MBTA approves 4-year Keolis extension

Buys time to plan for commuter rail of future

TRANSPORTATION SECRETARY Stephanie Pollack vowed in early 2017 that the MBTA’s $2.6 billion contract with Keolis Commuter Services would not be renewed when it expires in 2022, but on Monday the T oversight board unanimously approved a four-year extension along with some tweaks to the remaining two years on the existing deal.

The contract extension gives the MBTA some stability and cost certainty going forward, as well as the time needed to build out its vision for the future of the commuter rail system. The deal gives Keolis financial incentives to start providing better service immediately, with line-by-line incentive payments for improved on-time performance, as well as a number of other revenue enhancers. Overall, Keolis, which says it has lost money each year since the contract was signed in 2014, has the potential to make an extra $224 million over the next six years on a contract that was already the largest of its type in the world.

Negotiations over the contract extension intensified last week, with the T delivering its final offer on Friday and the Keolis board of directors approving the deal in Paris on Sunday.

The 4-0 vote (Joe Aiello, the chair of the Fiscal and Management Control Board, abstained, citing a conflict of interest) came with no drama, but it represented a major turnaround for Pollack, who had said three years ago, when Keolis’s performance was subpar, that the contract would not be extended. Since then, Keolis has upped its game considerably but not enough for its detractors.

Rep. William Straus, the House chair of the Legislature’s Transportation Committee, who opposed an extension, took the vote in stride.  “This is another of those difficult consequences of COVID’s impact on mass transit operations, coupled in this case with the unnecessary delays I think the administration caused in delaying the start of the bidding and new contract advertising process years ago, as I had originally requested,” he said in an email. “I only hope for the sake of the Commonwealth that the ‘incentives’ provided here result in better fare collection, better on-time performance, and good working condition equipment.”

The deal gives tiered incentive payments to Keolis if an individual commuter rail line achieves higher rates of on-time performance. For example, if the on-time performance on the Worcester Line exceeds 92.5 percent over the course of a month, Keolis receives $30,000. That incentive payment rises to $60,000 a month if the line’s on-time performance exceeds 94 percent and $70,000 if it tops 98 percent. Other lines have similar but lower incentive payments.

Keolis will receive no incentive payments at all if on-time performance for the system as a whole fails to reach the required 92 percent.

The contract also gives Keolis an extra 6 percent payment on all capital projects it completes; Keolis currently does at least $100 million a year in capital projects. Keolis currently receives an inflation adjustment each year of 2.15 percent, even though the actual inflation rate is about 3.5 percent. Under the new deal, the inflation adjustment is raised to 3.5 percent for the next two years, 3 percent for the two years after that, and 2.5 percent for the final two years.

The deal also extends a revenue-sharing agreement with the T, where money coming in from fare-enhancing efforts paid for by Keolis are split between the company and the transit authority. A major focus of the effort going forward will be the construction of fare gates at South Station, North Station, and Back Bay Station, which are expected to cut down on fare evasion and boost revenues.

In deciding whether to extend Keolis’s contract, the T’s Fiscal and Management Control Board had few options. Its vision for a more subway-like commuter rail service of the future hasn’t taken shape yet and may take years to develop. So the T wasn’t ready to launch a procurement for that.

The agency also decided it would make no sense to begin a procurement for an interim commuter rail operator now, given the disruption that would cause and the likelihood, given the state of COVID-19 uncertainty, that costs might rise even faster.

“We do believe we would pay more if we went out to the market,” Rob Diadamo, the T’s executive director of commuter rail, told the control board at a virtual meeting.

Diadamo also said the contract extension is for four years, but the T has the option to opt out after three if its long-term vision comes together faster than expected.

Reimagining the T’s commuter rail system is likely to be a long, drawn-out process. The current vision is for a system where service is provided more regularly throughout the day, mostly by electric trains. The MBTA earlier this year asked train manufacturers for their input, and a T staffer reported on Monday that it would take 3 to 3 ½ years to deliver an initial electric train set once it is procured, a process that itself could take considerable time.

T officials are planning on spending 18 months developing a detailed strategic plan for the commuter rail system and then begin taking delivery of vehicles and other equipment in the 2025-2026 time frame, when a new commuter rail operator is likely to be hired.

When discussion turned to train procurement, Pollack cautioned the members of the control board that equipment procurement was not the priority right now. “There’s no such thing as a vehicle strategy. There’s a commuter rail strategy,” she said.

The next commuter rail operator is expected to be more of a partner with the T in running the system than a vendor. For example, many expect the next operator to invest in the system and share in the returns. But COVID-19 has complicated the process tremendously.  A commuter rail system that previously was one of the T’s few modes of travel that was gaining in riders and revenue is now operating at near-empty levels, with passengers allowed to ride for free.

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Bruce Mohl

Editor, CommonWealth

About Bruce Mohl

Bruce Mohl is the editor of CommonWealth magazine. Bruce came to CommonWealth from the Boston Globe, where he spent nearly 30 years in a wide variety of positions covering business and politics. He covered the Massachusetts State House and served as the Globe’s State House bureau chief in the late 1980s. He also reported for the Globe’s Spotlight Team, winning a Loeb award in 1992 for coverage of conflicts of interest in the state’s pension system. He served as the Globe’s political editor in 1994 and went on to cover consumer issues for the newspaper. At CommonWealth, Bruce helped launch the magazine’s website and has written about a wide range of issues with a special focus on politics, tax policy, energy, and gambling. Bruce is a graduate of Ohio Wesleyan University and the Fletcher School of Law and Diplomacy at Tufts University. He lives in Dorchester.

About Bruce Mohl

Bruce Mohl is the editor of CommonWealth magazine. Bruce came to CommonWealth from the Boston Globe, where he spent nearly 30 years in a wide variety of positions covering business and politics. He covered the Massachusetts State House and served as the Globe’s State House bureau chief in the late 1980s. He also reported for the Globe’s Spotlight Team, winning a Loeb award in 1992 for coverage of conflicts of interest in the state’s pension system. He served as the Globe’s political editor in 1994 and went on to cover consumer issues for the newspaper. At CommonWealth, Bruce helped launch the magazine’s website and has written about a wide range of issues with a special focus on politics, tax policy, energy, and gambling. Bruce is a graduate of Ohio Wesleyan University and the Fletcher School of Law and Diplomacy at Tufts University. He lives in Dorchester.

Brian Shortsleeve, one of the control board members, asked Diadamo how long he thought it would be before the commuter rail system returned to normal ridership levels, which companies could then use to gauge future revenue potential. Diadamo said he thought it would be at least 18 months.

“Eighteen months doesn’t seem like a crazy number to me,” he said.