New ruling clarifies Buy American legalities

Terry Gerton The Trump administration has been very focused on raising up American manufacturing companies, and there’s a recent case that tested some provisions of the Buy American Act. What’s at the core of the Alstom Transportation case?

Dan Ramish This case was a decision of the Court of Appeals for the D.C. Circuit. It’s kind of a rare decision where a plaintiff is challenging a waiver issued by an awarding agency. This particular case was under the Federal Railroad Administration’s Buy America statute. There are, of course, all these parallel laws — the Buy America statutes that predated the broader Build America, Buy America regime that came with the Infrastructure Investment and Jobs Act, as well as the Buy American Act and Trade Agreements Act. All these have similar waiver processes and allow for waiver of requirements to buy American when there is a demonstrated nonavailability of domestically produced products. And so this case involved an agency determination that there was a nonavailability of high-speed trains that met certain requirements, exceeding 186 mph, for a project that was funded partly by the Federal Railroad Administration and partly by Nevada Department of Transportation. And so the FRA issued a waiver. One of the other offerors — there were actually two offerors. The unsuccessful offeror that was trying to provide these trains, which is a company called Alstom, was of course deprived of the opportunity to provide trains by the waiver and so filed this Administrative Procedure Act challenge, first at the District Court in D.C., which then now was appealed and decided by the appellate court for the District of Columbia.

Terry Gerton You threw some great terms out there: Administrative Procedures Act, waiver processes. It sounds like a lot of bureaucracy, but it sounds like in this case it was also material. Why was a waiver required here?

Dan Ramish This project involved building a high-speed passenger rail connection from Rancho Cucamonga, California to Las Vegas, Nevada. The total project was $12 billion, but there were $3 billion worth of federal funds involved through the FRA. And so the federal funds triggered the Buy America requirement for FRA. The reason a waiver was required was the trains that were needed for this line, and there were 10 of them, were not produced to the requirements of the project in the United States at the time when they were seeking the waiver, sort of at the early stage of the project, because they were requiring 186-mph trains. And there were two offerors; Siemens had trains in Europe. Of course, Europe has been way ahead of the United States in high-speed train manufacturing, and Siemens already had trains that could go 220 mph that were in use in Europe. But the other offeror, Alstom, had lower-speed, high-speed trains that maxed out at something like 160 mph, so couldn’t meet the 186 mph that the prime contractor was requiring. And so the agency was persuaded that this was reasonable. Initially, they published a proposed waiver while the bidding process was still going on that would have applied to both Alstom and Siemens and allowed them to get around the normal Buy America requirements for the project. But then subsequently, they finalized the waiver after Siemens had been identified as the preferred bidder. And so it was tailored, and the final waiver endorsed an approach where Siemens would build the first two trains in Europe while they were training American workers and then build the remaining eight trains in the United States. So a pretty tailored, narrow waiver specific to the project. Alstom was still disadvantaged, and after the waiver came down, the agency granted it, finalized it and the prime contractor, which was a company called Brightline, made the award to Siemens after the waiver, which led to the lawsuit.

Terry Gerton Dan Ramish is a partner at Haynes Boone. Dan, it seems like the court, even before they got to the merits of the waiver, spent quite a bit of time on standing relative to whether Alstom could even bring the case.

Dan Ramish Yes, that’s a great point, Terry. So there were really two primary issues in the case. And the first one, a threshold issue, was how the district court decided it. They said, hey, Alstom doesn’t even have standing to bring this lawsuit. There are kind of heightened standards when a plaintiff is trying to challenge a federal agency’s benefit conferred on a third party. And to establish standing, there’s a need to demonstrate an injury and that the injury was caused by the agency action and that the injury would be redressable by the court. And so the district court said that the plaintiff hadn’t established standing, that they hadn’t shown that they were really deprived of this work by the waiver being issued or that they would ultimately, you know, be selected over Siemens if the waiver were essentially revoked through the court. The appellate court, of course, took that seriously on review. And actually it was a split decision, with two of the judges ruling that there was standing and the third judge ruling that there wasn’t. The two-judge majority on the panel looked at this and said, this is a hard statutory requirement; Alstom is the only offeror that can produce these trains in the United States. And so, it’s not really credible that Brightline would give up the $3 billion in funding that would be needed by taking a different approach. They would be forced to use Alstom. The dissenting judge took the opposite view and said, well, the parties could have done something different. There were other alternatives. They could have changed their arrangement with Siemens, or they could have only called for eight trains. Because there were other options, it wasn’t as obvious as predictable and for that reason didn’t establish standing.

Terry Gerton So at the end of the day though, Alstom did have standing to bring the appeal. What was their case for the waiver, though?

Dan Ramish So they had kind of a creative argument that the waiver was contrary to law. They said that the Buy America’s statutory language, that a waiver was appropriate when the items weren’t produced in the United States, extended to scenarios where the item could be produced in a future in time for the projected performance. And so Alstom’s plan was, well, they didn’t have trains that met the 186 mph yet, but if they had 160-mph trains, they would be in a position to manufacture all the trains on the project schedule. The appellate panel said, no, if you look at the statute carefully, there is a present-tense reading of “produced in the United States.” As long as there are no domestic capabilities at the time when the waiver is granted, there isn’t a requirement to go with a domestic offeror that would produce the trains, or other items in the United States, in the future if they don’t have the capability at the time of the waiver.

Terry Gerton So what are the takeaways from this case, then, besides the fact that you can’t use your crystal ball to predict whether or not you’ll be able to manufacture something in the United States in the future?

Dan Ramish Well, so the situation at issue in this case is a reasonably common one. There was one company that would provide a domestic product, and a Buy American waiver allowed others to supply products manufactured overseas. And this kind of cuts both ways for American companies that are looking to benefit from Buy America rules. On the one hand, the decision confirms that in order to object to a waiver to allow foreign products, a domestic manufacturer has to be able to demonstrate that they’re already producing the product in the United States when the waiver is being considered. And future production capability isn’t enough to object to a waiver. On the other hand, the panel majority’s ruling on standing is helpful to U.S. companies…when they’re the only domestic manufacturer of a product, because the two judges that were in the majority said it was sufficiently predictable that with this Buy America requirement without a waiver, Brightline would have to have used the compliant bidder. So that makes it easier in the future for American domestic manufacturers to raise these kinds of challenges without having obstacles based on standing.

Terry Gerton Well, Dan, there are some provisions around Buy America in the new RFO waivers that are on the street. Does this case connect into those provisions or does it inform them in any way?

Dan Ramish Yes. I would say there is a connection. The FAR Council hasn’t yet issued their proposed rule, but they did issue a model deviation for FAR Part 25, which is the part that deals with foreign acquisition and Buy American Trade Agreements Act. And the proposals in the model deviation would codify greater scrutiny and transparency for Buy American nonavailability waivers and require not only an agency determination, but also review by the Office of Management and Budget Made in America office and public posting of proposed waivers. And that transparency, which will apply to procurement contracts under the FAR, is similar to the waiver process for federally funded infrastructure projects like the one in this case. And it would make it easier for domestic manufacturers and other interested parties to identify and potentially challenge questionable agency nonavailability determinations. So I think it’s harder and harder to obtain a waiver. Waivers are more likely to withstand scrutiny if they’re narrowly tailored. But we may see more clashes over the legality of waivers after this decision.