Metro is asking bidders for the main contract to agree to make “a good-faith effort” to spend 8 percent of the total value of the deal on small businesses and local subcontractors.
That means tens of millions of dollars would flow to such firms: The contract is expected to exceed $1 billion to purchase as many as 800 rail cars.
It is the first time Metro has set a specific goal for investing capital dollars in the local economy. It did so in part in response to last year’s historic decision by the District, Maryland and Virginia to provide $500 million a year in dedicated funding for the agency, Metro officials said.
“We believe that Metro has a responsibility, not only to spend this money effectively and wisely rebuilding the system, but also support our regional economy and create local jobs whenever possible,” said John Kuo, Metro’s executive vice president for internal business operation.
In a related move, Metro also has raised the share of overall contracts to be awarded to firms owned by minorities and women. It has increased from 18 percent to 22 percent its participation goal for Disadvantaged Business Enterprises.
Local business leaders welcomed the actions.
“They are making room at a table that traditionally has not been welcoming to minority and small businesses,” said Sharon R. Pinder, president and chief executive of the Capital Region Minority Supplier Development Council. “It helps families stay families, uplifts the community and can play a role in closing the wealth gap.”
Metro informed bidders about the new contract expectations in a Feb. 6 amendment to the solicitation, originally issued in September. It said benefits to the local economy could include “building an assembly plant in the region, subcontracting to local businesses, hiring local employees, providing apprenticeships and job training, supporting local business initiatives, creating industrial diversity and growth, etc.”
Kuo said Metro raised the possibility that the rail cars would be assembled locally because other transit systems have created jobs in their areas in that way. Last year, New York’s Metropolitan Transportation Authority awarded a contract to Japan’s Kawasaki with a provision that it build and test the vehicles in Yonkers, N.Y., as well as Lincoln, Neb.
“In a procurement the size of a rail car purchase, we have noted other transit properties — including MTA NY — whose regions have benefited economically from assembly plants associated with their rail car procurements,” Kuo said. “Suggesting a local assembly plant in our [solicitation] was another tool to encourage and promote regional job creation.”
But that suggestion also could be seen as encouraging a bid by the controversial, state-owned China Railway Rolling Stock Corp., according to U.S. industry executives.
CRRC has won major contracts in recent years to make rail cars for transit systems in Boston, Chicago and Los Angeles, in part by agreeing to build assembly plants in Massachusetts, Illinois and California. CRRC also has underbid competitors, a practice that critics say is possible only because the company benefits from government subsidies.
The Chinese company’s success has aroused concerns in Congress, the Pentagon and U.S. manufacturers that China will come to dominate the transit car sector. No U.S. company makes transit cars, and critics worry CRRC will eventually compete with American firms that make freight rail cars such as boxcars and tank cars.
Critics also have warned China could use transit rail cars as platforms for cyberespionage or sabotage. CRRC dismisses that prospect as “ludicrous,” but technology experts say it is a risk.
Companies that make transit rail cars are based in Western Europe, Canada, South Korea, China and Japan. Two that have shown interest in the Metro contract, in addition to CRRC, are South Korea’s Hyundai Rotem and the French company Alstom. The deadline for bidders, which has been extended twice, is May 31.
Kawasaki, which is building Metro’s latest generation of rail cars, the 7000-series, is in the final phase of delivering the 748 cars it is constructing under that contract. It is building them in Nebraska. It is not expected to compete for the 8000-series because it is so busy with the New York MTA contract, according to Metro officials.
U.S. business executives critical of CRRC said American transit agencies will get less benefit than they think by having the Chinese company build assembly plants in their regions. The critics said only a small portion of the work is done in such facilities.
“These well-meaning but ill-conceived criteria for local economic benefits developed by [Metro] and their peers in Chicago, Los Angeles and Boston show complete ignorance of the manufacturing process,” said Zach Mottl, who serves on the board of the Coalition for a Prosperous America, an organization of U.S. manufacturers.
“The final assembly of these rail cars represents a relatively tiny portion of the job-creation-value of the entire manufacturing process,” Mottl said.
CRRC defends its deals. It says while the shells or frames of the rail cars are imported from China, most of the components added to the shells are U.S.-supplied.
Referring to an audit of the company’s $1.3 billion contract with the Chicago Transit Authority, spokesman Dave Smolensky said, “The audit concluded CRRC is sourcing approximately 70 percent of the total cost of its components from U.S. manufacturers.”
The Coalition for a Prosperous America has questioned the validity of the audit and asked the Federal Transit Administration to investigate.
Congressional opposition to CRRC has grown so strong that it may be legally or politically impossible for Metro to buy from it.
The four U.S. senators from Virginia and Maryland are drafting legislation that will approve a 10-year extension of a vital federal subsidy for Metro on the condition that it not buy its rail cars from CRRC.
In a related move, a bipartisan group of high-ranking senators filed a bill that would prohibit any U.S. transit system from using federal funds to buy transit cars or buses from Chinese companies.