Special Board Meeting of May 22, 2012

MBTA

SPECIAL BOARD MEETING OF MAY 22, 2012

At the call of the Chair, a meeting of the Board of Directors of the Massachusetts Bay Transportation Authority was held at Ten Park Plaza, 3rd Floor, MassDOT and MBTA Conference Room, Boston, Massachusetts, on Tuesday, May 22, 2012 at 1:00 p.m.

There were present: Messrs. Jenkins, Alvaro and Whittle, the Misses Levin and Loux, being all members of the Board.

Also in attendance were: the Acting General Manager, Mr. Davis, and Messrs. Kelley and Kane, Special Counsel and Miss Rollins, General Counsel to MassDOT and MBTA and Miss Fallon, Recording Secretary to the Board.

Secretary Davey left at the beginning of the MBTA meeting to take himself out of any discussion.

The Chairman, Mr. Jenkins, presided.

Chairman Jenkins announced that even though the agenda stated this Commuter Rail Procurement would be discussed in executive session it has been decided that the discussion will take place in open session.

Chairman Jenkins called the 1060th Open Meeting to order.

Chairman Jenkins opened up public comment which there was no one there for comment.

Steve Mudge began with a Powerpoint Presentation to the Board. He noted that in the package is the draft RFQ along with the presentation that he will be giving today. He asked that all questions be held to the end of the presentation. Mr. Mudge gave a overview of Commuter Rail system of where it operates and along with a description of its workforce and equipment. He discussed the Procurement team and the procurement process. They anticipate issuing the RFQ shortly. The RFQ will be provided to a shortlist of Qualified Bidders established from the RFQ responses. It will contain more complete information regarding the scope of required services, the proposed form of new contract, the option for bidders to propose additional services, and specified evaluation criteria. Next Mr. Mudge talked about the contract duration and the term. He stated that typically these agreements run from 5-8 years up to 30 years depending on the relationship between the owner and the operator and the level of operator investment. The shorter terms of 5-8 years are common for operations contracts with basic maintenance services, the term of 10-15 years attract more bidders and promote greater competition and are necessary if operator capital investment is to be included. He noted that certain contracts have included a minimum base of 8 years to incentivize bidders and provide time to realize benefits of operational improvements and investment with the option of extension periods. Mr. Mudge also discussed the capital investment of the contract. Mr. Mudge finished talking about the revenue risk and sharing of the contract. He said it is not expended or recommend at this time.He noted that many passenger rail franchises feature some form of revenue risk or revenue sharing. He assembled member of the team to address any questions that may be addressed. He introduced Mr. Andrew Herring, from Greenberg and Traurig and Steven Wright from Holland and Knight. Director Loux asked when they were going to issue the RFQ. Mr. Mudge stated that they will be sending it out on May 25 which will keep them on the original timeline if they had released it on the original date of May 15. Director Loux asked if our goal was to make this a tight as possible timeline with the least amount of extensions. Mr. Mudge stated that we have ainternal do not exceed timeline with a very aggressive timeline with a difference of six months. He stated that the timeline will be more specific once the RFQ goes out and once we get feedback. Director Alvaro asked if we were going to issue a RFQ and not specify the term or type of arrangement. Mr. Herring stated that they are working on developing the financial model for the commuter rail contract. Director Loux asked that if what they are doing is sending out the RFQ process to collect data from the bidders to see what is appropriate to adjust what we want the RFP to be from the information we get. Mr. Herring stated that they will engage the market and the competition which we can get a huge amount of information to get that through that process. The financial model needs to carry on in parallel. Director Loux asked if the RFQ is to gather information to help draft the RFP. Mr. Herring stated that was correct. Director Alvaro asked if we will issue some sort of specifications of what we are looking for so we don’t have one bidder bidding for one option and another bidder something else, he asked what is the general framework we are sending to potential bidders. Mr. Herring stated that the RFQ is potential bidders demonstrating their qualifications to bidding contracts of this type. The RFP will have a base case which is the core element they can bid on with an opportunity for them to present alternative options based on their own assessments. Director Alvaro stated that in order to qualify potential bidders you need to understand what they are going to be qualified for. He would like to know what the basic template is for those who are and who aren’t qualified realizing that he know that some assumptions on the path that we may take. Chairman Jenkins stated that the RFQ we don’t want to constrain interested parties but in the RFP we want some constraint without destroying their creativity without them being too creative. Director Alvaro stated it that for the proposer to know what it will take to funding requirements the contract they need to know what the contract is the proposer will undertake. His concern this document is not sufficiently communicating what we trying to achieve. Mr. Mudge stated that the approach was that we know what we run every day and we know what are rolling stock are and what are linear assets are so in the scope service it is clearly in the RFQ what we expect in our daily service delivery. In addition to that we are concerned with the transition and mobilization. With the Capital we have all be struggling and there are three definitions of capital in the RFQ which is defined in the scope of services and from that we expect the potential firms demonstrate the ability to make recommendation and get innovative with the approach to the capital. Director Alvaro asked if the RFQ is sufficiently detailed in terms of term or potential investment but not so detailed that it will constrain creativity. Director Loux stated that the RFQ is an opening to bring in coalitions to bid on this contract. Mr. Mudge stated that they will also have an industry day where the stake holders can come in and look at the equipment and maintenance facility. He also stated that they will also have an online library by September that will have all the assets. Director Levin noted that she had submitted her questions in writing. Mr. Mudge stated that he did receive her questions and they are working on a response. Director Levin asked how we can commit to a long-term contract without a predictable and reliable funding source. Mr. Davis stated that no one really knows the solution but we are going through a cost analysis so we will be able to make that determination which should be available in advance of any RFP going out. Mr. Mudge stated that there is the baseline contract and then there is a contract with the bells and whistles would cost more. Director Levin asked why we would want to keep the current business model if it doesn’t work to keep it long term. Mr. Herring stated that the preparation for the financial model is a critical step to fringe what the base costs are and what the business models should be and they would like to stress that the intention that the contract will deliver continuing improvements to the business model which will develop over time. Director Levin asked if he thinks we will get into a business model that will change. He stated that with the right information we can write a robust contract with areas that allow the business model to improve over time. Mr. Davis stated that we will get that information from the respondents during the RFQ and RFP process. Director Whittle asked what the restraints are that we put on the core model. Mr. Davis stated that we are open to the creative ideas on how to build ridership or share revenue but we want to make sure that we still have the fare setting ability. Director Loux stated that the original RFP was not a bad business model to start which included penalties. Then after a year they looked at the penalties made some adjustment to the penalties but it wasn’t until the next General Manager came in and decided to give incentives and that is when they started to have problems. Director Levin stated that one of her issue are that we have not had increase in ridership and the costs have risen which would make it out of balance. We need to make sure that our workhorses are funded and what we would like to invest into the future we can afford. Next Director Levin wanted to talk about the flexibility. She thinks it is great but we don’t need a lot of open ended parts without competition. This contract should included what the contractor is eligible to bid on how that process will take place. It should encourage other bidders to the extent possible and it should be clear what people are ineligible for. She stated want only want people who have always worked for us and have the ability to know our system well so it is not the same set of people who always do things for us and we should look international. We would like to encourage great ideas and good people. Mr. Davis stated we plan on making it very open. Director Levin stated that the goals are operation based and thinks they should make it for the bigger picture. She believes that to make a successful commuter rail is safe, have more ridership, have reliable on time performance and a comfortable ride and experience and at a reasonable cost per ride. She also asked if we had a working group for customer service. Mr. Mudge stated that they are working with the letters and complaints they receive, talking to different organization and the working group that they do have a group that is looking at all these outlets to get information on their ride. Director Levin asked what is the model they can envision. Mr. Mudge stated we are the 5th largest and we are the largest contracted service. He stated that GO TRANSIT in Toronto is similar to us but he is not sure if they are a transit agency but he said he isn’t sure if they have a separate entity running their bus. He noted that they are a unique contract but they are reaching out to get best practices and lessons learned. Director Levin stated that what they do will have to withstand a while with all the changes in government. She stated that they need strong in house management that has talent and Authority that can go with change. Mr. Davis stated that they need to provide Mr. Mudge with resources to run the contract and the delivery of service. Director Alvaro asked what are expectations are the impact on operating costs. Mr. Mudge stated that they are in the process putting the need together and they will make recommendations for the salaries and operating costs. Director Alvaro stated that he would like to see the proposal when it is ready at the Finance meeting. Director Alvaro asked about the budget in this current process. Mr. Davis stated it is roughly $2 million. Director Alvaro stated that he would like to take a look at that detailed budget and where we are spending. Director Alvaro asked Ms. Rollins about the legal expenses on the budget and he asked how much of the budget is legal. Mr. Davis stated roughly 40-50% of the budget is on legal. Director Alvaro asked Ms. Rollins to sit down with the legal consultants to see if we could reign in the costs. He asked that they bring the budget before the Finance meeting. There was discussion on the number of bidders and they would like to see a list of who the potential bidders will be and a couple sentences about the bidders. Chairman Jenkins stated that this would only be speculative and not have any basis. He wants to make sure that we don’t eliminate bidders by being to narrow or strict in the RFQ and RFP. He stated that we want it open and he doesn’t want the creativity to be stifled by giving too many guidelines. Director Whittle asked if we were restricting the contract term to 15 years.Mr. Herring stated that 15 years is really too long for many reasons and the number is 8-15 years is what is suggested in the RFQ. Chairman Jenkins stated that a bidder can come in and bid longer but they just have to a good reason or model why they want the term longer. He asked if there are any other provisions that they should know about it. Mr. Davis stated that the onces that have been discussed and presented are the core principals but as they move forward they will have more updates to the board to be discussed. Mr. Mudge thanked them for their time and he stated that the RFQ will go out on Friday. Mr. Davis thanked the Board as well.

On motion, duly made and seconded, it was unanimously

VOTED: Adjourned.

The meeting was adjourned.

DOCUMENTS RELIED ON AT THE MEETING

Executive Session Agenda

Powerpoint Presentation

Holland and Knight Memo

Draft RFQ