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Buy American Clause

motion guru

Diamond
Joined
Dec 8, 2003
Location
Yacolt, WA
I hesitate to post this as this could lead to severe repercussions for me as a vendor - but sometimes I just don't give a rip.

I have just about reached the conclusion that this job is not looking like it is something that we should take, but thought I would provide an inside look on some stimulus dollar spending that is "helping put Americans back to work" . . .

We have bid a large machine tool that turns rail car wheels "on the car" . . . no need to pull the wheels, just roll onto the lathe, it lifts the car or locomotive and reprofiles the wheel.

Our first interest was building the entire machine. It would be a bit of a stretch for our facilities, but we have had similar sized machines that we have retrofitted in our shop so we felt we could handle it logistically and one of the reasons for the recent crane install is to make jobs like this more doable. In the past we have rented 30,000 lb capacity fork lifts and other equipment to make these kinds of jobs easier to handle. Not ideal, but when you start your business in a garage and have used self loading log trucks, tow trucks and all kinds of farmered equipment to get work done - this is just what it takes sometimes.

As it turns out - the train supplier is from Europe and needs to comply with "Purchase in America" constraints. So they want to source as much of the material as possible in the good ol USA. Of course everything on the machine is European design, (controls, hydraulics, motors, gears, screws, etc.)

We were told that the "iron" would be coming from their normal suppliers in Europe but that the CNC / controls needed to be UL / NEC / NFPA compliant and manufactured with domestically sourced components for ease of local service and support . . . so while we were disappointed in not getting a shot at the bigger piece of the pie - it is still a nice sized project with the controls for the turning centers, safety system, etc. Something we do well and in this economy, we need the work.

So we began work to estimate this project - requiring quite a bit of effort with some interpretation of foreign language documents, building up of BOM, getting quotes from vendors, etc. Then we meet with the customer and they give strict guidelines on converting to US Standards, changing electrical prints to ACAD from a French based cad system, having documented quality process, etc. I figure it cost about $10k to do all of this effort which included a couple of trips to view a similar installation in the US near their US offices.

We then bid the project (again after significant effort for clarification of items, etc.) - next the customer questions our scope of supply (natural thing to do when we all speak different languages - but we could tell they were surprised at the price and wanted to make sure we were providing what they were asking for).

Long story short - we were roughly double what they were expecting. And as far as we can tell, they shopped the project among a half dozen other vendors and found the same thing.

This resulted in a reduced scope of buying (components only) for most assemblies and reducing actual manufacturing to two medium sized control cabinets - just give them everything else loose in a box and they would install with their own labor. (I am highly doubtful they have a UL508a shop within which to do this so a 3rd party listing would be required for their scope of manufacture).

We re-quote with the reduced spec - and got this note this morning from the customer:


Thank you very much for your time.
Tomorrow we will visit the last of the vendors in which we were interested.
Later we will be able to take a decision.
Although the price is not the only parameter we have to take into consideration, it´s not needed to say that it has a very high importance even more when the prices we are receiving to manufacture the cabinets are much more expensive than the prices we have in (insert country here) to manufacture the same product.
We are out of any budget or any estimation, so we are seriously thinking to buy material in (insert country here) and supply it to the final vendor.
Of course, this is not the way we would like to do it but we will if we don´t achieve reducing the prices.
With independence of, if you will never be the cheaper, as you commented in our meeting, we are still thinking that the adaptation to the American standards not require to many hours of NRE cost and that maybe it would be possible to obtain better prices from your (insert european mfg here) distributor.

if you consider it appropriate, please review your proposal once again in order to be more competitive in comparison with your competitors and let me know the final price you can offer to us.

“Putting America Back to Work” with YOUR tax dollars . . . the only stimulus that will work effectively will be in the form of a big enema for Washington DC.
 
Not sure if I understood all the complexities involved in this bidding process, and I have no doubt that even a well intentioned idea implemented through D.C. can end up smelling like manure.
I think the original intent was to make sure that products bought by the U.S. gov't were primarily American made.
Good idea.
Again, I'm not sure how that would apply to a foreign entity soliciting bids from an American manufacturer.
No doubt, it would ensure that things get screwed up.

That said, I firmly believe that while our prices may be high, Americans consistently rank among the most productive in the world.
The Great American Worker: Productivity Increases -- Seeking Alpha
Too bad we got sold down the river a few decades ago.

Safe to say that it will probably get worse before (and IF) it will get better........
 
So where, exactly, does the "stimulus dollar spending" fit in? You mention:
As it turns out - the train supplier is from Europe and needs to comply with "Purchase in America" constraints. So they want to source as much of the material as possible in the good ol USA. Of course everything on the machine is European design, (controls, hydraulics, motors, gears, screws, etc.)
So... I don't get it. They either have to or don't, wrong? Are you saying the bottom line comes down to spending a high $$ % amount of the job only to satisfy "% American Manufactured" rather than putting a higher # of people to work across diversified industries? Meanwhile, the job's dime is fronted by those same American people who were skipped over by importing from (insert worldwide country here) ?

I mean, it sounds like a grave digger :hole:, don't get me wrong... but I'm not sure of your bottom line point for the post other than "business sucks".
 
I wouldn't be surprised if some foreign owned companies have found ways to get stimulus money and bypass some of the buy american part of it. Some certainly saw it as a chance to expand their production in the US using your dollar. I know companies in Canada were really bitching when the talks of stimulus/buy american started. The whole thing about how they can get the same thing cheaper here, not using the money to its best advantage by paying more for a product made in the US. I was angry listening to the dummies talking about it here on the radio, as they were completely missing the point that it was supposed to create work within the country spending"redistributing" the money. Everyone sees a hand out and they all want a piece of it.


Real interesting bit is a project or piece of equipment such as you mention, would essentially again remove more long term jobs. Maybe they would need a couple operators total, but now you no longer need a couple mechanics, couple machinists, and so on, and the job gets done quicker.

I also wonder if any companies were given some $ to try to come up with new projects/ideas like that, start analyzing costs, eat up the budget internally, and no actual work gets done. I can think of a project here that pretty much went that way...
 
This project places significant passenger rail systems and infrastructure in two locations in the US - funded by stimulus dollars with "Putting America back to work" as the purported goal of the projects.

Companies around the world bid on these projects - and in this case - the projects were awarded to foreign companies - all good so far - would have been nice for an American company to win the project, but I doubt American companies exist to do this kind of work these days. Locomotives, passenger rail cars, maintenance shops, etc. all supplied by company X.

These projects have federal and state funding components and both Federal and State contracts specify that a certain percentage of the value of the projects must contain US Manufactured Content. Similar to the State of Washington requiring that Washington Dept. of Transportation must purchase Washington State Ferries from companies that conduct a % of the work of building the ferries in the state of Washington.

This is not unlike a government assistance program to buy you a machine for your shop under the condition that it "has significant American content and helps put Americans to work". . . after all, the money is coming from American tax payers. SBA loans have similar guidelines related to being able to show that you can hire X employees for every $YYY,YYY you borrow from them.

My attempt at an analogy . . .


DMG bids the job to supply the machine for your shop and wins - then they go to machine manufacturer HAAS to get a bid on building 30% of the machine so that they comply with the "Made in America" contractual obligations of the contract. . .

Haas comes back with a competitive bid and DMG freaks. DMG says, forget about the US manufactured controls, just buy the same controls we buy through a US distributor and assemble them.

Haas rebids - DMG freaks again. "forget about assembling all the foreign sourced components, just build the drive panel and give the CNC terminal and motors, cables to us in a box and we will assemble them" . . .

Haas gives them another bid. DMG freaks . . . "OK, push your US distributor of foreign components harder for a better price. And for the really expensive stuff that you need - how about we buy that from our country and ship it to you so that you can include this in your supply to us"

So what part of this project helps the US economy by recycling US tax dollars and putting US workers back to work? :rolleyes5:

At this point - we are at $155k in hardware content - 85% of which comes from across the pond - and the things like NEMA12 Hoffman enclosures, transformers, motors, cables, lights, etc. are being pulled off the table and being offered to be shipped in from across the pond because US enclosures, etc. are too expensive?

It is a farce - if the "American Content" in the rest of the project is like the "American Content" for this part of the project . . . :willy_nilly:

I question the viability of the need for this rail infrastructure in a time when we are going into debt to purchase it in the first place - and while efforts to ensure that the money is spent in a manner that improves the US economy by having US companies participate in the work are good - the fact of the matter is that the oversight (or lack thereof) on projects like this almost guarantee that this will not happen.

When I step back and look at the big picture - I see misguided efforts to create work that make people (our elected officials) spending the money "feel good" :o when in reality - nothing that they hope for related to putting people back to work in the US occurs, more of our tax dollars are shipped out of the country and we are stuck with a bill that our grandchildren will be paying the interest on.
 
Same thing with green energy provisions using wind mill parts made in China, and solar panels made in Europe. The only 'Buy American Act" that works is the one you implement yourself by looking at labels and staying the hell out of Walmart on Sunday.
Any pro "Buy American" person is labeled a protectionist, funny how other countries do whatever they can to protect their manufacturing base and buy from within, when the USA does it everyone screams. USA politicians wants to kiss up to everyone no matter where they live. They need to say every dime of stimulus money, must be spent on USA workers, using USA made products, NO OUTSOURCING of anything. If you don't like it, you know where you can stuff it. If you are afraid of pissing off China because they buy so much government debt, stop running up the credit cards, so you don't need them.

P.S. Neither party gives a hoot about the loss of the USA manufacturing base, unless it is election time. After they are elected they go back to not caring. So let's not turn it into a political rant, PLEASE.
 
So, I don't understand why you blame the federal government for this snafu. It looks like you were asked to commit fraud by the company you are dealing with, this certainly wasn't the scenario that the federal government envisioned.

The company you are dealing with is laundering the foreign content by channeling it through you. They send it to you, you perform a minimal operation on it, and then you send it back to them as "made in U.S.A."

It's just like money laundering using a shell corporation and a sham transaction.
 
WCF - you are right - certainly the company that received the contract for this project is not looking to conduct business in a manner consistent with the goals of the "stimulus" bill as it relates to this part of the project. Whether they have stepped beyond the bounds of legality - I don't know. For all I know, they may have other parts of the project where they can spend money more efficiently to gain US content. With the size of the project measured in the hundreds of millions - our part is a fraction of a percent.

What frosts me is that the more I learn about this project - the more I realize how easy it is to circumnavigate the requirements for US content. This is my first up front exposure to life in the Government Contract lane - it's ridiculous, it's misguided and from where I sit - it shouldn't work this way. I think it is a reflection of how poorly our elected representatives do their jobs and how carelessly they spend our money.
 
Motion, unfortunately it's very much like that over here too, I suppose it's what you get for having a ''global economy.''

As for the contractors ''breaching the rules'' I'm convinced all the governments know it's not possible to coform to their wishes, and tell the contractors to keep quite about it.
 
When congress comes up with some program like this it is then forwarded to other departments to be managed and regulated. However those who are making the rules know all there is to know about making rules but nothing about how they effect Mfg. They just know how to write rules, administering them correctly to industry would require another whole department, hey with the current way things are going that will probably be seen as a bonus.

I wonder how much of the stimulus money is spent by government agencies just to administer the program?

R Reagan made a comment about how big government is like an infant, it has a voracious appetite at one end and no sense of responsibility at the other...

Actually I have seen the same sort of pricing games going on with some of the German companies I work with. They can often get parts shipped from Germany cheaper than to buy the parts here and assemble them.

Charles
 
It seems as if there are a few different issues here.

One- for a variety of reasons, public infrastructure programs are, and have always been, slow, wasteful, and expensive.
This was true in Roman times, and it is true today.
Doesnt matter what the government is, what language they speak, or what they are building.

Light Rail in the USA is particularly bad.
Now, personally, I believe in investing in light rail, in certain cities. But that doesnt change the fact that I have seen incredible bureaucratic ineptitude in every Light Rail project I have worked on, and thats been probably a dozen, in cities all over the Western USA.
I worked on a project in LA where the contractor, as far as I am aware, broke the worlds record for highest dollar amount in change orders- $1 Billion dollars. Thats how much they got paid over and above their fixed bid, by the time things were done.

I think there is probably a graft, corruption, and waste percentage below which you cannot go on a public infrastructure job, but it seems as if Light Rail in particular usually at least doubles that.

Lots of it is silly regulations, but lots is fear of lawsuits, and lots is from too many layers of middle management as well- much of which is good intentioned, and not criminal, just slow and inefficient.

This could definitely be changed, and costs could be cut, and politicians could make their names, and get votes, by doing so. Lyndon Johnson first achieved real fame, and got elected as a Senator, by his work on a House committee investigating war time contracting and manufacturing corruption during World War 2- of which there was no shortage, believe me- more people made more money sleazily during WW2 than before or after- in GDP terms, we are just barely catching up now to what was spent, and skimmed, then.
So a hungry young politician could certainly do well today doing the same thing.

But in your particular case- we dont know if the contractor is breaking the rules, or not.
We dont know if it really IS cheaper in their home country- seems unlikely, but you never know. We dont know if they already had a contractor in mind, and you were just window dressing.
And without knowing that stuff, its hard to blame our entire system for what they are doing.

Sounds sleazy, though, thats for sure.
 
If the wheel lathe company is the western European company I'm thinking of, then they should understand that they make a stack of lathes a year, and a one-off or two-off made in the US is gonna be expensive, since you can't amortize tooling/fixtures or supplier relationships over a decade of production...That, and they seem exceedingly inflexible in allowing changes to US standards/parts.

On the larger issue of a badly implemented Buy American law, I think the core issue is manufacturing illiteracy. We have a congress that almost universally clueless about what a monkey wrench is, much less a trunnion table, and an American public to match. Congress doesn't have the literacy to write manufacturing policy that works. The closest are a couple members who studied science.

Until there is some realization that government procurement needs to be designed to allow for long-term stability in US manufacturing, companies will never be able to survive. Every time wind/nuclear/etc. energy subsidies come and go, there are buyouts and bankruptcies. Same for Amtrak's traincar orders, or ferries. Every non-military manufacturing procurement process is far more expensive than it should, because there isn't any stability. We are going to have repeats of Ingersoll Machine Tools (bought cheap by an Italian company?), Budd (now ThyssenKrupp Budd), Westinghouse Electric (BNFL, now Toshiba), Colorado Railcar (bankrupt after tooling up, then having contracts pulled), etc. until congress (and the states to a lesser extent) figure out what an end mill is.

But I complain to the choir when I should be working in digging up work. Complaining feels good though.
 
Actually I have seen the same sort of pricing games going on with some of the German companies I work with. They can often get parts shipped from Germany cheaper than to buy the parts here and assemble them.

Charles

OK, this is the bit I find hard to understand.

WHY is is cheaper to buy from the country of origin and ship/install locally? The only reason I can see is one or more of:

Local distributors taking a big profit slice for passing through an order (seen this myself dealing through a local agent for USA manufactured marine equipment).

Govt tariffs/taxes or similar either loading cost of exports on the manufacturer's side or cost of imports on the end user country side.

The whole caper sounds like a major headache and better off not going there if you really don't need the business. If it starts out like this it isn't going to get any better. Payment (or non-payment) terms is the first thing that comes to mind.

PDW
 
"One- for a variety of reasons, public infrastructure programs are, and have always been, slow, wasteful, and expensive."

Come on, Ries! They have built a very nice 2 mile long sound barrier wall along the freeway here, in an area where there are no residences and just a small splattering of businesses. They did it with "Put America to Work" dollars. You think the money could have been better spent repairing the frontage roads along the freeway that have pot holes big enough to swallow a Sherman Tank?

One of my biggest gripes is not putting sensor triggered signals in intersections. I am talking about NEWLY installed signal lights. How much pollution comes out of cars going nowhere? How much FOSSIL FUEL is wasted?
There is one close to me that I sit at for 3 minutes with out seeing a car in the opposing directions in off peak hours.
 
Amazingly enough, SOME things are actually cheaper in Western Europe.
Why, I dont know, as, universally, their taxes, wages, and usually land prices are higher than ours.

But government regulation works in often unintended ways, and profit sure does too.

So it IS possible that certain machines or parts are cheaper there.

I know, for example, that things like cold saws, swivel head bandsaws, and small cranes are all about 1/3 cheaper in Western Europe than they are here- mainly because they are all made there.

Crane services are cheaper there too- for various insurance and tradition reasons- in most places in Europe, you can get a crane onsite in an hour, for a hundred bucks- a small one, sure, but that crane will self load a flatbed, take your load where you want, and unload. Whereas here, it is usually impossible to get that kind of service from a real crane company for less than a 4 hour minimum, with trucking extra.

Lots and lots of similar odd localized price differentials occur all over the world. Sometimes based on cost of labor, but mostly not. The cost of labor to do what Ken does is most likely higher in Western Europe. But if somebody already cranks out that controller, and has been doing it for years, their price will beat his.

I was in a factory in Italy that makes aspirin machines- a machine that makes the tablets, foil packs em, and then seals em in paper packages with a plastic wrap. I have no doubt Ken could build such a machine- but not for what they sell a machine for they made every day.

This situation may or may not be because of something like that- we really may never know.

As for Congress- Congress is actually really good at hiring people who know what they are doing, and using that staff to write bills- its just that currently, other companies are paying them not to.
I used to know a woman who wrote most of the Trucking Deregulation bill back in the 70's- she worked in the industry previously, and she really knew her stuff. The knowledge being present on congressional staffs wasnt the problem- it was the competing interests who would make profits if different things happen. And since it now costs somewhere in the neighborhood of $20 million to $100 million to get elected to the Senate, that means every Senator must get somebody to give him or her $15,000 to $60,000 dollars every weekday. EVERY WEEKDAY. For all six years you are Senator.
That money has got to come from somewhere, and it ends up paying for something, too.

Campaign Finance Reform is at the heart of almost all of these problems, but NO politician wants to talk about it. For obvious reasons.
 
Ries- post #19- well stated, and enlightening (as usual)

MG- sounds like a shady deal all around, and if it was me, I wouldn't touch it w/ a 10' pole.....'course, I don't have near the level of responsibility that you do, so it's real easy (for me) to say it. I am curious (just food for thought) exactly what legal liability would your shop be subject to if the company requesting the quote is pulling a 'fast one' and they get caught?
 








 
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