April 14, 2005

Mr. Richard J. Simonetta
Chief Executive Officer
Valley Metro Rail
411 North Central Avenue
Suite 200
Phoenix, AZ 85004

Dear Mr. Simonetta:

This letter responds to your correspondence of February 27, 2005, in which you request a public interest waiver for certain structural steel pipe to be used in the construction of the Tempe Town Lake Bridge, which is a part of the Central Phoenix/East Valley LRT Project (Project). The Project is governed by a Full Funding Grant Agreement (FFGA) which established a revenue operations date of December 26, 2008. According to Valley Metro Rail (VMR), PCL Civil Constructors, Inc. (PCL), the bridge contractor, had certified compliance with Buy America on the basis that at the time PCL submitted its bid, a domestic source of for the steel was available. The material at issue is 2600 feet (271 tons) of 18” x 1.156 wall API5LX52, Seamless, LRL, PSL-2 (18” Schedule 100 pipe) and 3060 feet (367 tons) of 24” x .969 wall API5LX52, Seamless, DRL, PSL-2 (24” Schedule 60 pipe).[1] Nevertheless, VMR now seeks a public interest waiver on the grounds that following award of the contract and the notice to proceed, domestic sources of the required steel material have become unavailable. While I find that PCL and VMR acted in good faith in this matter, I have determined that a waiver is not appropriate here.

Applicable Law

The requirements concerning domestic preference for federally funded transit projects are set forth in 49 U.S.C. 5323(j). The regulation states that "[a]ll steel and iron manufacturing processes must take place in the United States . . . ." 49 CFR 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." 49 CFR 661.5(c).
Under 49 U.S.C. 5323(j)(2)(A) these requirements may be waived if their application "would be inconsistent with the public interest." The regulation also notes 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).

Statement of Facts

According to information and documents provided by VMR, three contractors submitted bids on December 9, 2004 for the Tempe Town Lake Bridge project. All three bidders certified compliance with Buy America, including the ultimate awardee, PCL, which submitted its Buy America certificate with its bid on December 9, 2004. Prior to submitting its bid, PCL, through a subcontractor, Stinger Welding Inc. (Stinger), obtained written quotations for the required, domestically manufactured steel material from at least five suppliers on the following dates: September 21, 2004, and December 1, 6 and 8, 2004.[2] In each of the quotations, the suppliers gave no indication that domestic steel material would not be reasonably available. One quotation dated December 6, 2004 stated, “All material is quoted subject to prior sale.” In another quotation to Stinger dated December 8, 2004 [one day before PCL submitted its bid], a supplier specifically stated an availability date for 3060 feet of 24” Schedule 60 pipe as “Late Feb” 2005. >The same supplier stated an availability date for the requested 2600 feet of 18” Schedule 100 pipe as “Late March” 2005. A third supplier also indicated it could supply 2600 feet of 18” Schedule 100 pipe and 3060 feet of Schedule 60 24” pipe by “Late March” 2005.

VMR and PCL executed the contract on February 9, 2005. Under the terms of the contract, the final completion date for performance of the work on the Town Lake Bridge is August 28, 2006. VMR issued the Notice to Proceed effective on February 14, 2005. On February 15, 2005, Stinger placed orders for the required steel material. In response, one of the suppliers, Kelley Pipe Co., informed Stinger by email dated February 15, 2005 that the “estimated shipment would be by end of 2005.” By letter dated February 16, 2005, B&W Pipe, Inc. (B&W), a lead supplier, also informed Stinger that the 18” and 24” pipe would not be available until the “late third quarter 2005.” In this same letter, B&W explained the source of the problem, i.e., that only one domestic manufacturer, US Steel, produced the 18” and 24” pipe required for the bridge project, and that due to current market conditions steel is in short supply. In a letter to PCL dated
February 16, 2005, Stinger described the supply of domestic 18” Schedule 100 pipe and 24” Schedule 60 pipe, as follows:

At bid time, domestic material in all required sizes was available from floor stock or upcoming mill rollings within 90 days. In the 2 months since bid time, the quoted material has been sold and is no longer available. We have conducted an exhaustive search through pipe suppliers across the country looking for domestic pipe in these 2 sizes [18” and 24”], even inquiring for higher grade material in the same diameter and wall thickness, but to no avail. There is no stock of domestic pipe in these 2 sizes meeting the required specs of either A618 Gr III or API 5L x52 PSL2. All our suppliers have also confirmed that US Steel mill [sic] is the only pipe mill in our country capable of producing these 2 sizes of pipe. US Steel mill [sic] is currently scheduling rollings for delivery by end of the third to fourth quarter of 2005, however, there are no guarantees that these dates will be met or that the full quantities ordered will be produced.

On March 8, 2005, in response to another request for quotation from B&W for the 18” and 24” steel pipe, US Steel – Tubular Steel stated the following in an email:

We are not quoting any 3 mill business for 3q at this time as we are trying to get current by June 30 and then we will have a better feel for 3 q tons and price. Not open for business in the third quarter. No quote at this time.

Based on the information that US Steel was no longer taking quotations, Stinger informed PCL in a letter dated March 8, 2005 that “we now have no firm availability date to procure domestic material in these 2 sizes.”

On March 17, 2005, Stinger obtained confirmation from its supplier B&W Pipe that foreign-sourced 18” Schedule 100 pipe and 24” Schedule 60 pipe that meets VMR’s specifications could be obtained with a two-week delivery date.

FTA posted a request for comment on this matter on our website and received five comments in favor of granting a waiver. A sixth commentator, representing the Office of Trade Policy for the Commonwealth of Pennsylvania, made exhaustive and detailed inquiries with steel manufacturers and suppliers in that state and elsewhere concerning the availability of domestically produced 18” Schedule 100 pipe and 24” Schedule 60 pipe that meets VMR’s specifications for seamless pipe. The result of these independent inquiries proved negative. In short, FTA received no response from any domestic manufacturer or supplier of these two types of domestic steel pipe.

Decision on Public Interest Waiver

Based on the documents and responses provided by VMR, I am fully persuaded that the grantee has acted in good faith in this matter. Based on the written quotations that PCL received prior to submitting its bid, I also find that PCL acted in good faith and reasonably relied upon supplier quotations in certifying compliance with Buy America. In addition, the record supports that PCL and its subcontractor Stinger made diligent and reasonable efforts to secure domestic sources of steel following award of the contract and the notice to proceed. The record, including the comments that FTA received in response to the waiver request, fully support Stinger’s conclusion in its March 8, 2005 letter, that there is now “no firm availability date to procure domestic material in these 2 sizes.”

Nevertheless, under FTA regulations, grantees are required to ensure that contractors certify in their bids, as a condition of responsiveness, that they will comply with Buy America. 49 C.F.R. 661.13(b). The regulations specifically provide that a bidder or offeror that certifies compliance with Buy America, is “not eligible for a waiver of those requirements.” 49 C.F.R. 661.13(c). In this case, because PCL had certified compliance with Buy America as part of its bid for the bridge project, I have determined that the grounds for a public interest waiver do not exist.

This is not to say that VMR is without recourse. In its waiver request, VMR described the dire consequences of “[d]elaying the procurement and fabrication of the structural steel pipe until material becomes available domestically,” e.g., that such a delay would affect the completion of multiple follow-on contracts, which would then interfere with the completion of the Bridge. Ultimately, according to VMR, the resulting schedule delays and negative cost impacts on the entire LRT Project would adversely affect VMR’s ability to meet its “contractual obligations” under the FFGA. Provided that nothing is done to secure the needed material and work does not proceed on the bridge project, FTA does not dispute that these consequences may occur. However, VMR has an alternative. Should VMR modify its contract with PCL on the legitimate grounds of commercial impossibility, VMR would then be in a position to do a new, FTA-funded procurement of the material, which it could “government furnish” to PCL. Based on the unique facts and circumstances of the case, FTA would readily approve a “non-availability” waiver should VMR be unable to secure a domestic supplier.

If you have any questions, please contact Joseph Pixley at (202) 366-1936.

Sincerely,

Judith S. Kaleta
Acting Chief Counsel

[1] PCL was able to obtain domestically produced structural steel pipe in three other sizes called for in the specifications for the Tempe Town Lake Bridge project. The availability of these other materials is, therefore, not at issue in this case.

[2] PCL also received quotations after submission of bids on January 3 and February 8, 2005. The February quotation specifically stated “All material is available – subject to prior sale.”