Robin M. Reitzes, Esq.
Deputy City Attorney
City Attorney’s Office
1390 Market St. 6th Floor
San Francisco, CA 94102
Subject: Letter of Interpretation – Elevators and Escalators
Dear Ms. Reitzes:
I write in response to your request for a letter of interpretation to determine whether elevators and escalators constructed within a bus or rail station are “components,” and whether the stations are “end products,” for purposes of applying the Federal Transit Administration’s (FTA) Buy America requirements of 49 U.S.C. 5323(j), as implemented at 49 C.F.R. Part 661. More specifically, you have asked FTA to determine whether KONE, Inc. (KONE), the apparent low bidder in an open procurement, correctly signed and submitted a Certificate of Compliance with its bid to refurbish escalators in San Francisco Municipal Railway (S.F. Muni) stations. Also, for future reference, you have asked whether elevators, like escalators, are considered “components” for purposes of applying FTA’s Buy America requirements.
Legal Standard
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] Whether a manufactured product is considered produced in the United States is determined by a two-part test: “(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 manufactured in the United States, regardless of the origin of its subcomponents.” [2]
In submitting a bid for the procurement of manufactured products subject to 49 C.F.R. § 661.5, the bidder must certify compliance with FTA’s Buy America requirements. By signing the Certificate of Compliance, the bidder is certifying “that it will comply with the requirements of 49 U.S.C. 5323(j)(1), and the applicable regulations in 49 C.F.R. part 661.” [3]
Discussion
1. Escalators and Elevators as Components of End Product Stations
In order to determine whether the manufacturing processes for a particular item must take place in the United States, the item must first be categorized as an end product, component, or subcomponent. The manufacturing process for end products and components must take place in the United States. The manufacturing processes for subcomponents need not take place in the United States.
FTA regulations define the term “end product” to mean “any vehicle, structure, product, article, material, supply or system, which directly incorporates constituent components at the final assembly location, that is acquired for public use under a federally-funded third-party contract, and which is ready to provide its intended end function or use without any further manufacturing or assembly change(s).” [4] When FTA adopted this definition in 2007, it did so to apply the Buy America requirements in a manner that would not change, or “shift,” from procurement to procurement. Thus, “end products do not shift and components and subcomponents retain their designation” regardless of circumstance. [5]
In 2007, pursuant to a mandate in the Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU), [6] FTA developed a representative list of “manufactured end products” and published it as an appendix to its Buy America regulations. The representative list of manufactured end products includes “infrastructure projects not made primarily of steel or iron, including structures (terminals, depots, garages, and bus shelters), ties and ballast; contact rail not made primarily of steel or iron; fare collection systems; computers; information systems; security systems; data processing systems; and mobile lifts, hoists, and elevators.” [7] Permanently affixed [8] lifts, hoists, and elevators, however, are “components of the larger facility, which itself could constitute the ‘end product.’” [9]
Consistent with the representative list of end products, FTA has determined that bus and train stations are end products and escalators are components. As stated above, the list of representative end products included in Appendix A to § 661.3 of manufactured end products includes structures such as terminals, depots, garages, and bus shelters. A station is a structure akin to a terminal in that both include platforms, platform support structures, walls, and supports for escalators and stairs, as well as other foundational support for various components. Therefore, bus and train stations are manufactured end products.
FTA regulations define the term “component” to mean “any article, material, or supply, whether manufactured or unmanufactured, that is directly incorporated into the end product at the final assembly location.” [10] Therefore, inasmuch as the final assembly location of an escalator is at the station and the escalator becomes functional and can be used as intended only upon incorporation into the station, an escalator is a component. As a component, the manufacturing processes for an escalator must take place in the United States for it to comply with FTA’s Buy America requirements.
Similar to escalators, permanently affixed elevators are components.
2. KONE Inc.’s Certificate of Compliance
S.F. Muni asked FTA to determine whether KONE’s process for manufacturing escalators for S.F. Muni stations complies with the applicable Buy America requirements for manufactured products as required by 49 C.F.R. § 661.5. In order to determine whether KONE has correctly signed and submitted a Certificate of Compliance with its bid, KONE’s escalator manufacturing process must meet the manufactured products standard as applied to a component.
A component must be manufactured in the United States in order to meet the manufactured products standard under 49 C.F.R. § 661.5. This requires that all manufacturing processes involved in constructing the product must take place in the United States. [11] The manufacturing process is more than “mere assembly,” but rather, it is the “alter[ation of] 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.” [12] “The processes of 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.” [13] The origin of a subcomponent is significant to the extent that the manufacturing processes of the component must materially alter and transform the subcomponent during the incorporation of the subcomponent into the component.
KONE offered the following description of the manufacturing process for the EcoMod escalators it intends to supply to S.F. Muni:
-
KONE Upper End Module
The EcoMod manufacturing operation starts with the upper end module. This is one of the main modules in the product, includes the drive station, and is installed in the upper end of the escalator on site. A fixture . . . is used for the setting, alignment, and attachment of components, which allows for consistency and quality during the process, as the fixture is already set for the required dimensions. In the creation of this module, many individual subcomponents are installed. These include: truss interface angles; track sideplates; crossmembers; drive station; various brackets; various handrail drive parts; tracks; and hardware. All of these angles, plates, crossmembers, and brackets are cut and have holes drilled per engineering requirements. The drive station is a main subcomponent, and is one of the only two main subcomponents delivered from outside the country. . . . [B]y itself, this component serves no functional purpose. The drive is integrated into the module during the manufacturing process. The drive station includes a gearbox, motor, chain sprockets, handrail drive sheaves, and a safety brake. The brake, which is manufactured by a U.S. supplier, is installed on the drive station as part of this manufacturing operation. All other subcomponents in the upper end module are either made in the Coal Valley plant or purchased from local U.S. suppliers and delivered to the Coal Valley plant for this manufacturing process. Once the upper end module is complete, the drive station is connected to the controller and electrical safety harness for functional testing and customer contract confirmation.
-
Subcomponents included in the Manufacturing Process
Parts are brought in for the manufacturing of each module, both upper and lower end. One of the main subcomponents of the modules are the steel plates shown in the first two pictures below. These are the track sideplates, which have tracks pre-welded to the plates, and also include all of the slots and holes for mounting other subcomponents in the manufacturing process. These plates are manufactured and provided to KONE by a local U.S. supplier. . . . All other components are either made in the Coal Valley plant or purchased from local U.S. suppliers and delivered to the Coal Valley plant for this manufacturing process.
-
Lower End Module
The lower end module is next in the manufacturing process. This is one of the main modules in the product, includes the reversing station, and is installed in the lower end of the escalator on site. A fixture . . . is used for the setting, alignment, and attachment of components, which allows for consistency and quality during the process, as the fixture is already set for the required dimensions. In the creation of this module, many individual subcomponents are installed. These include: truss interface angles; track sideplates; crossmembers; reversing station; various brackets; various handrail drive parts; tracks; and hardware. All of these angles, plates, crossmembers, and brackets are cut and have holes drilled per engineering requirements. The reversing station is a main subcomponent, and is the second of the only two main subcomponents delivered from outside the country. . . . [B]y itself, this [reversing station] serves no functional purpose. The reversing station is integrated into the module during the manufacturing process. The sprockets are installed on the reversing station as part of this manufacturing operation. All other subcomponents in the lower end module are either made in the Coal Valley plant or purchased from local U.S. suppliers and delivered to the Coal Valley plant for this manufacturing process.
-
Incline Modules
Incline modules are also part of the manufacturing process. Each incline module attaches to the existing truss cross member on the job site. . . . [T]he fixture [is] used for setting the dimensions of this module and is used for this manufacturing operation. . . . Each incline module includes: crossmembers;[] multi-purpose side brackets; handrail drive components; and hardware. All of these crossmembers and brackets are cut and have holes drilled per engineering requirements. All subcomponents in the lower end [and incline] module[s] are either made in the Coal Valley plant or purchased from local U.S. suppliers and delivered to the Coal Valley plant for this manufacturing process.
According to KONE’s description of its manufacturing process, all of the escalator’s parts are either made in KONE’s plant in Coal Valley, Illinois, or sourced from domestic suppliers, except the “drive station,” and the “reversing station.” KONE designates the drive station and the reversing station as “main” subcomponents of the upper end module and lower end module respectively.
For the following reasons, I agree that all of the parts described in KONE’s escalator manufacturing process are subcomponents of the escalator. At KONE’s Coal Valley plant, all of the parts are installed, integrated, and interconnected to create the three modules of the escalator. The functional testing of the escalator also takes place at KONE’s Coal Valley plant. Based upon the representations to me by S.F. Muni and KONE, I find that the escalators manufactured by KONE will comply with FTA’s Buy America requirements as long as KONE does not deviate from the manufacturing process it has described.
Conclusion
For the foregoing reasons, I conclude that permanently affixed escalators and elevators are components as defined in 49 C.F.R. § 661.3. Further, I find that the escalators supplied by KONE to S.F. Muni will comply with the Buy America requirements of 49 C.F.R. Part 661 as long as KONE does not deviate from the manufacturing processes that were communicated to me by S.F. Muni.
Please note that I have based my decision on the oral and written representations made by S.F. Muni and KONE to FTA. This decision will not apply if the actions of either party deviate from the manufacturing processes that were communicated to FTA. In addition, FTA reserves the right to verify that S.F. Muni and KONE do, in fact, comply with FTA’s Buy America rules and with the manufacturing plan outlined in their communications with FTA, and to pursue all available remedies in the event that either party fails to comply.
Please contact Jayme L. Blakesley at (202)366-0304 or jayme.blakesley@dot.gov with any questions.
Sincerely,
Dorval R. Carter, Jr.
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] 49 C.F.R. § 661.6.
[4] 49 C.F.R. § 661.3.
[5] 72 Fed. Reg. 53688, 53691 (Sept. 20, 2007).
[6] Pub. L. No. 109-59, § 3023(i)(5)(B) (2005).
[7] 49 C.F.R. § 661.3 app. A.
[8] I take this opportunity to clarify a point of confusion. Appendix A to § 661.3 lists “mobile” elevators as an end product. FTA clarified the adjective “mobile” to mean “portable or movable.” 72 Fed. Reg. 53694. This excludes elevators meant to be incorporated as part of a station’s permanent infrastructure. Permanently affixed elevators must be directly incorporated at the station location in order to become part of the station’s permanent infrastructure and function or be used as intended whereas a mobile elevator need not be incorporated into the station in order to provide its intended end function or use.
[9] Id.
[10] 49 C.F.R. § 661.3.
[11] 56 Fed. Reg. 926 (Jan. 9, 1991).
[12] 49 C.F.R. § 661.3.
[13] 56 Fed. Reg. 926. Although this explanation was given with respect to rolling stock, it is also applicable to manufactured products.