Metrolinx cuts Bombardier vehicle order by more than half

Quebec-based company will now deliver just 76 vehicles, not 182. French rival Alstom plans to make vehicles for Metrolinx in a plant in Brampton, which will create between 100 and 120 jobs.

Thestar.com
Ben Spurr
Dec. 21, 2017

Metrolinx has reduced the number of light rail vehicles it is purchasing from Bombardier by more than half after a protracted legal dispute over the Quebec-based company’s ability to fulfil the contract.

Metrolinx chief executive officer Phil Verster confirmed Thursday that the agency has cut the order to 76 vehicles from 182, reducing its value to $392 million from $770 million. The new deal also includes greater financial penalties for Bombardier if it doesn’t deliver on time.

Metrolinx, which is the arms-length agency of the provincial government in charge of transportation for the Greater Toronto and Hamilton Area, placed the order for a fleet of Bombardier’s Flexity Freedom cars in 2010, and planned to run the vehicles on the Eglinton Crosstown, Finch West and other Toronto-area LRT lines. However, the agency will now run the Bombardier vehicles on the Crosstown only.

The agreement was hammered out through negotiations with Bombardier over the past seven or eight weeks, according to Verster. He said the settlement would protect Metrolinx financially while giving Bombardier incentive to perform.

“It’s really important to give suppliers an opportunity to succeed, and, if they don’t, they need to bear the commercial consequences,” he said.

“I do run our organization as a business ... This is what any business would have done facing this type of exposure.”

As part of the settlement, Metrolinx has agreed to extend, by 18 months, a separate contract that Bombardier holds for operating and maintaining GO Transit service. GO Transit operations have been contracted out to Bombardier for decades, and the company’s current contract was set to expire in 2023.

In a statement, Bombardier said the value of the GO Transit extension will effectively offset its lost revenue from the reduced vehicle order, and the new deals “do not change materially the size of our relationship with Metrolinx.”

Benoit Brossoit, president of the Americas Region at Bombardier, said the new arrangement was beneficial for all involved.

“We have always been resolved to find a clear negotiated path forward, one that delivers value to all parties, and foremost to the people of Ontario. Bombardier is fully committed to the Metrolinx project and to the people of the Greater Toronto Hamilton Area,” he said in a statement.

According to Verster, the new vehicle contract eliminates a major imbalance in the original agreement that could have left taxpayers liable for millions of dollars in sunk costs if Bombardier didn’t supply the cars on time.

Under the original deal, Bombardier would have had to pay Metrolinx $1,500 a day for each late vehicle. According to Metrolinx, the agency is on the hook to pay the consortium building the Crosstown up to $500,000 a day if the vehicles are late.

Verster wouldn’t reveal the harsher late fees that Bombardier is facing under the new contract. He argued the terms are confidential. But he said the penalties are “huge” and would offset any financial liability for Metrolinx.

The CEO added that the agency has also negotiated an extended warranty for the vehicles, as well as increased access to Bombardier’s production processes so that Metrolinx can track its progress.

Under the reduced contract, Metrolinx will be paying more per vehicle than under the original deal. Verster said that was because there are setup costs Bombardier must bear regardless of the size of the order.

The two parties became locked in a bitter dispute over the vehicle purchase last year, when Metrolinx filed a notice of intent to terminate. The agency claimed that Bombardier had yet to supply the first prototype vehicles and had failed to deliver on its contractual obligations.

Bombardier responded by taking the agency to court, and scored a victory in April when a judge ruled Metrolinx couldn’t terminate the order without going through a dispute-resolution process outlined in the contract.

The settlement announced Thursday means the dispute process is over.

In May, Metrolinx inked a $528-million vehicle order with one of Bombardier’s competitors, the French company Alstom. The agency described the purchase as a backup in case Bombardier failed to deliver.

Alstom confirmed Thursday that it plans to manufacture the Citadis Spirit vehicles in a facility in the Brampton area, which will create between 100 and 120 jobs.

Metrolinx intends to use 17 of the 61 Alstom cars on the Finch West LRT, and the remaining vehicles on other planned LRT lines in the province.

Verster wouldn’t rule out deploying Alstom cars on the Crosstown if Bombardier doesn’t live up to the reduced contract, but, he said, he hoped that wouldn’t be necessary.

“We are confident that we have given them every opportunity to succeed,” he said of Bombardier.

The $5.3-billion Crosstown LRT will extend 19 kilometres along Eglinton Ave., and is scheduled to enter service by 2021.

Bombardier was supposed to deliver the first two prototype vehicles for the fleet by 2015, but has yet to supply one. A spokesperson for the company said it plans to make the first delivery in the fall of 2018.

In a written statement, Ontario Transportation Minister Steven Del Duca said the government would “continue to be vigilant with respect to Bombardier’s performance.”

“Simply put, they are expected to deliver as per our new agreement or face significant consequences.”