CAF USA responds to Metro, FTA

Potential rail car supplier

Jon Boyd, Sep 20, 10.

Last week, CAF USA responded to the Federal Transit Administration and the Metropolitan Transit Authority of Harris County (Metro) about a plan to terminate a contract to build 103 light rail cars, in an “An open letter to the Metropolitan Transit Authority of Houston board of directors” published in the editorial pages of the Houston Business Journal.  George Greanias, newly elected CEO of Metro, was “interim” CEO when he told FTA administrator Peter Rogoff that he intended to sever the agreement with this supplier and redo the bidding process.  Under the contract with CAF, the first two of Houston’s new light rail cars were to be designed, tested, and built in Spain, before an American manufacturing plant was to build the remaining 103 rail cars. This was deemed a violation of the Buy America stipulations of New Starts funding, which Metro would use to build the next phase of Houston’s 65 station light rail system.

FTA’s investigation concluded that the Metro procurement did not comply with the federal Buy America requirement and the requirement to consider all bidders on a level playing field.  FTA’s investigation letter(via the Houston Chronicle) said Metro failed to convey to all bidders, including the winning company, that they would be required to comply with the Buy America program throughout the process, even after a Certificate of Compliance was deemed by Metro to be a necessary condition of advancing from step one to step two of the bidding process.  FTA said the bidding process favored Construcciones y Auxuliar de Ferrocarriles (CAF) over other bidders, including an allowance for CAF to change their bid after the fact.  Siemens sent a letter to FTA alleging that Metro was allowing CAF to relax the Buy America requirement, and FTA responded to this by forwarding the letter to Metro with the stern warning that compliance with Buy America would be necessary.

CAF USA open letter to Metro was published in the Houston Business Journal.  An excerpt of the letter is available online, but the rest is only available to HBJ’s subscribers. The entire letter is published here and was included in a Houston Chronicle blog post and story:

An open letter to the Metropolitan Transit Authority of Houston board of directors:

At CAF USA, we’re committed to providing cities like Houston state-of-the-art transit systems at the most competitive prices in the industry, all manufactured right here in the United States. That’s why we fairly won the bid to provide a state-of-the-art light rail vehicle on schedule that is vital for the expansion of Houston Metro.

So, like many citizens in Houston, we were disappointed to learn that confusion and misinterpretations now threaten that important project, potentially costing taxpayers millions of dollars and jeopardizing jobs in Houston and other states.

But we believe that together we can get this project moving again.

So we urge you to carefully consider all of your options before further holding up the construction of the rail system the city wants and needs. We are ready to be part of a productive process that will come to the best conclusion: A green light for getting the light rail system built at the least cost to taxpayers and on time.

The delay in the vehicle contract could have a ripple effect in all the other light rail system contracts and potentially invite claims from other parties that have invested in this project.

We understand that Metro took part in a review of the project by government officials in Washington. And we regret that CAF USA was not part of that review with the Federal [Transit] Administration.

We’re disappointed that important facts were overlooked and that confusion now exists.

The truth is that CAF USA has always been “Buy America” compliant — and that a very significant number of jobs created for this project will be created in America.

So let’s not hold up this project. Doing that would:
• Threaten existing and future jobs in Houston and all around America.
• Jeopardize millions of dollars in taxpayer money that has already been spent by the city.
• Create a delay in the project of two years.

We want to be part of the right process that ends in a win for the city: The on-time, on-budget construction of an American-made light rail system.

CAF USA
An American company

 

Elmira, the city in southern, upstate New York, where the Metro light rail cars were scheduled to be built, is bracing for the impact, according to WENY-TV News:

An Elmira Heights railcar manufacturer is fighting to save local jobs after the Feds cancel a $205 million contract.
   
CAF USA was ready to start hiring local workers this fall.
 
But those plans are on hold until this contract debacle is straightened out.
   
The Federal Transportation [sic] Administration is forcing the City of Houston, Texas to put a light rail contract back up for bid, saying the city violated Federal laws during the bidding process.
   
Now, CAF USA, which was awarded the project, is asking the FTA to take a closer look at the decision and it’s impact on our local community.
   
“It’s a big contract for this community, it does put another 100 or 120 jobs in the neighborhood,” explained Mark Smith, Vice President of Operation at CAF USA.

About 14 months ago, the City of Houston awarded CAF USA in Elmira Heights a $205 million contract to build 103 light rail cars for the Houston Metro System.

CAF USA, the American subsidiary of Spanish-based CAF, wrote a letter to FTA defending its contract with Metro, according to Mike Snyder of the Houston Chronicle:

The company, CAF USA, said the Federal Transit Administration’s decision was based on incomplete or erroneous information — starting with the name and nationality of the firm holding the contract.

Throughout its report on its investigation of the procurement, the company said in a letter to the federal agency, the FTA refers to CAF - an acronym for the Spanish company Construcciones y Auxiliar de Ferrocarriles - which is the parent company of CAF USA.

“It is troubling to CAF USA that, after a four-month investigation, the name of one of the key contracting parties was incorrectly stated giving the impression that Metro was negotiating with CAF USA’s Spanish parent. CAF USA is a U.S. company, pays U.S. taxes, employs U.S. workers and has a production facility in Elmira, N.Y.,” the letter states.

A joint venture led by CAF USA won a $330 million contract with Metro in 2009 to supply 103 vehicles for the new light-rail lines the transit agency plans to build.

In April of this year, the FTA launched an investigation of the process that led to the contract and concluded that Metro had violated “Buy America” rules intended to protect American jobs and unlawfully favored CAF during negotiations.

Metro has already paid CAF USA more than $40 million for work in progress. Nevertheless, the transit agency immediately said it would cancel the contract and solicit new proposals in order to preserve a $900 million rail construction grant.

CAF USA’s letter to the FTA said a key factor in the federal agency’s decision, involving a separate contract to assemble two prototype light-rail vehicles in Spain, was based on incorrect information supplied by a competing bidder.

Metro approached CAF USA with the idea of using local funds to build the prototypes only after the FTA had denied a waiver that would have permitted federal funding of these two vehicles, the letter states.

But the FTA report mischaracterized the separate, locally funded contract as being “carved out” of the larger federal contract, the letter states.

And the language in the FTA’s investigative report is similar to that in a letter to the FTA from Alstom, another company competing for the contract, the letter states.

 

FTA stated its position in its Investigation Report: pilot cars related to the 103 Metro rail car procurement would be considered part of the same procurement.

In a Sunday article in the Chronicle, Mike Snyder alleges that former Metro President Frank Wilson ordered staff to work outside of the federal procurement process:

In the summer of 2007, a team of Metro officials and consultants plunged into the task of choosing a vehicle supplier for the agency’s expanding light-rail network. They wanted a vendor under contract by the end of the year.

From the outset, then-President Frank Wilson was determined to avoid the strings attached to any federal involvement in the procurement of 103 light-rail vehicles. He drilled this message into his subordinates.

“Our CEO has made it perfectly clear that federal requirements should not restrict this program,” Metro official Donald Pieper wrote in a Sept. 6, 2007, e-mail to an executive of Metro’s primary rail contractor.

The same article constructed a timeline of written communications between FTA and Metro based on the FTA Investigation Report:

In the first months of the procurement process, documents show, Wilson intended to use local rather than federal funds to buy the light-rail vehicles, possibly in the hope that this would avert the need to comply with federal requirements.

“FJW (Wilson) stated ... since Metro is purchasing the vehicles there will be no FTA involvement,” Metro official John Coulter said in an e-mail to a colleague, Navin Sagar, on June 29, 2007.

The use of local funds to buy the cars, however, wouldn’t have exempted the purchase from Buy America rules because Metro intended to use the vehicles on the federally funded North and Southeast rail lines.

Nevertheless, Metro’s initial request for proposals didn’t include a Buy America provision, and Metro told bidders they wouldn’t have to follow federal rules other than those in the Americans with Disabilities Act.

On Dec. 4, 2007, in the first of at least four similar warnings or advisories, the FTA told Metro it must follow Buy America rules and federal procurement guidelines.

Yet Metro continued with the procurement based on the original request for proposals without Buy America language. Of the six firms that submitted initial technical proposals, Metro invited five to submit pricing offers.

On March 6, 2008, the FTA told Metro it must issue a new request for proposals that included Buy America language. By this time Metro appeared resigned to the need to work with the federal agency.

But Wilson balked at listing specific Buy America requirements in the solicitation, documents show. He was willing only to include a general statement about the possible applicability of federal rules, according to an April 20 e-mail from Metro general counsel Paula Alexander to G. Kent Woodman, an outside attorney for Metro.

Woodman’s response was quick and unambiguous.

“I STRONGLY RECOMMEND AGAINST USING THE LANGUAGE THAT YOU SENT TO ME,” Woodman wrote.

A general statement was legally insufficient, he wrote, adding: “I believe that FTA has in two separate letters to Houston stated that Buy America applies to this procurement. This issue has been resolved.”

But Metro’s troubles with the FTA were far from resolved.

After issuing a revised request for proposals that included Buy America requirements on April 8, 2008, the FTA said, Metro signed off on CAF’s Buy America certification without addressing the company’s potentially problematic plans to assemble two prototype cars in Spain. Buy America rules require assembly of all “rolling stock” on federally funded projects in the United States.

It was around this time, the documents show, that Metro first considered seeking a Buy America waiver to permit the overseas assembly — a request it wouldn’t officially make until nine months later.

An unsigned and undated letter extracted from Metro’s computer system, which the FTA determined was last saved on June 11, 2008, requested a waiver on grounds that assembly of prototype vehicles overseas would benefit Metro and the public.

The letter was never sent.

Metro officials, meanwhile, concluded that CAF’s proposal offered the best value. On July 24, 2008, Metro began negotiating exclusively with CAF without informing other bidders it was doing so.

Although the FTA investigation did not document receipt of any written waiver request in 2008, it did acknowledge such waiver requests on March 6 and March 23, 2009.  FTA rejected both of these requests, saying that CAF would be bound to its Certificate of Compliance, as reported in Houston Tomorrow.

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