Dear Mr. Mulhern:
This letter represents the decision by the Federal Transit Administration (FTA) in the matter involving Cubic Transportation Systems, Inc.’s (Cubic) petition to FTA to investigate Scheidt & Bachmann’s (S&B) compliance with the requirements of Buy America in the procurement of automated fare collection equipment by the Massachusetts Bay Transportation Authority (MBTA). For the reasons stated below, FTA has determined that S&B, the successful offeror, has demonstrated that it is in compliance with the requirements of Buy America.
Section 5323(j)(1) of the Federal transit laws (49 U.S.C. 5301, et seq.) sets forth the general requirements for the procurement of manufactured products. The implementing regulations require that all manufactured products used in FTA-funded projects be produced in the U.S.
FTA’s Buy America investigative procedures, 49 CFR 661.15(a), establish a presumption that a bidder who has submitted a Buy America certificate is in compliance with the regulation.1 These regulations further provide that a third party may petition FTA to investigate a successful bidder’s certification for alleged non-compliance. Under 49 CFR 661.15(d), the "successful bidder has the burden of proof to establish that it is in compliance." As I stated in my letter to you dated August 12, 2002, FTA determined that based on Cubic’s petition and supporting documentation, the presumption that S&B was compliant had been overcome and that an investigation was warranted.
Having subsequently obtained and reviewed MBTA’s request for proposal (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. The ticket vending machines, fare boxes, gates, etc. that make up the AFC system are, therefore, components of the system rather than end products in and of themselves. I will discuss specific components after examination of the "end product" issue.
Section 661.11(s) defines "end product," in part, as "any item subject to 49 U.S.C. 5323(j) that is to be acquired by a grantee, as specified in the overall project contract." (Emphasis added.) Although section 661.11 applies specifically to rolling stock procurements, FTA has consistently applied this and similar definitions of "end product" to manufactured products as well. In a letter to the Santa Clara Valley Transportation Authority dated October 18, 2001, for example, FTA addressed whether a "cable trough" was an end product in a procurement for a section of the Tasman Corridor East light rail construction project. The letter stated, in part, as follows:
FTA has consistently applied the following reasoning to the end product question: "[a]n end product is ‘any item’. . . that is to be acquired by a grantee, as specified in the overall project contract. The key determinant is the grantee’s specification. For example, if a grantee is procuring a new rail car, the car is the end product and the propulsion motor would be a component of the end product. If that same grantee is procuring a replacement propulsion motor for an existing rail car, that propulsion motor would be the end product." 56 Fed. Reg. 928 (Jan. 9, 1991).
Similarly, in 1981 FTA determined that "the procurement of construction is treated as procurement of a manufactured product in that the deliverable of the construction contract is considered as the end product and the construction materials used therein are considered components of the end product." 46 Fed. Reg. 5808 (Jan. 19, 1981). Further, when asked to clarify the definition of "end product," FTA concluded that, "the deliverable item specified in the contract is the end product. For example, in a contract for 10 buses that must contain 500 h.p. engines, the 10 buses are the end-products." Id. (Emphasis added.)
Prior FTA Treatment of AFC Systems as End Products
On at least two prior occasions, in 1994 and 1995, FTA has taken the position that AFC systems constitute end products. In a letter dated May 12, 1994, FTA applied the Buy America requirements "to the procurement of an automatic fare collection system" by MBTA:
A fare collection system is a manufactured product, subject to section 165(a) of the Surface Transportation Assistance Act of 1982, as amended (STAA). This provision requires that all of the components of a manufactured product be of U.S. origin . . . .
It is FTA’s position that the "end product" is the deliverable specified in the grantee’s procurement contract. In re Brown Boveri Corp., 56 Comp. Gen. 597 (1977). The deliverable in the MBTA’s request for proposals (RFP), a "transit fare collection system replacement," is therefore the end product of this procurement. . . .
Page 7-4 of the RFP lists the various items to be incorporated into the fare collection system, including the ticket vending machines, fare gates, ticket validators, revenue collection equipment, and computer and communications equipment. FTA considers these items to be components of the system for Buy America purposes.
In a letter dated May 22, 1995, FTA again responded to an inquiry involving the procurement of a fare collection system, in this case, at Tri-Met in Portland, Oregon:
A review of the Tri-County Metropolitan Transportation District of Oregon’s (Tri-Met) specifications for this project indicates that the end product of this procurement is a fare collection system, consisting of the following components: TVMs [ticket validation machines], ticket validators, a central data collection and information system, related data communication networks, and various spare parts, tools, and testing equipment.
AFC System Identified in RFP
As shown by FTA regulations and prior decisions, FTA identifies the "end product" of a procurement as the deliverable item specified by the grantee in the contract. A review of key provisions of the MBTA RFP demonstrates that MBTA intended to procure an AFC system. The solicitation consistently refers to a system. For example, the Instructions to Offerors section of the RFP states, in relevant part, as follows:
A. The Massachusetts Bay Transportation Authority (hereinafter also called the Authority, MBTA, Party, or Owner) invites proposals as set forth herein on a competitive negotiated basis for the Furnishing/ Design/ Manufacture/ Testing/ Delivery/ Activation and Oversight for the Automated Fare Collection System. The delivery includes all materials, services, transportation and costs for freight and insurance, to MBTA Revenue Services at designated locations:
Base Proposal: Automated Fare Collection System in accordance with Specification AFC-2001.
. . . .
A1.15 AUTOMATED FARE COLLECTION SYSTEM SCHEDULE
A. The Offeror shall submit with its proposal, under Part B, a detailed schedule for the design, manufacture, testing, delivery, activation and oversight of the Automated Fare Collection System in the form of a milestone type bar chart.
. . . .
E. The Contractor shall assume the cost of all repairs and defective component replacement (including labor) until the System is fully accepted by the Authority.2
(Emphasis in original.)
The Technical Specification of the RFP, Specification AFC-2001, also consistently refers to a system. For example, Section 1.0, System Design, states, in part, as follows:
This procurement is designed to meet the needs of an Automated Fare Collection (AFC) system for MBTA’s subway, bus, trackless trolley and Green Line services. All existing fare collection equipment shall be replaced with new equipment under this contract. . . . The contract includes systems design and development efforts, software and hardware necessary to link all fare collection systems together, and additional management functions as specified herein.
In addition, the new AFC system shall fully meet the needs of the present MBTA fare structure and fare media, including multiple passes visually identified with an expiration date by service type (bus/subway) and by zone for commuter rail. The new AFC system shall also provide sufficient flexibility to permit the modification, addition and deletion of fare media and fare structure elements as needed, by service type as well as systemwide. The new AFC system shall also be able to incorporate parking equipment at a future date without modification to the fare media or other AFC equipment furnished under this contract.
The RFP contains many other references to a system. Specification AFC-2001, paragraph 1.2 "System Overview" states, in part, "[t]his section provides an overview of the functional requirements that will comprise the new AFC system. . . For the new AFC system, all present subway, Green Line, bus and trackless trolley fare collection equipment shall be replaced. The AFC system shall provide for the acceptance of cash, credit/debit cards, smart cards and magnetic tokens. . . ." (Emphasis added.)
Another example is Paragraph 1.2.6, "Data and Control Computer Network," which states, in part, as follows: "The AFC system shall incorporate a computer network to provide a comprehensive data collection and reporting system. . . ." (Emphasis added.)
Notwithstanding the numerous references in the RFP to an AFC System, the RFP does contain some ambiguous language concerning the term "end product." The solicitation states, in part, as follows:
A1.10 OFFEROR’S MATERIAL QUALIFICATION
A. It is the responsibility of the Contractor to furnish complete End Products, materials and specialties of the type, design, and performance which will result in an integrated, operating End Product units and/or systems in accordance with the Technical Specifications.
. . . .
a. The Contract item(s) to be purchased by the Authority in accordance with the Contract Documents.
b. End Product(s) includes, but it [sic] not limited to, drawings, specifications, instructions, books, education programs, spare parts and/or services.
From these references to "end products" in the RFP, Cubic argues that MBTA intended to procure multiple end products. However, the intent of the RFP is not to procure "books and education programs" as stand alone "end products." The real "end product" of the RFP, as FTA employs that term for Buy America purposes, is a functional AFC system for use in MBTA’s transit operations. As the complete RFP specification makes clear, the end product is an AFC system.
Having determined that the AFC system is the end product of this procurement, we must determine whether the end product and its components meet the requirements of the regulation. A manufactured product is considered domestic if all of the manufacturing processes of the product take place in the U.S. and all of the components of the product are of U.S. origin. 49 CFR 661.5(d)(1). A component of a manufactured product "is considered of U.S. origin if it is manufactured in the United States, regardless of the origin of its subcomponents." 49 CFR 661.5(d)(2).
A manufactured product means an item produced as a result of a "manufacturing process," defined 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. [49 CFR 661.3.]
For a manufactured product to be considered produced in the United States all of the manufacturing processes for the product must take place in the United States.
As noted earlier, MBTA required separate procurements for the design and acquisition of the AFC system and installation of that system as mandated by Massachusetts law.3 Accordingly, the question in this case is whether the AFC system, as the end product delivered and accepted by the MBTA under the contract with the successful offeror, represents a new end product different from that which would result from mere assembly of the elements or materials.
Although the AFC contractor does not install the AFC equipment, the AFC contractor is responsible for installation oversight and system test and evaluation. Specification AFC-2001 states, in part:
2.1 Contractor Responsibilities
A. The Contractor shall perform all work tasks, and services, in the design, development, manufacture, delivery and integration of all hardware and software to ensure that a complete AFC system is implemented.
B. The Contractor shall provide oversight in the installation of all AFC equipment and software. . . . Sufficient personnel shall be provided for oversight of the installation in order to meet the schedule as identified in Section 2.4.
C. The Contractor shall supply such materials and supervision as may be necessary for the proper installation of the AFC equipment and software, plus supporting systems, and any options exercised by the MBTA. All equipment shall be tested in accordance with the test procedures to be developed by the Contractor and approved by the MBTA as defined in Section 9. The equipment, subsequent to testing, shall be suitable for revenue service operations and complete in every respect.
D. Contractor shall provide personnel to supervise, inspect and adjust the equipment for the period of time commencing from commencement of installation through final acceptance of the AFC system as defined in Sections 9 and 10.
Section 8.1 of Specification AFC-2001, identifies the responsibilities of the various contractors for the AFC System project. Again, this section demonstrates that while the AFC contractor does not perform the actual installation work, it plans the installation and has overall responsibility to ensure that installation proceeds according to the plans it develops. Section 8.1 provides:
EQUIPMENT IMPLEMENTATION AND ACTIVATION
The design and implementation of the AFC system and the facilities to which it interfaces shall be accomplished with separate contractors for:
AFC system design and procurement-AFC Contractor
Architecture and Engineering (A/E) design for the stations and facilities –A/E Contractor
Station modification and equipment installation –Station Contractor.
The A/E Contractor will be responsible for the design of modifications required to prepare stations to accept the new equipment (see Section 8.1.1). The Station Contractor will be responsible for all station modifications and placing and bolting all fare collection equipment in place (see Section 8.1.2), in accordance with the MBTA Standard Specifications for Construction and the AFC Contractor’s installation instructions and drawings. . .The AFC Contractor shall be responsible for certification of the design of the modifications for stations and facilities, oversight of installation work with the MBTA selected Station Contractor; wiring termination, testing and commissioning of the fare collection equipment on site, see Section 8.1.3.
In addition, the RFP shows that the AFC contractor is required not only to design and deliver the AFC equipment, plan the installation, and oversee the installation, but also to test the system to ensure performance, and then guarantee the performance of the AFC system.
Section 9.0, System Testing and Acceptance, provides as follows:
The Contractor shall plan for, perform, monitor, and document all tests required to prove the design and acceptability of the AFC System, including all elements, subsystems, and the system as a whole, furnished under this Contract. The Contractor shall furnish AFC equipment that meets the criteria specified for all tests. . . .4
Section C4.02, Guarantee of End Products (Warranty),5 provides as follows:
A. The Contractor shall guarantee the following:
Automated Fare Collection System shall be free from defects in design, materials and workmanship for a period of one year from date of system acceptance. System acceptance commences in accordance with Specification AFB-2001, Section 9 and 10.
. . . .
Contractor shall guarantee that the Automated Fare Collection System shall be in accordance with the Contract Documents when accepted and shall guarantee against defect due to faulty design, poor workmanship, or poor material during the foregoing respective periods of guarantee. If any part or parts thereof proved defective either in design, materials or workmanship during the respective periods of guarantee, the Authority shall promptly notify the Contractor, and the Contractor shall repair or replace, as mutually agreed by both parties, such part of parts without expense to the Authority.
It shall be understood that the Contractor shall be responsible for all costs of labor and material for defect identification and location, and for the removal, repair, or replacement of defective parts, and for alterations, repairs, tests, and adjustments in connection therewith, made to obtain specified AFC System performance. . . .
In sum, the RFP requires the AFC contractor to deliver an integrated, functioning AFC system. Regardless of who physically installs the AFC equipment (the Station Contractor, per Specification 8.1), the AFC contractor is required to retain overall responsibility for the project, including planning and oversight of the installation work. The substantial continuing responsibilities of the AFC contractor during installation and testing prior to final acceptance by the MBTA serve as a significant indication that the AFC system will be functionally different from that which would result from mere assembly of the elements or materials.
For the reasons cited above, this procurement consists of a single end product, an AFC system. Accordingly, the following items of equipment are components of the AFC system: Fare vending machine; fare box/receiver vault/mobile vault; fare gates; smart card reader; validator; ticket office machines; station information center; retail sales terminal; smart card encoding equipment/photo ID equipment; ticket encoding equipment; central computer system and networking equipment. As indicated earlier, the origin of the subcomponents of these components may be either foreign or domestic, per 49 CFR 661.5(d)(2).
Evidence of Compliance
To demonstrate compliance with the Buy America requirements, S&B submitted a detailed manufacturing plan to FTA. In addition, at the specific request of FTA, S&B submitted "bill of material" documents for each of the major component items of the AFC system. S&B’s manufacturing plan and the bill of materials identify S&B’s U.S. manufacturing facility in Burlington, Massachusetts, and describe the processes to be used in producing the AFC system and its various components at the Burlington facility. Subject to the following comments pertaining to two particular components (smart card readers and fare gates), FTA finds that S&B has submitted a reasonable plan for producing the AFC system, which complies with the applicable Buy America requirements for manufactured products, per 49 U.S.C. § 5323(j)(1) and 49 CFR 661.5(d).
Smart Card Reader
In S&B’s proposal, S&B indicates that the Smart Card Reader (SCR) component will be manufactured in Italy by Mobile Data Processing. S&B contends, however, that the SCR equipment procured under the MBTA RFP fall under the microcomputer equipment waiver found at 49 CFR 661.7, Appendix A(d). FTA agrees with this assessment for the following reasons.
FTA has defined microcomputer equipment as being "a computer system whose processing unit is a microprocessor. A basic microprocessor includes a microprocessor, storage, and input/output facility, which may or may not be on one chip." 50 Fed. Reg. 18760 (May 2, 1985). A computer system is defined as:
A functional unit consisting of one or more computers and associated software that uses common storage for all or part of a program and also for all or part of the data necessary for the execution of the program; executes user-written or user-designated programs; performs user-designated data manipulation, including arithmetic operations and logic operations; and that can execute programs that modify themselves during the executions. A computer system may be a stand-alone unit or may consist of several interconnected units. Synonymous with ADP system, computing system.
In the MBTA RFP, Paragraph 4.11.2 of the Technical Specification describes the Smart Card Reader, in part, as follows:
The SCR shall be a rugged, industrialized, handheld computer with data entry keys, a display screen and other elements needed to accommodate the functions as specified within this section . . . .
As described in Paragraph 4.11.3 of the Technical Specification, the SCR handheld computer (which is used by ticket conductors) provides data input and output by reading smart cards; stores and compares ticket list data in memory; and provides upload and download of data to fare collection servers. Under these criteria in the RFP, the SCR falls within the definition of a computer system, as stated in 50 Fed. Reg. 18760 (May 2, 1985).
According to S&B’s manufacturing plan and other product description material submitted by S&B, the SCR supplied by S&B in this procurement fully meets the requirements of the RFP, and fully qualifies as a computer system. As such, FTA has determined that the SCR is covered by the microcomputer waiver found at 49 CFR 661.7, App. A(d). Accordingly, the origin of the SCR component may be either foreign or domestic.
S&B states in its Proposal that the fare gate component equipment will be supplied by a Belgian company, Automatic Systems America, Inc. (Automatic Systems), which currently has no U.S. production facility. In Exhibit I of S&B’s initial submission to FTA, S&B states that "[f]or 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 in Plattsburgh, NY or Burlington, VT. The gates and components for the project will be manufactured and assembled there."
Exhibit V of S&B’s initial submission to FTA, however, contains a letter and manufacturing plan from Automatic Systems that arguably introduces an ambiguity when read with S&B’s assurances. Automatic Systems’ letter dated August 28, 2002, states that "[t]he mandate of Automatic Systems America Inc, [sic] is clear and we have the mandate to set up manufacturing logistics in both the USA and Canada to meet our customers requirements." (Emphasis added.) Under 49 CFR 661.5(d)(2), which requires that components of manufactured products be of U.S. origin, S&B would not be Buy America compliant if it obtained fare gates that were made in Canada. However, we understand Automatic Systems’ letter to be informational on this point, i.e., it will have manufacturing facilities in both countries and so will meet the Buy America requirements of this contract. FTA takes the S&B statements as confirming this reading. Both statements, taken together, represent an assurance that the fare gates will be manufactured in the U.S. as required by the Buy America regulations. For all component items in this procurement, FTA will monitor S&B’s compliance with the applicable Buy America requirements during the execution of the eventual contract with MBTA for the AFC system.
FTA finds that S&B has met its burden of proving that it is in compliance with the requirements of Buy America and that it correctly certified to that effect with this procurement.
If you have any questions, please contact Joe Pixley of our Office at (202) 366-1936.
1 The language of 49 CFR 661.15 uses the term "bidder." In this procurement, MBTA issued a Request for Proposal, so S&B is actually the successful offeror. In this letter, the terms "bidder" and "offeror" will be used interchangeably
2 This provision, in particular, emphasizes the distinction between components and the "(AFC) System" as a whole.
3 In the case of Thorn Transit Systems International, LTD., & another (Cubic) vs. Massachusetts Bay Transportation Authority & Another (Scheidt & Bachmann), 40 Mass. App. Ct. 650, the court ruled that installation of a fare collection system and station modifications necessary to accommodate the system are public works construction that can be procured only by sealed bid and could not be acquired under a request for proposal. Accordingly, MBTA separated installation of the system from other elements of the system acquisition.
4 For final acceptance, Section C6.06 states: "When all corrective actions and retrofits, if any, have been fully completed, and the Automated Fare Collection System is considered by the Authority to be in full compliance with the Contract, the final Certificate of Acceptance will be executed by the Contractor and the Authority."
5 This heading seems to imply that that the AFC project contains multiple "end products." The underlying text in the warranty clause clearly refers, however, to a singular end product: the AFC System.
Very truly yours,
Gregory B. McBride
Deputy Chief Counsel