Procurement risks prompt MBTA to renew Keolis deal

Uneasiness about the markets and the procurement process has motivated the Massachusetts Bay Transportation Authority to extend its commuter rail contract with Keolis Commuter Services, despite a sometimes rancorous relationship.

The MBTA’s Fiscal Management and Control Board, in one of its final acts before it expires next Tuesday, voted unanimously stretch the deal at least until 2025. The original contract from 2014 was extended. The MBTA extended the original contract from 2014..

The MBTA, a unit of the Massachusetts Department of Transportation, will pay Keolis roughly $2.56 billion in operating costs and $97 million in capital costs over the next six years. The total will could run about $225 million higher than it would have if the original contract was extended.

Keolis had been under fire for underperformance, notably breakdowns and delays during the winter of 2014-15 when a record 109 inches of snow pounded Greater Boston. Officials at the “T,” which locals call the system, even said in 2017 they would seek another vendor.

But MBTA officials cited Keolis’ improved metrics and the fear of going out to bid during the COVID-19 pandemic.

Rob DiAdamo, the MBTA’s executive director of commuter rail, cited the need for “cost certainty in a challenging market” at the June 15 control board meeting, while acknowledging Keolis “hasn’t always been perfect by any stretch of the imagination."

“We believe a new RFP [request for proposals] encompasses substantial risk of a cost increase above what we’re proposing,” DiAdamo said. “There’s a very good chance we would have limited competition. We’ve had limited competition in the past.”

French national railway SNCF owns 70% of Keolis and institutional investor Caisse de dépôt et placement du Québec owns the remainder.

Retaining the incumbent is no surprise, municipal bond analyst Joseph Krist said.

“My guess is that sticking with what you have provides some level of cost and performance certainty at a time when things are otherwise uncertain.

“I'm not sure how much confidence anyone can have in a vendor's ability to perform, given that the outlook for so many companies is uncertain,” Krist added. “Clearly, simply renewing will raise eyebrows especially for an entity like MBTA that has, to put it kindly, had a somewhat checkered history of managing procurement contracts.”

Since the coronavirus escalated in March, MBTA ridership has plummeted by more than 90%. The commonwealth is in the second phase of Gov. Charlie Baker’s reopening plan.

“We don’t really know exactly when riders will return and what the levels will be,” DiAdamo said,

DiAdamo admitted the pandemic has triggered uncertainties about the markets, the economy and consumer behavior, and referenced procurement challenges with transit systems in Toronto and Los Angeles.

In Toronto, Metrolinx, a provincial-run agency, split its procurement for the Ontario Line project in Metro Toronto to three separate public-private partnerships. Infrastructure Ontario, a partner in the project, said the move would create “three separate contracts of manageable size and acceptable risk.”

In Los Angeles, Metrolink canceled its RFP for a bundled contract for rail operations and maintenance services after bids came in much higher than expected. There, the top-ranked price proposal exceeded budget forecasts by 10%, with union-rate increases and technology upgrades among the factors.