Anita Gulotta-Connelly
Managing Director
Milwaukee County Transit System
2711 West Wells Street
Milwaukee, WI 53208

Re: Buy America Compliance Investigation of the Midwest Bus Corporation

Dear Ms. Gulotta-Connelly:

This is the final decision of the Federal Transit Administration (FTA) in the above-captioned matter. The purpose of the investigation was to determine whether the Midwest Bus Corporation (Midwest Bus) complied with FTA’s Buy America requirements when it supplied its Byk-Rak brand bus-mounted bicycle racks to the Milwaukee County Transit System (MCTS). For the reasons stated below, I have determined that Midwest Bus failed to comply with FTA’s Buy America requirements.

Background

Sportworks’ Petition

FTA initiated the instant investigation by letter dated July 16, 2009, in response to a petition filed by Sportworks Northwest, Inc. (Sportworks) on June 16, 2009. In its petition, Sportworks alleged that Midwest Bus did not comply with the Buy America requirements because it changed to a foreign vendor for certain parts used in its Byk-Rak brand bus-mounted bicycle racks and then signed a Buy America Certificate of Compliance on January 9, 2009, in connection with a bid to supply 479 Byk-Rak brand bicycle racks to MCTS. MCTS purchased the bicycle racks with federal funds pursuant to FTA grant number WI-90-X547-00. FTA awarded the grant to MCTS and budgeted $617,500 for the bicycle racks. The grant anticipated an 80% federal share.

Midwest Bus’s Reply

Midwest Bus replied to Sportworks’ allegations by letter dated August 14, 2009. In its letter, Midwest Bus argues that its bicycle racks comply with the Buy America requirements because bus-mounted bicycle racks are components; with the exception of three parts, it uses U.S.-manufactured parts; and it assembles its bicycle racks in the United States.

By its own admission Midwest Bus obtained three parts—two modular rails and a single two-position frame—from a foreign manufacturer. Midwest Bus asserts compliance even with the foreign parts, however. According to Midwest Bus, bus-mounted bicycle racks are components, both when purchased as part of new rolling stock and when purchased as after-market manufactured products. If the bicycle rack is a component, then the rails and frame are subcomponents and therefore exempt from the Buy America requirements according to the express terms of 49 CFR 661.5(d)(2).

Moreover, Midwest Bus claims to satisfy the additional Buy America requirements by performing the following activities in the United States:

The bike rack is manufactured by combining the frame and rails with the shocks, shock and sockets, ball socket, tubing plugs, hardware, etc. All manufacturing concerning the [frame and rails] is completed prior to arriving at the final assembly location.

The final assembly involves drilling holes in the bus bumper, installing the attachment brackets to the bumper, installing the pivot bracket, assembling the other assembled sub-components to the pivot brackets and then applying all decals. Upon installation, all connections are confirmed and inspected.

Sportworks’ Comments

By letter dated August 24, 2009, Sportworks commented on Midwest Bus’s reply. In its letter, Sportworks argues that the “final assembly” activities performed by Midwest Bus in the United States were insufficient to satisfy the Buy America requirements because they did not include any manufacturing processes. Sportworks claims that the activities described by Midwest Bus as taking place in the United States, including “drilling holes in the bus bumper, installing the attachment brackets to the bumper, installing the pivot bracket to the bumper bracket, assembling the other assembled sub-components to the pivot brackets and then applying all decals,” are mere final assembly.

Moreover, according to Sportworks, “nearly all genuinely manufactured parts used in the Midwest Bus bike rack are being obtained ‘abroad.’ . . . “Fully manufactured ‘assemblies’ such as bike rack rails and frames involve a number of form and function altering processes including (but not limited to) the bending of various pieces of steel tubing, welding the various tube sections together, welding other various metal support structures, drilling holes, and powder coating the final parts.”

Midwest Bus’s Response

Midwest Bus responded to Sportworks comments by letter dated September 17, 2009. In its letter, Midwest Bus reiterated its earlier argument that aftermarket bus-mounted bicycle racks must be treated as components, subcomponents of aftermarket bike racks may be manufactured abroad, and a component is considered of U.S. origin if it is manufactured in the United States, regardless of the origin of its subcomponents. Based on these arguments, Midwest Bus asks FTA to conclude that “the entire bike rack is the component and all other items are subcomponents. All processes to build and install the bicycle rack are completed in the United States and the bicycle rack is therefore considered of U.S. origin.”

Issues

This investigation requires me to determine whether Midwest Bus complied with FTA’s Buy America requirements when it supplied 479 Byk-Rak brand bicycle racks to MCTS. This question presents two issues:

1. Whether a bus-mounted bicycle rack is an end product, component, or sub-component when purchased as an aftermarket manufactured product; and
2. Whether the activities performed by Midwest Bus in the United States were sufficient to satisfy the manufactured product requirement that all manufacturing processes for the product must take place in the United States?

Buy America Legal Standard

Section 5323(j) of Title 49, Chapter 53, of the United States Code sets forth FTA’s general Buy America requirements: “The Secretary of Transportation may obligate an amount that may be appropriated to carry out this chapter for a project only if the steel, iron, and manufactured goods used in the project are produced in the United States.” FTA’s implementing regulations include a two-part test for determining whether a manufactured product may be considered to be produced in the United States for purposes of Buy America compliance: “(i) All of the manufacturing processes for the product must take place in the United States; and (ii) 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.”[1]

When Federal funds are used to purchase a manufactured product, the supplier must sign a Certificate of Compliance with FTA’s Buy America requirements. By so signing, the bidder or offeror certifies that it will comply with the requirements of 49 U.S.C. 5323(j)(1) and the applicable regulations in 49 CFR part 661.[2]

FTA’s regulations establish a presumption that a bidder or offeror who has submitted the required Buy America certificate is complying with the Buy America requirements.[3] However, any party may petition FTA to investigate the compliance of a successful bidder or offeror with the Certificate of Compliance that it submitted with its bid or offer.[4] FTA will initiate an investigation if the information presented in the petition indicates that the presumption has been overcome.[5] “The successful bidder or offeror has the burden of proof to establish that it is in compliance.”[6]

Discussion

Is a bus-mounted bicycle rack an end product, component, or sub-component when purchased as an aftermarket manufactured product?

The designation of an item as an end product, component, or subcomponent affects whether the manufacturing processes for that item must take place in the United States. For this reason, Midwest Bus argues that its bus-mounted bicycle racks are components and can, therefore, contain foreign-manufactured sub-components. As mentioned above, for a manufactured product to be considered produced in the United States, (1) all of the “manufacturing processes” for the end product must take place in the United States, and (2) all of the components of the end product must be of U.S. origin. A component is considered to be of U.S. origin if it is manufactured in the United States, regardless of the origin of its subcomponents.

In September 2007, FTA changed its methodology for determining whether to classify a manufactured product as an end product, component, or subcomponent. Prior to 2007, an end product was the deliverable item specified by the grantee in its third party contract. Under this “shifting” methodology, the same item could be an end product, a component, or a subcomponent, depending upon the deliverable specified in the third party contract, with the applicable Buy America requirements attaching based on how the item was characterized in that particular contract. Since 2007, FTA has followed a “non-shifting” definition of “end product” based on the Federal Acquisition Regulation (FAR) at 48 CFR Part 25 implementing the Buy American Act, 41 U.S.C. §10a-10d. Under this definition, end products do not shift and components and subcomponents retain their designation in all circumstances. FTA adopted the “non-shifting” approach to “(1) foster reasonable predictability and stability in the transit business community, (2) enable offerors and bidders to price proposals more accurately, and (3) allow transit agencies to obtain better prices.”[7]

In the Final Rule of September 2007, FTA offered the following example to demonstrate the change from a “shifting” to “non-shifting” approach and from applying the rolling stock standard to the manufactured product standard to replacement parts:

“[U]nder the [prior] regulation, a bicycle rack is treated as a “component” if specified in a contract for the purchase of a new bus, but is treated as an “end product” if subsequently purchased as an aftermarket accessory or as part of a vehicle rehabilitation or retrofit. FTA believes that the same Buy America rules should apply regardless of when the bicycle rack is purchased, i.e., a bicycle rack will be treated as a component and must comply with the manufactured products standard. This approach will lead to consistency in the manufacturing of components and will greatly simplify the procurement process for transit agencies and their suppliers.”[8]

As the above example illustrates, Midwest Bus has correctly classified its Byk-Rak brand bus-mounted bicycle rack as a component. When purchased aftermarket, FTA will treat a bus-mounted bicycle rack as a component, subject to the manufactured products standard of 49 CFR 661.5.

Were the activities performed by Midwest Bus in the United States sufficient to satisfy the manufactured product requirement that all manufacturing processes take place in the United States?

While Midwest Bus correctly designated its bus-mounted bicycle racks as components, it incorrectly assessed the level of U.S. activity required to satisfy the Buy America requirement for manufactured products, that all manufacturing processes must take place in the United States. This standard differs from the rolling stock requirement of 49 CFR 661.11, that final assembly take place in the United States.

In addition to the change from a “shifting” to “non-shifting” definition of “end product,” FTA’s September 2007 Final Rule modified the Buy America regulation to apply the manufactured product standard to replacement parts. Prior to 2007, FTA applied the rolling stock standard to such parts, under which a component of rolling stock needed to consist of at least 60% domestic subcomponents. Now, under the new rule, replacement components retain their characterization as components throughout the life of the vehicle and their replacements do not shift upwards to become end products. Moreover, replacement components are subject to the manufactured product standard with regard to the origin of subcomponents. While bus-mounted bicycle racks retain their designation as components, regardless of whether they are purchased with the bus or aftermarket, it is important to understand the differences between the levels of activity that must take place in the United States for rolling stock as compared to manufactured products.

For rolling stock procurements, the typical requirements for manufactured products do not apply “if the cost of components produced in the United States is more than 60 percent of the cost of all components and final assembly takes place in the United States.”[9] Rolling stock components are considered to be manufactured in the United States “if there are sufficient activities taking place to advance the value or improve the condition of the subcomponents of that component; that is, if the subcomponents have been substantially transformed or merged into a new and functionally different article.”[10]

Manufactured products, including aftermarket parts like bus-mounted bicycle racks, are subject to a higher standard. 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.[11] “Manufacturing process means 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.”[12]

Thus, to decide this investigation, I must determine whether the activities performed by Midwest Bus in the United States rise to the level of manufacturing process or are merely final assembly. Midwest Bus described its domestic activities twice, first on August 14, 2009, and again in its letter dated September 17, 2009. Here is the “final assembly” process as described by Midwest Bus on August 14, 2009:

“While two part numbers (three parts) [the frame and rails] are obtained from abroad, these subcomponents are produced and packaged separately. The subcomponents are then combined with subcomponents from the United States and manufactured in the United States. The bike rack is manufactured by combining the frame and rails with the shocks, chock and sockets, ball socket, tubing plugs, hardware, etc. All manufacturing concerning the three subcomponents that are produced abroad is completed prior to arriving at the final assembly location.

The final assembly involves drilling holes in the bus bumper, installing the attachment brackets to the bumper, installing the pivot bracket to the bumper bracket, assembling the other assembled subcomponents to the pivot brackets and then applying all decals. Upon installation, all connections are confirmed and inspected. This final assembly process allows the bike rack to be individually installed on the coach and results in a functional bike rack. For bid #2008-23, this final assembly stage occurred in Milwaukee at the MCTS facility, which therefore became the final assembly location.”

Here is the process as described by Midwest Bus on September 17, 2009:

The first products that are received from overseas are the wheel traps. These two traps are removed from boxes and disassembled. Once they are disassembled, any blasting media remaining on the traps is removed. Removal of the blasting media is more than mere assembly and alters the form and function of the wheel traps because the wheel traps cannot be combined with other parts until the media are removed. A gas shock is then attached to the wheel trap. This gas shock alters the form and function of the wheel trap because bike tires would fall out of the trap without the pressure applied by the gas shocks. The gas shock is manufactured in the United States. Once the gas shock is applied, the trap is tested. If the wheel traps fail to function properly at this point, additional drilling is completed, as necessary, to prevent any sticking of the wheel traps. Plastic caps are installed in all openings and labels are attached to the trap.

The next product received from overseas is the frame. This product has the blasting media removed so that the product can be assembled. Once the media is removed, plastic caps are installed in the openings and the two wheel traps with shocks are attached to the frame.

A pivot bracket is then manufactured in the U.S. and attached to the frame and wheeltrap assembly. This pivot bracket is a large, welded, mild steel assembly that allows the assembled frame and wheel traps to function as a bike rack on a transit bus. The pivot bracket allows the rack itself to fold up into a stowed position on the front of the bus. All manufacturing related to the pivot bracket is completed in the United States.

Finally, the entire bike rack with the pivot bracket must be installed on the bus. Holes are drilled from the front of the rubber bus bumper and from the rear of the heavy aluminum backing to allow steel tubes to be inserted through the entire bumper. Bumper brackets are then installed to the bumper by extending bolts through the steel tubes. The drilling and installation of the bumper brackets is more than mere assembly and changes the form and function of the metal brackets and allows the entire component to be installed on the front of the bus. All manufacturing related to the steel tubes and bumper brackets are completed in the United States.

Mere assembly is insufficient to satisfy the manufactured product requirements of 49 CFR 661.5. I find that the activities described by Midwest Bus do not amount to manufacturing processes as defined by FTA’s regulations. In fact, Midwest Bus refers to its activities as “final assembly” and to Milwaukee, Wisconsin, as the “final assembly location.” Moreover, the processes described by Midwest Bus—combining parts, removing blasting media, installing plastic caps, securing the rack to the bus, and applying decals—amount to nothing more than assembling a kit. It is expressly stated in FTA’s Buy America regulation: manufacturing processes are more than mere assembly.

Decision

After careful consideration, and for the reasons outlined above, I hereby find that Midwest Bus has failed to meet its burden of proving that the bus-mounted bicycle racks it supplied to MCTS were manufactured in the United States in accordance with FTA’s Buy America requirements of 49 CFR Part 661. In particular, Midwest Bus did not perform any manufacturing processes in the United States. Based on Midwest Bus’s description of the activities it performed in the United States, and the fact that said activities do not rise to the level of a manufacturing process, I hereby instruct MCTS to come into compliance with FTA’s Buy America requirements. Please work with FTA’s Chicago Regional Office to develop a detailed plan for coming into compliance.

If you have questions about this decision, please feel free to contact Jayme L. Blakesley at (202)366-0304 or jayme.blakesley@dot.gov.

Sincerely,

Dorval R. Carter, Jr.

Chief Counsel

Cc: Timothy J. Rudolph, Esq., General Counsel, Midwest Bus Corporation

Edward J. Gill, Jr., Esq., Thompson Coburn LLP

[1] 49 CFR 661.5(d).
[2] 49 CFR 661.6.
[3] 49 CFR 661.15(a).
[4] 49 CFR 661.15(b)
[5] 49 CFR 661.15(b).
[6] 49 CFR 661.15(d)
[7] Buy America Final Rule, 72 Fed. Reg. 53691 (Sept. 20, 2007).
[8] Buy America Final Rule, 72 Fed. Reg. 53692 (Sept. 20, 2007).
[9] 49 CFR 661.11(a).
[10] 49 CFR 661.11(e).
[11] 49 CFR 661.5(d).
[12] 49 CFR 661.3.