(from the Boston Globe newspaper, 1/11/13)
By Eric Moskowitz
Chronic delays and concerns about shoddy workmanship by the company building a fleet of double-decker coaches for the MBTA’s commuter rail line have prompted executives to threaten cancellation of the $190 million contract and possibly seek a new firm for the work.
In a letter obtained by the Globe, state transit officials express deep frustration with the South Korean company building the 75 rail cars, Hyundai Rotem, declaring that “this seriously troubled procurement is at a point of crisis.”
That letter, dated Dec. 21, details a litany of woes, including faulty chassis and wires damaged by errant drilling on 10 of the first coaches to be built.
“I am writing this letter to you to convey my profound disappointment for Hyundai Rotem’s seemingly lack of commitment to improve its chronically unsatisfactory performance,” Jonathan R. Davis, the T’s chief financial officer, wrote. He cited materials shortages and workmanship at plants in South Korea and Philadelphia that “has degraded at an alarming rate.”
The Massachusetts Bay Transportation Authority declined to make officials available for interviews Thursday but confirmed the letter’s authenticity. In a brief statement, T spokesman Joe Pesaturo indicated that the letter caught the attention of Hyundai Rotem, with company leadership traveling to Boston this month to work out solutions short of termination.
“While some progress has been made, certain areas of concern remain,” Pesaturo said via e-mail. “It’s important that [Hyundai Rotem’s] leadership team not only understand the procurement’s ongoing issues, but also take the corrective actions necessary to address the shortfalls.”
A spokesman for the company said Thursday that Hyundai Rotem’s relationship with the T had improved markedly in the three weeks since the letter was sent.
“The communication now is much more positive, obviously, than the letter would point out,” said Andy Hyer, a US spokesman for the company. “They need their cars, and we want to give them to them. [But] it’s been a challenge to get them out quicker.”
In the December letter to Hyundai Rotem, T executives were explicit in what the consequences would be if the company doesn’t improve its performance. “Unfortunately, Hyundai Rotem inaction, inattentiveness, and generally poor performance have forced the MBTA to a final decision point relative to the declaration of default based on a material breach. Failing dramatic improvement and immediate corrective measures designed to remedy these defaults . . . the MBTA must consider terminating the contract for cause.”
When the T awarded the contract in early 2008, the first four cars were scheduled to arrive by October 2010, and all 75 were supposed to be carrying commuters in and out of Boston by the end of 2012. Instead, the first four coaches — currently going through extensive testing — did not reach the MBTA until two months ago.
Hyer said the company is addressing material shortages and is poised to hits its stride, with 24 Korean-built shells now being outfitted and finished for the T in Philadelphia. Four more empty shells should arrive next week, he said.
Hyundai Rotem made a bold entrance into the US market a decade ago with attractive promises, well-placed connections, and prices that beat experienced competitors.
Some in the industry considered it a risky bet, given that Hyundai Rotem had yet to open an assembly plant on American soil, a requirement under federal law, or demonstrate experience negotiating the stricter safety standards and other requirements that have bedeviled several large international corporations trying to break into the US transit and passenger rail market.
“North America is the most difficult market. It is the graveyard of car builders,” said Jonathan Klein, a global transportation consultant and former executive and chief mechanical officer at multiple large rail and transit agencies; he has not worked on the Hyundai Rotem deals but can see the company’s plant from his Philadelphia office.
Klein, who previously likened the T’s contract to Donald Rumsfeld’s wishful thinking on Iraq, said the MBTA now has two choices, neither of which would deliver coaches to riders as quickly or cheaply as originally planned. It can continue to try to coax Hyundai Rotem through cooperation or threat, or it can terminate the deal, seek damages, and begin the process of finding a contractor all over again.
Hyundai Rotem built its domestic assembly plant in Philadelphia because local job creation was part of the pitch to win its first major US deal, 120 coaches for Philadelphia’s transit authority. That order is finally nearing completion, though only after the company fell far behind amid materials shortages, quality-control problems, and labor strife.
“The T has dug a hole, and it’s going to be very expensive to fill that hole,” he said.
Hyundai Rotem sought the MBTA contract soon after it won the Philadelphia deal, bidding nearly 20 percent below industry veteran Kawasaki on price and receiving high technical marks from MBTA staff reviewing the bid.
T management glossed over Hyundai Rotem’s lack of US experience and encouraged the MBTA board to approve the contract quickly, given the needs of the T’s aging fleet, according to meeting minutes and materials prepared for the board.
Some members who approved the deal were livid when they later learned that a former high-ranking Boston and Philadelphia transit executive whose son remained a T manager had been hired to help Hyundai Rotem win the Pennsylvania contract. But the T said the father and son were not involved in the Boston bidding and that the son also informed the state Ethics Commission that he was recusing himself.
Though it soon became clear internally that Hyundai Rotem was falling far behind, MBTA and Department of Transportation management did not tell the board overseeing the T until a year ago — when they asked the board to approve $4 million more on top of $10 million already committed to an engineering firm hired to provide expertise and help the T ride herd on the increasingly complicated order.
Angry board members summoned Hyundai Rotem’s chief executive, M.H. Lee, to appear before them last June. He apologized for what he deemed a corporate embarrassment and said Hyundai Rotem would redouble its efforts, promising to make up lost time without compromising quality.
The T indicated in September and November that things seemed to be improving, but Lee died unexpectedly in mid-November. The letter from Davis suggests Hyundai Rotem once more put the T on the back burner after that.
Jim LaRusch, chief counsel and a vice president for the American Public Transportation Association, could not comment on the MBTA contract but acknowledged that equipment purchases are expensive, time-consuming, and potentially fraught with pitfalls.
They start with thousand-page technical specifications that incorporate federal standards and guidelines for safety and accessibility, as well as the unique needs of that transit agency, with its array of existing locomotives and coaches and varying types of stations. Bidders must be evaluated on price and ability. “Then the fun starts,” he said, meaning years of back and forth over development, production, and testing.
“It’s a pretty complex process,” LaRusch said. “It’s not like buying a Toyota.”
www.newenglanddepot.net
NellsChooIn a letter obtained by the Globe, state transit officials express deep frustration with the South Korean company building the 75 rail cars, Hyundai Rotem, declaring that “this seriously troubled procurement is at a point of crisis.”
Hyundai Rotem's bid was 20 per cent lower than other experienced bidders so I'm not surprised at these problems.
Since the MBTA is getting the cars so cheaply it has a lot of incentive to yell at the company and the company will apologize but not make any real change.
A government buying principle is to buy everything from the lowest bidder. This kind of result is not unusual. Do any of us, when deciding to buy something, always buy the very cheapest thing we can find?
Buying from the lowest bidder is often required by law. That being said, one can imagine the hue and cry if MBTA (or any agency) did not buy from the lowest bidder, especially if they met the bid requirements.
NellsChoo (from the Boston Globe newspaper, 1/11/13) By Eric Moskowitz “It’s a pretty complex process,” LaRusch said. “It’s not like buying a Toyota.”
The transit industry's equipment situation reminds me reminds me of the steam railroads of the 1920's in which each customer maintained a staff of engineers to draw up detailed specifications for a builder to design a locomotive to meet. The builder then went ahead and constructed a handful of locomotives to this specific set of criteria, and with some luck managed to sell versions of the design to other customers.
Then along came General Motor's EMD with one design in either freight or passenger versions. The customer could specify the gear ratio and the paint job, but that was about it. Among other advantages, significant design costs on both the builder and customer sides were achieved.
Perhaps the rail transit industry needs a similar reformation?
Dakguy201 The transit industry's equipment situation reminds me reminds me of the steam railroads of the 1920's in which each customer maintained a staff of engineers to draw up detailed specifications for a builder to design a locomotive to meet. The builder then went ahead and constructed a handful of locomotives to this specific set of criteria, and with some luck managed to sell versions of the design to other customers. Then along came General Motor's EMD with one design in either freight or passenger versions. The customer could specify the gear ratio and the paint job, but that was about it. Among other advantages, significant design costs on both the builder and customer sides were achieved. Perhaps the rail transit industry needs a similar reformation?
Dakguy,
Of course, but it will never happen. Every buyer is special, at least in their own minds, so they have special requuirements. The other factor in play is no one is really in the passenger car construction business in the way Pullman or ACF used to be. New entrants have to go through a steep learning curve.
My favorite example of this is BART. First the bureaucrats in charge of building it would not admit that they were building a railroad. As a result they chose a unique gauge, claiming that it was necessary to support a maximum speed of 80 MPH IIRC. Result, every axle is non-standard, custom made, and doubtless more expensive than standard gauge would be.
Then, I guess because the established carbuilders, and they existed then, were stogy or related to the nasty old railroads, they chose to have an aircraft builder, Rohr, build the cars. The cars, reasonably, had and have door interlocks - the train can not go it doors not closed. Rohr spent months, if not years, getting the doors to close so the train could run.
Finally, the crowning glory was the train control system. BART wanted something like 90 second headways. NYC subways had been doing at least that well for decades with more or less standard components from Union Switch & Signal and/or General Railway Signal, the two long established signal suppliers to main line railroads. BART decided to go with IIRC, Westinghouse, who had never built a signal, let alone an entire system, in its life. The result was longer than specified headways for many years and a computer system that "forgot" trains, even after extensive delays in opening the system.
Only a taxpayer funded entity could affort to pay for this kind of sillyness.
I think BART demonstrates that if you want to push the envelope of technology you are better off to do it with an experienced supplier than with a newbie.
Mac
CSSHEGEWISCHBuying from the lowest bidder is often required by law
I think that is what I said. And of course no one wants to overpay for something. But I think few of us always buy the very cheapest thing on the market.
PNWRMNMOnly a taxpayer funded entity [BART] could affort to pay for this kind of sillyness.
But the New York City Subway System is also a taxpayer funded entity and uses readily available components.
John WR PNWRMNMOnly a taxpayer funded entity [BART] could affort to pay for this kind of sillyness. But the New York City Subway System is also a taxpayer funded entity and uses readily available components.
And your point is??
Mac,
As I understand your argument you contend all railroads should use sound business principles and, because of the example of BART, you contend publicly funded ones do not do that.
But you offer the New York Subway System as an example of a railroad that does use sound business principles. The New York Subway System is also a public entity.
It seems to me that the two systems you use as evidence do not support your conclusion. Am I mistaken here?
John
John,
Publically supported transit agencies, whether operating on their own right of way or on freight railroad rights of way are not commercial enterprises, they are political entities.
I expect for profit entities, such as a railroad, to give serious consideration to the value they will get from any proposed investment. I am confident that they will because of the discipline that the financial markets impose on them. That does not mean they always make the correct decision, but that they make every reasonable effort to do so.
Political entities are not exposed to market discipline, nor to political discipline to any extent that I can determine. As a result they usually make political decisions, not economic decisions. On balance that leads to worse economic outcomes than if they were making economic decisions. The excess cost is not a problem for political entities since they can always use Other People's Money, the taxpayers', to cover the excess cost of the non economic decision making. The BART story illustrates the point that the original poster was trying to make, but on a grander scale.
As to the NYC subway system, I simply pointed out that they had long previous to BART attained at least the headway that BART wanted/needed and they did it using estiblished suppliers. I suppose I could have hypothesised that result was due to NYC subway being built with relatively less political vs. economic decision making, but that would take a book length study to prove or disprove, and was not the point I was trying to make so I did not offer that hypothesis. I pointed out NYC success simply as a contrast to BART's failure, no more, no less.
The first sections of the New York City subway system were originally built and operated by private companies, the first municipally developed subway line was 20 years later.
- Erik
PNWRMNM My favorite example of this is BART. First the bureaucrats in charge of building it would not admit that they were building a railroad. As a result they chose a unique gauge, claiming that it was necessary to support a maximum speed of 80 MPH IIRC. Result, every axle is non-standard, custom made, and doubtless more expensive than standard gauge would be.
The wide gauge was chosen to permit operation on the lower level of the Golden Gate bridge to connect Marin and Sonoma counties to SF. They also picked an odd voltage (1,000V) for the third rail - interesting to note that Central California Traction was using 1200V thrid rail 50 years before.
I ran across some of the reports of the BART desgn studies in the UCB Engineering Library. My impression was that BART was trying to reinvent the wheel as they were looking at things like three phase power pickup (Ohio Brass as the subcontractor). The city of Berkely was responsible for a significant delay by demanding that the tracks be put underground through the city.
One technical advance that BART missed out on was AC motor drive.
Erik,
How did 5' gauge fit "better" than standard would have?
When prices look too good to be true...
Lowest bidder is a silly political exercise because the winning bidder is never held to their original bid.
Dave
Lackawanna Route of the Phoebe Snow
PNWRMNM Erik, How did 5' gauge fit "better" than standard would have? Mac
Actually 5'6".
The rationale for the wide gauge was to cope with high winds when crossing the Golden Gate. I wouldn't be surprised if there were many in present BART management that wished 4'8.5" was chosen instead.
While Rohr was a funky choice for car builder, they did manage to keep the weight down on the cars. They also used established providers (Westinghouse, Safety) for the electrical gear. OTOH, the signalling system was messed up pretty badly - the system on the Bay Bridge installed in 1938 worked better.
Phoebe VetLowest bidder is a silly political exercise because the winning bidder is never held to their original bid.
And if the winning bidder is held to the original bid the results are even worse.
John WRBut you offer the New York Subway System as an example of a railroad that does use sound business principles.
You mean the same agency that operated a nearly 100% tower operated railroad decades after it vanished from the rest of the railroading world? That is "well managed"? That is an example of institutionalized, status quo thinking!
-Don (Random stuff, mostly about trains - what else? http://blerfblog.blogspot.com/)
John WR NellsChooIn a letter obtained by the Globe, state transit officials express deep frustration with the South Korean company building the 75 rail cars, Hyundai Rotem, declaring that “this seriously troubled procurement is at a point of crisis.” Hyundai Rotem's bid was 20 per cent lower than other experienced bidders so I'm not surprised at these problems. Since the MBTA is getting the cars so cheaply it has a lot of incentive to yell at the company and the company will apologize but not make any real change. A government buying principle is to buy everything from the lowest bidder. This kind of result is not unusual. Do any of us, when deciding to buy something, always buy the very cheapest thing we can find?
This is a consequence of "buy American" requirements.
It is trying to prop up an industry that pretty much doesn't exist - with bad results and higher costs for all! We'd be better off trading for things we don't do well and stick to those things we do do well.
oltmanndYou mean the same agency that operated a nearly 100% tower operated railroad decades after it vanished from the rest of the railroading world? That is "well managed"? That is an example of institutionalized, status quo thinking!
Actually I was referring to another post which gave New York Subways as an example of a well managed system because it is said to use American made parts.
But I wonder if I am missing something. I understand railroad towers to be multistoried buildings used at one time to monitor and control trains. How would such a building be made to fit in a subway tunnel? And if it did how would it be possible to see subway trains from a tower?
oltmannd John WR NellsChooIn a letter obtained by the Globe, state transit officials express deep frustration with the South Korean company building the 75 rail cars, Hyundai Rotem, declaring that “this seriously troubled procurement is at a point of crisis.” Hyundai Rotem's bid was 20 per cent lower than other experienced bidders so I'm not surprised at these problems. Since the MBTA is getting the cars so cheaply it has a lot of incentive to yell at the company and the company will apologize but not make any real change. A government buying principle is to buy everything from the lowest bidder. This kind of result is not unusual. Do any of us, when deciding to buy something, always buy the very cheapest thing we can find? This is a consequence of "buy American" requirements. It is trying to prop up an industry that pretty much doesn't exist - with bad results and higher costs for all! We'd be better off trading for things we don't do well and stick to those things we do do well.
And before you know it we won't be doing anything!
Never too old to have a happy childhood!
BART is nearly the same as the Washington DC metro, which has been running manually since the 2009 fatal accident and is currently replacing all of its signalling and installing a custom-built 'overlay' traffic monitoring system by AIRINC.
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