantee. In FTA’s view, those additional obligations expressly made the contractor responsible for the system, not just various physical components that constitute elements of the system.

The regulation, at section 661.3, defines a "manufacturing process" as the application of processes to alter the form or function of materials or of elements of the product in a manner adding value and transforming those materials or elements so that they represent a new end product functionally different from that which would result from mere assembly of the elements or materials. It is that process that results in a functioning automated fare collection system.

4. "The Decision is based on an error of law by imposing inconsistent interpretations and applications of the Regulation."

Cubic notes that in its August 12, 2002 letter ordering a compliance investigation, FTA stated as follows:

A central factor for FTA in deciding to investigate further in this case is that the automated fare collection equipment procurement consists of a series of specific end products, rather than a single end product. Each end product and its components must be manufactured in the U.S.

Cubic argues that

[n]otwithstanding this clear declaration of applicable standards, the Decision of November 14, 2002, holds exactly the opposite, stating that:

Having subsequently obtained and reviewed MBTA’s request for proposal [sic.] [sic] (RFP) for the "Automated Fare Collection System (AFC)" and reviewed the entire record in this matter, FTA has concluded that this procurement consists of a single end product, i.e., an AFC system, rather than multiple end products.

Cubic argues, in effect, that in deciding to open an investigation based on its initial understanding of the nature of the solicitation, FTA is for some reason precluded, in reaching its decision, from relying on the information and evidence produced in that investigation. This is an anomalous position for Cubic, which elsewhere in its petition states that the "essential task in defining the end product . . . must be to understand accurately the RFP and the Regulation." In this case, FTA relied on the representations in correspondence in deciding to open the investigation and did not see the RFP until the investigation was underway. The purpose of the investigation is to acquire and analyze information, such as that contained in the RFP, necessary to reach a decision.

In summary, Cubic has not submitted new matters of fact or points of law that were not available to Cubic during the investigation; accordingly, Cubic’s request for reconsideration is denied. Moreover, as I have explained, if Cubic had met the regulatory standard for reconsideration, FTA does not find its arguments persuasive.

I note that it is MBTA’s responsibility to ensure that its contractors perform in accordance with its contracts. In this case, MBTA must determine the responsibility of the offeror to which it awards the contract and the accuracy of the Buy America certification. Of course, contractor compliance with Buy America is a precondition to eligibility for Federal funds. It is MBTA’s responsibility to include sufficient remedies in its contract to offset the loss of Federal funds that would result from the contractor’s failure to comply with the Buy America requirements.

This FTA decision is administratively final.

Very truly yours,

William P. Sears
Chief Counsel

Response to Cubic Transportation System's appeal of FTA's determination that there was no violation of Buy America by MBTA in its procurement of a fare collection system. Decision affirmed. December 6, 2002