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Contracting for Railcars and Jobs in Los Angeles

March’s job numbers from the Bureau of Labor Statistics were bleak. The 120,000 jobs added to the economy fell far short of the 200,000 that were expected. While the unemployment rate dipped to 8.2 percent, in California it remains stubbornly high at 11 percent.

Against this backdrop, an interesting and complicated discussion is taking place in metropolitan Los Angeles over the best way to spend public dollars, create jobs, build needed infrastructure, while simultaneously boosting U.S. manufacturing.

In 2008, Los Angeles County residents passed Measure R, a sales tax increase expected to provide $40 billion for a range of transportation projects, including a massive upgrade of its light rail transit system. This build out means the region needs to buy a lot more new trains to run on these new tracks. So, in 2010 the transit agency (Metro) requested bids for 78 railcars with options to buy an additional 157. In all, the contract is worth almost $1 billion.

Large infrastructure projects like this are often sold based on their promise of new jobs, and Measure R was no exception. What is different here is how those considerations factor in to how funds are actually spent.

In reviewing the railcar proposals received, Metro staff considered a standard set of weighted criteria as a rational alternative to traditional low bid procurement. The factors include: experience and past performance (40 percent), price (30 percent), technical compliance (20 percent), and project management experience (10 percent.)

But in order to get to a “best value” determination, Metro also experimented with an innovative method to evaluate the plans based on their potential for job creation. It required the submitters to create a “U.S. Employment Plan”that articulated the range and number of employment opportunities proposed to be created to determine the number of skilled and trade jobs. It also monetized the value of those jobs and the dollar commitment for workforce development and other training programs. That value was then subtracted from the bid price.

The three finalists are all top-notch foreign firms—CAF (Spain), Kinkisharyo (Japan), and Siemens (Germany.) Based on the overall evaluation, Metro staff recommended that its Board of Directors select Kinkisharyo’s $299 million proposal as the winner. Staff based its decision on the firm’s experience and expertise and, no doubt, their belief that Kinkisharyo is the best bet for delivering quality railcars on time. However, the staff report also stated that Siemens’ greatest strength is its employment plan and the fact that it “offered the highest new U.S. job commitment.”

The interesting question, then, is how to weigh the importance of project execution measures against the national imperative to boost U.S. employment and manufacturing through the use of taxpayer dollars. That’s obviously not an easy answer but the job numbers are stark.

The proposals for the first installment of 78 cars would produce the following number of American jobs: CAF, 127; Kinkisharyo, 197; Siemens, 522. The primary reason for the differences is that CAF and Kinkisharyo propose to manufacture their cars overseas, and then ship and reassemble them in the U.S. (A related and ongoing question beyond just Los Angeles  is whether this approach is within the federal provisions of Buy American. That law mandates 60 percent of the total value of the rail car must be produced in the U.S. Yet even if the letter of the law is being met, simply reassembling built cars in the U.S. falls far short of the ultimate goal of strengthening American capabilities in this type of advanced manufacturing.)

On the other hand, Siemens proposes to use their existing manufacturing facility in Sacramento, meaning that all the cars will be built, assembled and tested in the United States Additionally, Siemens has committed $12 million towards building a Los Angeles-area manufacturing plant (in ZIP code 90063), a permanent test track, and has established partnerships with local labor and community organizations. Siemens has also pledged $5 million to training and a technical learning center. Further analysis and modeling from the labor-friendly Economic Policy Institute shows California’s economic impact from the Siemens proposal to be double the others, based on these factors.

These broader, long-term impacts are too important to be lost in the evaluation.

This is not to say that past experience, on-time delivery, and technical prowess should not be valued. The transit agency staff absolutely has an obligation to ensure the project is done on time and on budget based on its best assessment.

But Metro hit on something important with its U.S. Employment Plan and shouldn’t hide it under a bushel basket. It is now up to the agency’s board to amplify the real economic value of new and sustained American manufacturing jobs and set an important precedent for other regions on the cusp of making similar decisions. In this way, we can make sure these infrastructure investments are even more transformative than they are seeking to be.