Mr. Michael C. Coppola, CPPO
Assistant Director, Purchasing
347 Madison Avenue
New York, New York 10017-3739
Dear Mr. Coppola:
This responds to your letter of December 18, 2003, and email of January 21, 2004, in which you request a public interest waiver of the Buy America requirements on behalf of Metro-North Railroad (MNR), for an upcoming bid for 20,000 feet of conductor rail. This contract will include the installation of aluminum-steel conductor rail and you argue that there are only two suppliers, Transtech of S.C. Inc. and Insul 8 Corporation. Because Insul 8ís rail will not comply with Buy America, you request a waiver to generate competition in the procurement.
FTA's requirements concerning domestic preference for federally funded transit projects are set forth in 49 U.S.C. §5323(j) and 49 C.F.R. 661.5. The regulation states that "[a]ll steel and iron manufacturing processes must take place in the United States. . ." 49 C.F.R. 661.5(b). This requirement applies 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. These items include, but are not limited to, structural steel or iron, steel or iron beams, running rail and contact rail." 49 C.F.R. 661.5(c).
A public interest waiver may be granted under 49 U.S.C. 5323(j)(2)(A). This section provides that the Buy America requirements may be waived if applying the statute would be inconsistent with the public interest.
You explain that MNR would like to use a composite aluminum-steel conductor rail to combat the low voltage problems in the power distribution system. According to your request, there are two suppliers that would meet the specifications for the solicitation: Transtech and Insul 8. Transtech is able to comply with the Buy America requirements; it is located in South Carolina and is a division of Brecknell Willis, a European company.
Insul 8, while located in Nebraska, would not comply with Buy America because it would use rail manufactured by Alcan Extruded Products in Germany.
Transtech welds the stainless steel cap to the aluminum rail profile, while Alcan co-extrudes the stainless steel cap together with the aluminum, creating a continuous metallic bond. With only two suppliers, one of which is unable to comply with Buy America, MNR argues that there will be no competition in the bidding environment, and it will be faced with a sole source situation, which would eliminate the advantage of a competitive bidding environment.
Insul 8 and Alcan explained that securing orders such as this one will have a positive influence in making the business case for developing manufacturing capability in the U.S.; however, they stop short of saying that this waiver would result in establishing a manufacturing facility here. MNR also argues that while both products have performed adequately in limited installations, it is intrigued by the implied long-term reliability of the metallic bonding used technology offered by Insul 8 and Alcan. Insul 8 explains it would manufacture a number of components in Harlan, Iowa, though that work would make up less than 20 percent of the contract, with the primary contribution coming from Alcan in Germany.
FTA posted a request for comment on this matter on our website and received 11 comments: seven in favor of the waiver, three against it, and one informational. HNTB - Rail Systems Group concurred with the waiver request from an engineering perspective, noting that the co-extruded version of composite rail has proven effective in Europe. International Product Development and an individual commenter responded generally, supporting the request. Washington Group International supported the waiver for the reasons articulated by MNR, and explained that a waiver here would stimulate Transtech to compete more effectively. DMJM+Harris and Parsons both supported the waiver because, they state, it would afford the opportunity to have a more reliable product and a competitive bid. Trammco, LLC supports the request because the new metallic bonding technology could improve the current carrying capacity of the co-extruded, composite rail, while being simpler to maintain and less likely to degrade over time. Trammco explained that this rail could be produced in the U.S. if a market was developed here.
Indalex Aluminum Solutions and Inesscon, Inc., a consulting and engineering firm, offered comments in opposition to the waiver. Indalex stated that there is no substantiated long-term reliability benefit to the co-extruded technology offered by Insul 8 and Alcan. It also argued that this type of waiver would undermine the intent of Buy America as established by Congress, which is to give a competitive advantage to U.S. manufacturers. Indalex explained that this is particularly important in the present environment where many jobs have already been moved to foreign countries, and therefore, this request is not in the public interest.
Transtech, the other supplier in this case, provided extensive comments opposing the request. In addition to arguing that a public interest waiver based on competition is counter to the intent of Buy America, Transtech also explained that it has made substantial investment in the U.S. in buildings, equipment, and personnel, and developed domestic sources for components to allow it to comply with Buy America, while Alcan has not made such an investment. Transtech also argued that it is confident that its product compares favorably to Alcanís. The Transtech product has a worldwide installed base in excess of 500 miles, a minimum design life of 40 years, and a proven operating and reliability history of 15 years. Finally, Transtech objected to the term sole source, as this would only be the case if Insul 8 refused to bid.
Transtech has made an investment in the U.S. economy in order to comply with Buy America. To grant a waiver to a company that has not made a similar investment 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 domestic steel. 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.
It appears that either product would meet the anticipated MNR specification; accordingly, despite the apparent success of co-extruded composite rail technology in Europe, we cannot find that it is in the public interest to forgo the Buy America regime in order to allow Insul 8 to bid as if it were a compliant bidder. An alternative to a waiver is for FTA grantees to use local funds or for Alcan and Insul 8 to develop manufacturing capabilities for this product in the U.S.
If you have any questions, please contact Meghan Ludtke at (202) 366-1936.
Very truly yours,
Gregory B. McBride
Deputy Chief Counsel
cc: Letitia Thompson
Denial of a public interest waiver for 20,000 feet of co-extruded, aluminum-steel composite rail, manufactured by Alcan Aluminum and Insul-8. FTA found that it was not in the public interest to forgo the Buy America regime in order to allow Insul 8 to bid as if it were a compliant bidder.
March 26, 2004