Carol B. O’Keefe, Esq.
General Counsel
Washington Metropolitan Area Transit Authority
600 Fifth Street, NW
Washington, DC 20001

Re: Determination of Buy America Compliance for the 7000 Series Railcar Procurement

Dear Ms. O’Keefe:

I write in response to your letter dated July 21, 2010, asking the Federal Transit Administration (“FTA”) to determine whether the final assembly approach outlined by Kawasaki Rail Car, Inc. (“Kawasaki”) for the Washington Metropolitan Area Transit Authority (“WMATA”) 7000 Series Railcars complies with the minimum requirements for final assembly contained at Appendix D to 49 CFR 661.11.  After several in-person meetings and careful review of the technical information provided by Kawasaki, I am pleased to inform you that Kawasaki’s plan complies with FTA’s Buy America rules.

Background

This issue first came to my attention when WMATA requested a public interest waiver of the Buy America requirements.  By letter dated June 10, 2010, WMATA explained its plan to enter into a contract with Kawasaki for the purchase of up to 748 new rail cars to be known as the 7000 Series Railcars,  the fact that Kawasaki asked WMATA to seek a public interest waiver of the Buy America requirements from FTA.  If granted, a public interest waiver would have permitted Kawasaki to assemble eight pilot railcars in Japan.

On June 17, 2010, I wrote to request more information from WMATA Associate General Counsel Donald A. Laffert.  Following that letter, you and I spoke over the phone.  I explained that this Administration’s policy is to take a very strict view of the Buy America requirements, that FTA would only grant public interest waivers under the most extreme circumstances, and described FTA’s decisions to deny similar requests for public interest waivers submitted by Houston METRO and the Massachusetts Bay Transportation Authority in 2008 and 2009, respectively.  

By letter dated July 1, 2010, WMATA formally withdrew its request for a public interest waiver.  Instead of a public interest waiver, WMATA indicated to FTA that Kawasaki had submitted a Revised Final Proposal certifying compliance with FTA’s Buy America requirements, along with a plan to assemble the pilot cars in the United States.  

FTA hosted an in-person meeting with WMATA staff on July 2, 2010, to discuss Kawasaki’s revised proposal and plan.  Because FTA expressed serious reservations with many aspects of the plan, WMATA and Kawasaki developed a new plan for complying with the minimum requirements for final assembly.  

WMATA presented the new plan at a meeting hosted by FTA on July 15, 2010.  Following this meeting, WMATA asked Kawasaki to submit a formal, written description of its clarified approach for complying with Buy America in a form that could be transmitted to FTA.  WMATA attached a copy of Kawasaki’s clarified approach to the July 21, 2010, communication that is the subject of this letter.

Buy America Requirements

For railcars and all “rolling stock,” FTA’s Buy America requirements are twofold:

1. Domestic Content.  At least 60% of the components of each railcar must be manufactured in the United States. 
2. Final Assembly.  The final assembly of each railcar must take place in the United States. 

FTA outlined its minimum requirements for final assembly at Appendix D to 49 CFR 661.11.  “In the case of the manufacture of a new rail car, final assembly would typically include, as a minimum, the following operations:

• Installation and interconnection of propulsion control equipment, propulsion cooling equipment, brake equipment, energy sources for auxiliaries and controls, heating and air conditioning, communications equipment, motors, wheels and axles, suspensions and frames; 
• The inspection and verification of all installation and interconnection work; and 
• The in-plant testing of the stationary product to verify all functions. 

If a recipient of FTA funds or a manufacturer has questions about the requirements for final assembly, they may ask FTA to make a determination of compliance. 

Discussion

WMATA and Kawasaki have asked FTA to determine whether Kawasaki’s clarified approach for demonstrating compliance with the Buy America requirements satisfies the minimum requirements for final assembly described at Appendix D to 49 CFR 661.11.  In particular, because Kawasaki intends to perform certain design and engineering activities in Japan, WMATA and Kawasaki have sought FTA guidance on whether Kawasaki’s approach will satisfy the requirement that in-plant testing of the stationary product take place in the United States.  The following is a summary of the approach outlined by Kawasaki and enclosed with WMATA’s letter dated July 21, 2010:

• In its clarified approach, Kawasaki confirms that all railcars will contain and comply with the 60% domestic content requirement and that all final assembly activities as stated in Appendix D to 49 CFR 661.11 will be performed in the United States. 
• Kawasaki plans to engineer and design four prototype vehicles in Japan for the limited purpose of conducting Design Qualification Testing.  The prototype vehicles will not bear vehicle serial numbers and the manufacture of the prototype vehicles will not satisfy a milestone payment.  
• After successful completion of the Design Qualification Testing, Kawasaki will disassemble the four prototype vehicles (including disassembly at the minimum of all of the components identified in Appendix D) and will ship the four car shells to its manufacturing plant in Lincoln, Nebraska. 
• After disassembly, the only equipment remaining on the car shells will be certain piping, wiring, and cable that are not feasible to remove and certain additional equipment essential for the protection of the car shells from environment and other factors during the shipping process.  The car shells will not contain any components identified in Appendix D.  
• Kawasaki will assemble four pilot railcars in the United States.  Kawasaki will use all new components, and will not use any Appendix D components previously used on the prototype vehicles, as part of the final assembly of these pilot railcars.  
• The pilot railcars will be assembled and tested in Lincoln, Nebraska. 
• With the exception of the four pilot car shells, all of the remaining car shells will be manufactured in the United States. 
• All railcars, including the pilot railcars, will contain and comply with the 60% domestic content requirement. 
• Kawasaki will perform all final assembly activities, including in-plant testing, listed in Appendix D to 49 CFR 661.11 in the United States. 

It is my understanding and expectation that WMATA and Kawasaki will incorporate the clarified approach into Kawasaki’s Technical Proposal to ensure that the 7000 Series Railcars are, in fact, produced in accordance with FTA’s Buy America requirements of 23 U.S.C. § 5323(J), as implemented at 49 CFR Part 661.  

I also note from the e-mail you sent me on July 23, 2010, that as a result of the conversations between FTA and WMATA, Kawasaki has modified its plans for this procurement and now estimates the domestic content of the components for the 7000 Series Railcars at 61% for the pilot cars and 69% for the production cars, and that Kawasaki will perform more testing activities in the United States than what is minimally required.  The additional tests to be performed in the United States include a spin simulation test, cab-mounted radio equipment qualifications test, water tightness test, car weight test, train line test, height control test, static system test, dynamic system test, and a final function test.

Conclusion

Based on the foregoing, I hereby determine that the approach outlined by Kawasaki will comply with the Buy America requirements of 49 U.S.C. § 5323(j), as implemented at 49 CFR Part 661.  

Feel free to contact Jayme Blakesley at (202) 366-0304 or jayme.blakesley@dot.gov with any further questions.

Sincerely,

Dorval R. Carter, Jr.
Chief Counsel