Meeting_Body
REGULAR BOARD MEETING
MAY 22, 2025
Subject
SUBJECT: RATIFICATION OF HR5000 HEAVY RAIL VEHICLE (HRV) CONTRACT AND THE A650 HRV REFURBISHMENT CONTRACT
Action
ACTION: RATIFICATION OF CONTRACTS
Heading
RECOMMENDATION
Title
CONSIDER:
A. RATIFYING the procurement and award of Contract No. OP239906000HR5000 (HR5000 Contract) to the Hyundai Rotem USA Corporation (Hyundai Rotem), and the HR5000 Contract as amended by Modifications 1-3 for the manufacturing and delivery of 182 new heavy rail vehicles (HRVs), in the amount of $663,688,303 for the base contract buy, exclusive of one contract option for an additional 50 HRVs, totaling 232 HRVs for a total of $730,057,133;
B. RATIFYING the procurement and award of Contract No. OP245126000A650HRV (A650 Contract) to Woojin IS America (Woojin), and the A650 Contract as amended by Modifications 1-3 for the refurbishment of 74 A650 HRVs, in the amount of $213,587,542.63 for 70 base HRVs, and one contract option for an additional 4 HRVs, totaling 74 HRVs; and
C. ADOPTING the resolutions attached as Attachment A and Attachment B, affirming that modifications made to the HR5000 and A650 Contracts to bring the Contracts into compliance with the Manufacturing Careers Policy (MCP) are consistent with Metro’s goals to implement the MCP into the HR5000 and A650 Contracts, and do not fundamentally alter the HR5000 and A650 Contracts so as to warrant rebidding the contracts.
Issue
ISSUE
On December 1, 2022, the same date that the HR5000 Contract solicitation was authorized, the Board adopted the MCP as a new policy. The MCP modified Metro’s prior U.S. Employment Program (USEP) and Local Employment Program (LEP) guidelines and combined them into a single policy. The HR5000 RFP, which had been drafted prior to the adoption of the MCP, as well as the initially executed HR5000 Contract, did not mirror certain elements of the MCP. The procurement did, however, require proposers to include USEP plans in their proposals that met the spirit of the MCP. The USEP portions of the proposals were scored in conformance with scoring criteria set forth in the RFP, and the procurements were conducted and scored in a fair, transparent, and consistent manner without favoritism. The winning proposer, Hyundai Rotem, committed to provide more than $121 Million in U.S. jobs and facility investments. The HR5000 Contract has been modified to reflect the contractual provisions required by the MCP and the contract now complies with the MCP.
The HR5000 Contract is time-sensitive and critical to securing new HRVs so Metro can achieve required service levels and provide transportation for, among other things, the 2028 Olympic and Paralympic Games. The Contract has since been modified to comply in all material respects with the MCP. For these reasons, staff is requesting that the Board ratify the amended HR5000 Contract notwithstanding any deviations from the MCP that appeared in the earlier RFP, the proposals, and initial contract language. Ratification by the Board confirms that the Board wants to proceed with the Contract as procured, executed and modified.
A similar situation arose on the A650 Contract, another time sensitive contract providing for the refurbishment of 70-74 heavy rail cars, where the RFP was authorized at the same Board meeting (December 1, 2022) where the adoption of the MCP and HR5000 RFP were approved. Only one contractor, Woojin IS America (Woojin), responded to the A650 RFP. Woojin has committed to provide more than $23 million in U.S. jobs, training and facility investments. Like the HR5000 Contract, the A650 Contract has been modified to incorporate all material contractual terms required by the MCP, and Metro staff recommends ratification of this contract as well.
Metro’s Vendor/Contract Management (VCM) and Diversity and Economic Opportunity Department (DEOD) have taken and will continue to take steps to ensure that the HR5000 and A650 contractors comply with the MCP. Additionally, VCM and DEOD have taken steps to ensure future procurements and applicable contracts contain language consistent with the MCP.
Background
BACKGROUND
Manufacturing Careers Policy
On December 1, 2022, the Metro Board adopted the MCP to administer the United States Employment Program (USEP) for federally funded rolling stock (rail and bus) contracts and the Local Employment Program (LEP) for locally funded rolling stock contracts. The MCP generally applies to rolling stock procurements with an independent cost estimate of at least $50 million. Objectives of the MCP are to maximize: (1) quality job creation and career development for low-income residents and those facing barriers to employment; (2) equity outcomes and economic resiliency in disadvantaged communities; and (3) investments in new or existing manufacturing/assembly facilities in the United States and Los Angeles County.
Under the MCP, proposers for applicable federally funded contracts are asked to propose a USEP program. The USEP requirements under the new MCP differed from prior USEP guidelines in certain ways. For example, the MCP states that USEP portions of proposals for applicable contracts be worth 5% of the overall proposal scores and calls for consideration of “the quality of the USEP . . . commitments (including but not limited to the total number of FTEs [Full Time Equivalents], the Fringe Benefit Amounts for each classification, the Minimum Hourly Wage Rate for each classification, the commitment to hire Disadvantaged Workers, and the Workforce Training commitment), and responsiveness to the USEP or LEP requirement.”
Other MCP changes included that proposers commit to hiring a minimum of 10% disadvantaged workers based on the number of new and retained workers (rather than on total wages and benefits), describe commitments to workforce training, and indicate minimum hourly wages and fringe benefit commitments. The MCP further permits proposers’ USEP total dollar commitments to include the value of new and retained workers and provides that “investment in design, manufacturing, commissioning and maintenance facilities in the U.S. and Los Angeles County . . . will be factored into [RFP] scoring . . . .” The MCP also added provisions to enhance monitoring and enforcement of the contractors’ USEP commitments, such as submission of certified payrolls, site inspections, enhanced audit provisions and remedies for non-compliance, and training sessions by DEOD. The MCP also contemplates the use of standardized Labor Value Forms to be created by Metro for the inclusion of greater detail concerning the contractors’ USEP information. A copy of the MCP is provided at Attachment C.
The HR5000 Contract
On December 1, 2022, during the same Board Meeting in which the MCP was adopted, the Board authorized the solicitation of proposals for the HR5000 HRV procurement. Two business days later, on December 5, 2022, Metro issued the RFP for HR5000 HRV procurement, which had been drafted prior to the Board’s adoption of the MCP.
The HR5000 RFP and its subsequent amendments included language that reflected certain USEP requirements, but inadvertently left out a number of elements included in the MCP. The RFP did provide that 5% of the score, as required by the MCP, be allocated to the USEP. Although the RFP omitted certain USEP requirements identified in the MCP, all of the contractual requirements identified in the MCP have now been added into the HR5000 Contract by modification.
The following are examples of aspects of the MCP that were omitted from the RFP or the originally executed contract but are now reflected in the modified HR5000 Contract:
• The RFP stated that proposers’ USEP commitments were to account for new U.S. workers as opposed to “new and retained” workers as provided in the MCP. The modified HR5000 Contract now accounts for this.
• While the RFP required proposers to indicate the number of FTE’s, type and duration of jobs, total value of wages and benefits, and facility and training investments, it did not require the proposers to identify minimum wage rate and minimum benefit rate for specific jobs as called for by the MCP. This information is now included in the modified HR5000 Contract.
• The RFP instructions provided that proposers should submit Labor Value Forms (LVFs) (a standardized form the MCP contemplated Metro would create in order for proposers to present USEP information contemplated by the MCP). However, the RFP did not attach such a form of LVF for the proposers to fill out, though LVFs have now been provided for and completed by Hyundai Rotem in the modified Contract.
• Amendment 10 to the RFP required a 10% commitment of new wages and benefits to disadvantaged workers, to which Hyundai Rotem, the winning proposer, took no deviations and re-confirmed its commitment to Metro. Although Amendment 10 provided for a 10% commitment to disadvantaged workers, it was based on wages and benefits rather than the number of new and retained workers as required by the MCP. The HR5000 Contract, however, is now consistent with the MCP on this point.
• The RFP and originally executed contract did not require submission of certified payrolls, hiring a jobs coordinator, or include various definitions required by the MCP, all of which are now in the HR5000 Contract as modified.
Three companies submitted proposals in response to the HR5000 RFP: Hyundai Rotem, Stadler Rail U.S. (Stadler), and Hitachi Rail Los Angeles LLC (Hitachi). Although LVFs were not provided by Metro as part of the RFP, each of the proposers provided a narrative description of their USEP plan and set forth their USEP commitments. Regardless of the format, all proposer’s proposals were reviewed and evaluated fairly and uniformly without preference or favoritism and were scored using the formula that had been communicated to the proposers in the RFP.
In January, 2024, after resolving an unsuccessful bid protest by Stadler (unrelated to the USEP/MCP), Metro staff recommended award of the HR5000 Contract to Hyundai Rotem. Based on staff’s erroneous but good faith belief, the Board was informed that the “procurement complies with . . . Metro's Manufacturing Careers Policy.” Similar statements concerning compliance with the MCP were repeated to the Executive Management Committee of the Board during a follow-up presentation by staff on February 15, 2024.
On January 25, 2024, the Board awarded the HR5000 Contract to Hyundai Rotem. The initial HR5000 Contract was finalized on February 16, 2024, but did not contain all requirements contemplated by the MCP.
The A650 Contract
On December 1, 2022, at the same board meeting that the Board adopted the MCP, and approved the solicitation for the HR5000 Contract, the Board also authorized the solicitation for the A650 Contract. On December 9, 2022, Metro issued the A650 RFP. As with the HR5000 RFP, the A650 RFP inadvertently left out a number of elements included in the MCP, similar to those omitted in the HR5000 RFP.
Only one bidder, Woojin, responded to Metro’s A650 RFP, submitting its final proposal on November 21, 2023. Woojin’s USEP proposal was reviewed and evaluated fairly and scored using the formula that had been communicated to prospective proposers in the RFP. Metro staff recommended to award the A650 Contract to Woojin, mistakenly advising the Board that “the Procurement complies with . . . Metro’s Manufacturing Careers Policy.” On February 22, 2024, the Board voted to award the A650 Contract to Woojin. The initial A650 Contract was executed on May 27, 2024, but did not contain all requirements contemplated by the MCP.
Discussion
DISCUSSION
Metro has modified the HR5000 and A650 Contracts to comply with the MCP and has taken steps to ensure that future procurements comply with the MCP.
After Metro staff realized the HR5000 Contract did not reflect all of the requirements of the MCP, Metro staff prepared modifications to the contract. Contract Modification 1, executed on June 27, 2024, modified the USEP sections of the HR5000 Contract to better align with the USEP provisions in the MCP and attached Metro’s newly-developed MCP LVFs for the contractor to fill out.
Metro also provided several sessions of MCP compliance training to Hyundai Rotem and its subcontractors, which sessions addressed, among other things, responsibilities under the MCP and instructions for completing the LVFs. The completed LVFs and a more detailed USEP Narrative description were then incorporated into the HR5000 Contract through Modification 3, executed on November 20, 2024, which also attached a complete copy of the MCP. Note: Recently, Hyundai Rotem informed Metro that it planned to increase its own USEP commitments to make up for two of its subcontractors that will be withdrawing from participation and has submitted a new draft LVF for Metro’s review. While staff is still reviewing the requested changes, it is not uncommon for contractors to have changes to subcontractor participation during the course of a long engagement. Any such changes must be approved by Metro, and Metro is holding Hyundai Rotem to its total MCP commitments.
The modifications to the HR5000 Contract to align it with the MCP do not constitute a change to a proposal or a fundamental change that requires that the contract be re-bid. Metro has contractual rights to make changes and modifications to its contracts. The RFP required a USEP and this was reflected in the initially executed HR5000 Contract. Modifying the HR5000 Contract to add additional details related to the USEP is not a “cardinal” change but a modification to elements within the original scope of the Contract.
The modified HR5000 Contract is now in compliance with all material aspects of the MCP and is critical to Metro’s ability to address several important and time-sensitive goals, objectives, and public interests. Under the HR5000 Contract, Hyundai Rotem is obligated to deliver 42 new HRVs by April 2028. The HR5000 Contract HRVs and delivery schedule are critical to serve Los Angeles’ service needs for the rapidly approaching 2028 Olympic games and will help Metro achieve its committed level of expanded service under its federal grant agreements. Based upon input from industry consultants, a re-bid of the Contract would jeopardize timely delivery of the rail cars, as there is likely no other proposer who could deliver the HRV’s before the Olympics.
With respect to the A650 Contract, similar considerations warrant ratification.
Considerations
Metro staff believes it is appropriate for the Board to ratify the procurement and award of the HR5000 Contract and A650 Contract, as well as each of the contracts as modified. Such action is within the discretion of the Metro Board. The MCP is a policy of the Metro Board; it is not required by statute, charter, or ordinance. Metro’s Board has discretion to adopt, amend, or allow deviations from the policy.
Ratification of the contract by the Metro Board with respect to any departures from the MCP in the procurement would confirm that Metro’s Board wants to proceed with the HR5000 Contract and the A650 Contract as procured and as executed and modified. This helps ensure against the need to re-bid and reinforces the Board’s right to administer its policy consistent with its determination of what is in the best interest of Metro and the transportation needs of the public.
Staff requests that the Board ratify the acceptance of the proposals and HR5000 Contract as modified, notwithstanding any deviations from the MCP in the RFP and initial contract language, based on the foregoing discussion and the facts that: (1) the HR5000 Contract was procured and scored consistent with the terms of the RFP and the absence of any favoritism or unfair advantage for a particular proposer; (2) the HR5000 Contract has been brought into compliance with the MCP; (3) the HR5000 Contract is crucial to Metro’s ability to satisfy service level commitments under various federal grant agreements and meet transportation needs for, among other things, the 2028 Olympics; and (4) re-bidding the HR5000 Contract at this point would be counterproductive to Metro and the goals of the MCP.
For similar reasons, staff requests that the Board take the same action with respect to the procurement of the A650 Contract and ratify the A650 Contract as modified.
Determination_Of_Safety_Impact
DETERMINATION OF SAFETY IMPACT
The ratification of the procurement and award of the HR5000 Contract and the A650 Contract, and the modified contracts themselves will have a direct and positive impact on system safety, service quality, system reliability and overall customer satisfaction. The procurement of 182 new HR5000 HRVs will feature the most current safety systems and augment service levels, and the A650 HRV refurbishment will permit Metro to maintain the A650 fleet in a state of good repair.
Financial_Impact
FINANCIAL IMPACT
Based upon the Board’s prior approvals of the budgets for the HR5000 Contract at time of award, the total approved Life of Project (LOP) budget has been established for the HR5000 new HRV project 206047 at $777,588,003 and includes the Hyundai Rotem contract value. Based upon the Board’s prior approvals of the budget for the A650 Contract at time of award, the total approved Life of Project (LOP) budget has been established for the A650 refurbishment project at $264,662,611 and includes the Woojin contract value.
Equity_Platform
EQUITY PLATFORM
The HR5000 HRV and A650 fleets will be used on the B Line, D Line, and upcoming D (Purple) Line Extension. Ratifying as requested herein will improve the service reliability and ride comfort on these lines that serve a majority of Equity Focus Communities who rely on public transportation for their daily trips. Based on the 2019 Customer Survey, the B and D heavy rail lines serve the following ridership:
• 27.7% below the poverty line
• 56.4% had no car available
Rider Ethnicity:
• Latino 38.9%;
• Black 13.1%;
• White 25.8%;
• Asian/Pacific Islander 15.2%;
• Other 6.5%
In addition, these areas include Union Station to Downtown LA, Koreatown (Wilshire/Western), Hollywood, Universal City, and North Hollywood.
Vehicle_Miles_Traveled_Outcome
VEHICLE MILES TRAVELED OUTCOME
VMT and VMT per capita in Los Angeles County are lower than national averages, the lowest in the SCAG region, and on the lower end of VMT per capita statewide, with these declining VMT trends due in part to Metro’s significant investment in rail and bus transit.* Metro’s Board-adopted VMT reduction targets align with California statewide climate goals, including achieving carbon neutrality by 2045. To ensure continued progress, all Board items are assessed for their potential impact on VMT.
The HR5000 and A650 Contracts awarded to Hyundai Rotem and Woojin, respectively, support Metro’s systemwide strategy to reduce VMT through rail vehicle acquisition and refurbishment activities that will expand, improve, and further encourage transit ridership, ridesharing, and active transportation. Metro’s Board-adopted VMT reduction targets were designed to build on the success of existing investments, and the HR5000 and A650 Contracts align with those objectives.
*Based on population estimates from the United States Census and VMT estimates from Caltrans’ Highway Performance Monitoring System (HPMS) data between 2001-2019.
Implementation_of_Strategic_Plan_Goals
IMPLEMENTATION OF STRATEGIC PLAN GOALS
These recommendations support Metro Strategic Plan Goal No. 5 to “provide responsive, accountable, and trustworthy governance within the Metro organization.” This goal strives to position Metro to deliver the best possible mobility outcomes and improve business practices so that Metro can perform more effectively and adapt more nimbly to the changing needs of our customers.
Alternatives_Considered
ALTERNATIVES CONSIDERED
The Board can choose not to ratify the procurement and award of the HR5000 and A650 Contracts as modified and not to adopt the attached resolutions. This alternative is not recommended because these contracts are time sensitive and are crucial to Metro’s ability to satisfy service level commitments under various federal grant agreements and meet transportation needs for, among other things, the 2028 Games. Re-bidding these contracts at this point would be counterproductive to Metro and the goals of the MCP, and both contracts have been brought into compliance with the MCP.
Moreover, re-bidding the HR5000 Contract would be unlikely to result in increased competition or better benefits because other proposers are unlikely to participate because of the short time for delivery, an unwillingness to expose themselves to liquidated damages for a schedule they could not meet, and the view that Hyundai Rotem would have the inside track to secure the contract given its substantial work to date. Additionally, re-bidding could result in an increased contract price compared to what Metro has locked in with Hyundai Rotem and is not guaranteed to result in higher wages or better employee benefits.
Other considerations support ratifying the modified HR5000 Contract. Metro has paid Hyundai Rotem over $85 million and is presently evaluating the next payment request, which will bring total payments to over $100 million. If the Contract were rebid, employees of Hyundai Rotem and its subcontractors could lose their jobs, which would frustrate the goals of the MCP. Further, re-bidding of the contract could create issues with federal grants supporting the HR5000 Contract. As with HR5000, Metro has already made significant payments to Woojin, totaling over $31.5 million.
Next_Steps
NEXT STEPS
Upon Board approval of the requested recommendation, staff will continue to monitor the contracted services and enforce each contractor’s compliance with the MCP. For example, Metro has undertaken numerous steps to ensure Hyundai Rotem’s compliance with its USEP commitments under the MCP, including processing 25 certified payroll reports, processing two quarterly reports, and completing two desk audits. These and similar efforts will continue over the course of the HR5000 Contract and the A650 Contract.
For future procurements, VCM will provide notice to DEOD of all procurements of Rail Cars over $50 million so advance planning can be done. VCM and DEOD plan to use contract language that parallels the modified HR5000 Contract so contract provisions in applicable RFP’s correspond to MCP requirements. Labor Value Forms developed for the HR5000 Contract will be used as a model for the future and with forms included with covered procurement documents.
Attachments
ATTACHMENTS
Attachment A - Ratification Resolution for HR5000 Contract
Attachment B - Ratification Resolution for A650 Contract
Attachment C - Manufacturing Careers Policy
Prepared_by
Prepared by: Debra Avila, Deputy Chief Vendor/Contract Management Officer, (213) 418-3051
Reviewed_By
Reviewed by: Nalini Ahuja, Chief Financial Officer, (213) 922-3018
