Some rather odd news in the NZ Herald today about “progress” on what’s happening regarding the procurement of Auckland’s future electric trains. It’s probably necessary to do a little bit of a history lesson to understand what’s going on:
- Back in November last year the government confirms its support (by way of a loan to KiwiRail) of Auckland’s rail electrification. This is eight months after it cancelled the regional fuel tax that was previously paying for the trains.
- In March this year KiwiRail put out an initial request for tenders.
- In July this year prospective suppliers of the electric trains were short-listed down to four possible companies. These were all from highly experienced and reputable manufacturers: Hitachi Limited; Hyundai Rotem; Bombardier Transportation Australia Pty Limited; and a consortium of Construcciones y Auxiliar de Ferrocarriles, SA. (CAF) and Mitsubishi Corporation.
- In September, a little bit of an odd spanner was thrown into the works when it was announced that another six companies had joined the “short-list” for the contract. At the time I noted that this was odd, but perhaps in the longer run it might be a useful thing for as many companies to be involved as possible: to ensure we get the best trains for the best possible price.
But today’s Herald article suggests that there is a lot of annoyance amongst the industry about what’s happening with tendering for the contract – particularly in terms of what led to the addition of these six additional companies in September, a number of months after the original group of four were short-listed. Here’s a few extracts from today’s article:
The Government’s tender process for supplying electric trains for Auckland is being criticised by a company that was originally shortlisted for the work, but has since pulled the plug.
Three other firms in the expanded shortlist of 10 companies have also withdrawn.
In July Bombardier Transportation Australia was one of four companies selected to compete for the KiwiRail contract – worth up to an estimated $500 million – to provide 38 three-car trains.
My guess is that all four of the original short-listed companies have withdrawn, probably in protest at the process. If this is true, then it’s an utter disaster in terms of the project moving forward and an utter disaster in terms of Auckland getting the best trains possible at the best price. The four manufacturers originally short-listed had excellent credentials and top-notice international reputations. To lose all four (if this has happened) is a big step in the wrong direction for the project I would think.
The article continues:
But KiwiRail, citing a desire to secure the “best possible whole-of-life outcome”, extended the shortlist to 10 in September.
In a letter from Bombardier to KiwiRail – obtained by the Herald – managing director Dan Osborne lambasted the process and withdrew altogether.
“We are very disappointed with KiwiRail’s decision to extend the shortlist of bidders,” the letter, dated September 21, said.
“Preparing a response to a tender for a project of this magnitude places significant demands on resources and funds, which can only be justified if Bombardier has full confidence in the tender process. Your [decision] raises questions on the level of confidence that Bombardier can have in the tender process.”
It is pretty weird that KiwiRail won’t even tell us who the other three companies that have withdrawn are.
All up, I must say I am getting very worried about progress on the “electric trains” part of the rail electrification project. There were early complaints from manufacturers over specifications for the trains (I remember hearing some complain that what KiwiRail is asking for is impossible) and now there’s the massive issue of potentially having all the initial short-listed suppliers withdrawing from the process altogether.
Does KiwiRail really know what it’s doing here? With the CBD rail tunnel being pretty damn steep, we cannot afford anything but the highest quality trains to run on our future rail system. I am very much starting to worry about how this whole process is turning out. It does feel like something of a shambles.
Processing...
Ask Joyce. That cheshire grin is getting annoying.
I really hope Labour is all over this one. AND saying very clearly that any abuse of process they find they will rip up the contract when elected.
Rip up the contract, what so we have to wait even longer for trains? Also there is very little chance that Labour will be in government next year so these trains would have been delivered by then.
Threatening to rip up contracts is a good way to ensure that ALL the bidders withdraw.
I’ve been involved in government tenders here and in Australia. In Australia I was on the government side and we were scrupulous about our processes. We had a lawyer acting as a probity auditor on large tenders, and our director of procurement made it quite clear that any tender that ended in a court case for any reason would be career ending for everyone involved. By contrast my experience of NZ government tendering is that it is a mess. When it isn’t incompetent it verges on unethical. Agencies don’t seem to have any sourcing strategies and my experience is that staff such as project managers just make it up as they go along. In my field it seems to be quite common for work to go to a vendor without any sort of tender process taking place.
In this case I don’t blame Bombardier for withdrawing. We need to be told if the shortlisting step was included in the published tender, if it was announced formally to the shortlisted bidders (and how), and why and by whom the decision to add bidders to the shortlist was made.
From the original article (http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10671591), it seems that Kiwirail are taking responsibility for the shortlist decision:
“Mr Quinn said KiwiRail had decided to expand the shortlist after reflecting “on the critical importance of securing the best possible whole-of-life outcome, taking account of quality and cost.” He said market conditions were changing continually around the world and the company was keen to secure a deal offering high-quality maintenance for at least 10 years as well as a superior standard of rolling stock. He denied there had been any political interference either at a Government or regional level to secure a place at the bidding table for Chinese manufacturers, who include a partner in a consortium supplying KiwiRail with 20 new diesel freight locomotives in a $75 million deal.”
You make good points obi. My guess is that this mess is the result of incompetency on KiwiRail’s behalf.
I agree that this is getting worrying, Bombardier has some pretty unique experience in designing EMU’s that in Australia that match our network perfectly, namely for Perth and Brisbane. I think if any of the first 4 are still in the running it would be Hyundai Rotem as they would have a good understanding on what Kiwirail likes after building the Wellington units. I think the tender process should have been carried on by ARTA and now Auckland Transport as at least they are more likely to have Aucklands interests at heart rather than Kiwirail who will be trying to do anything it can to please the government. There are too many signs of political interference in this process as well as a good dollop of incompetence.
Also with the NZ dollar so high we should able to get a better price but whats the bet that by the time they get around to ordering them the dollar would have fallen and we have to pay more?
Joyce has previous as a meddler for political reasons, just loves piling rocks in front of rail progress, and seems to use KR as a proxy here. We’ve still to get to the bottom of the sudden hike in ‘track access’ charges to AT of some 30m. It suits their asphalt paving mania to ignore due process and find new costs and charges for rail.
maybe the prices were looking a bit high from the four initial quality bidders, so the govt put the screws on them.
3/4 of the remaining bidders have a Chinese element to them.
I guess there is a possibility we may get a good deal if China sees NZ as a sort of loss-leader as the first ‘western’ country to get Chinese EMU’s.
However is does add an element of risk such as more potentials delays in delivery and teething problems.
I know the new DL locomotives were several months late due to various issues, morel likely to see the same again.
Ah, fugg. Can’t anything that National is involved in go smoothly? If they end up getting a name as people that care more about sabotaging projects than helping NZ that would at least be some payback, but at what price???
Bombardier are probably not too unhappy- they have recently been announced as preferred bidder for Adelaide’s new fleet of EMUs
http://www.railexpress.com.au/archive/2010/november/november-24-2010/other-top-stories/bombardier-to-deliver-adelaide2019s-electric-fleet
“Bombardier are probably not too unhappy- they have recently been announced as preferred bidder for Adelaide’s new fleet of EMUs”
So is this about finding new ways to fall further behind Australia?
Apparently the Korean trains for Wellington have had problems as well:
http://www.rmtunion.org.nz/publications/documents/Activist-17-2010.pdf
Quote from page 5
… The Matangi trains in Wellington have high levels of build issues and so we have heard that Rotem have been advised to ensure that all units must be to standard before being shipped to NZ. The commencement of wider training of Metro Staff has been deferred owing to “issues” with the training train
Given this farago, does section 131 of the Companies Act 1993 apply to SOEs like the New Zealand Railways Corporation? That is, are the directors of the NZRC trading as KiwiRail required to ensure that management ‘act in good faith and in what the directors believe to be the best interests of the company’? The decision to expand the ‘short list’ of tenderers does not seem to have been taken in the best interests of NZRC as is proven by the apparent withdrawal of the short-listed tenderers. The question then must be asked is what is good for KiwiRail good for Auckland? Abusing the tender process may well have positive flow-on effects for KiwiRail’s relations with CNR but it doesn’t mean it’s good for Auckland. While I agree with obi on this one I think there is also the stench of political interference lingering in the air.
I don’t think Kiwirail really care that much about Auckland and are only involved because they have to be. It wouldn’t surprise me if they are using the tender to angle for more locos at the same time to get them cheaper. The have already indicated that they want at least another 30 new ones on top of the 20 new DL’s that have just started arriving.
Anybody know what level of detail one has to go into to get the Auditor General to investigate?
This is exactly why we have to have an autonomous public transport authority in charge of rail procurement for urban passengers services. To expect a mostly freight-focused national railway to really care about (commercially) loss-making urban commuter services is like pushing on a piece of string. Experience around the world bears this out and every authority on railway system management seems to make the same point. It’s a sharp lesson that their insights, forged in the USA or Australia, also apply to New Zealand–a pity the cost of our education is so high. If as some suggest Labour is onto it, they should be pushing for Auckland Transport to be split into a PT Authority and a Roads authority, with Kiwirail train operations in Auckland taken over by the PT Authority and NZTA motorway functions taken over by the roads authority, both of them answerable to Auckland Council and only minimally to Wellington. Oh wait, that’s how they do things in Perth. I rest my case. While we are about it we should buy back the buses so that we don’t have to push on a bus operator piece of string either.
First time blogger – some great discussion here….. Can someone please clarify something for me – are Kiwirail evaluating the tenders for the new trains that utlimately the people of Auckland will pay for? If so, why?
I’m no expert in the contractual arrangements, but… The people of Auckland want to buy a rail SERVICE rather than trains themselves. Kiwirail are the only people able to offer a rail service. In order to provide that service, Kiwirail need to electrify the current rail lines and procure new trains. The contract between the Supercity and Kiwirail might be structured to pay for the capital costs of operating the service up front, or gradually over the life of the service. The trains will never be owned by the Council.
The trains were originally planned to be brought by Auckland through ARTA and they would let their rail service provider (currently Veolia) use those trains to provide a service. The government was going to pay for the infrastructure via way of a 5c regional fuel tax and the trains would have been paid for by another 5c regional fuel tax but that was canned by the current government. Now the government will pay for all of the infrastructure costs via way of a general fuel tax and will loan Kiwirail the money to buy the trains at commercial rates (even though they can source the funds cheaper). Kiwirail will then lease out the trains to Auckland to provide services. One of the concerns I have about this is that Kiwirail are under pressure to make as much money as possible so I fear they will try to hold the city to ransom and use rate payers to prop up their freight business, ARTA also had similar concerns in a paper they presented to the NZTA earlier this year.
Just for background on how things work now:
Auckland Transport own the DMU’s (the trains that aren’t hauled by freight locos), they also own the SA set carriages but they lease the locos from Kiwirail. Veolia run the passenger trains and employ the train staff and the drivers of the DMU’s. Kiwirail employs the drivers of the freight locos (although some Veolia drivers are now trained for them) and charge Veolia to use them, my understanding is that it costs much more to use the Kiwirail drivers which is one of the reasons why we don’t see many SA sets on weekends even though the DMU’s can be packed. Unfortunately all of these different parties who all need to make profit is probably one of the reasons why it costs more to operate trains in Auckland than it should plus adds to the confusion and blame game that occurs when things go wrong.
“One of the concerns I have about this is that Kiwirail are under pressure to make as much money as possible so I fear they will try to hold the city to ransom and use rate payers to prop up their freight business”
Trying to combine a freight company and urban passenger rail doesn’t make much sense. There is no common objective, only a mistaken belief that vaguely common means (ie. rail) equals a common objective. Freight and urban passenger obviously don’t share trains, and even the desired track topologies are different… Urban passenger rail requires track through suburbs converging in a CBD, while freight requires track to join freight depots and ports and should avoid residential areas as much as possible.
I’d break up Kiwirail in to an Auckland rail company, Wellington rail company, Inter-island ferry company, and the freight business. I’d be surprised if the freight business was viable and sustainable… I suspect that it is just a subsidised transport service for the forestry, dairy, and coal industries and I don’t see any economic or social reason for that subsidy, or for government investment.
An Auckland rail company owning track, trains, and stations would hopefully be small, efficient, and responsive.
I would agree also. Queensland Rail was a vertically integrated company which has now been split into half, with the commercial business side privatised, and the commuter network set up as a public company that owns the trains and tracks.
Agree with you both here but Ontrack, owning and maintaining the below the wheels assets should be part of NZTA, then charging for track access to AT, KR, Wellington, and potentially new entrants into the rail transport market. I think there is future potential especially for tourist operators on various lines…. so long as we don’t mothball them all shortsightedly.
Kiwirail will actually own the new trains and lease them to Auckland. Kiwirail will be given a loan from the government to cover the costs of this, then I guess Auckland Transport will pay fees to cover the interest costs of this loan.
This was a system set up by Steven Joyce soon after becoming a Minister.
I guess this meant he could keep a much closer eye on things.
Thanks obi and luke, that makes things a bit clearer. Share your concerns though re: poor handling of the tender process and the commitment of kiwirail
“While we are about it we should buy back the buses so that we don’t have to push on a bus operator piece of string either.”
Are you advocating communism in your free time too? [At least that’s what they’d call it if that idea got any traction – I like the idea too, but fat chance in 2010]
Communist like Perth, or like Brisbane? Or perhaps half-communist like Sydney 😉
(I am raising my eyebrow)
I sent this to the Auditor General:
“I would be grateful if you consider an enquiry into the procurement of electric train sets for Auckland.
In particular:
1. Any ministerial or government directives to Kiwirail with regard to any preferred tenderer.
2. Any ministerial or government directives to Kiwirail regarding the extension to the shortlist of tenderers.
3. Any involvment (in any capacity) of a company called Pacific Power Development in the extension of the shortlist
4. Any other matters which could be seen as relevant to the withdrawal from the tender process of Bambardier and three other companies.
Kind regards”
Hi Chris R,
Did you get a response from the Auditor General?