Proposed commuter rail contract to cost $325 million per year
State officials, preparing to announce their choice to operate the commuter rail system, revealed on Tuesday the price tag for the contract: $2.68 billion over eight years, with the possibility for two two-year extensions that could bring the total price to $4.3 billion.
That would make the base deal, the largest operating contract in state history, about $335 million per year, higher than the $214 million a year initially paid to the current operator, Massachusetts Bay Commuter Railroad Co., when it was first awarded the contract a decade ago.
Transit and financial specialists said the figures were on par with previous estimates, but many details remain unknown until Wednesday, when the T is due to release specifics about the financial penalties and perks included in the contract that could balloon costs.
The commuter rail bidding process has been shrouded in secrecy since August, when proposals were submitted by the Massachusetts Bay Commuter Railroad, which has been running the system since 2003, and the sole challenger, Keolis Commuter Services.
Last week, people with knowledge of the process said that the Massachusetts Bay Transportation Authority had chosen Keolis for the contract.
The T will officially present its decision Wednesday to the Massachusetts Department of Transportation’s board of directors, the body that will make a final decision on whether to approve the T’s choice.
The board will also probably receive an earful from Massachusetts Bay executives, who plan to make a presentation at the meeting on parts of the procurement process they believe were conducted unfairly, including being given a single sit-down meeting with T officials.
After board members hear the T’s recommendation, they can approve its choice or ask the T for further review.
Transportation specialists said the contract is appropriate for a system of the T’s size.
“At first blush, it seems like a reasonable base contract,” said Michael J. Widmer, president of the Massachusetts Taxpayers Foundation, a budget watchdog funded by businesses and nonprofits.
But the inclusion of carrots and sticks that will undoubtedly be in the contract, including bonuses for on-time performance and payments for extra work requested by the T, will drive up the price, Widmer said.
“The actual amount will turn out to be larger,” he said. “The question is how much larger.”
Massachusetts Bay Commuter’s history with the T was plagued by controversies surrounding some of these penalties and perks. Both organizations have been criticized for what some called lax parameters for instituting penalties when service was poor, allowing the company to avoid paying millions of dollars that some believed it owed. A policy in place at the beginning of the contract allowed the company to charge a premium when purchasing materials required by the T, making more money than what was outlined in the contract. The state auditor’s office lambasted that practice.
The scope of the perks and penalties is especially important because of the contract’s length. In 2003, Massachusetts Bay Commuter Railroad Co. was awarded a five-year contract with a five-year possible extension; this time, the contract calls for an eight-year initial period, with two possible extensions of two years each.
Widmer believes that the T might have settled on a lengthier initial contract to garner a better deal on yearly costs. That could initially save the state money, Widmer said, but it also means that the state must ensure there are aggressive financial penalties to discourage declining performance.
“If they go out for eight years, the T needs to be sure that there are strong performance requirements and that they have a strong hand during this period,” Widmer said. “They have to make sure they’ve got a real stick.”
The contract had been expected to be in the ballpark of several billion dollars, said Paul Regan, executive director of the MBTA advisory board, an oversight organization that represents cities and towns served by the T. But he worries that the real cost could be higher if the losing bidder decides to sue over the decision. The company that wins the contract will have a significant feather in its hat — running one of the biggest commuter rail systems in North America. And the one that doesn’t, Regan said, will have to defend its reputation.
“Whoever doesn’t get this will be very, very disappointed,” Regan said. “It’s billions and billions of dollars — and it’s bragging rights.”