(The following article by Erin Einhorn and Myung Oak Kim was posted on the Philadelphia Daily News website on February 20.)
PHILADELPHIA — Unless something big happens between now and next Thursday, the SEPTA board is poised to approve a contract that would create 140 factory jobs at the old Philadelphia Naval Yard.
Four global manufacturing companies are vying for the contract to build 104 shiny new rail cars for SEPTA’s Regional Rail fleet. But the one that yesterday earned the recommendation of SEPTA staff and a vote of support from the SEPTA operations committee is the one that will do the final stage of rail-car assembly at a plant to be built in South Philadelphia.
The company also happens to be the lowest bidder.
United Transit Systems (UTS), a consortium of the Korean Rotem Company and Nissho Iwai American Corporation, has no significant track record in the North American rail-car industry but says it hopes the SEPTA contract could open doors to additional deals in other cities and the creation of even more jobs in Philadelphia.
The thought of new manufacturing jobs in a city where heavy industry has been in decline has local boosters smiling and singing the praises of the Korean company. But the choice of UTS is raising eyebrows among some industry experts who fear the transit agency is choosing price over quality and taking an unnecessary risk with an unproven company that happens to have the backing of influential political leaders.
Among those supporting UTS are Gov. Rendell and Mayor Street, both of whom cited job creation in their praise of the deal.
The firm also has the backing of politically connected members of the local Korean community and a team of high-powered lobbyists, including state Republican party chairman Alan Novak, former Street administration Chief of Staff Stephanie Franklin-Suber and former SEPTA general manager Jack Leary.
“We are very much suspicious about what they have in their proposal and what is going on behind the scenes,” said Jitendra Tomar, of Kawasaki Rail Car, Inc., one of the bidders that did not get the recommendation.
Kawasaki’s bid would cost SEPTA $14 million more than the UTS bid, but Kawasaki scored a technical rating that was significantly better than UTS’s on the scale SEPTA used to rate the qualifications of its bidders.
UTS rated 125.2 points out of a possible 175 points for technical merit while Kawasaki scored 162.8 points. The other two bidders, Sumitomo Corporation and Bombardier Transit Corporation, scored 157 and 132 points respectively.
UTS offered to do the work for significnatly less money than the others. The company, which is partially owned by Korean manufacturing giants Hyundai and Daewoo, said it could deliver the 104 new train cars including 34 single cars and 35 “married pairs” for $237 million in contrast to Kawasaki’s bid of $251 million, Sumitomo’s bid of $323 million and Bombardier’s bid of $340 million.
The cost was a primary reason for the recommendation, said John Holak, SEPTA’s chief procurement officer.
“We are an organization that is faced with budget crises,” he said. “There is nothing in this procurement that suggests that this company could not ever perform and manufacture these rail cars to the schedule SEPTA has provided and to the quality assurance issues that SEPTA has provided. SEPTA would have a very difficult time trying to rationalize how we could leave $14 million on the table or spend more when we’re also trying to appeal for further budget support.”
The local jobs, said one SEPTA board member, are just “icing on the cake.”
Not all of the work will be done in Philadelphia, a UTS spokesman said. Most of the rail-car production and all of the engineering will be done in South Korea. Also, top managers and supervisors will come from other rail car construction plants in North America. The 140 people hired and trained locally will work among the rank and file.
UTS doesn’t know yet whether the jobs will be unionized but the contract requires that UTS pay workers the prevailing wage.
The SEPTA contract would be the first major business deal in North America for UTS and its parent company, Rotem.
“I am not surprised that they came in at such a low price,” said William Vantuono, editor in chief of Railway Age, a monthly trade magazine and worldwide railroad expert. “Rotem wants to get into the North American market because it’s a growth market. I wouldn’t be surprised if they would be willing to take a loss just to get their foot in the door.”
While Kawasaki and Bombardier have factories in New York and other parts of the country, the Philadelphia site would be Rotem’s first U.S. facility.