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A streetcar named acquire
[June 25, 2007]

A streetcar named acquire

(Oregonian (Portland, OR) (KRT) Via Thomson Dialog NewsEdge) Jun. 25--With an American flag as his backdrop, U.S. Rep. Peter DeFazio in August 2005 announced a victory for his home state: A little-known Clackamas company would pioneer the first contemporary streetcar to be made on U.S. soil.

Grinning, the congressman joined arms with Portland city Commissioner Sam Adams and the company's lobbyist, Chandra Brown, for a celebratory snapshot at the company's headquarters. The government would pay $4 million to Oregon Iron Works Inc. to build a prototype that would be used in Portland and become a national model for streetcar projects nationwide, the congressman's office touted in an accompanying release.

The potential payoff was a toehold in an industry forecast to turn $1 billion in sales over 20 years.

There was just one thing: Nowhere did the federal bill authorizing the $4 million mention Oregon Iron Works. Competitive bidding for the project was a year off. No company had a claim on the money or work.

But in the politics of Washington earmarks, such obstacles can be of little consequence. In this case, DeFazio -- with assists from Portland's local leaders -- outmaneuvered others to do what skilled politicians have always done: Bring home the bacon.

The $4 million deal was loose change in a $286 billion transportation bill, and officials at the Federal Transit Administration say the company's bid was handled legally. But the story of how Oregon Iron Works ended up with the money shows how, working through well-placed ties, politicians and businesses can combine forces to secure a potential economic boon.

The link between DeFazio and the Oregon company riled competitors who contended the project was rigged from the start. But in delivering the deal, the 11-term congressman landed a twin gain for Oregon: new manufacturing jobs at a time when the U.S. is hemorrhaging them and a new industry outside Portland as that city pioneers the return of streetcars.

"We provided an opportunity for Oregon Iron Works to compete, to revive the streetcar-manufacturing industry in America for the first time in 75 years," DeFazio said recently.

Now, city and company leaders have their eyes set on Salem, where the Legislature's Joint Ways and Means Committee over the weekend endorsed setting aside $20 million to build Portland streetcars. The Oregon House and Senate are expected to approve the idea this week. The likely manufacturer: Oregon Iron Works.

The idea to find an Oregon company to make streetcars originated from the board of Portland Streetcar Inc., a nonprofit city contractor that built and operates Portland's system. The board knew Oregon Iron Works as a top-rate manufacturer. In 2004, Rick Gustafson, a transit consultant and the nonprofit's then-chief operating officer, visited the company's plant.

Gustafson grasped the urgency of the idea.

In the 1980s, U.S. manufacturers missed out on light-rail contracts. Cities spent millions for rail cars, but all of it went to foreign-owned companies, Gustafson said.

So Gustafson was happy to connect Oregon Iron Works with U.S. experts. If everything worked out, the company could be a leader in transit's next generation. But company executives said they couldn't front the money for a prototype.

That's when Gustafson and Brown, the company's lobbyist, turned to DeFazio's office. Brown and her company had lots of Washington, D.C., experience and recently had secured federal defense contracts for a stealth military boat. In her office, she hung an autographed photo of herself with DeFazio.

At the time, DeFazio had significant influence over transportation spending. Gustafson and Brown had an easy job persuading DeFazio. He liked the streetcar idea from the start, and it only helped that Oregon Iron Works might be in the running.

"I've been there many times," DeFazio said. "I've driven their stealth boat."

In summer 2005, DeFazio inserted a paragraph to pay for the prototype into the transportation bill after the bill cleared the House and Senate. The bill didn't mention what company would do the work.

But that didn't stop DeFazio, Adams and Oregon Iron Works from claiming victory before the president signed the bill.

A news release issued by DeFazio's office on Aug. 3, 2005, said, "The $4 million included under this bill will help Oregon Iron Works construct a prototype streetcar."

Two months later, Clackamas County put an ad in Oregon Business magazine quoting company executive Terry Aarnio: "We've just been given the go-ahead by Congress through funding to become the only U.S. manufacturer of streetcars."

But the invitation for competitive bids wouldn't hit the streets for nine months.

Competitors picked up on news reports that Oregon Iron Works had the deal. In late 2005, Sen. Charles Grassley, R-Iowa, Sen. Arlen Specter, R-Pa., and then-Sen. Rick Santorum, R-Pa., wrote federal transportation officials on behalf of vintage trolley makers Gomaco Corp. of Iowa and streetcar refurbisher Brookville Equipment Corp. of Pennsylvania.

Federal officials assured them the bidding process would follow the law. The rules require that transportation money be doled out through "full and open competition." They prohibit conflicts of interest -- real or apparent -- that would give a bidder an unfair advantage. They also forbid giving preferences to in-state bidders.

With the federal spending approved, Adams and Gustafson got to work helping Oregon Iron Works improve its chances.

Realistically, a U.S.-owned company would have a hard time making a contemporary streetcar without foreign help. U.S. defense contractors, including Boeing, had tried and failed to build railcars, and most streetcar experts were overseas.

While in the Czech Republic to visit Inekon Group, the company that supplies Portland's streetcars, Adams and Gustafson pressed a company executive to sell its expertise to Oregon Iron Works. (Gustafson eventually referred Oregon Iron Works to another Czech company, which struck a deal.)

"I am here to maximize Portland's leverage with some face-to-face 'encouragement,' " Adams wrote on his Web site from the Czech Republic.

While Adams and Gustafson had shown they preferred Oregon Iron Works, people close to them were in line to help select the winning bidder. Adams' staff member at the city Office of Transportation, Vicky Diede, and Gustafson's partner at a consulting firm, Carter MacNichol, were expected to sit on a panel reviewing the bids. The $4 million was to go to TriMet, which tapped the city of Portland to award the contract.

After President Bush signed the transportation bill, Gustafson ran into a problem: Inekon and other foreign-owned manufacturers wanted a shot at the prototype.

The way DeFazio wrote the bill left the door open for foreign-owned companies with U.S. plants. But he wanted a U.S.-owned company to do the work, figuring it would produce more domestic jobs.

Gustafson asked DeFazio to clarify how he wanted the money spent. Typically, federal transit money can go to foreign companies if the project meets "buy American" standards that require some parts to be made in the U.S. But Congress can further restrict the pool of qualified companies if it chooses.

That's what DeFazio did.

On April 6, DeFazio and three other House transportation leaders signed a letter to "clarify the congressional intent." The letter made it clear to the Federal Transit Administration that foreign-owned streetcar makers would be shut out.

DeFazio said he wanted the letter to prevent Pennsylvania's Republican senators from trying to "muscle" the deal for their local company. DeFazio didn't want the money to go to a "shell" for foreign interests. Brookville, however, is U.S.-owned.

"You know, I'm from Oregon," DeFazio said. "If someone's going to put on political pressure to put my competitor -- and I know Oregon Iron Works was competing -- at a disadvantage, then I'm going to try to level the playing field."

The letter came 21/2 weeks after Oregon Iron Works hosted a fundraiser for DeFazio. On March 20, 2006, the company had a $250-a-person event at Brown's Portland home. After the event, DeFazio's campaign reported contributions of $2,100 from Aarnio, $1,200 from Brown, $1,000 from company executive Robert Beal, and $250 each from two company employees.

DeFazio said the donations had no effect on the deal or his April 6 letter. The timing of the fundraiser was a coincidence, he said, because Brown had invited him the previous fall, but he didn't have an opening in his schedule until that spring.

Brown said the company didn't ask for the letter and didn't discuss it during the event.

In the spring of 2006, Oregon Iron Works' competitors thought they still had a shot.

At a conference in Washington, D.C., Dalph McNeil, chief executive of Pennsylvania's Brookville, met Gustafson in a hotel lobby to discuss his interest in the prototype. Brown was there, too, McNeil said, playing a major part in discussions.

McNeil said Brown's knowledge of the deal and working relationship with Gustafson discouraged McNeil from spending $50,000 to prepare a bid. "I just have never walked away from a meeting feeling so aware that we weren't going to do business there," he said.

Gustafson said he introduced the two because he hoped Brookville would supply parts to Oregon Iron Works. Brown said she didn't think Brookville was qualified to build the car itself.

"I don't think they could meet some of the basic criteria," she said.

Two foreign-owned railcar makers -- Inekon and Siemens -- questioned government officials about the exclusion of foreign-owned bidders. But in light of Siemens' business supplying light-rail cars to TriMet, Robin Stimson from Siemens Transportation Systems ruled out a protest. "Why rock the boat?" he said.

When the bids came in to Portland in the fall of 2006, the city had two: Inekon and Oregon Iron Works. Inekon was disqualified because it's foreign-owned. With only one qualified company, Diede and MacNichol never met to review bids.

Though competitors grumbled that they were shut out, federal officials say Portland complied with rules to prevent conflicts of interest and local preferences that unfairly limit competition. "The other company can question it, but they're really questioning the will and the intent of Congress," Federal Transit Administration spokesman Wes Irvin said.

Oregon Iron Works has begun making the prototype and plans to finish it next year. Even with the grant, Brown said, the company will lose money on it.

Looking back, Gustafson said he's proud of how he and others handled the deal.

"We delivered a process that was open, competitive, met the intent of Congress and fulfilled all of the requirements of the law," Gustafson said, "and no one appealed it."

By Ryan Frank and Brent Hunsberger

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