Source: https://www.transit.dot.gov/regulations-and-guidance/buy-america/southern-california-edison-sce-april-30-2014
Timestamp: 2017-09-20 18:29:00
Document Index: 773501441

Matched Legal Cases: ['§ 661', '§ 5323', '§ 661', '§ 661', '§ 5323', '§ 661', '§ 5323', '§ 5323', '§ 313', '§ 661', '§ 661', '§ 661', '§ 661', '§ 661', '§ 1', '§ 1']

Southern California Edison (SCE) - April 30, 2014 | FTA
Southern California Edison (SCE) - April 30, 2014
Mr. Douglas Bauder
I write in response to Southern California Edison’s (SCE or utility company) several inquiries to the Federal Transit Administration (FTA) regarding how to apply the Agency’s Buy America requirements to work to be performed by SCE on FTA-funded projects. FTA has been working with SCE over the past several months to provide the utility company assistance on interpreting Buy America. This letter summarizes our exchanges and explains the conclusions reached by FTA. The interpretations contained in this letter apply to FTA-funded projects on which SCE will perform utility work and may be used by others for informational purposes.
SCE’s questions arose from work it is performing on FTA-funded projects sponsored by the Los Angeles County Metropolitan Transportation Authority (LACMTA) and Omnitrans in San Bernardino, California. After receiving unsatisfactory answers from the project sponsors, SCE sought clarification from FTA on how to apply the Buy America rules. FTA answered SCE’s questions by e-mail, and followed its response by holding several conference calls with attorneys and engineers from SCE, LACMTA, and Omnitrans. These conversations took place from August 2013 to February 2014. The following is a summary of these discussions:
On October 31, 2013, [1] FTA responded to SCE and LACMTA’s questions by e-mail. SCE requested a meeting to discuss FTA’s answers and provided a list of follow-up questions on November 6, 2013. FTA reviewed the questions and agreed to a series of discussions to educate SCE about Buy America and to provide additional guidance as needed.
FTA and SCE held many telephone discussions between November 7, 2013 and the present (many of these calls lasted several hours), during which FTA and SCE discussed, among other things, the Buy America rules generally, the applicability of Buy America to the entire scope of an FTA-funded project, the “small purchases exemption” at Appendix A to 49 C.F.R. § 661.7, certification requirements, applicability of the steel and iron requirements, and differences between FTA and the Federal Highway Administration (FHWA) Buy America requirements.
Based on SCE’s stated intent to halt work on FTA-funded projects, FTA expedited its review.
On December 19, 2013, FTA and SCE finished discussing the list of items that would need to be produced in the United States. SCE asked whether the small purchases exemption would apply to each individual work order with Omnitrans. FTA asked to review sample work orders. SCE provided one work order for FTA’s review. FTA requested additional work orders so that it could compare and sufficiently understand the various types of work orders that SCE used.
On February 6, 2014, FTA held a teleconference with Omnitrans to discuss the status of the Omnitrans sbX Project and how Buy America and SCE’s utility work was affecting the project. Although SCE stopped its work on the project, OmniTrans avoided delays by developing a work-around solution to keep the project on schedule pending resolution of SCE’s concerns.
On February 7, 2014, FTA informed SCE by email that it could not apply the small purchases exemption to its work on the Omnitrans sbX Project because FTA’s Buy America requirements apply at the project level. 49 U.S.C. § 5323(j)(1). While the small purchases exemption may apply to individual contracts, FTA does not permit work to be split into multiple contracts for purposes of avoiding Buy America requirements. The sum of the work performed by SCE on the Omnitrans project far exceeds the current $100,000 small purchase threshold. Therefore, FTA informed SCE that it could not use the small purchases exemption and stated that it would follow up with this letter.
On the same day, February 7, 2014, SCE objected to FTA’s decision to issue a letter of interpretation that memorialized the information that FTA provided to SCE during the numerous teleconferences without a chance for SCE to review the information. FTA responded on February 11, 2014, by stating that, based upon its numerous and months-long communications with SCE, issuing this letter would permit SCE to complete work on FTA-funded projects with clarity about how to apply the Buy America rules. FTA invited SCE to send any additional information it would like FTA to consider in preparing this letter.
On February 20, 2014, you, on behalf of SCE, sent a letter to FTA Deputy Administrator Therese McMillan objecting to the issuance of formal guidance until FTA received further information from the rest of the industry. In this same letter, among other things, SCE reiterated its objection to FTA’s determination regarding the small purchases exemption. [2]
All of the manufacturing processes for that product must take place in the United States;
All of the components of that 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.
49 C.F.R. § 661.5(d).
An “end product” means:
A system is a “machine, product, or device, or a combination of such equipment, consisting of individual components, whether separate or interconnected by piping, transmission devices, electrical cables or circuitry, or by other devices, which are intended to contribute together to a clearly defined function . . . .” Id. In determining whether a system is an end product or consists of multiple end products, FTA looks at various factors, including “whether products performed on an integrated basis with other products in a system, or are operated independently of associated products in the system, or whether transit agencies routinely procure a product separately (other than as replacement or spare parts.” Id.; see also 72 Fed. Reg. 53688, 53693 (Sept. 20, 2007).
A “component” is defined as “any article, material, or supply, whether manufactured or unmanufactured, that is directly incorporated into the end product at the final assembly location.” 49 C.F.R. § 661.3. FTA defines “manufacturing process” to mean:
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.” [4]
FTA’s Buy America requirements also apply to steel and iron used in FTA-funded projects. 49 U.S.C. § 5323(j)(1). The steel and iron rules are set forth in 49 C.F.R. § 661.5(b) and (c) and are as follows:
FTA’s Buy America requirements always have applied to the entire scope of the FTA-funded project, including utility work such as utility relocation. In a September 7, 2012 letter to the New Starts Working Group, FTA clearly re-stated the statutory requirement that Buy America applies to the full scope of the FTA-funded project, and that all utility contracts necessary to complete a project must comply with Buy America.
On August 8, 2013, after considerable discussions with AT&T, FTA issued a letter to the City of Charlotte regarding utility work performed by AT&T on the FTA-funded Blue Line Extension (BLE) project. FTA instructed the City of Charlotte and AT&T about how to apply the manufactured products rule to AT&T’s utility work for the project, including direction regarding what constituted the end product, components, and subcomponents. In that case, FTA identified the communications network as the end product; and the poles, manholes, handholes, conduits, cables, pedestals, and the Video Ready Access Device (VRAD) and cross-connect cabinets as the components. FTA determined that the connectors, clamps, and fittings were subcomponents of the component conduit; the lashing wire, strand, grip strand, terminals, connectors, closures, splice boxes, anchors, clamps, fittings, washers, screws, nuts, and bolts were subcomponents of the component cable; and the electronics, shelves, nuts, screws, bolts, batteries, and concrete pads were subcomponents of the component cabinets.
A. When do FTA’s Buy America requirements apply?
FTA’s Buy America requirements apply to all FTA-funded projects. 49 U.S.C. § 5323(j)(1). Moreover, the Buy America requirements apply to the entire scope of an FTA-funded project, regardless of whether Federal funds are used to pay for all costs associated with the project. [5] If, however, the work is outside the scope of the FTA-funded project, then Buy America generally would not apply. Whether the work falls within the scope of the FTA-funded project depends on a variety of factors; however, the major factors include the approved project budget and the terms in the Underlying Agreement between the FTA grantee and FTA, [6] which generally means the amount of funds that FTA and the FTA grantee will use for a project and project activities. Utility work generally would fall within the scope of an FTA-funded project if the FTA grantee is reimbursing SCE for the costs of purchasing materials for SCE’s utility work under the FTA-funded project; SCE is charging the FTA grantee for certain costs, including existing material that is moved from one location for use in another location; materials from SCE’s general inventory for which SCE receives reimbursement from the FTA grantee; or certain “spare” or “maintenance” materials that SCE purchases after it completes the utility work pursuant to an agreement with the FTA grantee and for which SCE charges the FTA grantee for reimbursement. It is also important to note that FTA would view limiting the scope of the work orders or other agreements between SCE and the FTA grantee, for example, by excluding material costs and increasing service costs, as an unacceptable attempt to avoid Buy America requirements.
There are significant differences between FTA and FHWA Buy America requirements. FTA’s Buy America requirements are codified at 49 U.S.C. § 5323(j). FHWA’s Buy America requirements are codified at 23 U.S.C. § 313. Because of these differences, FTA recommends that SCE carefully review both sets of Buy America rules. However, I note that pursuant to the Moving Ahead for Progress in the 21st Century Act, [7] for any project for which FHWA obligates funds after October 1, 2012, FHWA now applies its Buy America requirements to utility contracts for such projects if the utility work is within the scope of the project evaluated pursuant to the National Environmental Policy Act.
The extent to which Buy America applies to temporary installations will depend upon the result and use of those temporary installations. As with all of the issues discussed in this letter, FTA cannot list all possible scenarios involving temporary installations. However, assuming that temporary installations are those installations of materials that will be removed and not be included as part of the utility company’s final product or work under the FTA-funded project, and the FTA grantee is not reimbursing the utility company for the temporary installation materials, then FTA likely will consider the purchase of such materials to be outside the scope of the FTA-funded project.
As stated above, FTA’s Buy America requirements apply to the entire FTA-funded project. Ultimately, the FTA grantee is responsible for ensuring compliance with Buy America and flowing down this requirement to the utility company. In a case where the FTA grantee is providing the materials for use by the utility company in the utility work pursuant to the project, however, the utility company will not be held responsible for those materials. As a matter of prudence, FTA strongly encourages both the FTA grantee and SCE to check the source of the materials given that a finding of non-compliance or a violation of Buy America could result in requiring that some or all of the utility work be redone.
6. “Betterments”
SCE specifically asks whether Buy America applies to “betterments.” SCE defines a betterment as when it upgrades its facilities at its own expense without charging the FTA grantee and is not part of the utility work that the FTA grantee needs done as part of the FTA-funded project. FTA agrees that this definition of a betterment is outside the scope of an FTA-funded project and, as such, Buy America does not apply.
Appendix A to 49 C.F.R. § 661.7 provides a list of Buy America waivers, which includes a waiver for “small purchases” (small purchases exemption). The small purchases exemption is currently set at $100,000 and may apply to individual contracts. 60 Fed. Reg. 37930, 37931 (July 24, 1995). If the contract is directly between the FTA grantee and the utility company and the contract price is less than $100,000, then the small purchases exemption applies. However, FTA grantees and utility companies may not split up a procurement that exceeds the threshold in order to avoid the Buy America rules that would otherwise apply. Id.
As FTA stated in its February 7, 2013 email, FTA finds that the small purchases exemption does not apply to SCE’s individual work orders when the cumulative value of the work orders exceeds $100,000. FTA’s decision is based upon the sample work orders SCE provided as well as descriptions of its work orders. Each individual work order appears very limited in scope and is limited according to a variety of factors, which mostly appear to be based upon business judgment.
According to SCE, SCE issues multiple work orders for a single transit project based upon a variety of factors, including the segment of the overall work performed, timing, location, and the type of work performed (i.e., transmission, distribution, substation, network & telecom, and carrier solutions). This practice can result in a significant number of work orders per transit project (e.g., 40 or more). Moreover, the combined number of SCE-issued work orders for a particular FTA-funded project often results in costs much greater than $100,000. In those cases, the small purchases exemption does not apply. While the small purchases exemption may apply to individual contracts, based upon the sample work orders SCE provided, FTA finds that the sheer number of work orders per FTA-funded project, the limited scope of each work order, and the bases for which these work orders are issued constitutes segmentation of the utility work necessary for this FTA-funded project. To apply the small purchases exemption under these circumstances, therefore, would contravene FTA’s Buy America requirements. Accordingly, FTA finds that the small purchases exemption does not apply to SCE’s individual work orders when the cumulative value of the work orders exceeds $100,000.
Unlike FHWA, which only applies its steel and iron requirement to products that are at least 90 percent steel or iron, FTA does not attach a specific percentage to its requirements. In its notice of Final Rule issued on February 16, 1996, 61 Fed. Reg. 6299, FTA explained that it did not believe it was appropriate to attach a percentage for 49 C.F.R. § 661.5(c), “since the percentage of steel or iron in a particular item may vary according to an individual producer’s refinement or manufacturing processes.” This policy has not changed and there has been no indication that a lack of a percentage threshold for applicability of the steel and iron requirements has created confusion. FTA will answer questions regarding specific items as they arise.
Based upon the information provided in SCE’s document submissions and the numerous conversations between SCE and FTA, the Agency agrees with the majority of SCE’s classifications with slight modifications as provided below and in the Attachment. FTA finds that the electric utility SCE provides is divided into two system end products: (1) Transmission System, and (2) Distribution System.
FTA, however, has determined that the poles, wires (such as conductor wires), cables, switches, vaults, cabinets, meters, and barometers are the components of the transmission system. A component is defined as “any article, material, or supply, whether manufactured or unmanufactured, that is directly incorporated into the end product at the final assembly location.” 49 C.F.R. § 661.3. The wires, cables, cabinets, meters, and barometers are directly incorporated into the transmission system at the final assembly location. Moreover, with respect to the wires and cables, SCE states that these items are subcomponents of the conductor. However, FTA finds that the wires and cables are the conductors themselves. Therefore, FTA finds that these items are components.
Regarding the poles, if they are made of steel or iron and function in a load-bearing, support, or structural capacity, then the steel or iron requirements under 49 C.F.R. § 661.5(b) and (c) apply. In addition, the routers, radios, and processors appear to be, at a minimum, components (not listed in the Attachment), but would fall under the general public interest waiver for microprocessors, computers, micro-computers, or software (microprocessor waiver) if used solely for the purpose of processing or storing data per Appendix A to 49 C.F.R. § 661.7. All other listed materials or items shown in the Attachment are subcomponents. Note that FTA has also removed other items from SCE’s subcomponent list because they are components or duplicates and SCE had already listed them as components. See Attachment (PDF).
[1] FTA’s response was delayed because the majority of FTA staff was furloughed from October 1, 2013, until October 17, 2013, as well as the large number of questions to which FTA responded.
[2] On February 20, 2014, Mr. Thomas R. Kuhn, President of Edison Electric Institute, also wrote a letter to FTA’s Deputy Administrator requesting that FTA delay guidance until FTA receives further input from the rest of the electric utility industry. FTA will not issue guidance applicable generally to the electric utility industry without conducting industry outreach.
[5] Id.; see, e.g., Memorandum from Kerry L. Miller, Assistant Chief Counsel, Federal Transit Administration (FTA), Jayme L. Blakesley, Attorney-Advisor, FTA, Stephen F. Pereira, Attorney-Advisor, FTA, and Richard L. Wong, Attorney-Advisor, FTA, to Dorval R. Carter, Chief Counsel, FTA, re Report of Investigation, Houston METRO—Buy America & Procurement, § V.a (Sept. 3, 2010), available at https://www.transit.dot.gov/regulations-and-guidance/buy-america/report-....
[6] See, e.g., FTA Master Agreement §§ 1.c(1)-(2), 46.b(1) (Oct. 1, 2013), available at https://www.transit.dot.gov/funding/grantee-resources/sample-fta-agreeme.... However, FTA reserves the right to consider information other than data included in the Approved Project Budget to determine the scope of the project. Id. at §§ 1.c(3)-(4), 46.b(2).