What do we think of this delay? What are the underlying causes? What can and should be done to address it and prevent it from happening in the future?
What are the causes of these problems?
A) Outsourcing
The source of the problem, identified by both the TTC and the media, were parts originating from Bombardier’s Mexico facilities. Parts have either been delayed in arriving at Bombardier’s Thunder Bay facility for final construction, or the parts that did arrive were so far off the manufacturing requirements that the final product could not be built to specifications.
Looking more deeply, we can see that the ongoing outsourcing practises of larger corporations like Bombardier are a critical component of these problems. Another major manufacturer, Boeing, did an internal analysis of outsourcing and identified exactly the same kinds of problems as a disincentive to sub-contracting component manufacturing of large, high-precision vehicles.
While outsourcing and Canadian content rules (that determine how much content must be built in this country) are not exactly identical, the location of the new production sites are often outside of Canada. Outsourcing – whether inside the country or elsewhere – is driven by the constant effort to lower labour and other costs, in the current free-trade economic environment.
In other words, Bombardier’s practice of outsourcing key manufacturing components, instead of producing them in Thunder Bay, is one of the causes of the highly problematic quality and delivery problems (and are a factor in adding costs in the long run).
B) Bad Bidding Process
There were two problems with the bidding process: it was done in secret, and it wasn’t clear that the principal criteria would be the “best” choice, and not necessarily the lowest one.
The bidding process was secret – done behind closed doors. And the criteria for getting the contract were never made clear. We know that there was a bitter struggle between then Mayor David Miller, who supported the need for need for Canadian jobs as a critical component of the choice of manufacturer, and some of the more right-wing city councillors who argued that the only criteria should be cost.
The final criteria needs to include a series of key elements: meeting the required technical and scheduling requirements, costs, local or Canadian manufacturing jobs, reducing or eliminating outsourcing that adds potential longer-term costs and undermines quality, and on-time delivery.
Arguing for the “lowest cost” bidder, is also not a simple or constructive way of addressing problems of cost or timely delivery, especially in an environment of secrecy and cutthroat cost competition.
Both the criteria and choices should be open to public oversight and debate.
How do we address the problem in the future?
1. 60% Canadian content
First, we need to mandate higher levels of Canadian content in any future major TTC purchase.
The TTC has a mandated Canadian content requirement of 40% and Canadian direct assembly labour of 50% on its low-floor bus purchases. Currently the Government of Ontario mandates that there is a 25% Canadian content in the purchase of transit vehicles paid in part through provincial funding.
Quebec employs a 60% standard for Canadian content [2]. We need to match the 60% Quebec standard. Why? Beyond simple nationalistic sentiments, sourcing transit equipment in Canada serves a number of key purposes: it provides the potential for decent, well-paid and skilled jobs for Canadians that can strengthen our larger capacity to produce things we need; it increases our tax base, which in turn helps to fund public transit; and it provides the potential to influence the quality and reliability of transit equipment for Toronto’s transit users. These are very real considerations in supporting a Canadian content policy.
In the current situation, higher Canadian content requirements would force Bombardier – or any other contractor – to reduce the amount of work contracted outside the country. It would provide greater opportunity to oversee the quality and time lines of the work. Having an enhanced Canadian content sourcing policy, could reduce the possibility of the current quality and reliability problems that the TTC is facing through the inexcusable actions of Bombardier and its subsidiary.
2. Replace low cost bids with best bid
Bids need to outline quality levels, clear delivery timelines, and levels of outsourcing, within and outside the country. This is central to ensuring quality. Secret bidding procedures need to be replaced with a public and transparent bidding process.
The TTC and city staff need to maintain and increase their technical and organizational capacities to oversee the bidding, planning, development, production and maintenance of transit equipment.
The primary impetus for sourcing outside of Canada is profit. Bombardier is not building transit equipment in Mexico out of some altruistic goal; its main competitor, Siemens, has not adopted China as the focus of its production because of charity. The goal is to maximize profit by lowering production costs. It can be reasonably assumed that the cost savings will only be passed along to the transit system to the extent that it allows the company to win a contract in a closed-bid scenario; all other savings will be absorbed as profit by the supplier.
What marginal saving this presents to the transit system may reappear as cost in other ways. The long term cost implications of less-reliably produced vehicles in Canadian content is calculated as the total cost of “labour, subcomponents and components, project management, engineering, manuals, special tools, test equipment, freight and warranty” going into the final completed vehicle.
3. Tougher enforcement language and rules
Whatever their sourcing policy, TTCriders demands that the TTC write and enforce contracts that ensure that all contracted manufacturers, including Bombardier, live up to their contractual responsibilities and provide high quality cars and components on time and in the necessary quantities.
Conclusion
Bombardier hasn’t been able to produce, deliver and put into service the contracted vehicles – the low-floor streetcars – with an acceptable level of quality and on time. It is a problem of reliability and availability. The TTC has had to reject many finished vehicles because they would cause major quality and safety problems down the road. Instead of a growing fleet of new streetcars, we are forced to rely on the old inaccessible ones, and the disappointment and impatience of angry transit users is reaching the boiling point.
We want our streetcars now. Let's insist on local sourcing, a better bidding process and enforcement to ensure that this problem doesn't happen again. The quality of our public transit depends on it.
Footnotes:
[1] 1 OUT-SOURCED PROFITS – THE CORNERSTONE OF SUCCESSFUL SUBCONTRACTING, DR. L.J. SMITH, from an internal company document.
[2] Canadian content is calculated as the total cost of “labour, subcomponents and components, project management, engineering, manuals, special tools, test equipment, freight and warranty” going into the final completed vehicle.