When Italian firm AnsaldoBreda promised to build a rail car factory in Los Angeles for the region’s growing light-rail network, it led to hopes for new local jobs – but then to a highly publicized fiasco when the deal blew up.
Two and a half years later, the Los Angeles County Metropolitan Transportation Authority is once again trying to get those rail cars built. This time around it looks even trickier: Three separate bidders are engaged in a bitter battle over a contract that is more than twice as large.
The Metro board was set to pick a winner last month after its staff recommended Kinkisharyo International LLC, the U.S. arm of Osaka, Japan, company Kinki Sharyo Co. Ltd., to deliver the 235 cars for a cost approaching $1 billion. But that didn’t sit well with the other two bidders, which have filed protests and hired lobbyists to press their cases.
At issue is not only the cost of the rail cars and the companies’ ability to deliver on schedule, but also which firm will create the most or the best jobs – complexities that once again threaten to delay the delivery of cars for some 30 miles of track Metro plans to open over the next few years.
“The fact is our backs are up against a wall and we need a trustworthy firm delivering these cars. We’ve promised the voters of L.A. County these projects,” said Michael Cano, transportation deputy to Michael Antonovich, county supervisor and Metro vice chairman.
Along with Kinkisharyo, Munich, Germany-based conglomerate Siemens AG and CAF of Beasain, Spain, bid to build rail cars that will be used for the Metro Blue, Expo and Gold lines, and a planned Crenshaw line.
Kinkisharyo submitted an $891 million bid that’s nearly $106 million higher than the lowest one but that Metro staff said was the most likely to result in on-time delivery. The company promised to create about 200 jobs at a local assembly plant.
CAF and Siemens have filed protests with Metro over the procurement process, which CAF said unfairly judged some of its past projects and overlooked likely delays for Kinkisharyo. More critically, perhaps, both firms are boasting their plant proposals are superior to the Japanese company, with Siemens receiving the support of the Los Angeles Alliance for a New Economy, a labor-backed group with the ear of Mayor Antonio Villaraigosa, a member of the Metro board.
The protests will delay a contract award and the eventual delivery of rail cars by at least a month, since the Metro won’t consider the matter again until April 26 at the earliest.
Italian flop
The last time Metro approved a contract for new rail cars was in 2003, when it awarded a $159 million contract to AnsaldoBreda of Pistoia, Italy, for 50 cars, all to be delivered by mid-2007, with options to deliver 100 more. But the company fell badly behind schedule – the final two have yet to be delivered – and the cars had technical problems to boot, leading Metro staff to begin looking for new contractors.
But AnsaldoBreda, with lobbying help from Villaraigosa and union leaders, convinced Metro to reconsider its decision by promising to build a manufacturing plant employing 650 workers. Ultimately, though, the company walked away from the deal in October 2009, citing potentially severe penalties for failing to deliver on time.
A new bidding process started in 2010 and, this time around, instead of looking for the low bidder, Metro focused on finding a contractor that could meet delivery deadlines. Agency staff ultimately recommended Kinkisharyo, in large part because of the company’s record of on-time deliveries in Dallas, Phoenix, New Jersey and other U.S. cities, said Victor Ramirez, Metro’s director of contract administration.
“They pose the lowest risk to the delivery schedule,” Ramirez said. “They’re the only provider of light-rail vehicles in the U.S. that has never been late. Not once.”
By contrast, he said CAF delivered late on projects in Pittsburgh and Sacramento, and Siemens was about three years late in delivering cars to Metro a decade ago.
CAF disputes that claim, and both CAF and Siemens argue they have advantages over Kinkisharyo.
In CAF’s case, its bid is $786 million, significantly lower than Kinkisharyo’s $891 million. And in the protest filed last week, the company questioned whether federal rules requiring that rail cars be built mostly in the United States will allow Kinkisharyo to assemble the first few cars at its plant in Osaka, Japan, as it has planned to do. Kinkisharyo’s proposal is “riddled with uncertainties and inevitable delay,” the protest states.
“We just don’t think they got all the information correct,” said Harvey Englander of downtown public relations and lobbying firm Englander Knabe & Allen, who is representing CAF. “In our communication with (Metro) directors, there are a lot of unanswered questions.”
Siemens’ protest document was not available, but company executives argue they should get the Metro contract because it will create the most jobs in the United States. Metro gave bidders an incentive to create U.S. jobs, lowering each bid price by the estimated value of new jobs.
Siemens has a rail car manufacturing plant in Sacramento and has promised to build a manufacturing and assembly plant in Los Angeles if it gets the contract. It is considering building at the former Crown Coach site southeast of downtown, the same site where AnsaldoBreda said it would build a plant.
“Our hope is that the board of directors carefully considers our proposal and decides to keep the bulk of the manufacturing jobs in California, which is what our proposal would do,” said Siemens spokesman Michael Krampe.
Indeed, Siemens’ proposal – at $940 million, the highest bid by far – would create the most jobs, both locally and statewide, with as many as 669 local jobs and nearly 1,200 statewide. But the other bidders, too, plan to open local facilities if selected.
Kinkisharyo has said it would open an assembly plant employing about 200 workers. CAF said it would hire about 130 workers and build an assembly plant in South Los Angeles. The company has already signed a letter of intent with the owner of the Lanzit Industrial site on E. 111th Place in Watts.
The stark difference in job numbers is due to Siemens’ plan to do most work in Los Angeles, with only the largest train car pieces being built in Sacramento. The other firms would only do more basic assembly work locally, with many train parts being manufactured abroad.
To argue its case, Siemens has retained attorney Philip Racht of the New York firm Mayer Brown Practices’ L.A. office. But perhaps more critically, the company has the support of the labor-backed non-profit Los Angeles Alliance for a New Economy. LAANE has lobbied for Siemens not only because its plan creates more jobs but also because the company plans to continue manufacturing rail cars in Los Angeles after Metro’s order is complete, while neither of the other two bidders have long-term plans here.
“Siemens is the national leader and they need to ramp up their capacity,” said Linda Nguyen-Perez, a LAANE policy analyst. “We believe their Los Angeles plant would be working in complement with the Sacramento plant.”
Desperate accusations?
Kinkisharyo hasn’t sat still amid the increasingly political debate, hiring its own prominent lobbying firm, the L.A. office of national powerhouse MWW Group.
Coby King, a senior vice president with MWW, said he plans to remind Metro board members why staff chose Kinkisharyo.
“If Metro wants top-quality cars, and wants them built on time, their own analysis makes quite clear that Kinkisharyo is the best choice,” King said.
So far the firm appears to have retained its favorable position. Ramirez, the Metro contracts director, said he stands by the staff’s recommendation of the Japanese company, and believes that Siemens and CAF are leveling any accusation they can in an effort to salvage their bids, which were time-consuming and expensive to produce.
“It’s our estimate that it probably costs more than $1 million to put in a responsive, responsible offer. So if they can throw enough things up on the wall, maybe something will stick,” he said. “They’re pointing to anything that might advance their positions.”
Now that protests have been filed, Metro staff will review the documents and respond. If the protests are rejected and the staff recommendation stands, Siemens and CAF can appeal to Metro Chief Executive Art Leahy to recommend them over their rivals. Even then, the board could opt to award the contract to someone else.
Ramirez said he hopes the protests and likely appeals will be finished before the board’s April 26 meeting, the next chance for the board to choose the winning bidder.
Villaraigosa, who also chairs the Metro board, declined to comment, but Antonovich, the board’s vice chairman, is solidly behind Kinkisharyo. His deputy, Cano, said Metro shouldn’t look at the low-price bid or the bid that creates the most jobs, but at the one that gets Metro its rail cars on time.
“The focus was always, first and foremost, on the ability to deliver these cars at the quality and speed we need to operate this system,” he said. “Metro staff, for all intents and purposes, got it right. Kinkisharyo is the firm we need to meet our obligations.”
