How is Keolis Fined for Late Commuter Rail Trains?

Your toes are numb, the faces around you sullen and the service alert on your phone says the next train will arrive at a different time than the LED screen overhead.  The train you planned on taking to work broke down and was cancelled.  You’d warm up at the local diner if you knew the next train was delayed by 67 minutes like the LED screen said, but is missing it worth the gamble?

Traveling by commuter rail defies predictability these days.   Thankfully, the MBTA toughened the penalty clause enforcement with its contract with Keolis, the new commuter rail operator.  Heavy fines for poor performance have already made headlines.  The fear of further penalties should incentivize better performance.

But will it?

The MBTA levied a limited number of fines on the prior commuter rail operator, Massachusetts Bay Commuter Railroad (MCBR), probably because there was grey area in the contract when it came to assessing fees. The operating agreement between the MBTA and MBCR allowed for “excused delays” in the calculation and reporting of on-time commuter rail performance.  Actual delays were about 6% lower than reported delays in 2011-2012, according to MBTA statistics.

The agreement with Keolis also gives the MBTA flexibility about whether to assess a fee but this time, the T’s assessment of fees is binding. The contract states:

Operator may request a waiver from the MBTA (an “OT Waiver”) for a train that does not arrive at its Scheduled Arrival Time (plus a standard allowance of four minutes and 59 seconds) at its final scheduled station due the occurrence of a Force Majeure Event of if:

The failure of the train to arrive was due to (a) an event outside the reasonable control of (i) the Operator, or (ii) any party with control of the Operator or (b) the actions or non-actions of Third Parties outside of the reasonable control of the Operator or a Third Party Railroad and not due to the actions or inactions of (i) the Operator or (ii) any Party within the control of the Operator; and

The Operator shall have first taken The all reasonable and prudent actions to avoids or overcome any initial failure resulting in the delay; and

The Operator shall have taken all reasonable and prudent actions to prevent and/or minimize the delay to the greatest number of passengers possible and further have used all available means to restore the service.

The MBTA shall determine, in its sole discretion, if an OT Waiver shall apply….

Here’s the deal with the on-time performance penalty calculation:

A train is on time if it arrives at its final stop within 4 minutes and 59 seconds of its scheduled time at its final destination.

		Peak Penalty	Off-peak Penalty
	5 – 10 minutes late  (5:00-9:59)	$500	$250
	10 – 20 minutes late  (10:00-19:59)	$1,000	$500
	20 – 40 minutes late (20:00-39:59)	$1,500	$750
	Terminated train: 40+ minutes late/terminated	$5,000	$2,500
	Terminated due to lack of fuel	$10,000	$5,000
	Cancelled Train	$5,000	$2,500

When you think about the lost productivity of thousands of workers, even if they were to strictly enforce the contract, the penalties don’t come close to making up the economic loss.  Keolis will receive well over $300M annually for the next 8 years.  Will it really matter to them if a train is 10 minutes late?

Maybe not, but severely late and cancelled trains bite hard.

But not too hard.

The contract contains a provision that caps the amount of penalties (on-time performance and other penalties) in a single month to the assumed monthly profit, ranging from over $860K in the contract’s early years to $1.4M towards its end date.  That means maximum penalties yield a break-even bottom line, all else equal.

Break-even results aren’t all that painful.  The prospect of a loss, now that could spur performance.  Sure, the MBTA may have had to pay more for the additional risk assumed by Keolis, but when your toes are going from numb to aching, do you think it would be worth it?