Bold action on rail contract

The follwing editorial is running in Sunday’s Austin American-Statesman:

Capital Metro’s bold action on rail contract is welcome

Sunday, December 13, 2009

With its back against the wall, Capital Metro might have yielded to new contract demands by the company that has run its commuter and freight rail operations since 2007.

That would have been the safe thing to do given the high stakes facing the transit agency to get its bedeviled commuter rail line up and running by spring 2010.

The agency is struggling to regain credibility because it has yet to deliver on its promise to open its Red Line train, which will run from Leander to downtown Austin. If the commuter line starts in the spring — and that is a big if given its troubled history — it will be two years late.

The last thing Capital Metro needed was a front-page news story calling attention to yet another questionable decision that might delay commuter rail. It might have played it safe by just acquiescing to new demands.

Instead, the agency took a big risk in changing rail companies during a critical period.

That showed leadership, the kind we haven’t seen for a while at the agency.

Last week, Capital Metro found its voice in refusing to accept a contract from Veolia Transportation that likely would have been more costly and left Capital Metro in a lurch regarding its insurance coverage.

The agency sought and found better deals with two transit companies — Herzog and Watco. The new agreements will lower costs and give Capital Metro full insurance coverage, which was lacking in the Veolia contract.

Herzog Transit Services Inc. will handle and maintain Capital Metro’s passenger rail for $61 million for five years. It currently operates the Trinity Railway Express commuter line between Dallas and Fort Worth and the New Mexico Roadrunner between Albuquerque and Santa Fe.

Watco Companies Inc. will handle Capital Metro’s freight rail for $33.9 million over the next five years and nine months. Watco already was doing that for Capital Metro as a subcontractor for Veolia.

Doug Allen, interim chief executive officer and president of Capital Metro, said his staff viewed Veolia’s offer as a “take it or leave it deal that would have put the agency at financial risk.”

He has a point.

During recent contract negotiations, Veolia modified the agreement so that Capital Metro was no longer listed as a “named party” on insurance Veolia purchased for the rail line. It did that without Capital Metro’s knowledge or approval.

As a named party, Capital Metro was equally covered for any mishaps, regardless of who was found to be at fault. Under the modified contract, Capital Metro was covered only for problems Veolia caused.

Veolia offered to find insurance for Capital Metro, but Capital Metro already had started looking elsewhere.

The new rail operator, Herzog, will have Capital Metro as a named party on a $100 million liability policy. And the company has dispatched its top management team to oversee the transition.

There are several other benefits worth noting about the new agreement with Herzog: The company has a good safety record regarding rail and vehicle collisions and workplace accidents involving employees.

Then there is the cost savings. The agreement with Herzog will be $3.1 million less than what Capital Metro would have paid Veolia over the next five years and $10.7 million below what Veolia was asking in contract renegotiations during the past several weeks, according to Capital Metro officials.

Saving money is a good thing, but those savings are likely to go down, if not evaporate altogether, depending on how much Capital Metro has to pay in transitional costs to Veolia.

Capital Metro might well be painting too rosy a picture in its expectations that Herzog can hit the ground running where Veolia left off. Allen said the agency still expects to meet its spring 2010 deadline to start up the Red Line. Time will tell.

Despite those risks, the transit agency has made a solid business decision that offers a better deal and fresh start. That is a welcome change.

One thought on “Bold action on rail contract

  1. mktiv

    Yes, I agree. It’s too bad this has dragged out so long. One of the main problems was lack of leadership at Cap Metro, but that CEO ducked out thankfully (too bad he got the big retirement package). Now, at least it seems that there is someone more qualified and with a bit more leadership ability at the helm.

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