By Peter Wallace | | December 26, 2015

(Second of five parts)
ALL THE NINE cases cited Friday in the first part of this series on breached contracts are devastating in their negative impact on the community. But it would be good to start with the Metro Rail Transit 3 (MRT 3) given its prominence today and a fast and easy solution at hand—before a train falls off its worn-out rails onto Edsa and kills many.
The correct action is to give the maintenance contract back to Sumitomo and Mitsubishi which have proven their ability to do the job. No need for an open bidding, no search for the cheapest, just a choice of the companies proven to be competent.

An open bidding is the kind of simple mind-set that leads to more problems than it solves. To choose the cheapest option makes good sense—if, and the stress is on if, all other factors are equal. They rarely are.
A cheap commodity is likely to be of low quality. You get what you pay for. A good analogy here is LED light bulbs. A cheap bulb looks just as good as an expensive, well-branded one and gives just as much light. But after a couple of years the light output of a cheap bulb dims (an expensive one doesn’t), and its life is much shorter. It’s more difficult to take in all the factors of quality, of service, of reliability, of adherence to promised deliverables, etc.
In choosing the cheapest option here, the government ended up with a disaster on its hands.
MTR Corp., which efficiently runs the Hong Kong railway system, was asked to do an asset audit of MRT 3. Here are some of its frightening (and understated) observations:
“Of all the systems surveyed, the track condition is most alarming and requires immediate attention. There is insufficient stock for replacement. Machine rail grinding is also not done. In fact, the running speed was restricted to 40 kilometers per hour from 65 kph to reduce the safety risk posed to the passengers. It can potentially cause train derailment leading to substantial casualties in a high-usage system like MRT 3. The lack of remediation will make those defects become more severe.”
“The rolling stock asset condition is unsatisfactory. Traction motors have exhibited the most failures and it should be reviewed if overhaul or full replacement would be required. (On June 1, the first day of school, only seven trains were running. This is one-third the usual 20 trains that should operate during peak hours).”
“The wheel lathe and all track maintenance vehicles are out of order. The tamping machine and ballast machine, which are used for rail track maintenance, are out of order.”
“The reliability of the door system and ATP (automatic train protection) equipment also needs to be improved. Failure of door systems could be disastrous as all train doors should be closed before a train starts to move and remain closed all the time. There should be a fail-safe design with no single point of failure.”
“The physical and operating condition in the signal equipment room is poor. There is obsolescence of key components. A system replacement can be considered. The PABX system is working at full capacity and toward end of life.”
“The three weeks interval between scheduled regular maintenance is too wide apart. Maintenance is a task based without addressing the need to replace critical or obsolete parts and subsystems in a timely manner.”

Failures increased
It’s a litany of failure after failure, of total incompetence in managing a system—all because the government wanted to “save” a few cents.
Another key finding of MTR Corp. was that the incidence of failures rapidly increased during the past two years when the Department of Transportation and Communications (DOTC) suddenly kicked out Sumitomo and Mitsubishi in 2012. The DOTC replaced Sumitomo with a hastily organized firm with no qualifications and insufficient capital.
The latest “solution” was to hire seven different companies on six-month renewable contracts to do different parts of the maintenance work. This is absurd. You don’t give short-term contracts to different entities to handle a complex process.
Just two things: (1) You need to hire and train specialized technicians who are experts in their assigned functions, and (2) you need to purchase substantial stocks of spare parts to handle not only regular maintenance, but also to cover for unexpected breakdowns. Neither of these two things can be properly accomplished with short-term contracts.
Simple solution
You also do not break service up. What’s needed is an overall single contractor in charge, who may subcontract some specialized work—but not seven independently assigned contractors. Rail systems are heavily dependent on “preventive” maintenance rather than “reactive” maintenance.
The solution is blindingly simple: Give the maintenance and operation back to Sumitomo at whatever cost. It will be far, far cheaper than whatever is being “saved” by the government right now.
The worst thing that could happen is for these seven companies to take over the entire operation, as has been proposed through a P54-billion buyout of MRT Holdings, the private firm that runs the train system.
It was also disclosed during the last Senate hearing on MRT 3 that the P54-billion budget that the DOTC and the Department of Finance proposed would only go to Development Bank of the Philippines and Land Bank of the Philippines, and not a single centavo to the owner, MRT Holdings. This means not a single centavo will be spent on the train system itself.
The government, regardless of who is in charge, has proven itself massively inept at running something like a rail line.