MBTA hits ‘reset’ on deal with subway car manufacturer

AFTER MORE THAN A YEAR of review and negotiations, the MBTA and the Chinese company building new Red and Orange line cars for the transit authority have revised their contract in a bid to get all of the vehicles delivered by the end of 2027, four years later than the original deadline.

The MBTA board voted on Thursday to waive $90.6 million in penalties and possibly nearly $40 million more if the cars are delivered on the new timetable. The T also agreed to pay CRRC, the world’s largest rail car manufacturer, $148 million to cover unexpected cost increases brought about by the pandemic and hefty tariffs on the cars imposed by the US government.

MBTA officials said the deal represented a better outcome than dropping CRRC and launching a new procurement, which would have delayed delivery of new vehicles by several more years and driven up the cost by more than $1 billion. The deal was also described as better than the status quo, which was expected to deliver the final vehicles in 2029.

While 112 of the 152 new Orange Line cars are in service, only 18 of the 252 new Red Line vehicles are operating. That means the MBTA is still relying heavily on Red Line vehicles that are 55, 37, and 31 years old. The typical useful life of a subway vehicle is 30 to 31 years.

“We need these [new] trains and we need these trains as quickly as possible,” said Jeffrey Gonneville, the T’s deputy general manager, who has been heavily involved in the negotiations with CRRC.

CRRC won the MBTA contract in 2014 with a bid of $565 million, which was $150 million below the next lowest bidder and $200 million below the T’s cost estimate for the contract. At the time, CRRC was eager to break into the US market and used the MBTA contract as its beachhead. It built an assembly factory in Springfield to curry favor with Massachusetts and develop a greater presence in the US. The MBTA contract led to deals with transit authorities in Philadelphia, Los Angeles, and Chicago.

The COVID pandemic, US-China tensions, and some sloppy work upended the company’s ambitious plans to become a major presence in the United States. COVID drove up costs and disrupted the company’s supply chain. US-China tension led the US to impose a 25 percent tariff on many Chinese products in 2018 and the following year Congress approved a law that barred CRRC from expanding beyond its existing four customers. A host of technology, labor, and startup issues also led to sloppy work on the train cars, although T officials say quality has improved significantly more recently.

T officials say CRRC’s inability to expand in the US made negotiations difficult because there was always the possibility the company could just walk away. As part of Thursday’s deal, the MBTA said it will secure the right to purchase the Springfield factory if CRRC does decide to abandon it at some point in the future

The Healey administration brought in a team of three outside experts who reviewed the situation and concluded the best option was a “reset” of the existing contract, which with additional Red Line purchases and change orders had increased in size to $870.5 million. The T has only paid $366 million of the total so far.

The T agreed to 20 months of what it called COVID relief and agreed to cover $148 million in unexpected cost increases incurred by CRRC, including $35 million in tariffs imposed by the US government. Most of the payouts will be staggered over time and contingent on CRRC meeting production deadlines.

In return, CRRC agreed to accelerate production by shifting more work to the company’s factory in China and redeploying workers in Springfield to accomplish work more quickly there. CRRC also agreed to maintain job levels in Springfield.

Two officials from CRRC, speaking through an interpreter, told the MBTA board that the company will work closely with the T.  “We are proud to call Springfield home,” said Wang Zhaofu, president and chairman of CRRC Massachusetts. “The Red and Orange line project is the highest priority for CRRC,” said Bao Yujon, deputy general manager of CRRC in Changcnun, China. “We will do what it takes to expedite delivery.”

T board member Mary Skelton Roberts asked where the transit authority will go for maintenance and other issues once the contract with CRRC ends. Jeff Cook, the T’s acting chief administrative officer, said CRRC is eager to have that discussion but both sides agreed to postpone it until later. Gonneville said the T in the meantime is developing relationships with the key subcontractors on the vehicles.

The MBTA voted unanimously in favor of the new agreement with CRRC, with Robert Butler, the union representative on the board, abstaining. Butler said during the debate that train cars arrived in Springfield from China that required workers at the Springfield plant to redo some of the earlier work. Gonneville acknowledged that was true.

Thomas Koch, a member of the T board and the mayor of Quincy, voted for the reset but said the original contract with CRRC still bothers him. He said government officials have to choose the lowest responsible bidder, not just the lowest bidder.

Charlie Sisitsky, a T board member and the mayor of Framingham, also wasn’t happy with the deal. “We have to hold our nose and vote for the reset,” he said.

Skelton Roberts asked Gonneville how confident he was that CRRC would deliver all the vehicles by the new deadline at the end of 2027. Gonneville recounted the steps CRRC will be taking to accelerate production, but did not share his confidence level.