Otis Elevator - August 23, 2013

Mr. Randal E. Wilcox
President
Otis Elevator Company
North and South America
One Farm Springs Road
Fannington, Connecticut 06032

Dear Mr. Wilcox:

I write in response to your April 5, 2013 request for a letter of interpretation. You have described the escalator manufacturing process Otis Elevator Company (Otis) intends to use for projects funded by the Federal Transit Administration (FTA) and ask whether the process includes sufficient activities in the United States to co1nply with FTA's Buy America requirements at 49 U.S.C. § 5323(j) and 49 C.F.R. Part 661. After careful consideration, FTA has determined that the Otis' manufacturing activities that take place within the United States are sufficient to meet these requirements.

I. Background

In your April 5, 2013 letter, you stated that your escalator manufacturing processes occur in the United States, but that the manufacturing processes of some of the "subcomponents" of the escalator do not occur in the United States. You further explained that the main ''subcomponents" of the escalator assembly are shipped to Otis' facility in Florence, South Carolina, where the escalator is manufactured. These "subcomponents" come from various places, including the United States, China, and Germany.

In Exhibit A of your April 5, 2013 letter, you provide a detailed description of Otis' escalator manufacturing processes, which include the following:

• (1) Full Truss Assembly: Use cross-braces to permanently attach upper and lower truss sections and add additional intermediate support depending on unit rise; secure assembled truss; confirm overall truss alignment, e.g.. adjusting twists, square, centerline; and quality control review of truss fit and finish;
• (2) Upper and Lower Escalator Section: Inspect upper and lower escalator sections; move upper and lower sections into place and attach to the truss; confirm overall truss alignment, e.g., adjusting twists, square, centerline; connections point; and quality control review of upper and lower escalator sections fit and finish;
• (3) Incline Track System: Move track sections to staging area near truss and review individual track pieces for straightness; install tracks; confirm overall alignment throughout truss checking for alignment of upper, lower, and inclined section, and alignment of upper, lower, and inclined track, and adjusting twists and centerline accordingly; and quality control review of track system fit, finish, and operation;
• (4) Review entire assembly and temporary supports;
• (5) Installation of truss wiring and safety switches: Confirm overall alignment throughout truss checking for ringing out all circuits and correcting as needed, identifying and making all circuits ready for future use, and testing all safety switches and record;
• (6) Quality control and review of truss wiring installation, harnesses, and operation;
• (7) Drive Machine Installation: Move drive machine parts into place; assemble machine components, which includes a visual machine check to ensure all parts are free moving; install machine in truss; and quality control review of machine installation and alignment;
• (8) Main Drive Chain: Move main drive chain pieces to staging area; full assembly of main drive chain; quality control review of drive chain prior to install into truss, including confirming there are no binds or kinks, confirming the length, and confirming the master link condition and position; install main drive chain into truss assembly; and quality control review of drive chain installation;
• (9) Controller Assembly: Inspect controller, assemble the cabinet, and field verify ready for installation;
• (10) Control System installation into truss: Complete internal wiring/connections;
• (11) Quality control review of control system installation: Test all connections; and ring out all circuits and correct as necessary;
• (12) Setup Mount VF drive externally from the unit;
• (13) Execute external wiring between control system and junction box;
• (14) Quality control review of VF drive installation and test connections; and ring out as necessary;
• (15) Complete installation of 1nachine and brake wiring;
• (16) Review entire assembly;
• (17) Execute in-house test of electrical and mechanical components;
• (18) Execute installation of step chain and close step chain connections: Inspect step chain sections, identify twists, bows, or bends, and field verify ready for install; move into position; install step chain and confirm alignment;
• (19) Quality control review of step chain installation: Execute run test on, among other things, alignment and noise;
• (20) Execute installation of escalator steps into step chain: Among other things, inspect steps and step rollers, and identifying and replacing broken rollers and treads as necessary; install steps into chain;
• (21) Quality control review of escalator step: Confirm fit and finish; check alignment and indexing; execute full run test on, among other things, alignment and noise;
• (22) Install handrail newel stands;
• (23) Confirm proper alignment of handrail newels;
• (24) Quality control review of handrail newel installation;
• (25) Execute installation balustrades: Install balustrades; install and align balustrade brackets; install balustrade decking, including filing and milling trouble joints as necessary; install balustrade panels; install handrail guides; and quality control review of balustrade installation;
• (26) Install handrail;
• (27) Quality control review of lubrication system, including operational check and alignment;
• (28) Testing: run escalator and execute run test, including change of direction; check and adjust all safety switches; execute final run test; execute full load brake test; record all test results.

In addition, you state that each escalator manufactured by Otis takes approximately seven weeks to manufacture, requires a minimum of four full-time technicians and various part-time technical and quality personnel. In total, Otis estimates that approximately 800 hours of labor, which includes, among other things, the manufacturing of the escalator, will be needed at the Florence facility. According to Otis, this manufacturing will create a minimum of ten additional jobs. In addition, you state that Otis plans to expand its facility's capacity to manufacture six units at a time, which will create a minimum of thirty new jobs at the facility.

On April 29, 2013, during an in-person meeting with FTA, you provided further information on Otis' escalator manufacturing processes.

On July 29, 2013, my staff requested additional information regarding the source of the subcomponents. In a July 31, 2013 email, Otis provided a list of the main subcomponents and the country of origin for each of the listed subcomponents. According to this list, the escalator control system and escalator VF drive system are manufactured in Richmond, Virginia; the lubrication systen1 is produced in Charlotte, North Carolina; the truss material, track system material, main drive, tension carriage, step chain, steps, and balustrade are produced in China; the motor is produced in Germany; and the handrail is produced in Canada. In addition, the e-mail restated the various manufacturing processes of the escalator and that these processes take place in Florence, South Carolina.

II. Buy America

With certain limited exceptions, FTA may not obligate funds for a project unless the manufactured products used in the project are produced in the United States.[1] To be considered produced in the United States:

• (1) All of the manufacturing processes for the product must take place in the United States; and
• (2) All of the components of the product must be of U.S. origin. A component is considered of U.S. origin if it is n1anufactured in the United States, regardless of the origin of its subcomponents. [2]

In two separate letters of interpretation dated December 7, 2010, FTA determined that escalators are components of a manufactured end product facility, such as a bus or train station.[3] 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.''[4] An escalator, which is incorporated into a station and becomes functional only upon such incorporation, is therefore a component and all of its manufacturing processes must take place in the United States.

To satisfy Buy America, a component must be produced as a result of a manufacturing process that occurs in the United States.

FTA defines "manufacturing process" to mean:

The application of processes to alter the form or function of materials or of elements of the product in a manner adding value and transforming those materials or elements so that they represent a new end product functionally different from that which would result from mere assembly of the elements or materials. [5]

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." [6]

FTA interprets its Buy America rules as applying to elevators and escalators. For example, in an April 9, 2012 letter to KONE Inc., FTA determined that KONE's proposed escalator manufacturing processes that took place in the United States were insufficient to meet Buy America because Buy America requires that all of the manufacturing processes must take place in the United States. FTA found that KONE proposed to manufacture the escalator in China, test various aspects of the assembled escalator, disassemble the escalator, and then reassemble the escalator once it was shipped to the United States. Thus, FTA concluded that a significant part of the installation, integration, and interconnection of the subcomponents were done in China and would not be able to meet FTA's Buy America domestic manufacturing requirements.

III. Discussion

Based upon the information provided by Otis, I find that the escalator 1nanufacturing processes at Otis' Florence, South Carolina, facility rise to the level of manufacturing required by the Buy America requirements. As stated above, all of the manufacturing processes of the escalator component must take place in the United States. This require1nent n1eans that there must be, among other things, installation, integration, and interconnection of the escalator subcomponents. All of the activities you described in your April 5, 2013 letter, as well as other information you provided through correspondence and meetings constitute installation, integration, and interconnection of the various subcomponents, including those subcomponents — e.g., the truss material, track system material, main drive, tension carriage, step chain, steps, balustrade, motor, and handrail [7] — that were foreign sourced, and these activities occur at Otis' Florence facility. Moreover, testing, which is also considered part of the manufacturing process, takes place at this facility. Therefore, based upon the information provided by Otis, I find that these activities meet the Buy America requirements for a manufactured product.

IV. Conclusion

Based upon the foregoing, I find that the manufacturing processes that take place at Otis' Florence, South Carolina, facility meet FTA's Buy America requirements for manufactured products. I emphasize, however, that this conclusion is based solely upon the activities as described by Otis. Any n1aterial deviations from these described activities may result in a different conclusion.

If you have questions about this decision, please contact Mary J. Lee at (202) 366-0985 or mary.j.lee@dot.gov.

Sincerely,

Dana Nifosi
Deputy Chief Counsel

[1] 49 U.S.C. § 5323(j); 49 C.F.R. § 661.5(a).
[2] 49 C.F.R. § 661.5(d).
[3] Letter from Dorval R. Carter, Jr., Chief Counsel, Federal Transit Administration to Robin M. Reitzes, Deputy City Attorney, San Francisco Municipal Railway (Dec. 7, 201 0); Letter from Dorval R. Carter, Jr., Chief Counsel, Federal Transit Administration to Daniel E. Walz, Esq., of Patton Boggs LLP, counsel to Yonkers Contracting (Dec. 7, 2010).
[4] Id.
[5] 49 C.F.R. § 661.3.
[6] 56 Fed. Reg. 926, 929 (Jan. 9, 1991). It is important to note that while the regulation permits subcomponents to be produced outside the United States, this does not exempt an end product or its components from the requirement that all manufacturing processes occur in the United States. If no manufacturing processes occur at the component level, then those processes must occur in the U.S. at the subcomponent level. See Letter from Dorval R. Carter, Jr., Chief Counsel, Federal Transit Administration, to Timothy J. Rudolph, General Counsel, Midwest Bus Corporation (Aug. 11, 2010). Mere assembly is insufficient to satisfy the manufactured product requirements of 49 C.F.R. 661.5.
[7] See, e.g., Letter from Dorval R. Carter, Jr., Chief Counsel, Federal Transit Administration to Daniel E. Walz, Esq., of Patton Boggs LLP, counsel to Yonkers Contracting (Dec. 7, 2010).