(The following story by Nathan Gorenstein and Jere Downs appeared on the Philadelphia Inquirer website on March 18.)
PHILADELPHIA — When the Washington Metro needed 192 new passenger cars, a foreign manufacturer eager for a toehold in the United States offered the low bid and got the contract.
Managers at the Washington Metropolitan Area Transit Authority calculated that the Spanish company’s zeal would compensate for its inexperience in the U.S. market and complex U.S. regulations.
“We viewed it as a positive thing, an incentive,” said Terry Consavage, the authority’s director of rail-systems engineering.
But the cars arrived three years late, and have been plagued with bad software and faulty doors and brakes.
SEPTA is now poised to make a similar bet. It wants to use a low-cost South Korean firm with virtually no experience in the United States to build 104 Regional Rail cars at a price of nearly a quarter of a billion dollars.
The regional transit agency and the company, United Transit Systems, insist that what happened in Washington will not happen here.
United Transit boasts that it has built more than 5,000 cars similar to those SEPTA is ordering, and insists it has never been late for a delivery.
“We are Korean. We can do any kind of work. We can meet any challenge,” said Jai Tark Yoo, director of overseas sales and marketing for Rotem Co., the principal partner in United Transit.
SEPTA managers say they are convinced that United Transit’s enthusiasm and work overseas would make up for what it lacks in U.S. experience.
“We felt it would be… a positive,” said Pat Nowakowski, SEPTA’s assistant general manager.
But the history of U.S. rail-car contracts is strewn with tales of delays and technical problems.
“The U.S. is the graveyard of car builders,” said Amtrak’s chief mechanical officer, Jonathan Klein, who once held that position at SEPTA.
“Because of the demanding safety requirements, the onerous contractual relationships, and the cutthroat price competition, the low bidder leaves himself very little room for mistakes,” Klein added.
A green light for the project could come next month, if SEPTA wins a state court case brought by United Transit’s main competitor, Kawasaki Rail Car Inc. of Japan, which has worked in the United States for about three decades.
The lawsuit claims that SEPTA amended the specifications, “rigging” the bid to favor the Korean company. SEPTA counters that it merely clarified requirements for U.S. experience.
United Transit’s formal bid was supplemented by a lobbying effort that included hiring the chairman of the Pennsylvania Republican Party as its representative.
Virtually untested in the U.S. market, Rotem has partnered with Nissho Iwai American Corp., a Japanese construction manager with 30 years of experience in the United States.
Producing the sort of complex, custom cars that SEPTA wants to buy for $236 million from United Transit bedevils even firms with decades of U.S. experience.
Kawasaki, a veteran supplier to New York City, was recently three years late with a delivery of 50 custom double-decker rail cars to Maryland, and was fined $4.2 million by the Long Island Rail Road for another late delivery. According to Kawasaki officials, specification changes required by the purchasers caused the delays.
And overseas in India, Rotem was embroiled in a 2002 controversy about the adequacy of the braking systems on locomotives and passenger cars supplied to the New Delhi subway. A spokesman for United Transit supplied a 2003 letter from the New Delhi rail system expressing satisfaction with the cars.
United Transit’s only experience in meeting the Federal Railroad Administration’s complex rules was 15 years ago, when it built eight non-powered coaches for the Alaska state railroad – far simpler vehicles than those SEPTA is ordering. Since then, U.S. regulations have undergone extensive revision.
During the bidding process for the Philadelphia contract, United Transit’s technical proposal was rated last out of four bidders by SEPTA’s technical staff, largely because the company lacked domestic experience.
United Transit says the current federal regulations are “almost the same” as specifications it has had to meet overseas.
Yoo said the company spent $10 million preparing its SEPTA bid, including constructing a prototype stainless-steel car body to SEPTA’s specifications. This gives the firm a jump on its delivery schedule, he said.
Rotem, which is controlled by the Hyundai industrial giant, has foreign customers that include Hong Kong and Athens, Greece, where the firm is supplying cars for the Olympics in August.
United Transit says it received a $6 million bonus from Athens for delivering the cars three months ahead of schedule.
Just the same, SEPTA is planning to spend $8 million to monitor the rail-car production, no matter who gets the contract.
SEPTA is building in the extra oversight because of its experience in 1993, when the low bidder was hired to make 220 passenger cars for the Market-Frankford Line.
Those cars arrived two years late and had faulty door mechanisms that cost SEPTA $6.2 million to repair. The manufacturer, Adtranz, also replaced every seat.
Manufacturers have considerable experience in producing individual components for passenger cars. Putting all the pieces together creates the problems.
“Because there are so many differences from city to city… you end up doing pretty much what I would describe as a custom car” for each project, said Paul P. Skoutelas, chief executive of Pittsburgh’s regional transit system.
In Boston, 100 trolleys purchased from the Italian manufacturer Breda regularly derailed in 2000. And Amtrak’s high-speed Acela cars were pulled from service for three weeks in 2002.
At United Transit, Yoo maintains that integrating the various components and software systems from different suppliers is where the Korean firm excels.
Kawasaki responds that this is where it is the “standard-setter.”
Kawasaki has supplied or is building more than 600 cars for New York City, as well as about 1,400 for other transportation systems, including Philadelphia’s and Boston’s.
But given its constant budget pressures (the Korean offer is $14 million cheaper), SEPTA officials say the United Transit offer is too good to pass up.
“I feel confident in our ability to manage a contract and bring it in” on time and within budget, said Nowakowski, who is overseeing the procurement.