Tackling the time warp at the T
Gerard Polcari tries to revamp procurement
Photograph by Mark Morelli
ON HIS FIRST day on the job last May as the MBTA’s chief procurement officer, Gerard Polcari checked in with Transportation Secretary Stephanie Pollack and then headed straight to his office to learn everything he could about the department he was inheriting. He interviewed everyone on the staff and analyzed the authority’s existing policies and procedures on procurement. After a month of study, he says, Pollack called him back to her office and asked what he had discovered.
“I told her everything was working perfectly the way it was designed — for 1975,” says Polcari, his voice rising for emphasis. “All that was missing was a disco ball and shag carpeting. It’s like the whole place was in a time warp. Nothing had changed. It was incredible. I said to her, we have a lot of work to do.”
Procurement at the T may sound like a sleep-inducing subject, but it’s actually a big deal because so much, literally, is riding on it. Procurement is not just about paper clips and pencils. Pollack estimates the T has already issued contracts for $1 billion worth of buses and Green, Red, and Orange line cars. She says the T’s new five-year capital plan will pump hundreds of millions of more dollars into new vehicles. How these procurements are executed will determine a lot about how well the T operates five to 10 years from now.
Polcari shakes his head, saying he has heard about the horror stories from the past. He doesn’t want to talk about the past. He wants to move forward.
“We have to start from scratch,” he says. “We cannot worry about what happened or didn’t happen. We have to start with a blank slate and start over. That means attitude, approach, everything has to be new. We not only have to make a business transformation, we have to make a cultural shift at the same time. And then we have to make it stick for the long term.”
Polcari is one of a number of managers showing up in state government, plucked from the private sector by Gov. Charlie Baker. Polcari, 57, worked directly under Baker at Harvard Pilgrim Health Care and he worked in an agency overseen by the state office of administration and finance when Baker ran it in the 1990s.
Impatient for change, Polcari is a private sector guy who doesn’t talk or act like a typical government official. He talks about transforming the T’s procurement office from an organization that thinks two-dimensionally to one that thinks three-dimensionally, which is his shorthand for the difference between an agency that simply buys widgets and one that performs strategic sourcing. He is dismissive of the T’s old procurement office, which went by the name of materials management. “They were just doing clerk work,” he says, adding that the procurement office under him must be a full partner in the way the T does business.
When Baker administration officials approached Polcari about taking the $155,000-a-year post, he was running his own consulting firm, specializing in procurements for health care and information technology. Polcari says he is learning on the job about signal systems and rail cars, but he says the absence of a transportation background doesn’t deter him.
PROCUREMENT MARCHING ORDERS
The 49-page action plan of Baker’s special MBTA panel embraced reform and revenue, focused on addressing structural problems at the T, and offered a blueprint for turning the agency around. Among the nine key findings, a “flawed contracting process” was listed as No. 8.
The special panel said procurement and contract management at the T were inefficient and decentralized, with even small projects held back by redundant internal processes. The report was critical of state laws restricting privatization and limiting contracting options and said key service contracts, particularly the commuter rail contract, required stronger hands-on management. The report encouraged the pursuit of “best value,” as opposed to lowest price, for bid evaluation and contract awards. One sentence in the report seemed to sum up the panel’s assessment: “Project procurements are often delayed, may include legal challenges, and can end in suboptimal products.”
To illustrate the problem, the panel created a timeline for the procurement of Red and Orange line cars. It showed 194 cars in the two fleets due for retirement during the 10-year period between 1994 and 2004. The procurement process for replacing those retiring cars, however, didn’t begin until 2008 and wasn’t completed until six years later in 2014. New cars are now scheduled to begin arriving toward the end of 2019 and be fully in use by 2022, approximately 18 to 28 years after the scheduled retirement dates of the old cars.
The T also experienced a procurement nightmare with its commuter rail locomotives and coaches. The 75 coaches, costing $190 million, were ordered in 2008 from Hyundai Rotem USA and scheduled for delivery by the end of 2012. The coaches began trickling into the T during the spring of 2013, but many of the cars had to be shipped to repair facilities to have a host of mechanical, engineering, and software problems addressed.
The 40 commuter rail locomotives purchased from Motive Power Inc., of Boise, Idaho, for $222 million arrived at the end of 2014, but nearly all of them ended up in repair shops to replace a bearing inside the engine. Most of the locomotives did not come into service until the end of 2015.
In each case, T officials initially dealt with reports of problems by dismissing or minimizing them. Joe Pesaturo, a T spokesman, told the Boston Globe that “railroad coaches are not like new autos that a buyer drives off the lot.”
Union officials say similar problems are surfacing on a $121 million contract with Alstom for the overhaul of very old Green Line cars. The officials say the vehicles are returning from the overhaul with brake and steering problems, and being sent to the Riverside repair facility to be addressed. “Everything we send out, it comes back and we have issues with it,” says one official.
Pesaturo, the T spokesman, says Alstom is overhauling selective systems on the Green Line cars to improve their reliability. He says the cars were already 27 years old when the contract with Alstom was negotiated. “There are some items, out of the contract’s work scope, that have required repairs,” he says in an email. “There are other items that are discovered during the testing/return-to-service phase that need adjustments/replacement. All of these items fall within the scope of the contract and are handled through the Green Line and submitted to Alstom for warranty reimbursement.”
James O’Leary, a transportation official with deep knowledge of the MBTA, says it’s frustrating that new vehicles, or old vehicles sent out for repair, return with defects, some of them major. His advice: “Don’t deliver a vehicle until it’s ready. I don’t want to buy a new car and have to take it back to the shop every 60 days.”
O’Leary says the authority often fails to tap internal expertise in developing procurements and relies too much on consultants to make sure contractors live up to their commitments. O’Leary served as general manager of the MBTA from 1981 to 1989 and headed Massachusetts Bay Commuter Railroad, the private company hired to provide commuter rail service from 2003 to 2014. MBCR lost the commuter rail contract to Keolis Commuter Services in mid-2014.
When the T began looking for companies to build new commuter rail locomotives and coaches, O’Leary says, MBCR was not consulted. “We were told you’re not to be involved,” he says. “I said, wait a minute, our people operate those trains, we maintain those trains. The fact that we were not more engaged in the design of those vehicles was absurd.”
O’Leary says the contract with South Korea-based Hyundai Rotem to build new commuter rail coaches came at a time when a no-travel policy was in effect at the T. “So senior management at the T, as I understand it, never went to Korea to fully do their due diligence. How shortsighted is that?” he asks.
O’Leary, whose firm Alternate Concepts Inc. manages rail service in several cities, echoes the concerns of the special MBTA panel, saying the agency too often picks the lowest bidder on a project rather than the best bidder. “There’s this belief they can more easily defend the low bidder to the board and customers than trying to make a decision on what offers the best value,” he says.
The T went with the low bidders on the $566.6 million contract for new Orange and Red line cars and the $2.7 billion contract to run the commuter rail service. CNR MA, a subsidiary of a Chinese company that is the world’s largest manufacturer of rail cars, bid 21 percent lower than its next-closest competitor on the Red and Orange line contract. Keolis won the commuter rail contract with a bid that was 6 percent lower than the one submitted by its only rival, O’Leary’s MBCR.
Keolis lost more than $29 million in its first year of operation, prompting Transportation Secretary Pollack to say the company “failed to understand the full extent of the costs associated with meeting their contractual obligations.”
Pollack says the problem with T procurement has not been picking low bidders. “If we write the specifications correctly to get the vehicles we need and if we run the procurement correctly and, more importantly, if we manage the contracts afterward correctly, we should be able to get vehicles that come in on time, on budget, and work when we put them in service,” she says. “That has been a problem for the T and we are taking a very aggressive approach to the new Red and Orange line car order.”
Pollack says the problems with the commuter rail locomotives are a good example of what she’s talking about. “The problem that caused us to delay putting them into service was a ball bearing that did not meet contract specifications that had been installed years before the delivery date,” she says. “That tells me that had we been doing the right quality assurance all along, step by step, we should have been able to catch that sooner and not waited until they were delivered and then said, hey, this ball bearing very deep in the engine doesn’t meet the contract specifications.”
‘NOTHING GETS PAID UNLESS I SAY SO’
Polcari didn’t participate in the selection of the Chinese company building the T’s Red and Orange line cars, but he says he is aggressively managing the contract now. He has tech consultants on site in China and a coordinator at the T working full-time on the project. Polcari is also heavily involved, personally, visiting the plant in Manchuria and meeting with the company’s management regularly.
“We’re all over them and I just keep on coming,” he says. “Nothing gets paid unless I say so. I have to sign off on every payment.”
Polcari says he is trying to bring order to the procurement chaos at the T by importing the “taxonomy,” or procurement infrastructure, used by the Metropolitan Transportation Authority in New York City. He is also requiring every T official to follow more standardized bidding procedures. Instead of everyone doing their own thing, he wants his office to work collaboratively with the rest of the agency on purchases.
“We have to become business partners,” he says of the procurement office. “In the old days, materials did what it was told. It never thought. It was very two-dimensional — you ask for this, you get that. Now everything has to have a business case behind it. We have to convince people there are better ways and show them they work.”
He says there has been resistance to his more standardized approach, but he thinks people are coming to see the benefits. His office worked with the T’s human resources department to hire a private company to administer leaves under the Family and Medical Leave Act, an area the transit authority was having difficulty controlling. He says the request for proposals for a new administrator would have taken five months if human resources had done the procurement on its own. But, working through his office, Polcari says it took only a month. “They realized, holy smokes, this really works,” he says.
By trying to bring order and consistency to the procurement process, Polcari says he isn’t trying to stifle innovation. On a procurement last year for a federally mandated system to automatically keep commuter rail trains on the right routes at appropriate (and safe) distances from each other, the T ran into a wall financially. It didn’t have the money to start the project and wouldn’t have the money under a federal loan program until mid-2017, which would have meant the project would not be done in time to meet federal deadlines.
Polcari got a meeting with the Italian vendor, Ansaldo STS, and asked if the company would be willing to give the T what amounted to a zero-interest, $47 million bridge loan so the project could start quickly. By the time the Ansaldo loan comes due, Polcari expects to secure enough federal funding to pay off the Ansaldo debt and finance the rest of the project. He says the approach put Ansaldo to work immediately, saved the T $4 million in interest, and demonstrated to his stunned negotiating team that creativity can pay big dividends.
“We can’t follow conventional wisdom,” he says. “You have to think outside the box.”
In that vein, Polcari is talking with officials at the MTA in New York about “cooperative purchasing” of non-core items such as office supplies.“The MTA is the mother of all transit authorities in the United States,” Polcari says. “There is so much that we can share back and forth, but nobody shares. To share you have to have the same database. We’re moving toward that because there’s power in that. If you save 10 cents on a pencil, and if you buy 200,000 pencils a year, that’s a lot of money.”
Polcari says getting procurement right at the T is essential to the agency’s future. “If we don’t get a part to operations, that means a bus doesn’t get out or a rail car doesn’t get out,” he says. “We cannot afford to fail. Otherwise, operations goes right in the tank.”