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Staff Summary Subject: Procurement of Commuter Rail Services

TO / FOR / FROM:
1 / GM / Approval / Dept.: MBTA Railroad Operations
Presenter: Beverly A. Scott, Ph.D.
Ext: 617-222-3106
Signature
2 / BD / Vote / Subject: Procurement of Commuter Rail Services(RFP No. 159-12)
Date: January 8, 2014
Info
Implications: (The implications checked below are involved in this action, are discussed below or in a separate enclosure, and have been considered in the final recommendation.)
_____ Capital Budget _x__Operating Budget ___Legal ____ Other

I. PURPOSE[1]

To authorize the General Manager and Rail & Transit Administrator to execute the Commuter Rail Operating Agreement, Contract No. 159-12 between the Massachusetts Bay Transportation Authority (the "MBTA") and Keolis Commuter Services, LLC ("Keolis") to provide MBTA commuter rail services for a base period of eight years with the possibility of up to a four year extension in an amount not to exceed $4,258,131,062.00, with an initial base contract amount of $2,686,344,294.00.

II. BACKGROUND

The current commuter rail contract expires on June 30, 2014. The MBTA conducted an extensive procurement to ensure continued safe, reliable and affordable commuter rail services for MBTA customers. The Proposals received in connection with the procurement process were submitted on August 9, 2013, and remain valid until February 6, 2014.

III. PROCUREMENT

The procurement has been structured to comply with the Federal Transit Administration (the "FTA") procurement requirements, using a two-phase, best value selection methodunder which the MBTA will award the contract to the most qualified proposer whichprovides the best combination of technical quality and price, based upon the criteria set forth in the Request for Proposals (the "RFP"). The process incorporated peer reviews and FTA best practices. The MBTA began the procurement process over two years ago. The following are a few select highlights of the procurement process:

  • The MBTA hired KPMG Corporate Finance, LLC ("KPMG")and Steer Davies Gleave ("SDG") to conduct a market sounding and benchmarking review to assist the Authority with planning for the commuter rail procurement and contract.
  • In January of 2012, the MBTA sought Letters of Interest from potential bidders. In response, the MBTA received twenty-six Letters of Interest.
  • On May 25, 2012, the MBTA issued its Request for Qualifications (the "RFQ"), soliciting Statements of Qualifications. The MBTA also direct-mailed the RFQ to all of the firms who submitted Letters of Interest.
  • On June 12, 2012, the MBTA hosted an industry day event at the MBTA Boston Engine Terminal. The attendees included Bombardier, MBCR, SNC Lavalin, Keolis, URS, First Transit, Providence and Worcester Railroad, Veolia, Pan Am, Dragados and Peter Pan.
  • On July 26, 2012, in response to the RFQ, the MBTA received two Statements of Qualifications from teams comprised of six companies.
  • On September 5, 2012, the MBTA qualified two teams, Keolis Commuter Services, LLC ("Keolis") and the Massachusetts Bay Commuter Railroad Company ("MBCR"), to continue to the second phase of the procurement.
  • OnSeptember 13, 2012, a Commuter Rail Procurement Diversity Outreach Event was held at the State Transportation Building. This event, heavily publicized via eBlasts and newspaper advertisements, was structured to ensure that Disadvantaged/Minority/Women's Business Enterprises: (i) were apprised of the relevant information pertinent to the Commuter Rail Procurement; (ii) obtained a comprehensive understanding of possible business opportunities that might arise; and (iii) were introduced to the two Proposers (Keolis and MBCR). Over 460 invitations were issued, with 128 businesses and 151 individuals attending the event.
  • In October 2012,adraft RFP was issued. Both Proposers were given the opportunity to provide comments on the draft RFP.
  • Prior to issuance of the final RFP, the MBTA and its counselmet with rail union representatives to discuss labor protections. Provisions in the new RFP, which protect the current workforce, were developed in conjunction with the rail unions and were modeled on the approachused in 2003 when the current commuter rail contractfirst went into effect.
  • On December 11, 2012, the final RFP was issued.
  • Beginning on March 18, 2013, both Proposers participated in an extensive initial Joint Audit, where they were both allowed to assess the MBTA's commuter rail assets, i.e., equipment and infrastructure.
  • On May 8, 2013, both Proposers were provided with an opportunity to submit innovative and alternative ideas to the MBTA for inclusion in the RFP,by way of addendum, if accepted by the MBTA.
  • On August 9, 2013, the MBTA received two Proposals.
  • During the procurement process, over 25GB of information was provided and, combined,Proposers submitted over one thousand questions and/or information requeststo which the MBTA responded in detail.
  • On September 24 and 26, 2013, the MBTA conducted presentations and interviewsseparately with each Proposer, giving equal time to each. The presentation portion allowed each Proposer to highlight aspects of its Operations and Management Proposal, and the interview portion allowed the MBTA to ask each Proposer about its Operations and Management Proposal.
  • In November 2013, written discussions were conducted with both Proposers.
  • In November 2013, the MBTA requested Best and Final Offers from both Proposers.
  • On November 22, 2013, the Proposers submitted their Best and Final Offers.

IV. LABOR PROVISIONS AND WORKFORCE PROTECTION

The labor and employment requirements included in the new contract were modeled on the transition process used in 2003 when MBCR took over from Amtrak, and reflect input from unions representing the commuter rail workforce. As highlighted above, the MBTA and its counsel met with rail union representatives prior to the issuance of the final RFPto discuss labor protections. The RFPmandates that the operatorhire the current workforce in seniority order and that the existing collective bargaining agreements remain in effect until new labor agreements are negotiated.

Under any subsequent agreement, the operator shall, at a minimum, provide core terms of employment which require the operator to provide health and welfare benefits that are substantially equivalent to those under current plans, recognize seniority rights, provide continued coverage under the railroad retirement and unemployment system, provide vacation in accordance with years of service in addition to accrued vacation, and provide family, military and bereavement leave and established holidays.

V. CONTRACT ENHANCEMENT SUMMARY

The RFP was developed based on the MBTA's market review, its past experience, lessons learned and industry best practices. Improvements to theexisting contract were made in the RFP to provide an enhanced customer experience, more effective management and greater operator accountability. Customer benefits flowing fromthe new contract provisions will be realized in a number ofkey areas including, but not limited to, on-time performance ("OTP"), vehicle reliability, cleanliness, fare collection and communications.

The new contract sets the expectation that the operator will run trains on time with more stringent performance criteria and no automatic relief. For example, the current contract automatically grants operator relief from the OTP requirements under the following circumstances: overcrowding on platforms, slippery rail conditions caused by leaves falling on the rail and disabled freight trains. The new contract removes this entire list of excused events, and relief is never automatic. If the operator believes that an event is beyond its control, it must apply for relief from the MBTA and provide supporting documentation. The MBTA, however, retains the sole discretion to grant or deny requested relief in each and every instance.

The new contract does not include ANY incentive payments and,if performance standards are not met, imposes financial disincentives (i.e., performance failure payments) on the operator. The existing contract limited financial penalties to $3,000,000 per year. Under the new contract, the ceiling onperformance failure payments is fixed at 75% of the operator's profit during the first year and 90% of the operator's profit in subsequent years (calculated using an assumed rate of profit of 5%). Performance failure payments, for example, will be imposed for late or cancelled trains – the operator may incur a performance failure payment ranging from $250 to $5,000 per train based on lateness. In total, the ceiling will exceed $12,000,000 per year under the new contract.

The new contract places additional emphasis on vehicle/station cleanliness and passenger comfort. For the first time, 50% of the amount offinancial disincentivesthat the operator will be subject to under the new contract will be tied to elements of customer satisfaction other than OTP, such as cleanliness, heating and air conditioning, maintaining staffing levels and customer communications.

Other significant changes to the new contract that provide for greater management control and operator accountabilityinclude:

  • Maintenance provisions have been strengthened to require the operator to adhere to a strict lifecycle maintenance schedule. The new contract also increases daily inspection requirements for rolling stock. In combination, these enhancements are intended to improve fleet reliability and, ultimately, OTP.
  • The new contract provides specific instructions on the operator's obligationsin the event of service disruptions including: adding staff, promptly notifying customers and the MBTA about the nature and extent of the impact on service, as well as providing alternate transportation asnecessary.
  • The new contract includes provisions that emphasize environmental sustainability, with specific objectives to improve fuel efficiency, reduce water consumption, perform energy efficiency upgrades,and implement more stringent Environmental Management System practices.
  • The new contract allows the MBTA to respond to technological advances and future innovations. The new contract includes a detailed process through which the operator may propose amendments to the agreement relative tointroducing innovations, cost-savings or efficiencies. Cost savings resulting from those operator's suggestions that the MBTA accepts will result in a 60/40 allocation favorable to the MBTA. This cost sharing mechanism encourages operator innovation while ensuring that the public benefits.
  • The new contract allows the MBTA to requirethe operator to implement a remedial action plan if its performance fails to meet expectations.
  • The new contract allows the MBTA to remove services from the contract (e.g., snow removal)as a consequence of poor operator performance.

VI. EVALUATION

The Proposals were submitted on August 9, 2013 in separate parts: (i) the Operations and Management Proposal, and (ii) the Financial/Price Proposal.

The MBTA established a comprehensive procurementevaluation process which was approved by the General Manager. The General Manager appointed the Evaluation Organization, made up ofthe Selection Committee and supporting Evaluation Teams. The Selection Committee consisted of: (i) Jonathan R. Davis, Deputy General Manager and Chief Financial Officer; (ii) Sean M. McCarthy, Chief Operating Officer; and (iii)Theodore J.Basta Jr., Chief of Strategic Business Initiatives. All members of the Evaluation Organization were bound by strict confidentiality obligations and submitted conflicts of interest forms.

The Selection Committee evaluated allEvaluation Factors set out in the Operations and Management Proposal(detailed below). The Selection Committee evaluated each Evaluation Factor set forth in the RFP as well as the overall Operations and Management Proposal. After completing the Operations and Management Proposal evaluation, the Selection Committee evaluated the Financial/Price Proposals. The Selection Committee was supported by Evaluation Teams (i.e., subject matter experts) throughout the evaluation process. Pursuant to the RFP, when determining best value, the Operations and Management Proposal was given greater emphasis than the Financial/Price Proposal. Evaluation of the Operations and Management Proposal took place at a secure offsite location, and the Financial/Price Proposal evaluation took place at the law offices of Holland & Knight LLP.

VII. OPERATIONS AND MANAGEMENT PROPOSAL

The Operations and Management Proposal included the following eleven proposal areas, called "Evaluation Factors," which were weighted in the following order of importance:

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Staff Summary Subject: Procurement of Commuter Rail Services

  1. Safety
  2. Security, Emergency Preparedness and Emergency Response
  3. Mechanical Services
  4. Engineering Services
  5. Transportation Services
  6. Customer Service
  7. Management
  8. Information Technology
  9. Disadvantaged Business Enterprises
  10. Equal Employment Opportunity and other Civil Rights Programs
  11. Mobilization

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Staff Summary Subject: Procurement of Commuter Rail Services

Following FTA best practices, the MBTA implemented an adjectival ratingsystem using the following ratings: (i) Exceptional; (ii) Good; (iii) Acceptable; (iv) Potential to Become Acceptable; and(v) Unacceptable. The Selection Committee's consensus ratings for each Evaluation Factor were as follows:

Factor No. / Evaluation Factor / Keolis Consensus Rating / MBCR Consensus Rating
1. / Safety / Good / Good
2. / Security, Emergency Preparedness and Emergency Response / Acceptable / Acceptable
3. / Mechanical Services / Acceptable / Acceptable
4. / Engineering Services / Good / Acceptable
5. / Transportation Services / Acceptable / Acceptable
6. / Customer Service / Good / Good
7. / Management / Good / Acceptable
8. / Information Technology / Good / Acceptable
9. / Disadvantaged Business Enterprises / Acceptable / Good
10. / Equal Employment Opportunity & Other Civil Rights Programs / Acceptable / Acceptable
11. / Mobilization / Acceptable / Acceptable
OVERALL RATING: / Good / Acceptable

Keolis' Operations and Management Proposal received an overall rating of Good, and MBCR's Operations and Management Proposal received an overall rating of Acceptable.

VIII. FINANCIAL/PRICE PROPOSAL

The Financial/Price Proposal included each Proposer's firm fixed price for its performance of the contract, with a detailed Firm-Fixed Price Forms (the "FFP Forms") that included seven major cost categories. The Financial/Price Proposals were initially evaluated by the Financial/Price Proposal Evaluation Team, led by Mr. Dana Levenson, MassDOT Chief Financial Officer. The evaluation methodology was based on the FTA's Best Practices Procurement Manual, which emphasizes responsibility (i.e., financial capacity), reasonableness and balance (i.e., consistency, cost line-items total correctly, costs not front-loaded or back-loaded).

To assist in assessing the Financial/Price Proposals, an Independent Cost Estimate (the "ICE") was developedby KPMG and SDG for the MBTA. The ICE was an independentestimate of the cost to operate and manage the commuter rail system in accordance with the requirements of the RFP, and was used in evaluating the reasonableness and balance of the Financial/Price Proposals. The ICE was developed prior to receipt of Proposalsusing publicly available industry information, MBTA documentation on its commuter rail operations and information from other data sources.

The ICE was developed to be compatible with the FFP Formssubmitted by Proposers. The FFP Forms are a series of pricing spreadsheets - eight of which cover a single year of the contract (Year 1, Year 2, Year 3, etc.),a separate one contains a summary of all eight years and an additional four years of option yearprices. Each year of the contract was divided into seven major cost categories representing key cost elements of the commuter rail operations: (i) Administration/HR; (ii) Stations, Retail and Public Information; (iii) Transportation Services; (iv) Mechanical Services; (v) Engineering Services; (vi) Environmental Services and Utilities; and (vii) General Security-Station/Depot.

IX. SUBMISSIONS

The Financial/Price Proposal evaluation process involved three submissions:

  1. Initial Price Proposals (8/9/13): The initial Price Proposals, submitted on August 9, 2013, were based upon staffing levels and wage rates in effect on December 31, 2012.
  1. Revised Price Proposals (11/19/13): A Revised Price Proposal based on clarified staffing levels and updated employee wage rate information resulting from labor negotiations, which increased employee wages twice during FY 2013 by 2.0% and 2.8%.
  1. BAFO Price Proposals (11/22/13): Finally, Proposers were provideda final opportunity to submittheir Best and Final Offer.

X. FINANCIAL/PRICE ANALYSIS

Both Proposals were foundto be responsible, reasonable and balanced. Keolis'Proposal, however,includeda lower overall cost for both the base term (approx. $184 million) and the base term with the full four-year option (approx. $254 million). The following tables summarize the Financial/Price Proposals:

Total 12-Year Contract Cost
Comparison of Initial, Revised and BAFO Price Proposals
Including Annual Allowances (Nominal Dollars)
ICE / Keolis / MBCR
Initial Price Proposal (8/9/13) / $4,204,660,595 / $4,258,159,860 / $4,389,545,522
Revised Price Proposal (11/19/13) / $4,349,099,293 / $4,303,016,044 / $4,535,158,804
BAFO Price Proposal (11/22/13) / $4,349,099,293 / $4,258,131,062 / $4,512,094,751
BAFO Comparison to ICE - $ / ($90,968,231) / $162,995,458
BAFO Comparison to ICE - % / -2.1% / +3.7%

The table points out the following (figures are rounded):

  • Keolis' 12-year BAFO price of $4.26 billion is lower than MBCR's price of $4.51 billion. The total price variance is $254 million over the term of the new contract.
  • Keolis' 12-year BAFO price is $91 million (-2.1%) less than the ICE, while MBCR's 12-year price is $163 million (+3.7%) higher than the ICE. Both Financial/Price Proposals are in a reasonable range. The ICE is sound, andsupports the reasonableness of both Proposals.

The following table sets out the BAFO Price comparison between the two Proposers for all twelve years:

The table points out the following (figures are rounded):

  • On an annual basis, MBCR's BAFO Financial/Price Proposal is between $16.0 million and $26.5 million higher than Keolis' price representing a range between 4.4% and 8.7% higher than Keolis on an annual basis.
  • For the full twelveyears of the contract (base plus option years), MBCR's price is $254 million (or 6.0%) higher than Keolis' total price.

As the lower of the two Financial/Price Proposals, the table below compares Keolis' BAFO Price Proposal to the ICE, for each of the twelve contract years.