Brian Cummins · Sunpu Opto – THE SEQUEL!

July 7th, 2010

How will the story end?  Stay tuned.  And, no this is not a comedy…

We’ll be continuing hearings on Monday (7/12) at 1:00 pm and then we expect a vote on the ordinance on Wednesday (7/14). The authority for what could be a 10-year single-source exclusive contract is not approved yet. This second ordinance, although requiring the contract to be competitively bid still is very flawed having little credibility to the promises of 350 jobs (within 5-years) or the hopes of procuring quality products from a major proven manufacture.

See the new ordinance at:
http://realneo.us/system/files/Ord._829-10_-_Mayor_Jackson__Req_K_LEDs.pdf

The basics of the deal are:

1) First 18-months after signing; initiate an assembly facility – no specific job requirements but 50 to 80 could potentially be created, all relatively low skilled, low pay. First order for product is made. No quantities will be provided to Council before a vote so we do not know what the cost will be for the first to last order for the 10-year period. We’d be giving the Administration a blank check for ten years for these products. LM79 testing (light performance, efficacy and efficiency) is required within this time but there are no specific standards to meet in the current ordinance. We’re working to try to include some minimum generally accepted standards for each product. LM80 testing (lumen depreciation – how long will the product last for) is not required to be completed until the 24th month; the test can take 8-months, and even then like the other test there is no minimum standard to meet, so even if a product tested poorly we could purchase it.

2) Within 36-months (3-years) manufacturing of lighting products is required by the winning bidder. This will prove challenging as manufacturing of LED with few exceptions takes place in China and other parts of Asia where labor rates are as low a $1/hr compared to US labor wages of $17/hr. No specific job requirements kick in yet.

3) By the 60th-month (5th-year) 350 jobs are required to be generated and Research and Development should also be taking place in Cleveland. 20% (70) of the jobs are required to go to Clevelanders and 25% of the product’s components should come from within the region.

Some of the amendments we’re working on are requirements to have the City review pricing and product quality and performance specifications for comparable products on a minimum of an annual basis but preferably every 6 to 8 months. LED products continue to make steady gains in efficacy, efficiency and quality ratings and prices continue to drop. The administration was suggesting reviewing this every two years. Also, some form of minimum technical standards or reference to nationally recognized industry standards

Due to the evolving market and the fact that each product (street lights, linear replacements for fluorescents), bulb replacements and traffic lights) is in a different stage of development with often unique design challenges, I would prefer to have a bidding process whereby any company could competitively bid on a single or multiple products, but not be required to bid on all four.  In addition, the bid requirements should be technology neutral, i.e., if a company can offer superior savings in energy costs with say the most recent and more market-proven fluorescent  technology and can create jobs that are related to that product that should be able to count in the equation of the bid requirements.

The main reason for this is that linear replacement lights for fluorescents are generally recognized by the US industry as not being ready for widespread usage (the return-on-investment calculation does not make sense yet) and the bid requirement to offer this product will likely inhibit competition – companies will not submit bids because they won’t be able to realistically offer that product with confidence in the next 18 months.  By allowing a company to offer a like product but different technology the Administration would receive more competitive bids – more competition!

Many companies in the industry make claims of having this product (linear replacement tubes) available currently but the Department of Energy (DOE), as recently as June 11, 2010 has issued warnings that as much as 2/3rds of the dozens of products they have tested in this class have failed to meet their manufacture’s claims. The Administration is claiming they’ve seen products in this class ready now and that companies have made large advances in the last year.

Most of the products the Administration was touting from Sunpu-Opto in the last go-around were rated by the company as having roughly half the lumen output and none of the products had been tested or sold in the USA. Meanwhile the DOE is stating generally that all products in the industry are continue to make modest gains in advancements and this contradicts what the Administration here in the City of Cleveland is saying.

This current ordinance, although requiring bidding looks very much like the old Sunpu-Opto ordinance and one can not help but wonder if it is not just a re-set for clearing-up some process concerns but still written so that it is ripe for a company like Sunpu-Opto, with their un-proven claims to come Cleveland and get their toe hold in the USA. In fact this new ordinance actually gives the Administration even broader authority than before in terms of having fewer details as to quantity of products planned for purchase. Once Council signs off on this there is no oversight and control on millions (50 – 100+ million) of potential planned purchases for a ten-year period.

In addition, this contract would not make any requirement for the products to actually attain the DOE’s Energy Star rating – this gets back to the lack of any meaningful technical standards requirements.

Getting back to an alternative strategy, by allowing companies to bid on a single or multiple product class that is technology neutral, they could still be asked to quantify potential job creation numbers. Who knows what could result in terms of multiple companies being able to competitively win bids and then provide some level of jobs creation. It could be lower than the 350 the Administration is trying to create, but it could be possible the payroll amounts could be relative, so not all jobs are created equally.

Another change to consider would be dropping the ten-year contract and breaking it down to a 3-year with 2, 3-year renewable terms. If the company(ies) do well with job creation and quality and competitive products there would be no reason to not provide renewals.

See other arguments against the current ordinance and calls to work more collaboratively with our existing businesses in the region as well as our non-profit regional development agencies at:

New legislation introduced for LED Lighting Procurement for City of Cleveland, Brian Cummins, June 7th, 2010
http://www.brewedfreshdaily.com/2010/new-legislation-introduced-for-led-lighting-procurement-for-city-of-cleveland

UPDATE 7-8-2010

Since learning more about the LED industry and technology behind the products, I’ve been trying to turn some attention to the issues and proven strategies of economic development and jobs creation. Experts in the field are voicing opinions that business retention and growth are often more successful than chasing after attraction as the case with Mayor Jackson’s Administration.  The Administration states it would seek out companies that could collaborate in the manufacturing value chain but the contract only requires that 25% of the components be from within the region and that is not required until the 5th year.

Ohio is ranked in the top 10-states for LED suppliers, a strategy of working with our regional economic development organziations as well as State Department of Development and putting a premium on the participation of local and state manufactures could prove more successful in strengthening our regional and state economy, producing higher quality products and creating more jobs.

REF:  http://www.brewedfreshdaily.com/2010/more-on-led-lighting, posted by Ed Morrison

A simple example and point to be made would be to look at the 14 high skill jobs being offered in East Cleveland by GE – see below.

East Cleveland, Ohio, United States | GE JOBS – Posted: June 2010

  1. Lead National Account Manager
  2. Technical Service Leader
  3. Electrical Engineer – LED Systems
  4. Electrical Engineer – LED Systems
  5. Product GM – Commercial Ceilings & Display
  6. Lead National Account Manager
  7. Electrical Engineer – LED Systems
  8. Technology Manager – Lighting Controls
  9. IT Supply Chain Lead – Lighting Solutions
  10. Systems Engineer – HID
  11. Systems Engineer – HID
  12. Design Engineer – CMH NPI
  13. Lead Design Engineer – OLED Process & Equipment
  14. Purchased Material Quality Engineer – Lighting

GE currently has over 100 jobs posted on its site for 9 or so locations in Ohio.  In addition, Green Mill Global from Akron is currently working with Fawoo North Tech America to bring jobs to Northeast Ohio.

With the Administration touting a sustainable procurement process why has the Administration not included local and state LED related companies in its strategies to move to this greener technology and grow more jobs around it?  Ohio is ranked in the top ten states for LED suppliers – see Ed Morrison’s post from July 4th – http://www.brewedfreshdaily.com/2010/more-on-led-lighting

The answer that came back last month, was that they (GE and Green Mill Global/Fawoo North Tech) can’t provide the City with the all of its product needs.  Then they pointed to a Chinese company that had no products tested or sold in the USA, with product and company claims that were un-substantiated and with no staff located in the USA or participation in the Dept. of Energy’s Solid State Lighting program

Also related, why has the Administration not utilized our region’s economic development organizations to assist in strengthening the local and regional advanced technology/lighting industry? It’s not just all about the end products, i.e., traffic lights, street lights, linear and bulb replacement lights. As lighting moves further and further into the technology sector, i.e, semiconductors – LED diodes, there are more and more jobs and synergies to be created.

Brian Cummins
Cleveland City Council, Ward 14
bcummins[at]clevelandcitycouncil.org

REF:  Case Western Reserve University officials tell Cleveland council members about the benefits of LED lights, By Mark Gillispie, The Plain Dealer, July 07, 2010
http://blog.cleveland.com/metro/2010/07/case_western_reserve_officials.html

Last 5 posts by Brian Cummins

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Category: BFD
3 Comments »

3 Responses to “Sunpu Opto – THE SEQUEL!”

  1. Ed Morrison Says:
    July 8th, 2010 at 7:45 pm

    Brian:

    As you may know, I worked in the South, much of my career. For a number of years, I was based in Shreveport, Louisiana. This is a city that ranks near the bottom in virtually every listing you can think of.

    The advantage of working in such a difficult environment comes in testing out new ideas. If these ideas can work in places like Shreveport, then they can work anywhere. It’s like testing auto batteries in International Falls, MN.

    Another advantage of working in Shreveport came in the long string of crazy deals that paraded through the city over the years.

    One of my favorite deals came when an entrepreneur wanted $200,000 to launch his new business in topless sandals.

    Another time, a city councilman asked me to comment (seriously) on a project to build a shopping mall in the Red River. The mall would be constructed on a bed of military grade pontoons in the middle of the river.

    About 25 years ago, the city’s economic developer was absolutely convinced that he could create jobs in the inner city by attracting a firm out of Massachusetts to assemble LED message boards. He was able to convince the City Council to provide about $300,000 in a nonrecourse loan to the business so that the business could buy inventory.

    This example fits tightly with the promise of Sunpu. The Boston company came down and got its financing. In return, it promised about 100 jobs. They ended up hiring about 25 people and training them to assemble the LED boards.

    This work is about the same as what Sunpu promises. The work is monotonous and requires relatively low skill. At the same time, electronics are unforgiving. If you do a sloppy job, the units don’t work.

    After a couple of months, the failure rate on the company’s units was well over 50%. Literally, in the middle of the night the company packed up its operations and moved all its inventory offshore to a location in Mexico. The jobs were gone in a heartbeat.

    This Sunpu deal smells bad, and what’s remarkable to me is that the city of Cleveland is showing no more sophistication than the City of Shreveport did 25 years ago. Which all lead me to suspect that this deal is being driven not by facts, but by graft.

  2. John Polk Says:
    July 9th, 2010 at 8:49 pm

    …which would mean that the deal is at least consistent with the prevailing “economic development” ethic in the community: we do not do that which makes sense, but that which benefits some group of self-interested insiders…Guess it all depends on whose economy one is aiming to develop…

  3. Cleveland's LED future - facts or fiction, competition or contract steering? | Brewed Fresh Daily Says:
    July 11th, 2010 at 9:35 pm

    [...] UPDATE  re: Ordinance 829-10 LED Lighting [...]