December 16, 2003

Mr. John S. Holak, Jr.
Senior Director of Procurement
Material & Contracts Department
Southeastern Pennsylvania Transportation Authority
1234 Market Street
Philadelphia, Pennsylvania 19107-3780

Dear Mr. Holak:

This responds to your letter dated October 28, 2003, requesting a waiver of the final assembly requirements of Buy America for three prototype Electric Multiple Units (EMUs) for Southeastern Pennsylvania Transportation Authority (SEPTA). For the reasons below, I have determined that such a waiver is in the public interest.

Applicable Law

Section 5323(j)(2)(C) of the Federal transit laws (49 U.S.C. 5301, et seq.) sets forth the general requirements for the procurement of rolling stock. This section provides that when rolling stock is procured with Federal Transit Administration (FTA) funds, the cost of the components and subcomponents produced in the U.S. must be at least 60 percent of the total component cost and the vehicle must undergo final assembly in the U.S. You request a public interest waiver of the final assembly requirements. 49 U.S.C. 5323(j)(2)(A). This section provides that the general Buy America requirements may be waived if their application "would be inconsistent with the public interest." The regulations implementing this section provide that "[i]n determining whether the conditions exist to grant this public interest waiver, the [FTA] will consider all appropriate factors on a case-by-case basis . . . ." 49 C.F.R. 661.7(b).

Arguments Made in Support of a Waiver

According to the information in your letter, SEPTA issued a Request for Proposals (RFP) for up to 200 EMUs, with the base contract amount of 104 EMUs. As part of the contract, the carbuilder will be required to provide three pilot cars for testing and evaluation to determine technical compliance. SEPTA received four proposals in response to its RFP, three of which have indicated that they would need a final assembly waiver for these pilot cars.

You explain that public safety requires that all reasonable efforts be made to ensure rail vehicles are properly designed and tested, and therefore the successful offerer should be permitted to assemble and test the prototypes using its primary facility, whether that is in the U.S. or not.

Summary of Comments

FTA posted a request for comments on this matter on our website and received seven comments, six in support of the waiver and one against it.

The argument against the waiver was made by Recaro North America, a seating manufacturer. Recaro's main argument is that if a final assembly waiver is granted for the prototypes, it will impact the component suppliers as well because it will cost too much and take too long to ship domestic components to the overseas assembly location. Therefore, domestic component suppliers would not be used on the prototypes. Recaro concludes that SEPTA would want their production line cars to be the same as the prototypes that have been tested, including the foreign components.

Those that argued in support of the waiver were an individual commenter, a transit authority, manufacturers of transit products, and an engineering and construction firm. Three of these commenters didn't discuss their position and one argued the merits of free trade generally. [1] Surtrak commented that the waiver should be permitted as long as domestic components are used; they also noted that others had been granted similar waivers in the past. Northern New England Passenger Rail Authority argued that open and competitive bidding ensures the best quality and best price and that rejecting this waiver could reduce the number of qualified bidders and force SEPTA to acquire an inferior product at a higher cost.

Decision

Consistent with our February 28, 2003, decision where we granted a public interest waiver to New York City Transit for their test trains, the information provided here supports the issuance of this waiver. Given the public's interest in riding and paying for properly tested trains, FTA believes that a final assembly waiver for the prototypes is in the public interest. I also note that the comment by Recaro North America raises an important issue that may need to be clarified: this waiver applies to final assembly only and not the domestic content of the vehicle. Accordingly, the successful offeror is not permitted to go below the required 60 percent domestic component content in these vehicles.

If you have any questions, please contact Meghan G. Ludtke, at (202) 366-1936.

Very truly yours,

Gregory B. McBride
Deputy Chief Counsel

cc: Nancy Greene, Regional Counsel

[1] Trillium, USA; Washington Group International; an individual commenter; and Sofware Solutions Unlimited.