Mass.-based company with Chinese backing beats local group for SEPTA car contract

SEPTA plans to order 45 new Regional Rail cars this week, a purchase designed to reduce crowding and improve service on the commuter rail lines.

The contract is expected to go to CRRC MA, a subsidiary of a major railcar manufacturer in China but a new player in the United States. The company opened its first North American office in Boston in 2015 and is building an assembly plant in Springfield, Mass., scheduled to be completed in October.

CRRC MA received an adequate technical rating in SEPTA’s review of three bids for the contract, and offered a great price, $34 million less than the nearest competitor, the Canadian company Bombardier.

In July, 55 members of Congress signed a letter asking the Committee on Foreign Investment in the United States to investigate CRRC MA's parent company, China Railway Rolling Stock Corp., and a separate American rail company. No action was taken, said a representative for U.S. Rep.  Peter DeFazio (D., Ore.), one of the leaders on the effort. The letter states the government owns CRRC, the biggest rail car manufacturer in the world, and subsidizes it so it can undercut competitors.

“In effect, American railcar manufacturers and its associated industries, such as steel, are now competing against the resources of the world's second-largest economy,” the letter stated.

But the company's vice president, Jai Bo, said its SEPTA bid was lower because much of the design work will be done in China, there are strong existing relationships with suppliers, and the company will be sharing expenses among its other American rail projects.

CRRC MA’s bid of $137.5 million was $47.2 million less than the bid from Hyundai Rotem, a South Korean firm with a manufacturing facility in Philadelphia, SEPTA reported. Hyundai Rotem handled the contract for the railroad’s Silverliner V cars, which last summer were found to have poorly designed welds in their equalizer beams.

CRRC MA has contracts to build cars for the Massachusetts Bay Transportation Authority and Los Angeles’ Metro, but so far has not produced a single American rail car.

“In North America, we don’t have that much experience; however, we have great global experience providing cars, a lot of cars, including similar car types that SEPTA is going to procure this time,” Bo said.

Going with the newcomer saves SEPTA a lot of money, said  Matt Mitchell, vice president of the Delaware Valley Association of Rail Passengers, but also entails risk.

“If they’re able to deliver on the contract, the savings are important. That’s millions of dollars that could be plowed into other system improvements,” he said. “If the cars end up being unreliable and SEPTA has to spend a lot more money on maintenance on these cars, that’s going to cut into what you’ve saved up front.”

SEPTA requested technical reviews from all bidders. The contract is expected to include a $500 per-car, per-day penalty for any delays.

“The manufacturer is fully cognizant of the additional requirements [of] building rail vehicles for the U.S. market,” said Andrew Busch, a SEPTA spokesman.

The bi-level cars are designed to be pulled by 15 locomotives scheduled to arrive next year, and will help move the more than 65,000 riders who use Regional Rail each day. The cars will have WiFi connectivity, power outlets, and trash receptacles, said Mitchell, but no bathrooms.

The car shell will be manufactured and tested in China, Bo said. It will then be shipped to the Springfield facility for assembly. Work should begin in 2018, with delivery in 2019.

CRRC MA won’t officially have the contract until SEPTA’s board votes Thursday, but naming the Massachusetts company the winning bidder is on the agenda for that meeting. The contract includes an option for another 10 cars for $23.5 million.

A spokesman from Hyundai Rotem, Andrew Hyer, was stunned by CRRC MA’s bid.

“I cannot grasp how they are able to do it at that cost,” he said.

Hyundai Rotem’s promise to build its plant in Philadelphia contributed to its winning the Silverliner V project, and losing this contract could mean the end of that facility. The contract would have provided more than 100 local jobs, Hyer said, and although Hyundai Rotem intends to keep the facility for the time being, it is essentially shuttered.

“It is one more nail in the coffin,” said Joe Coccio, of Transportation Workers Union Local 234, which represents workers there.