Intercity Passenger Rail:

Issues Associated with the Recent Settlement between Amtrak and the Consortium of Bombardier and Alstom

GAO-05-152: Published: Dec 1, 2004. Publicly Released: Dec 1, 2004.

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As part of the Acela high-speed rail program, the National Railroad Passenger Corporation (Amtrak) executed contracts in 1996 with train manufacturers Bombardier and Alstom to build 20 high-speed trains--called trainsets--and 15 electric high-horsepower locomotives; construct three maintenance facilities; and provide maintenance services for the Acela trainsets. The trainsets, locomotives, and facilities contracts totaled $730 million. Bombardier and Alstom, referred to as the Consortium, created the Northeast Corridor Management Service Corporation (NecMSC) to manage the facilities and maintain the trainsets, including supervising Amtrak maintenance employees. Amtrak pays NecMSC for its management and maintenance services. Concerns about the quality of the Consortium's work and Amtrak's withholding of $70 million in payments resulted in the parties suing each other, each seeking damages of $200 million. After entering into negotiations at the end of 2002, officials from the Consortium and Amtrak signed a settlement agreement in March 2004. In general, under the settlement, the Consortium must complete modifications to the trainsets and locomotives, achieve established performance requirements, provide training to Amtrak staff, and provide and extend warranties. In addition, Amtrak agreed to release up to $42.5 million of the $70 million previously withheld to the Consortium and will assume facility management and trainset maintenance responsibilities as soon as 2006, rather than in 2013 as originally planned, if the Consortium satisfactorily completes its commitments under the settlement agreement. Amtrak has received substantial federal funding in the last several years, and there is considerable congressional interest in Amtrak's financial performance--particularly in the Acela route in the Northeast Corridor, since it generates more revenue for Amtrak than all of its other routes combined. Beginning in fiscal year 2003, the Congress authorized the Secretary of Transportation, through the Federal Railroad Administration (FRA), to provide oversight of Amtrak's use of federal funds and required that Amtrak submit a business plan to the Secretary and the Congress prior to receiving funds. Because of the importance of the settlement agreement to the Acela program and the continued interest of the Congress in Amtrak's financial performance, the Chairman, Senate Committee on Commerce, Science, and Technology, asked us to review the settlement, specifically to (1) delineate the costs Amtrak incurred to prepare for and settle its lawsuit with the Consortium and the estimated costs Amtrak avoided by settling rather than pursuing further litigation, (2) determine the responsibilities of Amtrak and the Consortium under the settlement and the associated benefits and future costs, and (3) identify key challenges related to the settlement and the actions Amtrak and the Consortium are taking to address these challenges.

Amtrak incurred additional costs to prepare for and settle with the Consortium, but it also avoided potentially costly litigation expenses. As a result of the settlement, Amtrak released a portion of the $70 million it had previously withheld to the Consortium. To prepare for the settlement, Amtrak estimates it spent more than $1 million on external legal counsel, consulting, and mediation services. Amtrak does not track its internal legal costs, though one official estimates that seven employees were primarily involved in negotiating the settlement. Although Amtrak incurred costs related to the settlement, according to Amtrak officials, it avoided at least $20 million in future litigation costs by settling rather than pursuing its suit in court. As a result of the settlement, both Amtrak and the Consortium have new responsibilities with regard to the trainsets, and each has derived benefits and potential costs. Both Amtrak and the Consortium must fulfill certain responsibilities in order to correct trainset problems and to transfer facility management and trainset maintenance operations from the Consortium to Amtrak by the conditional transition date of October 1, 2006. Before the transition date, Amtrak is required to create a transition plan as part of the settlement agreement, hire staff for facilities management and trainset maintenance, and determine a parts procurement plan for the trainsets. For its part, the Consortium is required to complete modifications to the trainsets and locomotives; train Amtrak staff; meet performance requirements for speed, comfort, and reliability; transfer technical information and third-party contract rights to Amtrak; and provide trainset parts information, permits, and licenses. After the transition date, Amtrak will conditionally assume facility management and trainset maintenance responsibilities, but the Consortium will be required to provide technical support and information technology updates, and honor warranty obligations. An important benefit of the settlement is the improved working relationship between Amtrak and the Consortium. According to Amtrak and Bombardier officials, all parties are now cooperating to address trainset problems and to complete management and maintenance responsibilities necessary for the transition to occur. Amtrak may incur additional future costs related to the settlement. Amtrak's internal costs will increase when it assumes trainset maintenance responsibilities; however, since it will no longer have to pay a contractor to manage its trainset maintenance function, it is unclear whether Amtrak will realize a net savings or incur a cost increase from this transition. A successful transition depends on whether Amtrak and the Consortium can address the numerous challenges to meet their settlement responsibilities. For example, the Consortium must complete an extensive list of modifications, some of which are complex, and also meet performance requirements for reliability, speed, and comfort before Amtrak will assume maintenance responsibilities. Certain modifications may not be completed by October 1, 2006, and Amtrak has concerns that other modifications may affect service reliability. In addition, Amtrak must secure a workforce with the technical expertise needed to maintain the trainsets; develop a cost-effective supply chain for trainset parts; provide sustained, adequate funding for trainset maintenance; and effectively integrate the maintenance of high-speed trainsets into its current organization. Although Amtrak and the Consortium are taking actions to address these challenges, Amtrak does not have a comprehensive implementation plan that provides a "blueprint" of important steps, milestones, contingency plans, funding strategies, and other measures necessary to successfully complete the transition.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: In July and August 2008, Amtrak indicated that it had prepared a comprehensive implementation plan for the settlement agreement with Bombardier and Alstom. Amtrak said the plan included establishment of two cross-functional teams and monthly progress meetings about settlement implementation issues. Monthly status reports were also prepared for the Acela Executive Oversight Committee at Amtrak. A review of material provided by Amtrak indicated that an Acela Executive Oversight Committee was created, that monthly meetings were held that included a wide variety of Amtrak officials from various departments, and that these meetings covered issues associated with Acela performance and transition of the Acela maintenance functions from the consortium to Amtrak. These actions met many aspects of the recommendation. However, Amtrak did not appear to prepare a comprehensive written implementation plan that included a risk analysis, a contingency plan, a financial plan that identified required sources of funding, or established milestones and quantitative or qualitative measures of progress toward those milestones. Amtrak assumed the Acela maintenance responsibilities from the consortium on October 1, 2006, as scheduled. A written, comprehensive implementation plan that included the elements discussed in the recommendation would have better ensured a successful transition and, more importantly, the long-term sustainability of the Acela maintenance program.

    Recommendation: The President of Amtrak, working with Amtrak's Board of Directors, should develop a comprehensive implementation plan. This implementation plan should address the key challenges and include important milestones for achieving each of the critical tasks associated with the key elements of the settlement, a risk analysis showing the potential impacts if tasks and milestones are not achieved, methods to accurately evaluate and measure progress, contingency plans should tasks and milestones not be met, and funding strategies to support new maintenance responsibilities. The plan should be included in any business plan later submitted to the Secretary of Transportation.

    Agency Affected: National Railroad Passenger Corporation (AMTRAK)

  2. Status: Closed - Implemented

    Comments: In October 2006, Amtrak completed its takeover of the maintenance of the Acela trainset and the related maintenance facilities from the consortium of Bombardier and Alstom. Although Amtrak did not prepare a written, comprehensive implementation plan for the settlement agreement with defined milestones, risk analyses, and other important elements, Federal Railroad Administration (FRA) officials told us they monitored implementation of the settlement activities through regular meetings with Amtrak staff. FRA officials also said they continue to monitor the safety performance of the Acela fleet and that the expertise of the FRA Office of Research and Development has been made available on both a continuing and as-needed basis to assist in that oversight.

    Recommendation: The Secretary of Transportation should direct the Acting Administrator of FRA to review and monitor Amtrak's implementation of its comprehensive plan for implementing the settlement agreement as part of FRA's overall responsibilities to oversee Amtrak's activities.

    Agency Affected: Department of Transportation

 

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