Scrra Contract with Connex by tdq15532


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									   SCRRA Board of Directors

Management Options for Metrolink
   Train Operations Function
                June 26, 2009

     David Solow, Chief Executive Officer


• Since the Chatsworth collision on September 12,
  2008,                   aggressively
  2008 SCRRA has been aggressi el enhancing the
  organizational infrastructure to focus on safety, the
  most important aspect of our Metrolink service.

• One of the principal recommendations of the
  Metrolink Safety Peer Review Panel was to examine
  the business model to determine if it continues to
  meet the needs of an increasingly large and complex
  commuter rail service.

• In January 2009, the Board directed staff to examine
  all available options for the delivery of operating
  services (train and engine crews)

• SCRRA currently operates a large commuter rail
  system, the second largest contracted operation in
  the nation

• Since the Chatsworth incident, SCRRA staff has
  played an increasing role in daily train operations

• SCRRA is the responsible entity for federal and state
  safety and regulatory compliance

Background to Connex Contract
• Since its inception, Metrolink service has been
  provided by contractors
• Amtrak turnkey, followed by series of specialized
• In-sourced Dispatchers in 2002
  Current contract f T i and Engine Crews, OP123-
• C      t   t t for Train d E i C           OP123
  05, awarded to Connex in 2004, NTP in 2005
          5 year term
• Initial 5-year term, requires notification to Connex of
  SCRRA’s election to exercise additional 5-year
  option by June 30, 2009, and Connex’s agreement to
  accept it
            Options Under Review

• Continue to contract with Connex Railroad for
  additional five year option period commencing July 1,

• Do not exercise available option under Connex
  contract and seek qualified proposals for a new

      g      p      g
• Bring the operating services in-house

      Option 1: Extend the Term of the
            Current Agreement

     y                            g
• May 1 letter from Connex advising SCRRA that it
  would not agree to accept the option extension if

• Agreed to cooperate with SCRRA to transition to
  new contractor or to an in-house operation

                   Option 2: Seek New Qualified Contractor

•   Limited number of potentially qualified contractors

    • Need for sufficient corporate depth to support the local

•   UP and BNSF have indicated no interest

•   Amtrak might be willing, but prefers consolidated management
    • Staff does not recommend pursuing this option

•               g
    Difficult negotiations on indemnification and insurance
    requirements; no assurance of success

•   Limited time for new procurement

                Limited Time to Transition to
                 New Railroad Contractor
                     EVENT                         TIME       COMPLETION
•   Draft “Pre-Qualification” Criteria/Scope of   20 days     July 17, 2009
•   Advertise Pre-Qualifications                     -        July 17, 2009
•   Due Date of Pre-Qualifications                30 days    August 17, 2009
•   Evaluate Pre-Qualifications                   30 days    Sept. 18, 2009***
•   Request Technical/Cost Proposals              45 days     Oct. 30, 2009
•   Evaluate Technical Proposals                  30 days     Nov. 30, 2009

•   Evaluate Cost Proposals                       15 days     Dec. 15, 2009
•   Authorize Contract Award – Board Action       15 days     Jan. 8, 2010
                                                              Jan 8 2010***
•   Contract Negotiation and Award                30 days     Feb. 12, 2010
•   Transition to New Contract                    180 days    June 30, 2010
*** Process would be delayed if any protests
  Option 3: In-Source Train Operations:
         Criteria for Evaluation

        y           p
1. Safety of Train Operations

   • Closer supervision by Metrolink will increase its
      bilit t             d              li      ith
     ability to measure and ensure compliance with
     safe operating procedures

2. Reliability/Quality of Services

   • Improvement due to reduced number of
     management layers between SCRRA and train
               p y
     service employees

     Option 3: In-Source Train Operations –

3.         p y      p y
         Employer/Employee Relations

     •     Removal of potential for changing contractors
           could improve employee morale

4.       Customer Service

     •     Improvement due to reduced number of
                 g       y
           management layers between SCRRA and train
           service employees

     Option 3: In-Source Train Operations –

5.       Operating Costs

     •     Short term: Costs in the short term on an
           “apples to apples” basis are very close
             pp        pp                   y

     •     Long term, will grow with national railroad labor
           market and other factors including hours of
           service (but not as a result of in-sourcing per

     •     Transition costs estimated but may evolve as
           transition plan firms up

               Cost Comparison Summary
                             (in millions of FY 2009 dollars)

                                                                  NEW RAIL
                                               BASE                          IN-SOURCE
Non – Exempt                                   $ 17.5              $ 17.5      $17.5
    p                                          $ 3.0               $ 3.0       $ 3.2
Non – Labor                                    $ 2.3               $ 2.3       $ 2.3
FELA Additive above Workers Comp                  -                $ 0.75      $ 0.5**
Gen. & Ad i / Overhead Expenses
G      Admin. O h d E                          $ 18
                                                 1.8                 1.8
                                                                   $ 18         0.5
Profit                                         $ 1.4               $ 2.0         -
Subtotal                                       $ 26.0              $ 27.4      $ 24.0
Reallocation of SCRRA Overheads                   -                  -         $ 1.8
Total                                          $ 26.0              $ 27.4      $ 25.8
          ,                       y
** Reserve, but SCRRA is not likely a
    FELA employer

  Option 3: In-Source Train Operations –


• Potential inability to shift any portion of liability

• Participation in collective bargaining process

• Limited time frame to complete

• Loss of ability to “bar” employees completely due to
  constraints of collective bargaining agreements

 Option 3: In-Source Train Operations –


• Retention of qualified supervisory personnel and
  T&E crews from current work force and external

• Change in long-standing SCRRA model that is not
  readily reversible

       Observations and Conclusions

• Fact: After the Chatsworth incident, the Board, our
  member agencies and the riding public are looking
  to Metrolink to take "control" of the operation and
  ensure the stakeholders of the safest possible
  environment. t

• Fact: Federal and State regulators are increasingly
  looking at Metrolink to take greater responsibility for
  the safety oversight of the contractors through
  increased management of their operations, no more
  i        d             t f th i        ti
  "hands off and limited audit” role. In the past,
  regulators were comfortable with Metrolink "passing
  on" concerns and fines to the contractor.
       Observations and Conclusions

• Fact: Irrespective of their role as contractor or in-
  house employees, conductors and engineers (and
  h           l           d t         d    i      ( d
  train dispatchers who are already Metrolink
  employees in a separate unit) will always likely be in
      p y            p           )         y      y
  the federal "pay as you go" Railroad Retirement
  pension system.

• Fact: Whether Metrolink chooses to contract out for
                     g                  g
  conductors and engineers or to bring that function
  in-house, Metrolink staffing will need to grow to
  address new federal regulations and to manage a
  system that is substantially larger than the original
  service offerings and continues to expand.
       Observations and Conclusions

                                        pp        pp
• Fact: Costs in the short term on an "apples to apples
  basis" are very close.

• Fact: Long term costs for federal pension and
  collective bargaining health costs will grow roughly
  at the same rate whether this function is in house or
  contracted out, since all our potential contractors
  are in the same benefit environment.

       Observations and Conclusions

• Bringing the conductors and engineers in-house
  now as we have done previously with the train
  dispatchers, DOES NOT point to bringing all services
   – Neither of these functions have significant "force
     account“ (capital maintenance and construction)
     work like our track and signal contractors. For
     those functions, we believe SCRRA does achieve
     significant competitive savings by continuing to
     segment maintenance from capital work
   – In addition, the employees of the signal and the
     MOW contractor are NOT in the Federal railroad
     retirement system and the pensions, therefore, do
     not follow them.                                   18
       Observations and Conclusions

• Fact: If we decide to advertise for potential
  contractors, the earliest we could award is January
  2010, assuming we could get a qualified proposer
  and have no protests.

   – This also assumes a qualified proposer who
     would accept our terms and conditions and
     ultimately sign a contract.

   – In our last operating contractor procurement, we
     had a single qualified proposer who would accept
     our terms and conditions, Connex.
     Conclusion and Recommendation

                CEO Recommendation:

• Bring conductor and engineer forces in house.
  Depending on others for this function, to do what is
  right and appropriate, is no longer a viable option.

         In-Source Train Operations:
              Actions Required
• Develop transition plan (Attachment A)
• Form separate corporate unit to become the
  employer (Attachment B)
  Review by Railroad Retirement Board
• R i    b R il    d R ti     t B   d
• Notification of other federal and state regulatory
• Ongoing communications strategies for employees
  during transition process
• Implementation of transition plan

         In-Source Train Operations:
               Transition Plan

                            p       y    y
Phased transition, to be completed by July 1, 2010

• Establish new internal staff functions on deliberate,
  planned basis

• Time available to negotiate “implementing
  agreement” and new collective bargaining

• Secure Railroad Retirement ruling in advance of
  transfer of employees

             In-Source Operations:
                 Transition Plan

               p                      p                 p
• In order to provide a transition option, the first step
  is the filing for creation of a “segregated subsidiary
  unit” with the Railroad Retirement Board
   – Formation in progress

• New unit will be covered by federal Railway Labor,
  R il   d R ti       t d R il     dU       l
  Railroad Retirement and Railroad Unemployment    t
  Insurance Acts.
                                   g g               y
   – This is the reason for the “segregated subsidiary

• Major elements of transition plan
            In-Source Transition Schedule

                          Event             Start    Completion
L   l E t bli h   t
Legal Establishment                                   Pending
                                                      P di
Railroad Retirement & Other Approvals      July 1     Dec. 15
         g (    ,               ,     )
FRA Filings (D&A, certifications, etc.)               Mar. 15
Develop Employee Qualifications Criteria   July 1     July 15

Labor Negotiations
   Prepare SCRRA Position                  July 1     July 31
   Negotiate Labor Agreements              Sept. 1    Mar. 31
Modify SCRRA Payroll/Admin Systems         July 1     Dec 31
Finalize Management Structure              July 1     Aug. 31
Develop Employee Retention Plans           Jan. 1     Apr. 30
Extend Offers and Transition Employees     May 1      June 30
             Transition Costs – From Connex to
                      New SCRRA Unit

       2004 2005 Amtrak to Connex
       2004-2005                             2009 2010
                                             2009-2010 Transition from Connex

New Unit - Pre-Transition Staff Time      New Unit - Pre-Transition Staff Time
• Exemptp                         ,
                            $ 429,000     • Exempt                     $ 412,000
• Non-exempt                $ 493,000     • Non-exempt                 $     -
                                          • SCRRA staff time           $
T&E Incentive Payments      $ 640,000     T&E Incentive Payments       $      -

Non- labor                  $ 463,000     Non- labor                  $ 130,000

Transition Consulting           80,000
                             $ 80 000     Transition Consulting       $ 535,000
  (post contract award only)              (Legal, labor, etc)
    TOTAL                    $2,105,000      TOTAL                    $1,077,000

 Transition Planning and Implementation

            g            q
• Consulting services required
   – Legal
   – Special consulting services
   – Labor relations
   – Regulatory filings
  Some services under existing contracts; others to be
• S
                           $535 000
• Anticipated total costs: $535,000

            Recommended Actions

• Board approval of recommendation to bring theg
  Train and Engine crews and supporting management
  and administrative structure in-house
• Authorize the CEO to take all steps in furtherance of
  this transition
• Approve the filing of an action with the Railroad
  Retirement Board to establish the segregated
  subsidiary unit
• Retain consulting services consistent with this
              d ti
• Work with staff and member agencies to incorporate
                                        g    y
  transition costs within available budgetary resources


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