Intercity Passenger Rail
Issues Associated with the Recent Settlement between Amtrak and the Consortium of Bombardier and Alstom Gao ID: GAO-05-152 December 1, 2004As 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.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-05-152, Intercity Passenger Rail: Issues Associated with the Recent Settlement between Amtrak and the Consortium of Bombardier and Alstom
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Report to the Chairman, Committee on Commerce, Science, and
Transportation, U.S. Senate:
December 2004:
INTERCITY PASSENGER RAIL:
Issues Associated with the Recent Settlement between Amtrak and the
Consortium of Bombardier and Alstom:
GAO-05-152:
Contents:
Letter:
Results in Brief:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendixes:
Appendix I:Comments from the National Railroad Passenger Corporation:
Appendix II:Review of the Settlement between Amtrak and the Consortium
of Bombardier and Alstom:
Abbreviations:
Amtrak: National Railroad Passenger Corporation:
DOT: Department of Transportation:
FRA: Federal Railroad Administration:
NecMSC: Northeast Corridor Management Service Corporation:
Letter December 1, 2004:
The Honorable John McCain:
Chairman, Committee on Commerce, Science, and Transportation:
United States Senate:
Dear Mr. Chairman:
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.[Footnote 1] 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.[Footnote 2]
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.[Footnote 3]
Because of the importance of the settlement agreement to the Acela
program and the continued interest of the Congress in Amtrak's
financial performance, you 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.
To assess Amtrak's settlement costs, we reviewed and analyzed Amtrak
financial documents, verified the consistency and completeness of these
data, interviewed Amtrak officials, and determined that the information
was sufficiently reliable for our purposes. To assess Amtrak and
Consortium settlement responsibilities, benefits, and future costs, we
reviewed and analyzed the original contracts, lawsuits, settlement
agreement, and other information, and we interviewed Amtrak,
Consortium, and NecMSC officials. To assess the challenges related to
Amtrak assuming responsibility for high-speed trainset management and
maintenance, we reviewed and analyzed management responsibilities,
maintenance responsibilities, and settlement obligations as delineated
in the settlement and other agency documents. We supplemented this
information by interviewing Amtrak, Consortium, NecMSC, and FRA
officials.
On September 17, 2004, we briefed your staff on the results of our work
to date. Appendix II contains a modified version of the materials we
presented at that time.
We conducted our work from June 2004 through November 2004 in
accordance with generally accepted government auditing standards.
Results in Brief:
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.[Footnote 4]
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. For
example, it is obligated to release remaining funds withheld to the
Consortium (up to the $42.5 million) if the Consortium meets certain
requirements such as completing the specified trainset modifications by
the October 1, 2006, transition date. 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.
Conclusions:
Achieving a successful transition is critical to Amtrak's financial
well-being, given that the Acela program is such a significant source
of its revenue. Because of the importance of the Acela program to
Amtrak, it is critical that Amtrak effectively address each of the key
challenges it faces. To date, however, Amtrak has not prepared a
comprehensive implementation plan that addresses each of the key
challenges related to the settlement in a structured and well-planned
way. Such a plan would also serve as a basis for monitoring the
progress of actions under way and holding the parties accountable for
achieving desired results. The absence of such a plan could jeopardize
the successful implementation of the settlement, which in turn could
negatively affect Amtrak's financial performance. We believe FRA, as
part of its existing oversight responsibilities of Amtrak, should see
that a comprehensive plan is completed and closely monitor the
settlement's implementation to ensure that results are being achieved
as planned.
Recommendations for Executive Action:
To help ensure a successful implementation of the settlement agreement,
we are making the following two recommendations. First, we recommend
that the President of Amtrak, working with Amtrak's Board of Directors,
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.
Second, 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 Comments and Our Evaluation:
We provided a draft of this report to the Department of Transportation
(DOT), Amtrak, Bombardier, and Alstom for their review and comment. DOT
generally concurred with the report and its recommendation to DOT.
Alstom made no comments on the report.
Both Bombardier and Amtrak noted in their comments that the Acela
trainsets are not yet required to meet the 17,500 miles between service
failures performance requirement--a point we acknowledge. Yet, there
appears to be a difference between the two as far as the criteria for
meeting this requirement. Bombardier stated that its reliability growth
plan requires that the trainsets achieve an average of 17,500 miles
between service failures in May 2005. According to Bombardier, the
trainsets are presently achieving a higher level of reliability than
they predicted. Bombardier also stated that the Consortium must prove
to Amtrak that the trainsets are capable of meeting the minimum
performance requirement for a reasonable period of time during a 24-
month demonstration period. On the other hand, Amtrak stated that the
reliability standard is calculated on a 6-month rolling average and
must be sustained over a 24-month period. Amtrak believes that it and
the Consortium do not differ in their understanding of the performance
requirement. However, we have had several meetings with both parties on
this issue, and it appears there is a considerable difference in
interpretation. We believe that reconciling this difference is
important to the success of the transition and that it should be
specifically clarified in writing to ensure both parties have the same
understanding.
Amtrak provided its comments in a letter from its President and Chief
Executive Officer (see app. I). In general, Amtrak took strong issue
with our report's conclusion that Amtrak does not have a comprehensive
plan that provides a blueprint for important steps, milestones,
contingency plans, and other measures to successfully complete the
transition. Amtrak believes that after execution of the settlement
agreement in March 2004, Amtrak developed and implemented a
comprehensive process to monitor and enforce the Consortium's
compliance with the terms of the settlement, and to ensure the
successful transition of high-speed trainset maintenance to Amtrak.
Amtrak feels there are plans and procedures in place to address issues
associated with items such as budget and funding requirements, securing
and training a competent workforce, and procuring parts and supplies.
We agree that Amtrak has developed a substantial amount of information
about the transition and recognize that meetings are being held both
internally within Amtrak and externally with Consortium
representatives. We also acknowledge that Amtrak has compiled a
critical path schedule for monitoring the status and completion of open
technical issues. However, while these are important elements of
transition planning, they do not represent a comprehensive plan for
managing and implementing the settlement. Such a plan should include
such things as milestones for achieving critical tasks, a risk analysis
showing the potential impacts if tasks and milestones are not achieved,
accountability measures and contingency plans should tasks and
milestones not be met, and funding strategies to support new
maintenance responsibilities. Officials from Amtrak's Inspector
General's office told us that they also would like to see a more
detailed and comprehensive transition plan as a way to better
coordinate all efforts necessary to monitor progress and implement a
successful transition. As we reported earlier this year, comprehensive
plans are important in order to effectively manage large projects, such
as implementing this settlement.[Footnote 5] A comprehensive plan is
also necessary given the critical importance of the Acela program to
Amtrak's business. We believe it is imperative that Amtrak's Board of
Directors and others have such a plan to successfully monitor
implementation of the settlement, to assess the impact on the
corporation should transition efforts experience difficulties, and
maintain accountability for transition of the Acela maintenance
function to Amtrak.
Amtrak also noted in its comments that its estimate of its costs to
manage the trainset maintenance function in-house will be no greater
than the current cost of paying NecMSC to perform maintenance work,
based on its estimates of protections built into the settlement.
However, as Amtrak acknowledges, there is uncertainty on this issue,
and we believe that specific aspects of this issue have yet to be
resolved. For example, the cost to complete major overhauls to the
trainsets is largely unknown, as efforts continue to identify the full
scope of work to be completed and those who will perform the work. As a
result, we believe our report correctly describes the uncertainties
that exist in this area.
Amtrak said in its comments that it does not believe that developing an
effective supply chain to provide maintenance was a significant
challenge because of long-standing relationships with suppliers and the
protections provided under the settlement. We acknowledge that as a
result of the settlement, Amtrak may benefit from new contracts with
providers used for its conventional service and may be able to maintain
or build on existing supplier relationships for an effective supply
chain. However, we believe that this effort is a challenge in that
Amtrak must successfully complete numerous tasks and an extensive cost
analysis in conjunction with selecting a parts procurement plan by
January 2006. For example, if it chooses the inventory option, Amtrak
will need to hire additional staff to manage the parts procurement
process and incorporate the inventory into its existing system, which,
according to Amtrak procurement officials, can be a complicated task.
Also, in a recent meeting with officials from Amtrak's Office of the
Inspector General, they told us that part of the supply chain process-
-an audit of parts prices--is already behind schedule. As a result, we
continue to believe that our assessment of the difficulty of dealing
with its supply chain will remain a challenge.
Finally, as part of its comments, Amtrak requested that we redact
certain sections of our report that it considered to be proprietary. To
address this comment, we consulted with Amtrak, Bombardier, and Alstom
and developed this report that deletes or modifies information they
considered to be proprietary. After reviewing a draft of this report,
each organization confirmed that it did not contain proprietary
information.
We are sending copies of this report to congressional committees with
responsibilities for intercity passenger rail issues, the President of
Amtrak, the Secretary of Transportation, the Acting Administrator of
the Federal Railroad Administration, the Director of the Office of
Management and Budget, and representatives of Bombardier and Alstom. We
will also make copies available at no charge on the GAO Web site at
http://www.gao.gov. If you have any questions about this report, please
contact me at (202) 512-8984 or by e-mail at heckerj@gao.gov, or
Randall B. Williamson, Assistant Director, at (206) 287-4860 or by e-
mail at williamsonr@gao.gov. Other key contributors to this report were
Edda Emmanuelli-Perez, Kara Finnegan Irving, Bert Japikse, Rick
Jorgenson, Tyler Kruzich, Denise McCabe, and SaraAnn Moessbauer.
Sincerely yours,
Signed by:
JayEtta Z. Hecker:
Director, Physical Infrastructure:
[End of section]
Appendixes:
Appendix I: Comments from the National Railroad Passenger Corporation:
NATIONAL RAILROAD PASSENGER CORPORATION:
AMTRAK:
60 Massachusetts Avenue, NE,
Washington, DC 20002:
Via Facsimile and Hand Deliver:
September 24, 2004:
Mr. Randy Williamson:
Assistant Director, Physical Infrastructure Team:
United States General Accounting Office:
701 5tH Avenue Suite 2700:
Seattle, WA 98104:
Ms. Kara Finnegan:
Analyst:
United States General Accounting Office:
441 G Street, NW:
Washington, DC 20548:
Dear Mr. Williamson & Ms. Finnegan:
Amtrak appreciates the opportunity to review GAO's Draft Review of the
Settlement between Amtrak and the Consortium of Bombardier and Alstom.
Amtrak's specific comments and observations concerning the Draft are
included in Attachment A to this letter. In addition to these comments,
I must state upfront that Amtrak takes strong issue with the Draft's
conclusion that "[a]lthough Amtrak and the Consortium are taking
actions to address theses challenges [associated with the transition of
maintenance services to Amtrak], Amtrak does not have a comprehensive
implementation plan that provides a "blueprint" of important steps,
milestones, contingency plans, and other measures necessary to
successfully complete the transition." See page 4 of Draft letter to
Senator McCain In fact, after execution of the Settlement Agreement in
March 2004, Amtrak developed and implemented a comprehensive process to
monitor and enforce the Consortium's compliance with the terms of the
Settlement, and to ensure the successful transition of the maintenance
of the high-speed trainsets from the Consortium to Amtrak. This process
includes regularly scheduled meetings both internal to Amtrak and with
the Consortium, detailed schedules and other documents to track and
monitor milestones, and plans for recovery in the event of delays in
the transition. Plans and procedures are in place to address issues
concerning budget and funding requirements, securing and training a
technically competent workforce, procuring parts and supplies, and
enforcing the Consortium's ongoing technical support and warranty
obligations. Specific details of the process Amtrak has implemented are
set forth in Attachment A.
While the numerous elements of this process have not been collected
under the cover of one, separate document, this fact does not mean that
Amtrak does not have in place a comprehensive and integrated plan to
ensure successful completion of the transition and other terms of the
Settlement Agreement. It is possible that GAO's staff assigned to this
project did not have an opportunity to review, or did not fully
understand, all of the procedures and documents associated with this
process. At your request, we are prepared to remedy any omissions or
confusion in this regard.
Finally, while Amtrak appreciates GAO's preference to issue
unrestricted reports, Amtrak continues to believe that it is not
appropriate to release to the public certain details of the Settlement
Agreement. Specifically, the following parts of the Draft should be
redacted from public release: Draft Letter to Senator McCain, Section
entitled "Results in Brief" pages 2 - 4; Draft Report, pages 6-8
(entire text on referenced pages); Draft Report, page 11, sub-bullet
under third bullet ("Amtrak has paid NecMSC . . ."); Draft Report,
pages 14, 16 - 18, 20 - 26 (entire text on referenced pages).
Please advise if you have any questions concerning Amtrak's comments or
if we can be of additional assistance to the GAO on this project.
Sincerely,
Signed by:
David L. Gunn:
President and Chief Executive Officer:
cc: A. Serfaty;
J. McHugh;
W. Crosbie:
Attachment:
Attachment A:
Amtrak comments to GAO Draft Review of the Settlement between Amtrak
and the Consortium of Bombardier and Alstom:
1. Draft Letter to Senator McCain, page 1, second sentence of paragraph
2 states that "In December 2003, officials from the Consortium and
Amtrak entered into negotiations. . ."
In fact, the parties began settlement discussions at the end of 2002
and were engaged in mediation with a third-party mediator throughout
most of 2003. Settlement discussions then continued without the
assistance of the mediator until settlement was reached in March 2004.
The Report should be modified accordingly.
2. Draft Letter to Senator McCain, page 2, third sentence of Section
entitled "Results in Brief" states that "To prepare for settlement,
Amtrak spent about [amount deleted] on external legal counsel,
consulting and mediation services."
This figure constitutes a very rough approximation of the "high-end" of
expenses incurred by Amtrak related to settlement and may include other
activities related to the litigation that was ongoing at the same time
that the parties were engaged in settlement/mediation actions. The
actual number is likely less than this conservative estimate.
3. At various places in the Report, GAO, in describing the terms of the
Settlement, states that Amtrak "paid" the Consortium [amount deleted].
See, for example, Draft Letter to Senator McCain, at page 2, second
sentence of Section entitled "Results in Brief."
A more accurate description of this term of the Settlement Agreement
would be to say that Amtrak "released" to the Consortium [amount
deleted] of the $70 million of previously withheld funds.
4. Draft Report, page 10, first bullet item should be amended to
reflect that the $1.8 billion requested by Amtrak for FY 2005 includes
$100 million for repayment of the RRIF loan received by Amtrak in July
2002.
5. The Draft Report asserts that it is unknown "at this point whether
Amtrak will save money or incur additional costs by managing trainset
maintenance in-house rather than paying NecMSC to manage maintenance."
See Draft Report at page 18, third bullet item under section entitled
"Unknown Costs."
The Settlement Agreement establishes a baseline for the largest cost
components - parts and labor - associated with Amtrak's assumption of
the maintenance responsibilities for the Trainsets. Specifically, under
the Settlement Agreement, with respect to parts, Amtrak can choose
either to proceed with the "parts only" option under the Management
Services Agreement (which rates and costs are established by the terms
of that contract) or, subject to audit verification, utilize the parts
lists to be provided by the Consortium under the Settlement Agreement.
With respect to the labor component, Amtrak has developed
organizational charts that indicate that total staffing necessary for
performance of the maintenance services will decrease after the
transition is fully implemented. While there is always some degree of
uncertainty, Amtrak estimates that based upon protections built into
the Settlement Agreement, the costs of managing the maintenance in-
house will be no greater than the costs of paying NecMSC to perform the
work going forward.
6. The Draft Report lists as "Key Challenge" whether "Amtrak can
develop an effective supply chain to meet trainset maintenance
requirements."
Amtrak would point to the many relationships it has developed with
suppliers as part of its maintenance of the high horsepower locomotives
manufactured by the Consortium as well as its 30 years of experience
with suppliers for the remainder of its locomotive and passenger car
fleet as strong evidence that this is not a significant hurdle to a
successful transition. In any event, the "parts only" option, if Amtrak
chooses it, provides Amtrak with the ability to secure parts necessary
for maintaining and overhauling the Trainsets until 2013 at fixed
prices. Thus, the Trainset maintenance requirements for the remainder
of the term of the Management Services Agreement are protected by the
Settlement Agreement. Amtrak recommends that this item be deleted from
the list of "Key Challenges" or at least that it be modified based on
its prior history with suppliers.
7. The Draft Report notes that the "Trainsets have not yet met the
minimum reliability performance requirement of traveling an average of
17,500 miles between service failures." See page 20 of Draft Report.
Amtrak would point out that this measure is intended as a 6-month
rolling average whereas only 5 months of data have been available, to
date.
8. The Draft Report also notes that "Amtrak and the Consortium have
different interpretations of what is required to meet the [17,500]
reliability performance requirements."
Amtrak does not believe that this assertion is accurate. Experience to
date indicates that the parties are in agreement with respect to this
issue.
9. Amtrak takes issue with the Draft Report's assertion that it has not
prepared a comprehensive plan to address all of the settlement
challenges. It has, in fact, implemented a comprehensive and integrated
process to monitor and enforce compliance with milestones required
under the Settlement Agreement, to recover in the event of delays in
meeting milestones, and to ensure an overall successful transition of
maintenance responsibility to Amtrak. The following steps and documents
provide evidence of this comprehensive plan.
a) Trainsets, Locomotives & Facilities Open Technical Issues
(Attachments Al, A2 & A3 to the Settlement Agreement):
A status column has been added to these documents to identify and
detail the actions performed on a bimonthly basis to resolve the
relevant technical issue. Amtrak and the Consortium participate in a
conference call every other Monday at 1:30 pm to review and discuss the
progress of each issue. If any issue is beginning to fall behind
schedule, a recovery plan is discussed and agreed upon to ensure that
each issue is completed in a timely fashion. These documents are
updated by the Consortium after each conference call to memorialize the
actions agreed upon during the meeting.
b) Heavy Repair Training (Attachment Al to the Settlement Agreement):
The training requirements defined in Attachment K of the Settlement
Agreement have been added to this list. A status column has been added
to this document detailing the actions performed on a bimonthly basis
to prepare for the training classes. Amtrak and the Consortium have a
conference call every other Monday at 1:30 pm (one Monday is the
technical conference call, the next Monday is the training conference
call) to review and discuss the progress of each issue. If any issue is
beginning to fall behind schedule, a recovery plan is discussed and
agreed upon to ensure that each issue is completed in a timely fashion.
The document is updated by Amtrak after each conference call to
identify the actions agreed upon during the meeting.
Efforts to address training requirements for the transition continue to
evolve as necessary. For instance, since the GAO completed its
investigation, the Consortium has presented its approach for the
Trouble Shooting component of the training program. Amtrak is reviewing
and will comment on the proposed program and is also conducting
meetings at each facility to identify the appropriate audience for this
training. In addition, Amtrak has recently hired a full-time HSR
Training manager that is dedicated to HSR training, and anticipates
adding 4 people to that group soon.
c) Trainset and Locomotive Modification Matrix (Attachments Al and A2
to the Settlement Agreement):
A completion date column has been added to these documents identifying
when each modification will be installed on the fleet. Amtrak and the
Consortium have a conference call every other Monday at 1:30 pm to
review and discuss the progress of each modification. This occurs
immediately following the Open Technical Issues review. If any issue is
beginning to fall behind schedule, a recovery plan is discussed and
agreed upon to ensure that each issue is completed in a timely fashion.
These documents are updated by the Consortium.
d) CPM Schedules (Settlement Milestones, Attachment Al, A2 and A3):
In addition to the above actions and meetings, the Consortium has
developed separate CPM Schedules using Microsoft Project for the Open
Technical Issues for the Trainsets, Locomotives and Facilities, the
Trainset and Locomotive Modifications, Heavy Repair Training, Trainset
and Locomotive Contract Deliverables, and the Transition that includes
Attachment K Training and the Parts/Inventory requirements. Each of the
CPM Schedules lists each milestone as well as the necessary action to
complete each milestone in accordance with the Settlement Agreement.
Amtrak and the Consortium review these schedules during monthly
Progress Meetings. If any activity or milestone is beginning to fall
behind schedule, a recovery plan is immediately discussed and agreed
upon to try and keep each activity on schedule. The Consortium updates
the schedules and provides Amtrak with electronic and hard copies one
week prior to the schedule Progress Meeting.
e) Monthly Progress Reports:
The Consortium provides Amtrak with Monthly Progress Reports that
contain the status of all open issues. A Progress Meeting is held
monthly between the Consortium and Amtrak to review this report as well
as the CPM Schedules.
f) Status of Settlement Agreement Issues:
A report summarizing the latest status of each Settlement Agreement
issue is prepared by Amtrak on a monthly basis. This report is reviewed
and discussed at the monthly Acela Executive Committee Oversight
meetings which are attended by senior mangers of Amtrak and the
Consortium.
g) Quarterly Steering Committee Meetings:
Senior executives from Amtrak, Bombardier and Alstom participate in
quarterly meetings to address and resolve problems associated with
progress and completion of the terms of the Settlement Agreement and
the transition process.
h) Transition Plan:
Amtrak has prepared a written Transition Plan that defines and
summarizes the most significant activities that must be completed by
Amtrak prior to Amtrak assuming the responsibility of maintaining the
Trainsets. This Plan includes organization charts that show the gradual
replacement over time of NecMSC staff with Amtrak staff. This Plan also
includes a Primavera CPM Schedule detailing and linking each activity
and milestone that must be completed during the transition period.
[End of section]
Appendix II: Review of the Settlement between Amtrak and the Consortium
of Bombardier and Alstom:
Accountability * Integrity * Reliability:
Review of the Settlement between Amtrak and the Consortium of
Bombardier and Alstom:
[See PDF for image]
[End of figure]
Briefing for the Senate Committee on Commerce, Science, and
Transportation:
September 17, 2004:
Overview:
Introduction:
Objectives:
Scope and methodology:
Summary of findings:
Background:
Detailed findings for each objective:
Conclusions:
Recommendations for executive action:
[End of figure]
Introduction:
* In 1996, the National Railroad Passenger Corporation (Amtrak)
executed contracts with a consortium of 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 trainsets. [NOTE
1]
* Bombardier and Alstom (the Consortium) created the Northeast Corridor
Management Service Corporation (NecMSC) to manage the facilities and
maintain the trainsets, including supervising Amtrak maintenance
employees.
* Because of concerns about the quality of the Consortium's work and
Amtrak's withholding of payments, both parties filed suits. Amtrak and
the Consortium reached a negotiated settlement in March 2004.
In general, under the settlement,
* Amtrak agreed to release a portion of the withheld funds to the
Consortium and will assume facility management and trainset maintenance
responsibilities as soon as 2006 rather than in 2013 as originally
planned.
* The Consortium must complete modifications to the trainsets and
locomotives, achieve established performance standards, provide
training to Amtrak staff, and provide and extend trainset warranties.
Review Objectives:
* 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;
* Determine the responsibilities of Amtrak and the Consortium under
the settlement and the associated benefits and future costs; and:
* Identify key challenges related to the settlement and the actions
Amtrak and the Consortium are taking to address these challenges.
Scope and Methodology:
* Reviewed original contracts, litigation documents, the settlement
document, and related Amtrak materials.
* Interviewed officials from Amtrak, Bombardier, Alstom, NecIVISC, and
the Federal Railroad Administration (FRA).
* Reviewed current plans and policies to coordinate the transition.
* Analyzed Amtrak's estimates of settlement costs incurred and
estimates of costs saved by settling rather than pursuing litigation.
* Followed GAO data reliability standards and conducted our review
according to generally accepted government auditing standards.
* Did not evaluate the validity of the original contracts or suits.
Summary of Findings: Objective 1:
Settlement Costs and Costs Avoided:
* As a result of the settlement, Amtrak released a portion of the $70
million previously withheld to the Consortium. [NOTE 2]
* Amtrak estimates it incurred more than $1 million in external costs
to prepare for and reach a settlement.[NOTE 3]
* According to Amtrak, reaching a settlement with the Consortium rather
than proceeding with further litigation avoided at least an estimated
$20 million in additional litigation costs.
Summary of Findings: Objective 2:
Responsibilities, Benefits, and Future Costs of the Settlement:
Responsibilities before October 1, 2006:
* Amtrak is required to create a transition plan, hire staff to manage
the facilities and maintain the trainsets, and determine a parts
procurement plan for the trainsets.
* The Consortium is required to complete trainset and locomotive
modifications; provide training to Amtrak staff; meet performance
requirements for reliability, speed, and comfort; and transfer
technical information and third-party contract rights to Amtrak.
Responsibilities after October 1, 2006:
* Amtrak will conditionally assume facility management and trainset
maintenance responsibilities.
* The Consortium will be required to provide technical support, update
information technology, and honor warranty obligations.
Summary of Findings: Objective 2:
Responsibilities, Benefits, and Future Costs of the Settlement:
Settlement benefits:
* Amtrak and Consortium achieved an improved working relationship.
* Amtrak will gain maintenance control over the trainsets and obtain
warranty extensions; Amtrak has secured financial recourse if
settlement obligations are not met.
* The Consortium received a portion of previously withheld payments
and will no longer have the contractual obligation to manage Amtrak
employees if it fulfills the terms of the settlement agreement.
Future costs:
* Amtrak will release remaining funds withheld to the Consortium (up to
the $42.5 million) if certain requirements are met.
* Amtrak's internal costs will increase when it assumes trainset
maintenance responsibilities; however, it will no longer have to pay
NecMSC to manage its trainset maintenance function. Whether or not
Amtrak will realize a net savings or incur a cost increase from this
transition is unknown at this point.
* The Consortium may experience substantial costs to complete trainset
modifications and to meet trainset performance requirements.
Summary of Findings: Objective 3:
Key Challenges and Actions Taken:
Amtrak and the Consortium face numerous challenges as both parties
strive to meet their settlement responsibilities. A successful
transition depends on whether:
* The Consortium can complete complex modifications and meet specified
performance requirements;
* Amtrak can secure a workforce with the technical expertise needed to
maintain the trainsets;
* The Consortium and Amtrak can develop and implement training programs
needed to maintain
complex trainsets after the transition;
* Amtrak can develop a cost-effective supply chain to meet trainset
maintenance requirements;
* The Consortium can provide required technical support and honor
warranty obligations after the transition;
* Amtrak can provide sustained, adequate funding for trainset
maintenance and effectively integrate maintenance of high-speed
trainsets into its current organization; and:
* Amtrak can prepare a comprehensive implementation plan that
addresses all of the main settlement challenges and provides a
"blueprint" of important steps, milestones, contingencies, and other
measures necessary to successfully complete the transition.
Background:
Amtrak Financial Information:
* Amtrak received $1.2 billion in federal funds in fiscal year 2004.
Amtrak has requested $1.8 billion for fiscal year 2005.4:
* Given the amount of federal funding that Amtrak receives, Congress
authorized the Secretary of Transportation, specifically FRA, to
provide oversight of Amtrak's federal funds.
* FRA authorizes the release of annual federal funds to Amtrak.
* Amtrak must submit a business plan to the Secretary and Congress
prior to receiving federal funds.
Amtrak's Acela program is the centerpiece of Amtrak's intercity
passenger rail system.
* As of May 2004, Amtrak's Acela program contributed $47 million to the
system for fiscal year 2004-more than all other routes combined.
Background:
Key Provisions of Contracts:
In 1996, Amtrak signed three contracts with the Consortium, obligating
the Consortium to [NOTE 5]:
* Build 20 high-speed trainsets and 15 electric high-horsepower
locomotives;
* Build three new maintenance facilities; and:
* Provide trainset maintenance through 2013.
The Consortium created NecMSC to provide maintenance services and
manage Amtrak maintenance employees. [NOTE6]
* NecMSC technicians provide troubleshooting and technical services and
instruct Amtrak employees on how to perform needed maintenance.
* The Consortium provides its own manufactured parts and those of
third- parties to maintain the trainsets.
* Currently, there are 105 NecMSC authorized positions and 258 Amtrak
authorized positions maintaining the trainsets.
* Amtrak pays NecMSC for its maintenance and management services.
* Amtrak has paid NecMSC a total of $31 million as of April 2004. [NOTE
7]
Litigation:
In November 2001, Bombardier filed a suit alleging that Amtrak:
* Improperly withheld payments;
* Failed to provide accurate information on infrastructure conditions;
and:
* Changed design specifications during contract performance.
* In November 2002, Amtrak filed a suit alleging that:
* The Consortium failed to meet trainset performance requirements;
* The Consortium's engineering was deficient, workmanship was poor,
and program management and quality control were inadequate; and:
* The Consortium did not meet the contract delivery schedule.
Timeline of Key Events:
[See PDF for image] –graphic text
May 1996 - Amtrak and the Consortium execute the contracts.
October 2000 - The Consortium delivers the first trainset to Amtrak
over 1 year late.
November 2001 - Bombardier files a $200 million suit against Amtrak.
August 2002 - Amtrak removed trainsets from service due to equipment
problems. Complete service not restored until October 2002.
November 2002 - Amtrak files a $200 million suit against the
Consortium.
Late 2002 - Amtrak and Consortium officials begin negotiations.
March 2004 - Amtrak and the Consortium sign settlement agreement.
October 2006 - Amtrak conditionally assumes responsibility for the
trainsets.
2013 - Amtrak was originally scheduled to take over trainset management
and maintenance.
2021 - Last warranty expires.
Source: GAO.
[End of figure]
Objective 1:
Settlement Costs and Costs Avoided:
* Amtrak released a portion of the $70 million previously withheld to
the Consortium. [NOTE 8]
* Amtrak estimates it incurred more than $1 million in external costs
(outside counsel, mediation, and consulting and other services) to
prepare for and reach a settlement with the Consortium.
* Amtrak does not track the costs for its staff to work on specific
legal cases; therefore, internal cost information related to the
settlement is not available.
* According to Amtrak officials, seven Amtrak staff were primarily
involved in negotiating the settlement.
* Amtrak officials do not consider the salaries of its full-time
employees to be costs of the settlement.
* According to Amtrak, reaching a settlement rather than proceeding
with further litigation avoided at least an estimated $20 million in
additional litigation costs. [NOTE 9]
Objective 2: Responsibilities, Benefits, and Future Costs:
Settlement Responsibilities:
[See PDF for image] –graphic text
Amtrak:
Before October 1, 2006:
* Create transition plan;
* Hire staff to manage facilities and maintain trainsets;
* Decide how to procure trainset parts.
Amtrak:
After October 1, 2006:
* Manage maintenance facilities;
* Maintain trainsets.
Consortium:
Before October 1, 2006:
* Complete trainset and locomotive modifications;
* Meet performance requirements for speed, reliability, and comfort;
* Train Amtrak staff;
* Transfer technical information;
* Renegotiate rights to third-party contracts;
* Provide parts information, permits, and licenses.
Consortium:
After October 1, 2006:
* Provide technical services and information technology updates;
* Honor trainset warranties.
Source: GAO analysis of Amtrak data.
[End of figure]
Objective 2: Responsibilities, Benefits, and Future Costs:
Benefits of the Settlement:
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 and Consortium officials meet monthly to discuss progress on
and issues related to the transition.
Amtrak will gain control of trainset maintenance and may achieve
monetary savings on parts and maintenance.
* Amtrak may be able to save on trainset maintenance due to its current
conventional operations rather than paying NecMSC to maintain the
trainsets.
* The opportunity exists for Amtrak to save on parts procurement if it
renegotiates more favorable third-party contracts with parts providers
used for its conventional service.
Amtrak will continue to be protected by extended trainset warranties
and by the Consortium's obligations to provide technical support and
parts.
* "Bumper-to-bumper" trainset warranties were extended on all
trainsets until October 1, 2005, even though some had already expired.
* Modifications to trainsets will be warranted for two years after
they are completed satisfactorily.
* The Consortium is required to provide technical support for up to
two years after the transition.
* The Consortium will provide or assist Amtrak in obtaining replacement
parts for the life of the trainsets.
Amtrak has several methods of financial recourse if the Consortium
does not meet obligations, including honoring warranties and completing
trainset and locomotive modifications.
* Amtrak may draw down on letters of credit issued by the Consortium
should the Consortium default and not complete required modifications
or meet established performance requirements.
* Amtrak can also seek damages through litigation and, if need be,
collect against sureties under maintenance bonds.
* If conflicts arise, Amtrak may take disputes to the dispute
resolution board, the process for which was streamlined as a result of
the settlement to expedite disputed issues. [NOTE 10]
The Consortium/NecMSC will no longer have to manage Amtrak employees
if it fulfills the terms of the settlement agreement.
* According to NecMSC and Amtrak officials, this arrangement has
resulted in disputes over disciplining issues and has created an
overall unsatisfactory working environment.
The Consortium received a portion of the funds previously withheld.
If the Consortium completes all trainset modifications and meets
reliability performance requirements, Amtrak will release the letters
of credit it now holds.“
Objective 2: Responsibilities, Benefits, and Future Costs:
Costs of Future Settlement Responsibilities:
Conditional Costs:
Amtrak is also obligated to release an additional portion of
previously withheld funds to the Consortium if the Consortium:
* Completes specified trainset and locomotive modifications and
provides heavy repair training;
* Provides other training for overhaul maintenance and troubleshooting;
* Achieves the reliability performance requirement of 20,000 miles
between service failures; and:
* Fulfills all settlement obligations by October 1, 2006.
Unknown Costs:
* Starting as early as 2006 (rather than in 2013 as originally
planned), Amtrak will be responsible for maintenance costs to ensure
continued trainset performance, including parts procurement and
overhaul maintenance.
* Amtrak will incur the costs of operating a new High Speed Rail
Division it is creating to manage and maintain the trainsets.
* Amtrak may save money or incur additional costs by managing trainset
maintenance in-house rather than paying NecMSC to manage maintenance.
* The Consortium may experience substantial costs to complete required
modifications and to meet trainset performance requirements.
Objective 3:
Key Challenges and Actions Taken:
Amtrak and the Consortium face numerous challenges as both parties
strive to meet their settlement responsibilities. A successful
transition depends on whether:
* The Consortium can complete complex modifications and meet specified
performance requirements;
* Amtrak can secure a workforce with the technical expertise needed to
maintain the trainsets;
* The Consortium and Amtrak can develop and implement training
programs needed to maintain complex trainsets after the transition;
* Amtrak can develop a cost-effective supply chain to meet trainset
maintenance requirements;
* The Consortium can provide required technical support and honor
warranty obligations after the transition;
* Amtrak can provide sustained, adequate funding for trainset
maintenance and effectively integrate maintenance of high-speed
trainsets into its current organization; and:
* Amtrak can prepare a comprehensive implementation plan that
addresses all of the main settlement challenges and provides a
"blueprint" of important steps, milestones, contingencies, and other
measures necessary to successfully complete the transition.
Objective 3: Key Challenges and Actions Taken:
Achieving Trainset Modifications and Performance Requirements:
The Consortium must complete an extensive list of modifications, some
of which are complex, before Amtrak will assume maintenance
responsibilities.
* The Consortium has established completion dates for each modification
and the Consortium and Amtrak have monthly meetings to discuss
progress.
* As of August 2004, the Consortium had closed more than half of the
items according to schedule.
* Amtrak has identified certain modifications that may potentially not
be completed by October 1, 2006, and has concerns that other
modifications may affect service reliability.
Meeting several performance requirements is especially important.
* The trainsets have not yet met the minimum reliability performance
requirement of traveling an average of 17,500 miles between service
failures.
* Amtrak and the Consortium have different interpretations of what is
required to meet the reliability performance requirements.
* The Consortium is responsible for ensuring that the trainsets
continue to meet performance requirements for speed and comfort while
completing modifications and overhauls.
Objective 3: Key Challenges and Actions Taken:
Obtaining Technical Expertise for Maintenance:
Amtrak must secure a workforce with the technical expertise needed to
maintain the trainsets.
Amtrak plans to create a new High Speed Rail Division to assume the
management and maintenance responsibilities from NecMSC.
* By October 1, 2006, the High Speed Rail Division will consist of 336
authorized positions, including supervisory positions and support
positions in other departments.
* By October 1, 2006, Amtrak plans to consolidate positions and have
fewer positions than the combined NecMSC and Amtrak trainset
maintenance workforce that exists today.
Amtrak plans to hire at least 50 percent of NecMSC's current staff so
as to benefit from their technical expertise.
* Amtrak is using commitment letters to recruit and retain these
staff.
* To expedite the transition, Amtrak plans to appoint staff to
management positions rather than use standard hiring procedures.
Objective 3: Key Challenges and Actions Taken:
Developing and Implementing Training Programs:
The Consortium and Amtrak must develop and implement training programs
needed to maintain complex trainsets after the transition.
The trainsets are technically complex and require considerable
expertise to identify and make needed repairs and to troubleshoot
difficult maintenance problems.
Amtrak plans to begin training efforts in early 2005, but this is
contingent on several key steps, some of which have not yet been
completed.
* Amtrak and NecMSC have not yet finalized training programs,
materials, and competency measures for heavy repair, overhaul, and
troubleshooting training.
* Amtrak has not yet identified union employees to participate in
these training programs. [NOTE 12]
Objective 3: Key Challenges and Actions Taken:
Developing a Cost-Effective Supply Chain:
* Amtrak must develop a cost-effective supply chain to meet trainset
maintenance requirements.
* Having needed parts in a timely manner is necessary to sustain
trainset performance and ensure that the trainsets are available for
revenue service.
As part of the settlement, Amtrak must decide how it will continue to
procure trainset parts. It has two options:
* Continue to buy all parts through the Consortium; [NOTE 13] or:
* Buy the Consortium's inventory and negotiate its own contracts to
buy parts. [NOTE 14] Amtrak believes it can use its established
relationships with suppliers to obtain parts.
Amtrak will need to integrate the Consortium's inventory into its
existing system if it chooses the inventory option.
Although it has started, Amtrak has not yet completed an analysis to
select a parts procurement option.
Objective 3: Key Challenges and Actions Taken:
Providing Technical Support and Honoring Warranties:
The Consortium must provide required technical support.
* The Consortium's continuing technical support, which ranges from
assistance by phone as needed to long-term on-site support, may be
necessary in varying degrees to maintain the complex trainsets after
the transition occurs.
* Currently, the Consortium is obligated to provide technical support
for only two years after the transition, and if problems arise, Amtrak
may need to negotiate extended technical support terms.
* The Consortium has provided Amtrak with its own software necessary
to support the trainset operating systems as required.
* The Consortium has not yet provided all of the trainset operating
software needed from third parties.
The Consortium must honor warranty obligations after the transition.
* The letters of credit maintained by the Consortium will not be
released by Amtrak until all modifications are completed and
reliability performance requirements are met.
* The maintenance bonds issued by the Consortium ensure the faithful
completion of modifications and warranty obligations.
* The Consortium is responsible for other warranties-the last expires
in 2021-and Amtrak may seek damages if disputes about the warranties
arise.
* Amtrak will continue to bear the risk of lost revenue if the
trainsets are taken out of service.
Objective 3: Key Challenges and Actions Taken:
Sufficiently Funding Maintenance and Integrating Responsibilities:
Amtrak must provide adequate and sustained funding for trainset
maintenance.
* Amtrak has experienced problems in the past with delays in completing
the maintenance necessary to provide its conventional service, and if
these problems continue, they could affect trainset performance and
availability for revenue service.
* Amtrak has not determined the level of funding necessary to provide
regular maintenance and overhauls to the trainsets.
* According to an FRA official, it is unclear how the trainsets will
age due to the abbreviated testing schedule, potentially affecting
future maintenance costs.
Amtrak must successfully integrate new maintenance responsibilities
into its current organization.
* When a new division is established, several items are critical for
success, including strategic planning, communication, and performance
management.
* Amtrak has encountered difficulties in managing large scale projects
in the past.
Objective 3: Key Challenges and Actions Taken:
Preparing a Comprehensive Implementation Plan:
Although actions are under way to address the key challenges related
to the settlement, Amtrak does not have a comprehensive implementation
plan that:
* Fully addresses all key challenges; and:
* Provides a "blueprint" for effectively resolving these challenges,
including important steps, milestones, contingency plans if milestones
are not met, and measures for achieving results.
The scope of Amtrak's current draft transition plan only addresses
hiring and training staff to assume maintenance responsibilities.
[See PDF for image] – graphic text
Challenges: Trainset modifications and performance:
Actions under way.
Challenges: Workforce with technical expertise;
Actions under way; Included in draft transition plan.
Challenges: Training programs;
Actions under way; Included in draft transition plan.
Challenges: Supply chain;
Actions under way.
Challenges: Technical support and warranties;
Actions under way.
Challenges: Adequate funding and organizational issues;
Actions under way.
Source: GAO analysis of Amtrak data.
[End of figure]
Conclusions:
* Achieving a successful transition is critical to Amtrak's financial
well-being, given that the Acela program is such a significant source
of its revenue.
* Given the importance of the Acela program to Amtrak, Amtrak must
effectively address each of the key challenges it faces.
* To date, however, Amtrak has not prepared a comprehensive
implementation plan.
* Not addressing each of these key challenges in a structured and
well- planned way could jeopardize the successful implementation of
the settlement, which in turn could negatively affect Amtrak's
financial performance.
* FRA, as part of its existing oversight responsibilities of Amtrak,
should see that a comprehensive plan is completed and monitor the
settlement's implementation to ensure that results are being achieved
as planned.
Recommendations for Executive Action:
* To help ensure a successful implementation of the settlement
agreement, the President of Amtrak, working with Amtrak's Board of
Directors, should develop a comprehensive plan. This implementation
plan should address the key challenges and include important
milestones for each of the critical steps associated with the key
elements of the settlement, a risk analysis showing the potential
impacts if tasks and milestones are not achieved, contingency plans if
milestones are not met, methods to accurately evaluate and measure
progress, and a funding strategy for effectively accomplishing Amtrak's
maintenance responsibilities.
* The Secretary of Transportation should direct the Acting
Administrator of FRA to review and monitor Amtrak's implementation of
its plan as part of FBA's overall responsibilities to oversee Amtrak's
activities.
NOTES:
[1] Trainsets are part of Amtrak's Acela program and include two
powercars and six passenger cars fixed together.
[2] Amtrak has also agreed to release an additional portion of
previously withheld funds to the Consortium if certain conditions are
6 met.
[3] Amtrak officials told us that this estimate includes costs for
other activities related to the dispute.
[4] The fiscal year 2005 request includes $100 million for repayment
of a loan received by Amtrak in July 2002.
[5] The trainset/maintenance facilities and locomotives contracts
totaled $730 million.
[6] Amtrak maintenance employees are union members.
[7] This amount is adjusted for the liquidated damages assessed by
Amtrak.
[8] As of the settlement agreement date, Amtrak had paid the Consortium
about $661 million of the $730 million agreed to in the contracts.
Amtrak has also agreed to release an additional portion of previously
withheld funds to the Consortium if certain conditions are met.
[9] GAO did not independently verify this estimate. The estimate may
be reasonable, however, in light of the magnitude of the damages
claimed and the prediscovery state of the litigation at the time of
settlement.
[10] The dispute resolution board is made up three independent
officials who meet to resolve issues between the parties.
[11] In addition, Amtrak will pay back to Alstom dollars drawn down
from a previous letter of credit that has expired.
[12] Amtrak plans to ask staff to volunteer to participate in some of
these training programs. According to Amtrak officials, staff may be
reluctant to participate in training due to its extensive nature and
because employees will not receive additional compensation for their
participation.
[13] Amtrak and the Consortium have already established prices for the
parts.
[14] Amtrak's Inspector General will audit the Consortium's price list
for parts before Amtrak makes its decision.
[End of slide presentation]
[End of section]
FOOTNOTES
[1] The cost of the Management Services Contract is not included in the
total contract cost.
[2] Before the settlement date, Amtrak had paid $661 million of the
$730 million to the Consortium that was agreed to in the contracts.
[3] Amtrak received $1.2 billion in federal funds in fiscal year 2004.
Amtrak has requested $1.8 billion for fiscal year 2005, which includes
$100 million for repayment of a loan received by Amtrak in July 2002.
[4] Amtrak officials told us that this estimate includes costs for
other activities related to the dispute.
[5] GAO, Intercity Passenger Rail: Amtrak's Management of Northeast
Corridor Improvements Demonstrates Need for Applying Best Practices,
GAO-04-94 (Washington, D.C.: Feb. 27, 2004).
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