Dear Dr. Jimenez:
I write in response to your letter dated April 19, 2001, in which you advise the Federal Transit Administration (FTA) that a portion of the raw steel used or to be used in constructing the station canopies at alignments 2, 4, 5, and 6 of the Tren Urbano project is of Canadian origin.You urge FTA to consider a legal analysis asserting that the Buy America regulations are not applicable to the procurement of the Canadian steel in this case. Alternatively, you request that FTA grant a public interest waiver from the Buy America provisions for the steel at issue. For the reasons below, FTA disagrees with the legal analysis provided and is unable to grant a public interest waiver.
According to the legal analysis provided, the foreign steel is a subcomponent of the alignment, the end product. Because FTA has likened a construction project to a manufactured product and applied the manufactured products section of the regulation found at 49 C.F.R. 661.5 to construction projects, it is argued that the domestic origin requirements of the regulations do not apply to the steel since subcomponents of manufactured products can be of domestic or foreign origin. Although subcomponents of manufactured products can be of foreign origin, all steel and iron procured with FTA funds must be produced in the United States. 49 U.S.C. 5323(j). 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." 49 C.F.R. 661.5(c).
As discussed in my March 16, 2001, letter, a copy of which is enclosed, the requirements found in sections 661.5(b) and (c) apply to the manufacturing processes used to make the steel or iron. These requirements do not apply to the manufacture of items that are not made primarily of steel, e.g., a concrete guideway parapet, which contains steel rebar, but is primarily made of concrete. Once the steel and iron requirements are satisfied, section 661.5(d), the manufactured product section, applies to the construction contract. That steel and iron used in FTA-funded projects must be produced in the U.S. is beyond dispute, the argument of the contractor’s legal analysis notwithstanding.
Alternatively, you request that FTA grant the Puerto Rico Highways and Transportation Authority (Authority) a public interest waiver 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. In support of this request, you state that (1) the Canadian steel pipes constitute a very small percentage of the overall station costs; (2) procurement of the steel from the U.S. at this juncture would result in a six-month delay; (3) such a delay could impose a disproportionately high cost to the overall project; (4) the contractor believed it was in compliance with the Buy America requirements because the canopy segments and steel pipes were procured from U.S. manufacturers; and (5) any delay in the completion of the project and commencement of train operation would adversely affect the welfare of the public in the greater San Juan area, which has the highest density of vehicles per paved kilometer of road in the world. Accepting these statements as true, they must be balanced against the national policy embodied in the Buy America provisions. In weighing these factors, I find no overriding public interest on which to base a waiver in this case.
You have informed FTA that Tren Urbano contractors have procured foreign steel for use in four segments of this FTA-funded project, but argue that these procurements are consistent with the applicable Buy America requirements. We disagree. The arguments you present are not supported by the statute and the implementing regulations; accordingly, these procurements of Canadian steel constitute a violation of the Buy America requirements that should be remedied promptly.
To retain eligibility for FTA funding, either (1) all steel used in the contracts for the alignments at issue must be produced in the United States, or (2) the Authority must modify these contracts to delete the procurement of steel and execute separate, locally funded contracts. Please advise us promptly of how the Authority intends to ensure Buy America compliance in this circumstance.
Very truly yours,
Gregory B. McBride
Acting Chief Counsel
cc: The Honorable José Izquierdo Encarnación
Jerry Franklin, Regional Administrator, TRO-4