Simmering frustrations over contracting at New York’s Metropolitan Transportation Authority — a target for overhaul under Gov. Andrew Cuomo’s new plan — surfaced when MTA hierarchy vented at German conglomerate Siemens over safety technology performance snafus.
Board members last week, polled informally by Chairman Patrick Foye, said they would favor cutting ties with Siemens if chief executive Joe Kaeser does not appear before the full board at its May meeting to explain another round of delays and cost overruns related to installation of a so-called positive train control system.
The MTA, one of the largest municipal issuers with roughly $41 billion in debt, awarded a $440 million contract six years ago to a Siemens-Bombardier joint venture to design and install PTC for its Long Island and Metro-North commuter railroads.
“I don’t want to see us doing any future business with Siemens and Bombardier when I view them screwing over the ridership of Long Island Rail Road and Metro-North by their gross negligence and incompetence,” said Lawrence Schwartz, who chairs the board’s finance committee.
Schwartz also lambasted MTA staff. “You’re also accountable for this,” he said, saying the state inspector general should have investigated. He also suggested that New York City and the state consider withdrawing any pension fund investments it may have from the companies.
MTA rhetoric may come up empty, said Nicole Gelinas, a senior fellow with the Manhattan Institute for Policy Research.
“I’m not all that impressed with their words,” she said of MTA officials. “They would make a more credible case if they had a bigger bidding pool. If they disbar these two, who else could they turn to? They have a duopoly.”
The dispute also shines a light on the MTA's procurement systems, perceived as clunky and so restrictive that the authority has often had to rehire vendors despite shoddy work histories.
The MTA has paid Siemens “hundreds of millions of dollars over the last five years including PTC and other projects,” Foye said. “They and their counterparts may take our business for granted. I think there are various reasons for that and we’ve got to address those.”
PTC is a form of remote-control train technology intended to minimize crash risk. A federal law required PTC in place by the end of 2015. Subsequent extensions have pushed the deadline for LIRR and Metro-North to the end of 2020.
Deborah Chin, the MTA’s project manager for PTC, said the authority expects to meet that deadline.
An aging system such as the MTA’s presents dilemmas, said Jonathan Peters, a finance professor at the College of Staten Island and a research fellow at City College of New York’s University Transportation Research Center. Compounding the challenge, he said, is the scramble by many railroad systems to meet the federal deadline with a limited vendor pool.
"Everybody's under pressure," Peters said. "You have a wide-ranging contract for an old system and people are under a rush to get it done under a federal mandate."
According to Siemens Mobility president John Palichug, the company, while fixing a calibration error, detected another mistake in an electrical component installation, requiring additional repairs to antennas.
“None of us would accept this level of failure from a brother-in-law or a sister-in-law. I would not accept this from a startup,” board member Neal Zuckerman told Palichug and other company representatives at an April 15 committee meeting.
Speaking to reporters two days later, Foye cited “repeated instances of incompetence” related to Siemens. He cited a meeting in which a company representative cited a 22% failure rate for one component, which Foye called “shockingly appalling.”
“This is a manufacturing by a German national champion company that’s got a market cap of [around] $80 billion, last time I checked it,” Foye added. “They do business all around the world and it’s a 22% failure and it’s like OK? I don’t think so.”
Palichug sidestepped the 22% reference.
“I don’t want to get into the numbers game,” he said. “We’re Siemens. We stand behind our products.”
Siemens said in a later statement it is "committed to providing MTA and all of our customers with the highest quality intelligent infrastructure technologies that result in safe, reliable and efficient transportation for their passengers."
According to Peters, transit systems and other municipal issuers must bid out cautiously.
“In some cases a contractor will come in with a low bid. Change orders bring in new revenue and become a profit center for the contractor. Everyone has to be careful about that,” he said.
Another restrictive practice common in large-scale bidding overall, Peters added, is targeting. “Bids are peculiar and directed to aim the contract to a certain bidder,” he said. “If another bidder will see that, they’ll say ‘Oh, we don’t want to do it.’“
Cuomo, who shepherded a congestion pricing package through the legislature along with the fiscal 2020 budget earlier this month to enhance the MTA's revenue stream, has vowed to overhaul the authority’s operations. Language in the budget bill enables the MTA to debar any contractor that exceeds 10% of the contract cost or time on a capital construction project.
“The logistics of it, I don’t know,” Foye said. “The debarment statute applies, too, and regulations have to be drafted, but there are remedies that the MTA has, or LIRR and Metro-North has contractually already. Obviously you can imagine that we’ve got lawyers under [general counsel] Tom Quigley looking at our rights and being creative about it.”
The MTA, meanwhile, has sent its own inspectors to oversee Siemens' work.
“It’s an embarrassment to Siemens that we have to send quality control inspectors to babysit and monitor them,” Schwartz said.
