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Metro responds to FTA, and CAF responds to Metro

Over the weekend, Metro posted a letter from CEO George Greanias to the FTA in response to the findings of the FTA from their investigation into Buy America compliance. Basically, Metro says they agree with the FTA’s findings, have issued to a stop-work notification to Spanish vendor CAF, and will work to terminate their contract with them. As you might expect, given the size of the contract, CAF isn’t too happy about that.

“Since the FTA concluded their analysis of Houston Metro’s contract with CAF USA, new information has come to light that could persuade the federal agency to reconsider their conclusions,” CAF said in a statement issued by its American subsidiary.

The statement, CAF’s first public comments since the FTA announced its findings Wednesday, didn’t describe this new information.


Scrapping the contracts now, the company’s statement said, would potentially risk millions of dollars in taxpayer funds. Metro said last week it had paid CAF $40 million for work done since the contracts were awarded in 2009; CAF’s statement put the figure at $50 million.

Greanias said last week it was unclear whether any of the money paid to CAF could be recovered.

CAF’s statement asked Metro to join the company in seeking a review of the FTA decision.

“While we know there was a review of the process undertaken by the FTA with the cooperation of Houston Metro, CAF USA was not a part of that review and we are confident there are facts the company can provide that were overlooked and accommodations that could have been made” that would preserve the federal grant while permitting existing contracts to continue, James Maiwurm, CAF USA counsel, said in the statement.

I hate to say it, but this sounds like the groundwork for litigation. I’m sure there’s some amount of money that Metro can throw at CAF to avoid a lawsuit, the question is how much and whether it would be a better bet to roll the dice in court. Clearly, this sage isn’t over yet.

On the matter of where Metro stands with the FTA and the New Starts grants it hopes to get, I asked the a few questions before the weekend. I have since received responses from George Smalley and George Greanias. Here’s what I got from Smalley:

We are now preparing a plan for the FTA about how we will conduct a new rail car procurement. We expect to transmit that plan to the FTA within a couple of weeks. Once the FTA accepts that plan, they will then resume their review of several outstanding Letters of No Prejudice (LONPs) for construction activity on the North and Southeast lines – work like paving that requires an LONP to enable METRO to be reimbursed. Once the LONPs have been executed, then the FTA will resume consideration of the Full Funding Grant Agreement (FFGA). We’re not in a position yet to know when that FFGA would be executed.

And from Greanias:

My understanding on the LONPs is that the FTA will get back to those at the latest once they’re OK with our plans regarding the process for moving forward on the reprocurement. On resuming negotiations towards a Full Funding Grant Agreement, our understanding is that the FTA will get that under way once they are comfortable with our plan for the reprocurement. So clearly getting the procurement process nailed down quickly is a top priority. Fortunately, and as I’ve said publicly, the FTA has indicated that METRO’s procurement manual and policies are not the problem; it’s that they weren’t followed. Likewise, there is a considerable amount of guidance available regarding the federal rules on procurement. So we have plenty of guidance on how to do things right.

In theory, the process for Metro could be back on track within a few weeks. Obviously, we don’t know how long the FTA will take to make its decisions, and of course the answer could still be No. But all signs seem to point to Metro being back on the right path. We’ll see how it plays out from here.

UPDATE: Did I say something about potential litigation?

While acknowledging that persuading the FTA to reverse course would be a challenge, CAF USA’s counsel, James Maiwurm, said the stakes were high enough to merit the effort.

“This contract wasn’t let yesterday; we’re 14 months into it,” Maiwurm said. Considerable work has been done at the company’s American manufacturing facility in Elmira, N.Y., suppliers and subcontractors in several states have mobilized, and CAF has begun moving employees to Houston to fill as many as to 100 maintenance jobs, Maiwurm said.

The company threatened possible legal action in a letter sent to Metro on Sunday.

“Unless the Notices are promptly rescinded, CAF USA, Inc. will have no choice but to make claims for equitable adjustment and otherwise under the Contracts and applicable law to recover damages resulting from the issuance of the Notices,” they wrote in the letter.

Yeah, this is a long way from over.

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