December 07, 2010
 

Daniel E. Walz, Esq.
Patton Boggs LLP
2550 M Street, NW
Washington, DC 20037

Subject: Letter of Interpretation – Escalators

Dear Mr. Walz:

I write in response to your request for a letter of interpretation to clarify whether escalators constructed within a bus or rail station are “components” for purposes of applying the Federal Transit Administration’s (FTA) Buy America requirements of 49 U.S.C. 5323(j), as implemented at 49 C.F.R. Part 661. More specifically, you have asked FTA to confirm the interpretation you provided to your client, Yonkers Contracting (Yonkers), in connection with its contract with the New York Metropolitan Transportation Authority (MTA) to build the 245 Park Avenue Entrance to Grand Central Station. You want to assure your client that the escalator it plans to include in the new entrance will comply with FTA’s Buy America requirements. The escalator will be manufactured by ThyssenKrupp Elevator (TKE).

Legal Standard

With certain limited exceptions, FTA may not obligate funds for a grantee project unless the manufactured products used in the project are produced in the United States. [1] Whether a manufactured product is considered produced in the United States is determined by a two-part test: “(1) All of the manufacturing processes for the product must take place in the United States; and (2) All of the components of the product must be of U.S. origin. A component is considered of U.S. origin if it is manufactured in the United States, regardless of the origin of its subcomponents.” [2]

In submitting a bid for the procurement of manufactured products subject to 49 C.F.R. § 661.5, the bidder must certify compliance with FTA’s Buy America requirements. By signing the Certificate of Compliance, the bidder is certifying “that it will comply with the requirements of 49 U.S.C. 5323(j)(1), and the applicable regulations in 49 C.F.R. part 661.” [3]

Discussion

1. Escalators as Components of End Product Stations

In order to determine whether the manufacturing processes for a particular item must take place in the United States, one must categorize the item as an end product, component, or subcomponent. The manufacturing process for end products and components must take place in the United States. The manufacturing processes for subcomponents need not take place in the United States.

FTA regulations define the term “end product” to mean “any vehicle, structure, product, article, material, supply or system, which directly incorporates constituent components at the final assembly location, that is acquired for public use under a federally-funded third-party contract, and which is ready to provide its intended end function or use without any further manufacturing or assembly change(s).” [4] When FTA adopted this definition in 2007, it did so to apply the Buy America requirements in a manner that would not change, or “shift,” from procurement to procurement. Thus, “end products do not shift and components and subcomponents retain their designation” regardless of circumstance. [5]

In 2007, pursuant to a mandate in the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU), FTA developed a representative list of “manufactured end products” and published it as an appendix to its Buy America regulation. The representative list of manufactured end products includes “infrastructure projects not made primarily of steel or iron, including structures (terminals, depots, garages, and bus shelters), ties and ballast; contact rail not made primarily of steel or iron; fare collection systems; computers; information systems; security systems; data processing systems; and mobile lifts, hoists, and elevators.” Permanently affixed lifts, hoists, and elevators, however, are “components of the larger facility, which itself could constitute the ‘end product.’” [6]

Consistent with the representative list of end products, FTA has determined that bus and train stations are end products and escalators are components. As stated above, the list of representative end products included in Appendix A to § 661.3 of manufactured end products includes structures such as terminals, depots, garages, and bus shelters. A station is a structure akin to a terminal in that both include platforms, platform support structures, walls, and supports for escalators and stairs, as well as other foundational support for various components. Therefore, bus and train stations, such as Grand Central Station, are manufactured end products.

FTA regulations define the term “component” to mean “any article, material, or supply, whether manufactured or unmanufactured, that is directly incorporated into the end product at the final assembly location.” Therefore, inasmuch as the final assembly location of an escalator is at the station and the escalator becomes functional and can be used as intended only upon incorporation into the station, an escalator is a component. As a component, the manufacturing processes for an escalator must take place in the United States for it to comply with FTA’s Buy America requirements. [7]

2. Yonkers and TKE’s Compliance with Buy America

You asked FTA to determine whether TKE’s process for manufacturing the escalator as part of the 245 Park Avenue Entrance project complies with the applicable Buy America requirements for manufactured products as required by 49 C.F.R. § 661.5. Determining whether TKE’s escalator manufacturing processes comply with the Buy America requirements requires an analysis under the manufactured products standard as applied to a component.

A component must be manufactured in the United States in order to meet the manufactured products standard under 49 C.F.R. § 661.5. This requires that all manufacturing processes involved in constructing the product must take place in the United States. [8] The manufacturing process is more than “mere assembly,” but rather, it is the “alter[ation of] 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.” [9] “The processes of alteration may include forming, extruding, material removal, welding, soldering, etching, plating, material deposition, pressing, permanent adhesive joining, shot blasting, brushing, grinding, lapping, finishing, vacuum impregnating, and, in electrical and electronic pneumatic, or mechanical products, the collection, interconnection, and testing of various elements.” [10]

Subcomponents are one level removed from the component and integrated into the component through the manufacturing process. The origin of a subcomponent is significant to the extent that the manufacturing processes of the component must materially alter and transform the subcomponent during the incorporation of the subcomponent into the component. Thus, while subcomponents may be foreign sourced, the manufacturing processes at the component level with respect to the foreign-sourced subcomponent must take place in the United States.

The following is a description of the manufacturing process for the TKE escalator that will be installed in the 245 Park Avenue Entrance to Grand Central Station:

Instead of delivering to the job site a largely assembled escalator that has been divided into two separate sections, TKE’s European affiliates will instead ship to the TKE facility in Fort Worth, Texas, most (but not all) of the parts and pieces that are required to manufacture an escalator. TKE reported to us that a total of over 1,500 individual parts will be delivered to the Ft. Worth facility. Jigs and templates will also be sent that will then be used at the Fort Worth facility to fabricate subcomponents for incorporation into the escalator as it is being manufactured. Some of the parts that will be shipped to Fort Worth will clearly be identifiable as parts of an escalator. This would be true of the escalator’s steps, for example. Many of the other parts sent to Fort Worth will not be identifiable as escalator parts, however. This is certainly true of the many fasteners that will be sent (nuts, bolts, washers), but is also true of other subcomponents, such as the escalator’s heating units, which are also used with other types of equipment.

. . . TKE will procure from vendors in the U.S. some of the escalator’s most critical elements. These include the escalator’s Controller, Remote Monitoring System, and Drive Unit. A vendor in the U.S. will fabricate and install the stainless steel panels that make up the balustrade’s exterior cladding. In installing the escalator at the 245 Park Avenue Entrance, TKE will also use electrical conduit and various architectural finishing items purchased from local sources. Similarly, TKE will procure extruded aluminum and various forms of steel (sheet, angle and conduit) that it will fabricate and use as the escalator is being manufactured at its facility in Fort Worth.

At the Forth Worth facility:

The truss structure is manufactured in sections. . . . Angle iron and plate steel are sized, cut and welded together. Once manufactured, the truss sections are then hot dip galvanized. . . .

The other sub-components of the escalator are then built into and attached onto the truss. [The] [m]ain drive shaft and sprocket with chain [is] installed and the smaller handrail drive shaft and sprocket with chain [is] attached.

Next the drive unit is installed.

The step track is mounted onto the truss structure[.]

The high precision rolled flat link hardened step chains are assembled onto the step track[.] The step chain rollers are mounted onto the steps and the steps are attached to the step chain bolts by hollow axles.

Various wiring, cabling, switches and sensors are installed throughout the process. [This includes the] [s]afety systems [which] include chain safety contacts (to ensure the immediate stoppage of the escalator in the event of excessive chain stretch or breakage), comb plate contacts (to stop the escalator if the comb plate is moved because objects become lodged between the treads and the comb plate), handrail inlet safety devices (to stop the escalator electrically if anything penetrates the entry point of the handrail into the balustrades), skirting micro switches (to stop the escalator if a foreign object becomes wedged between the step and the skirting), step running control devices (to stop the escalator if damage to the steps or rollers occurs), speed governor, secondary brake, emergency stop push buttons, etc.

At the 245 Park Avenue Entrance:

The escalator sections are then transported to or near the job site where they are bolted together. The process of manufacture then continues with the fitting and installation of the wiring system, the balustrade support stanchions, the upper inner and outer deckings, handrail guide assemblies, newel assemblies, handrail drive sheaves assembles, cluster roller/tensioning assembling, handrails, skirt brackets and panels, balustrade panels, handrail inlet assemblies, comb plate assemblies, combplates, landing plate frames, landing plates, control stations, outer cladding and, in a separate room, the electrical control unit, power unit and remote monitoring system which are connected via wiring and conduit to the escalator. Once all electrical connections have been made, the escalator is then thoroughly tested and calibrated.

Based upon the foregoing, I find that Yonkers will comply with FTA’s Buy America requirements as long as it does not deviate from the manufacturing process you have described, above. Please note, however, that I have based this determination on the understanding that all of the manufacturing processes for the escalator will take place either at a facility in Fort Worth, Texas, or at the 245 Park Avenue Entrance site.

Moreover, I note that FTA cannot make a determination about each and every part that will be incorporated by Yonkers into the 245 Park Avenue Entrance to Grand Central Station because the list you provided to FTA was not comprehensive. You stated that over 1,500 parts will be shipped from its European suppliers to be used for the manufacturing of the escalator, but you did not transmit a list of all 1,500 foreign-sourced parts. The parts you did list, such as the escalator steps, are subcomponents that do not rise to the level of component manufacturing. Parts such as the escalator steps are subcomponents because they will be integrated into the escalator through the manufacturing process of the escalator. As not all of the foreign sourced parts are listed, FTA cannot make a determination with respect to those parts and pieces not specified. However, if they are subcomponents of the escalator, then origin of the unspecified parts is immaterial.

With regard to the specific elements of the escalator, a unit such as the heating system is a subcomponent because it is merely an intrinsic part of the escalator and its sole function is to heat the escalator itself and “to provide interference-free operation of the escalator under all weather conditions.” Similarly, the steel truss supporting the escalator may be treated as a subcomponent of the escalator if incorporated into the escalator itself through the manufacturing process. Because the sole function of the truss is to support the escalator and is not one of Grand Central Station’s structural load-bearing elements, the truss itself is not separately required to comply with the structural steel requirements in §661.5(b).

Finally, the letter you sent to Yonkers cited several Frequently Asked Questions: Third Party Procurement (FAQs) that were previously posted on FTA’s website. Please note that FTA is currently in the process of updating its FAQs to reflect current policies and procedures. Therefore, the FAQs you cited are no longer posted and may no longer apply.

Conclusion

For the foregoing reasons, I conclude that TKE’s escalator manufacturing processes for the 245 Park Avenue Entrance project will comply with FTA’s Buy America requirements as long as Yonkers and TKE do not deviate from the manufacturing processes provided and all of the escalator’s manufacturing processes take place within the United States.
Please note that this decision is based solely upon the representations made by your client, Yonkers, and TKE. This decision will not apply if the actions of either party deviate from the manufacturing processes that were communicated to FTA. In addition, FTA reserves the right to verify that Yonkers and TKE do, in fact, comply with FTA’s Buy America rules and with the manufacturing plan outlined in their communications with FTA, and to pursue all available remedies in the event that either party fails to comply.

Please contact Jayme L. Blakesley at (202)366-0304 or jayme.blakesley@dot.gov with any questions.

Sincerely,

Dorval R. Carter, Jr.
Chief Counsel

[1] 49 U.S.C. § 5323(j); 49 C.F.R. § 661.5(a).

[2] 49 C.F.R. § 661.5(d).

[3] 49 C.F.R. § 661.6.

[4] 49 C.F.R. § 661.3.

[5] 72 Fed. Reg. 53688, 53691 (Sept. 20, 2007).

[6] 72 Fed. Reg. 53694.

[7] It is important to emphasize again that end products, components, and subcomponents do not shift with every construction project. In your submitted letter, you cite a FTA letter, dated June 8, 2000, addressed to Macton-Joyce and Whiting Corporation, (“in the context of an FTA-funded procurement of a garage, a hoist is a component, and installation of the hoist in the garage is part of the manufacturing process”). This letter was written before the adoption of the non-shifting approach and, as such, required that a particular item be evaluated as an end product, component, or subcomponent depending on the particular procurement. Furthermore, you state that “when FTA funds a construction project such as the 245 Park Avenue Entrance, it is the entire project that is treated as the ‘manufactured product’” and “[d]istinct elements such as elevators or escalators that are installed or built into the construction project are considered ‘components’” to conclude that “in the case of a construction project, like the 245 Part [sic] Avenue Entrance project, it is the entrance itself that is considered the ‘end product.’” Based on the regulatory treatment of a facility as an end product, a station is the end product and the escalator is a component regardless of the scope of the project at hand.

[8] 56 Fed. Reg. 926 (Jan. 9, 1991).

[9] 49 C.F.R. § 661.3.

[10] 56 Fed. Reg. 926. Although this explanation was given with respect to rolling stock, it is also applicable to manufactured products.