Why is it that every time public sector procurement (which is the only procurement most people are familiar with) makes the news, it’s because they have done something ridiculous? I think sometimes public sector procurement gets a bad rap, with a few bad actors serving as the basis for broadly generalized low expectations. The public sector is not as bad as it seems, and the private sector is not always as much better as we think it is. And yet…
This week, the Massachusetts Bay Transit Authority (MBTA) raised more than a few eyebrows when they awarded a ten year, $560M contract for 284 heavy rail cars to CNR MA Corp, the local subsidiary of China CNR Corp, a Chinese state-owned entity. Immediately, almost every constituent group was up at arms: residents, losing suppliers, local people with ties to China and strong feelings about the role of government in business.
We all make mistakes, and there could be a perfectly reasonable explanation for any or all of the things that look amiss. But all of them in combination? This particular public sector bid process reads like a three ring circus of sloppy procurement practices.
Mishandling of Participating Suppliers
There were a total of six suppliers invited to submit proposals. Of the five that did not receive the award, three have already complained publicly about not being given the opportunity to make a best and final offer before a decision was made. In fact, one bidder claimed not to have known a decision had been made until they found out through the news media that they had not been selected.
Appearance of Impropriety
The Governor of Massachusetts, Deval Patrick, met with CNR in China a year before the contract was awarded. And while his Transportation Secretary Richard Davey called the meeting, “ “totally appropriate” and said “The governor had talked often about wanting state contracts to have as much robust competition as possible” there is no indication that Patrick met with any of the other suppliers, either abroad or at home. Meeting with one supplier does nothing to stimulate competition, and may even do the opposite. If that didn’t smell funky enough, a local consultant for CNR China that has been closely involved in the deal is… former MBTA spokesperson Lydia Rivera. Hmmm…
Questions about Costs and Pricing
The original budget for the rail cars was $800M, and we all know how estimates work out in either the public or private sector. Common sense would set expectations for the final bid somewhere in the neighborhood of that bid. At least one other supplier was below this estimate and another was within striking distance (see below). CNR was so far below this estimate, nearly thirty percent, that questions are being raised about the treatment and compensation of workers that will do the overseas portion of the work.
Bid Totals Made Public (in US $M)
CNR MA Corp $566.6
Hyundai Rotem $720.6
Bombardier of Canada $1,080.0
Absent any explanation, it is hard not to be uncertain about the process that was followed and the people who followed it. Think of how it would look if your CEO met with only one participating supplier, if the supplier’s local representative was a former employee of the company, and if the bid came in so far below expectations that specs and requirements documentation were brought into question. Then, after the award was made, the company was immediately subjected to criticism on social issues, elevating risk and creating brand damage. Perhaps most damning of all is the allegation that qualified suppliers were not given an opportunity to finish negotiating. Any procurement professional worth their weight in salt knows that getting a competitive price is only part of the process. It is what you get for that price – the value you might say – that needs to be the final determining factor.
Nicole Dungca, “MassDot Awards MBTA Car Contract to China Controlled Company,” Boston Globe, October 22, 2014,
Chris Cassidy, “China Lowballs MBTA Bid,” Boston Herald, October 22, 2014,