Letter from Metrolinx leaves door open to having City operate LRT, but strongly argues against it.
By Ryan McGreal
Published November 28, 2017
Three months ago, Hamilton City Council passed a controversial motion requesting to have the city's public transit service, Hamilton Street Railway (HSR), operate the new Light Rail Transit (LRT) line the Province is building. The Province has finally responded, and instead of a simple yes-or-no answer, the response punts the ball back to the City to make a final decision.
Hamilton City Council voted on August 18 to ask the Province to have the HSR take over operations and maintenance. The letter from Metrolinx CEO Phil Verster has denied the request to give maintenance to the City, but leaves the door open for operations.
However, it argues strenuously against that option and itemizes all of the costs, responsibilities and risks the City will have to assume if it takes on operations.
Verster writes, "I believe that removing operations from the procurement and assigning them to HSR is not in the City's interest."
The typical procurement model for Metrolinx rapid transit projects is to award a Design-Build-Finance-Operate-Maintain (DBFOM) contract to the consortium with the winning submission to the Request for Proposals (RFP) process.
The consortium has to finance the project, complete the detailed design, build the system, purchase the vehicles and equipment, and then operate and maintain the entire system for the 30 year term of the contract. Since the consortium is responsible to operate and maintain the system for a fixed cost, they have a strong incentive to design and build the system without cutting corners, since they will only hurt themselves.
Under the DBFOM model, Metrolinx pays the consortium a fixed budget to operate and maintain the LRT system, and it is up to the consortium to work within that budget.
Metrolinx issued a Request for Qualifications (RFQ) back in February for a DBFOM contract on the Hamilton LRT, and is ready to issue the RFP to a shortlist of bidders that have been deemed to have the qualifications to deliver the project.
In Toronto and Ottawa, where the local transit organization already has experience operating rapid transit, Metrolinx opted for a slightly different Design-Build-Finance-Maintain (DBFM) procurement model, leaving operations out of the contract so it can be managed by the local transit service.
If Hamilton insists on the same model, the City will have to cover all the associated costs, in addition to driving the light rail vehicles in their service: overseeing operations through a control centre; hiring, training, certifying and supervising drivers and operations centre staff; controlling the safety and security systems; customer service, including lost and found, queries and complaints; and assuming the risk for all commercial claims related to LRT operations.
The letter writes, "The City will also be responsible for and carry the complete and full risk for ensuring that HSR is capable of fulfilling the above accountabilities and has comprehensive plans to achieve that state of readiness."
Given the recent highly-publicized service management crisis in which the HSR can't deliver its own local bus service without daily missed routes, it is not surprising that Verster's letter presses this point home.
Having the City operate LRT also "increases the project's complexity and creates interface risks" between the City and the consortium and can lead to higher operating costs, since the cost is no longer fixed in the contract with the consortium. In addition, the entire procurement process would have to be restarted for a DBFM contract with operations removed, meaning another four or five months' delay in getting a contract signed.
Metrolinx gives Council a firm deadline of January 24, 2018 to confirm whether it still wants to proceed with taking operations out of the contract. If Metrolinx does not hear back from the City by that date, it will proceed with the DBFOM contract process already underway and issue the RFP.
The letter states: "Until the City formally agrees to all the provisions in this letter, Metrolinx will continue to proceed on the assumption that the project will be delivered through a DBFOM model with ProjectCo delivering the operations."
So that good news is that if Council tries to stall on making a decision, the already-agreed process will simply continue after January 24.
The letter also pointedly notes that Council agreed to the DBFOM procurement model when it approved the Memorandum of Agreement (MOA) between the City and Metrolinx, which specifies:
The Project will be designed, built and owned by Metrolinx and operated by or on behalf of Metrolinx on lands in the City of Hamilton which Metrolinx will either own or in which it will have real property interests. [emphasis added]
IANAL, but given that Council would be changing a previous decision to approve the MOA, it seems to me that it might require a reconsideration motion with a two-thirds majority for Council to insist on changing the terms of the agreement.
A year ago, Council was advised by both the City Solicitor and Integrity Commissioner that it could not put LRT to an election ballot referendum without a reconsideration motion, specifically because Council had approved the terms of the MOA.
Council has called for a special General Issues Committee (GIC) meeting this Friday, December 1 immediately following the budget meeting at 9:30 AM to discuss the letter from Metrolinx.
Curiously, this special meeting instantly had two delegation requests from high-profile LRT opponents, suggesting that they had an inside scoop from someone around the Council table that the meeting was going to happen.
LRT opponents on Council enthusiastically voted for the motion to ask Metrolinx if the HSR can operate LRT, since anything that has the potential to add delay and uncertainty to this project serves their interest in seeing it fail.
Following is the full text of the letter from Metrolinx CEO Verster to Hamilton City Manager Chris Murray:
Dear Mr. Murray,
RE: Hamilton LRT Operations and Maintenance
I am pleased to respond on behalf of the Province and Metrolinx to Hamilton City Council's August 18, 2017 motion regarding Hamilton Street Railway (HSR) operating and maintaining the Hamilton Light Rail Transit (LRT) system.
The March 2016 Memorandum of Agreement (MOA), between Metrolinx and the City, confirmed key principles, roles, and responsibilities for the Hamilton LRT project, which is expected to be complete by 2024. The MOA identified Alternative Financing and Procurement (AFP) using Design-Build-Finance-Operate-Maintain (DBFOM) as the anticipated delivery model for the project. The DBFOM model means the successful consortium (ProjectCo) responsible for designing and building the project, is also responsible for operating and maintaining it for the 30 year concession period.
This approach ensures that ProjectCo considers all the aspects of performance including that of operations and maintenance assets, and, in doing so, it provides a strong incentive for high quality design, high quality construction, and also for cost effective and efficient long term performance.
Metrolinx and the Province have devoted significant time and effort to consider and assess the implications of changing the delivery model at this stage of the project, while ensuring value for money, appropriate risk transfer and committed project timelines are maintained. I believe that removing operations from the procurement and assigning them to HSR is not in the City's interest for the following reasons:
It increases the project's complexity and creates interface risks between ProjectCo and HSR, which will imply a commercial risk to HSR. Should such interface risks not be resolved during the delivery of the contract, the implementation of services wil be affected and HSR will incur costs and liabilities for such delays;
It can result in higher operating costs due to the lack of competitive tension compared with the DBFOM model where bidders provide a long term fixed price for operations;
It can result in delays in the procurement of approximately 4 to 5 months as it requires a new Request for Qualifications (RFQ) to ensure and open and fair procurement process.
Based on these considerations, I strongly recommend that the project continue to be delivered using the DBFOM model. However, if the City decides it is not willing to proceed with this model, Metrolinx is prepared to remove operations from the current procurement and work with the City on the basis that HSR will take on both the commercial and operational obligations under contract with Metrolinx remaining as the project owner.
To be specific, ProjectCo will retain the responsibilities for daily and lifecycle maintenance as well as for capital rehabilitation of the assets. This is consistent with the Design-Build-Finance-Maintain (DBFM) LRT projects in Toronto and Ottawa.
The City will be fully responsible and accountable to Metrolinx to operate the LRT system with the following obligations:
Safe operations/driving of Light Rail Vehicles (LRTs) in their revenue service;
Regulation and supervision of LRV operations through the operations control centre (OCC);
Recruitment and selection, training, certification and ongoing supervision and scheduling of drivers, OCC staff and other operations staff;
Regulation and supervision of all LRV movements on the mainline and to/from the Operations, Maintenance and Storage Facility;
Control of critical safety systems and authorizing access to LRT rights-of-way during operating hours;
Provide customer information and assistance (including lost and found, addressing customer queries and complaints management);
Respond to security incidents and emergencies, monitor passenger assistance intercoms and on-demand real-time CCTV, coordinate responses with police, fire and emergency medical services; and
Provide full support and assistance to Metrolinx and ProjectCo during design development and delivery phases as required where it pertains to Operations.
All commercial claims related to HSR's responsibilities as the provider of operations under the contract.
The City will also be responsible for and carry the complete and full risk for ensuring that HSR is capable of fulfilling the above accountabilities and has comprehensive plans to achieve that state of readiness. Such plans must be shared with Metrolinx by no later than March 2020, given that it typically takes 4 to 5 years to properly prepare the operational capabilities. The City wil also have to enter into an operations agreement with Metrolinx, by March 2020, to define the roles and responsibilities of the parties, the service and performance standards, the commercial responsibilities as well as the interface requirements between HSR, Metrolinx and ProjectCo.
This approach is consistent with the Toronto and Ottawa LRT projects - where the local transit agency will operate the LRT services.
Until the City formally agrees to all the provisions in this letter, Metrolinx will continue to proceed on the assumption that the project will be delivered through a DBFOM model with ProjectCo delivering the operations. If the City wants to change to a DBFM model with HSR operating the operations, I would ask that the City formally confirm agreement to all the conditions in this letter, supported by a Council resolution, by January 24, 2018.
I appreciate the patience shown by the City and Trust this response demonstrates the commitment of the Province and Metrolinx to the LRT project and our willingness to consider the City's requirements.
President & Chief Executive Officer
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