Amtrak: Acela's Continued Problems Underscore the Importance of  
Meeting Broader Challenges in Managing Large-Scale Projects	 
(11-MAY-05, GAO-05-698T).					 
                                                                 
In 1996, the National Railroad Passenger Corporation (Amtrak)	 
executed contracts to build high-speed trainsets (a combination  
of locomotives and passenger cars) as part of the Northeast High 
Speed Rail Improvement Project. Since that time, Amtrak has	 
experienced multiple challenges related to this program,	 
including recently removing all trains from service due to brake 
problems. Amtrak has struggled since its inception to earn	 
sufficient revenues and depends heavily on federal subsidies to  
remain solvent. The April 2005 action to remove the Acela	 
trainsets--Amtrak's biggest revenue source--from service has only
exacerbated problems by putting increased pressure on Amtrak's	 
ridership and revenue levels. This testimony is based on GAO's	 
past work on Amtrak and focuses on (1) background on problems	 
related to the development of the Acela program, (2) summary of  
issues related to lawsuits between Amtrak and the train 	 
manufacturers and the related settlement, (3) key challenges	 
associated with the settlement, and (4) initial observations on  
possible challenges in Amtrak managing large-scale projects.	 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-05-698T					        
    ACCNO:   A23939						        
  TITLE:     Amtrak: Acela's Continued Problems Underscore the	      
Importance of Meeting Broader Challenges in Managing Large-Scale 
Projects							 
     DATE:   05/11/2005 
  SUBJECT:   Contract disputes					 
	     Contract performance				 
	     Federal aid to railroads				 
	     Financial management				 
	     General management reviews 			 
	     Late payments					 
	     Litigation 					 
	     Performance measures				 
	     Program management 				 
	     Railroad industry					 
	     Amtrak Acela Program				 
	     Amtrak Northeast High-Speed Rail			 
	     Improvement Project				 
                                                                 

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GAO-05-698T

United States Government Accountability Office

GAO Testimony

Before the Subcommittee on Railroads, Committee on Transportation and
Infrastructure, House of Representatives

For Release on Delivery
Expected at 10:00 a.m. EDT AMTRAK

Wednesday, May 11, 2005

    Acela's Continued Problems Underscore the Importance of Meeting Broader
                  Challenges in Managing Large-Scale Projects

Statement of JayEtta Hecker, Director Physical Infrastructure Issues

GAO-05-698T

[IMG]

May 11, 2005

AMTRAK

Acela's Continued Problems Underscore Importance of Meeting Broader Challenges
in Managing Large-Scale Projects

                                 What GAO Found

Significant issues and controversy have impacted the Acela program since
its inception. According to Amtrak, what started out as a simple
procurement of train equipment evolved into a complex high-speed rail
program. Acela has encountered numerous difficulties due to such things as
new technology and production delays. Even after Acela service began,
unexpected problems were encountered, which required Amtrak to remove the
trainsets from service, resulting in lost revenue.

Concerns about the quality of the Consortium of train manufacturers'
(Bombardier and Alstom) work and Amtrak's withholding of payments for the
Acela trainsets resulted in the parties suing each other, each seeking
$200 million in damages. Amtrak and the Consortium reached a negotiated
settlement in March 2004. Although the settlement agreement protects
Amtrak through certain warranties, loss of revenue resulting from removal
of trains from service is not directly recoverable. Under the settlement,
Amtrak is conditionally scheduled to assume maintenance functions from the
Consortium in October 2006.

Aside from the current problems, Amtrak faces other risks and challenges
to the recent settlement, including obtaining technical expertise and
providing sufficient funding for maintenance. Achieving a successful
transition is critical to Amtrak given the importance of the Acela
program. The recent brake problems may impact the transition through such
things as delayed management training.

As GAO reported in February 2004, Amtrak had difficulties managing the
Northeast High Speed Rail Improvement Project and many critical elements
of the project were not completed and the project goal of a 3-hour trip
time between Boston and New York City was not attained. GAO has ongoing
work addressing Amtrak management and performance issues that GAO plans to
report on later this year.

     Timeline of key events United States Government Accountability Office

Mr. Chairman and Members of the Subcommittee:

I appreciate the opportunity to testify on the National Railroad Passenger
Corporation's (Amtrak) Acela program and the overall management of the
corporation. Intercity passenger rail is at a critical crossroads
regarding its future in the United States. Amtrak has struggled since its
inception to earn sufficient revenues and depends heavily on federal
subsidies to remain solvent. The April 2005 action to remove the Acela
trainsets-the combination of locomotives and passenger cars-from service
has only exacerbated problems by putting increased stress on Amtrak's
ability to maintain ridership and revenue levels and could make Amtrak's
financial condition even more precarious. Amtrak's Acela program accounted
for not quite one-fourth of the ridership and about 44 percent of revenue
on the Northeast Corridor-Amtrak's busiest rail route-in fiscal year 2004.

My statement today addresses numerous issues of interest to the Congress
as it delves into Amtrak's handling of this most recent incident involving
Acela, and more generally, the future of intercity passenger rail in this
country. I will cover four areas: (1) background on the problems Amtrak
experienced during the development of the Acela program, (2) a summary of
issues related to the lawsuits between Amtrak and the consortium of train
manufacturers (the Consortium), Bombardier and Alstom, and the subsequent
settlement, (3) key challenges associated with implementing the
settlement, and (4) possible broader challenges at Amtrak in managing
other large-scale projects. The information I will present is primarily
based on reports that we have issued over the last several years.1

Significant issues and controversy have impacted the Acela program since
its inception. Among the issues that have impacted the Acela program are
the following: (1) potential difficulties due to new technology, (2)
impacts from new safety standards to accommodate high-speed rail, (3)
manufacturing and production delays, and (4) abbreviated testing of the
trains prior to placement in revenue service. The Acela trainsets are not
an "off-the-shelf" piece of equipment but rather a combination of both new
and existing technology. According to the Federal Railroad Administration
(FRA), this was the first time this particular combination of new and
existing technology had been designed as one unit. As such, the equipment
required considerable time to develop and test, and the probability of
expected and unexpected problems was high. Furthermore, the trainset

1See the enclosure for a list of related GAO products.

grew in weight and cost due to new safety regulations. The Consortium also
encountered production delays. With Amtrak under considerable financial
and time pressures to place the trainsets into service; therefore,
trainset testing was abbreviated. In addition to building the Acela
trainsets, the Consortium entered into a contractual arrangement with
Amtrak to manage the Acela facilities and maintain the trainsets,
including training and supervising Amtrak employees. Since the trainsets
were placed into revenue service in 2000, unexpected problems have been
encountered that have resulted in lost revenue and damaged the image of
the Acela program. For example, an equipment failure forced Amtrak to
withdraw the Acela trainsets from service for 2 months in 2002. As
problems and difficulties mounted, increased tension between Amtrak and
the trainset manufacturer led to legal action against each other.

o  	Concerns about the quality of the Consortium's work and Amtrak's
withholding of payments for the Acela trainsets resulted in the parties
suing each other, each seeking $200 million in damages. Amtrak and the
Consortium reached a negotiated settlement in March 2004. In general,
under the settlement, the Consortium must complete modifications to the
trainsets and locomotives, achieve established performance requirements,
provide training to Amtrak staff, and provide and extend warranties. In
addition, Amtrak agreed to release a portion of previously withheld funds
and will conditionally assume facility management and trainset maintenance
responsibilities as soon as 2006, rather than in 2013, as originally
planned; if the Consortium satisfactorily completes its commitments under
the settlement agreement.

o  	Our work evaluating the terms of the settlement led us to conclude
that Amtrak faces other risks and challenges to sustain the trainsets and
keep them operating.2 Achieving a successful transition is critical to the

financial well-being of Amtrak, given that the Acela program is such a
significant source of its revenue. The challenges include (1) completing
modifications and meeting performance requirements, (2) obtaining
technical expertise for maintenance and completing training, (3)
sufficiently funding maintenance and integrating responsibilities, and (4)
preparing a comprehensive implementation plan. Addressing and resolving
these challenges will not be easy. Although the settlement agreement

2GAO, Intercity Passenger Rail: Issues Associated with the Recent
Settlement between Amtrak and the Consortium of Bombardier and Alstom,
GAO-05-152 (Washington, D.C.: Dec. 1, 2004).

ensures that Amtrak will be protected by the extended trainset warranties
and Amtrak has several methods of financial recourse if the Consortium
does not honor warranties, loss of revenue resulting from removal of
trainsets from service is not directly recoverable. However, the full
extent of the legal liability has yet to be addressed by the parties.
Amtrak officials told us that their first priority is getting the
trainsets back in service. In addition, the recent brake problems may
impact the transition of the maintenance function to Amtrak through such
actions as delaying management training. Amtrak officials continue to
believe the transition will occur in October 2006, however.

o  Amtrak also faces challenges in managing other large-scale projects. As
we

Background

reported in February 2004, Amtrak had difficulties managing the Northeast
High Speed Rail Improvement Project (NHRIP), a multi-year, multi-billion
dollar project to electrify the tracks between Boston, Massachusetts, and
New Haven, Connecticut, acquire high-speed trains, and make capital
improvements. Among the problems we found were that (1) Amtrak's
management of this project was not comprehensive but was focused on the
short term; (2) project management focused on separate components of the
project, such as electrification and acquisition of the high-speed trains,
and not on the project as a whole; and (3) Amtrak did not sufficiently
address major infrastructure improvements needed to attain project goals.
The overall results were that many critical elements of the project were
not completed, project costs and schedules increased considerably, and the
project goal of a 3-hour trip time between Boston and New York City was
not attained.

The Rail Passenger Service Act of 1970 created Amtrak to provide intercity
passenger rail service because existing railroads found such service to be
unprofitable. Amtrak operates a 22,000-mile network, primarily over
freight railroad tracks, providing service to 46 states and the District
of Columbia. Amtrak owns about 650 miles of track, primarily on the
Northeast Corridor between Boston, Massachusetts, and Washington, D.C. In
fiscal year 2004, Amtrak served about 25 million passengers, or about
68,640 passengers per day. According to Amtrak, about two-thirds of its
ridership is wholly or partially on the Northeast Corridor. The Northeast
Corridor is the busiest passenger rail line in the country, and some 200
million Amtrak and commuter rail travelers use the Corridor, or some part
of it, each year. On some portions of the Northeast Corridor, Amtrak
provides high-speed rail service (up to 150 miles per hour). The
high-speed Acela program is the centerpiece of Amtrak's intercity
passenger rail system, with its financial contributions to the company
exceeding that of all other routes combined.

Acquisition of the Acela trainsets occurred as part of NHRIP. NHRIP, and
its predecessor the Northeast Corridor Improvement Project, date back to
the late 1970's and represented a multiyear, multibillion collection of
capital improvements to the Northeast Corridor that included electrifying
the line between New Haven, Connecticut, and Boston, Massachusetts,
improving tracks, signals, and other infrastructure, and acquiring
highspeed trains.3 These efforts were designed to achieve a 3-hour trip
time between New York City and Boston. As of March 2003, Amtrak, commuter
railroads, and others had spent about $3.2 billion on the project.

In 1996, Amtrak executed contracts with train manufacturers Bombardier and
Alstom to build 20 high-speed trainsets and 15 electric highhorsepower
locomotives; construct three maintenance facilities; and provide
maintenance services for the Acela trainsets. The trainsets, locomotives,
and facilities contracts totaled $730 million.4 Bombardier and Alstom,
referred to as the Consortium, created the Northeast Corridor Management
Service Corporation (NecMSC) to manage the facilities and maintain the
trainsets, including supervising Amtrak maintenance employees. Amtrak pays
NecMSC a per-mile rate-that is, a fixed rate for each mile the Acela
trains travel-on a monthly basis to provide management and maintenance
services at three maintenance facilities.5

Amtrak's Acela program has undergone a number of events since its
inception, which has included the execution of the original contracts in
1996, delivery of the first trainset in October 2000, and the filing of
lawsuits by both Bombardier and Amtrak in November 2001 and 2002,
respectively(see fig. 1). The trainsets were also withdrawn from service
for several weeks in August 2002. In March 2004, Amtrak and Bombardier
signed an agreement to settle the lawsuits, which calls for Amtrak to
conditionally assume trainset maintenance in October 2006, assuming
conditions of the settlement have been met. The last warranties for the
trainsets expire in 2021.

3For a more detailed description and discussion of NHRIP and the Northeast
Corridor Improvement Project, see GAO, Intercity Passenger Rail: Amtrak's
Management of Northeast Corridor Improvements Demonstrates Need for
Applying Best Practices, GAO-04-94 (Washington, D.C.: Feb. 27, 2004).

4The cost of the Management Service Contract is not included in the total
contract cost.

5As of April 2004, Amtrak had paid NecMSC a total of $31 million for its
maintenance and management services. This amount is adjusted for
liquidated damages Amtrak has assessed to NecMSC.

Figure 1: Timeline of key events

Significant Issues	Significant issues and controversy have impacted the
Acela program since its inception. What started out as a relatively simple
procurement of train

Have Impacted Acela equipment evolved into a complex high-speed rail
program, according to

  Program Since Its Inception

an Amtrak official. The Acela trainset is a complex piece of equipment
with state-of-the-art electronics and was considered new technology for
the United States. As such, it required additional time to develop and
test, and the probability of expected and unexpected problems was high.

Among the issues that the Acela program has encountered since its creation
are the following:

o  	Potential difficulties due to new technology. Instead of purchasing
"offthe-shelf" technology-that is, train equipment that was already
designed, engineered, and in use-Amtrak decided to acquire "new"
technology. An FRA official told us some components on the Acela trainset
(such as

power components and the tilt mechanism6) were similar to that used on
train equipment in other parts of the world but much of the technology on
Acela trainsets was new. In addition, many of the components, whether new
or existing technology, had never been used together. Further, this
official said that because the components in the Acela trainsets had never
before been designed as one unit, Acela was not an off-the-shelf
technology train.7 Although Acela trainsets were essentially new
technology and could be expected to require additional time to develop and
test, Amtrak developed an ambitious schedule that called for shipment of
the first trainset 32 months-just over 2 1/2 years-after the notice to
proceed was issued. According to an Amtrak official, the calendar and
electrification delivery date drove the planning for the trainsets. Amtrak
worked backwards from these due dates to try and fit project work into the
timeline.

o  	Impacts from new safety standards to accommodate high-speed rail.
During the 1996 to 2000 time frame, the same time period when the Acela
trainsets were being acquired and manufactured, FRA, in consultation with
Amtrak, was developing safety regulations related to high-speed rail
operations. These included new rules covering track safety (to accommodate
speeds of up to 200 miles per hour), passenger car safety, and train
control. According to FRA officials, Amtrak was intimately involved in
developing these standards to accomplish its vision of highspeed rail
operations on the Northeast Corridor. FRA officials also noted that
passenger car safety regulations did not exist prior to the mid-1990's.
Developed for safety purposes, these standards had a significant impact on
the Acela trainsets. For example, the passenger car safety regulations
required a crash energy management system in passenger cars that was
designed to increase the strength of both car ends and side posts. FRA
also prohibited the operation of high-speed trains (up to 150 miles per
hour) in a push-pull manner.8 FRA officials acknowledged that the crash
energy

system increased the weight of the Acela trainsets but said such a system
resulted in safer trains. Amtrak told us that prohibiting push-pull
operation

6This is a mechanism that allows trains to take curves at a higher speed.

7It should be noted that during 1993, existing high-speed trains such as
the X-2000 and InterCity Express were tested on the Northeast Corridor.
One of the bidders for the highspeed train contract proposed a slightly
modified version of the X-2000 train but was not selected.

8Push-pull operation is when a locomotive "pulls" the train in one
direction and then the locomotive "pushes" the train in the opposite
direction. According to FRA, this is common in commuter rail operations.

caused them to obtain 20 additional power cars for Acela at a cost of
about $100 million.

o  	Manufacturing and production delays. The Acela program experienced a
significant share of manufacturing and production delays. Under FRA's 1994
master plan for NHRIP, developed in response to the Amtrak Authorization
and Development Act, delivery of enough high-speed trains to initiate
limited 3-hour service between Boston and New York City was expected by
1999.9 However, due to design and manufacturing delays, the first Acela
trainsets were delivered about a year late, and revenue service using the
trainsets did not begin until December 2000. Manufacturing and production
delays began early in the procurement process. For example, our review of
Consortium progress reports indicated that as early as October 1996, only
months after the original contract was signed, change orders and design
changes (mainly related to car interiors) were being made that were
causing delays in production. In addition, train weight was increasing, a
condition that continued to plague the trainsets throughout production.
Amtrak attempted to require the Consortium to prepare recovery plans to
keep the program on schedule, but we found little evidence of such plans
in documents we reviewed. Regardless, these plans did not prevent the
trainsets from being delivered about a year late.

o  	Abbreviated testing prior to placement in revenue service. Amtrak's
Acela trainsets also appeared to have had abbreviated testing prior to
being deployed into revenue service.10 A fuller testing of the trainsets
may have better identified the range of potential problems and defects
that could be experienced prior to placing the trainsets in service. The
maximum testing any one Acela trainset received was about 35,000 miles of
testing -20,000 miles at the Transportation Test Center (Center) in
Pueblo, Colorado, and 15,000 miles on the Northeast Corridor between 1999
and 2000. However, an FRA official believed testing of the trainsets was
rushed and that

9As we reported in February 2004, Amtrak had not yet met the requirement
for achieving the 3-hour trip time contained in the Amtrak Authorization
and Development Act. See GAO-04-94. It should be noted that Amtrak did not
agree with our use of FRA's 1994 master plan to measure the effectiveness
of its management of NHRIP, even though Amtrak officials had agreed that
this plan was a "blueprint" for the project.

10This discussion of Acela testing is not meant to imply that the
trainsets are unsafe or do not meet federal safety standards. Rather, it
focuses on the degree of testing to discover problems and defects that
could potentially be fixed prior to deployment into revenue service.

additional testing at the Center should have been conducted.11 This
official cited testing of Amtrak's AEM-7 electric locomotive as an example
of the testing that is normally done on new equipment. This locomotive,
which was a new locomotive that entered service in the early 1980's, was
tested for 165,000 miles at the Center prior to placement in service. An
FRA official also acknowledged that there were no minimum federal testing
requirements for new high-speed trainsets, like Acela, only that such
equipment comply with existing safety regulations.12 However, this
official believed Amtrak was under both financial and time pressures to
place the trainsets in service, in part because of delays in trainset
production.

Since placement into revenue service in 2000, the Acela has experienced a
number of unexpected problems. One occurrence was in August 2002 when
Amtrak was forced to withdraw the trains from service to address
unexpected equipment problems (yaw damper brackets). The trainsets were
not returned to complete service until October 2002. According to Amtrak,
this withdrawal cost the corporation a net $17 million in lost revenue. In
April 2005, Amtrak once again experienced unexpected problems with the
trainsets due to equipment problems (cracks in brake assemblies). Again,
the trainsets have been withdrawn from service and Amtrak has stated that
it may be months before the trains are returned to service. Although
Amtrak is placing substitute equipment into service, it can be expected
that there will be revenue loss as well as damage to Amtrak's image.

As the procurement proceeded, tensions grew between Amtrak and the
Consortium. Concerns about the quality of the Consortium's work and
Amtrak's withholding of payments for the Acela trainsets resulted in the
parties suing each other, each seeking $200 million in damages. In
November 2001, Bombardier filed a suit alleging that Amtrak improperly
withheld payments, failed to provide accurate information on
infrastructure conditions, and changed design specifications during
contract performance. In November 2002, Amtrak filed a suit alleging that
the Consortium failed to meet trainset performance requirements. In

11An FRA official acknowledged that the Center was not conducive to
testing Acela's tilt mechanism. However, he said that other problems that
developed during testing at the Center should have been a clear signal
that additional testing was warranted.

12According to FRA, in lieu of high-speed testing standards, Amtrak
developed its own minimum testing requirements.

  Legal Suits between Amtrak and the Acela Manufacturer Led to Settlement
  Agreement in March 2004

addition, Amtrak alleged that the engineering was deficient, workmanship
was poor, program management and quality control were inadequate, and the
Consortium did not meet contract delivery schedules.

Amtrak and the Consortium reached a negotiated settlement in March 2004,
ending their legal dispute surrounding the Acela trainsets.13 As part of
the settlement, Amtrak agreed to release a portion of the previously
withheld funds to the Consortium and conditionally assume facility
management and trainset maintenance responsibilities as soon as October 1,
2006, rather than in 2013, as originally planned. In general, under the
settlement, the Consortium must complete modifications to the trainsets
and locomotives; achieve established performance requirements for
reliability, speed, and comfort; provide training to Amtrak staff; and
provide and extend warranties (see fig. 2). The Consortium is also
responsible for the transfer of technical information, rights to
third-party contracts, parts information, permits, and licenses to Amtrak.
In addition, the settlement requires that the Consortium provide technical
services and information technology updates even after the transition
date. Amtrak is required to create a transition plan, hire staff to manage
the facilities and maintain the trainsets, and determine a parts
procurement plan for the trainsets.

13For a more detailed information on the lawsuits and settlement, see
GAO-05-152.

Figure 2: Settlement responsibilities

Acela Program Still Independent of the Acela brake problem being discussed
today, Amtrak

faces other risks and challenges to sustain the trainset and keep it Faces
Considerable operating efficiently. Achieving a successful transition is
critical to the Challenges financial well-being of Amtrak given that the
Acela program is such a

significant source of its revenue. A successful transition of maintenance
and management responsibilities for the Acela trainsets depends on whether
Amtrak and the Consortium can address the numerous challenges. Key
challenges include:

o  	Achieving trainset modifications and performance requirements. The
Consortium must complete an extensive list of modifications to the
trainsets, some of which are complex, before Amtrak will assume

maintenance responsibilities. Although the Consortium has closed
threefourths of the items, they are behind schedule on completing the work
on some remaining items. Amtrak has identified certain modifications that
potentially may not be completed by October 1, 2006, and has concerns that
other modifications may affect service reliability. The Consortium is also
responsible for ensuring that the trainsets continue to meet reliability,
speed, and comfort performance requirements. The trainsets have not yet
met the minimum reliability performance requirement of traveling an
average 17,500 miles between service failures.14 According to Amtrak, the
period of time when the trainsets are out of service to resolve the brake
problems will not likely be included in the measurement of this standard.

o  	Obtaining technical expertise for maintenance and completing training.
Amtrak must secure a workforce with the technical expertise needed to
maintain the trainsets. To achieve this, Amtrak is developing a new High
Speed Rail Division to assume management and maintenance responsibilities,
and it plans to hire at least 50 percent of NecMSC's current staff to
benefit from their knowledge and expertise. The Consortium and Amtrak must
also develop and implement training programs needed to maintain the
complex trainsets after the transition. The trainsets are technically
complex and require considerable expertise to identify and make needed
repairs and to troubleshoot difficult maintenance problems. According to
Amtrak officials, ensuring that technicians are properly trained is one of
the most critical points of the transition. As a result of the current
brake problem, Amtrak is reevaluating its training materials. Based on the
latest progress report (March 2005), troubleshooting training is slightly
behind schedule, and Amtrak officials told us that management training has
been temporarily delayed due to the brake problem. Under the transition
plan, training is scheduled to be completed by October 1, 2005.

o  	Sufficiently funding maintenance and integrating responsibilities.
Once the transition occurs, Amtrak will be responsible for maintenance
costs to ensure continued trainset performance, including procuring parts
and performing overhaul maintenance. Amtrak has experienced problems in
the past with delays in completing the maintenance necessary to provide
its conventional service; and if these problems continue, they could
affect trainset performance and availability for revenue service. At the
time of

14According to Amtrak, this measure is calculated as a 6-month rolling
average. The settlement agreement requires the Consortium to meet this
reliability standard before the transition will occur and Amtrak may draw
down on letters of credit issued by the Consortium should it default and
not meet the requirement.

our review, Amtrak had not determined the level of funding necessary to
provide regular maintenance and overhauls to the trainsets. Amtrak
officials stated that despite the uncertainty of maintenance costs once
the transition occurs, they estimate that the costs of managing the
maintenance in-house will be no greater than the costs of paying NecMSC to
perform the work. We believe the uncertain amount of future maintenance
costs and possible lack of adequate funds may have a greater impact than
anticipated. Amtrak must also successfully integrate the new maintenance
responsibilities into its current organization. Development of a new
division requires strategic planning, communication, and performance
management. This may prove difficult for Amtrak as our past and ongoing
work has shown its shortcomings in managing large-scale projects.

o  	Preparing a comprehensive implementation plan. Creating a
comprehensive implementation plan that provides a blueprint of important
steps; milestones; contingency plans if milestones are not met; measures
for achieving results; and funding strategies will be important for a
successful transition. Amtrak has created a critical path schedule for
monitoring the status and completion of open items related to the
settlement and holds regular meetings, both internally and with the
Consortium, to discuss progress and issues that arise. Although Amtrak has
taken actions to address the key challenges related to the settlement,
these actions did not represent a comprehensive implementation plan, and
we recommended in our December 2004 report that Amtrak develop such a plan
that encompasses all aspects of the transition in order to ensure a
successful transition. We also said that such a plan should include
contingency plans, if milestones are not met. In light of recent events,
we believe a comprehensive plan that identifies contingency actions could
provide the steps necessary to help prevent postponement of the
transition. Amtrak officials do not believe the current brake problems
will impact the October 2006 transition date, however.

Although the settlement agreement ensures that Amtrak will be protected by
the extended trainset warranties and Amtrak has several methods of
financial recourse, if the Consortium does not honor warranties, loss of
revenue resulting from removal of trainsets from revenue service is not
directly recoverable. For example, the settlement agreement included the
extension of "bumper to bumper" trainset warranties on all trainsets for
the next 5 months, until October 1, 2005. In addition, modifications to
the trainsets that are currently under way or planned will be under
warranty for 2 years after they are completed to Amtrak's satisfaction.
Amtrak also has several methods of financial recourse, if the Consortium
does not honor warranties, including letters of credit that Amtrak may
draw down.

  Challenges In Managing Other Large-Scale Projects

However, the full extent of the legal liability associated with the April
2005 brake problem has yet to be addressed by the parties. Amtrak
officials told us that their first priority is getting the trainsets back
in service. Amtrak is considering a number of possible actions regarding
the brake problem, including assessing liquidated damages.15

As we reported in February 2004, Amtrak did not effectively manage the
entire NHRIP project, of which Acela was a part.16 Among the problems we
found were that (1) Amtrak's management of this project was not
comprehensive but was focused on the short term; (2) project management
focused on separate components of the project, such as electrification and
acquisition of the high-speed trains, and not the project as a whole; and
(3) did not sufficiently address major infrastructure improvements needed
to attain project trip-time goals. We also found that Amtrak lacked a
comprehensive financial plan for the project and that Amtrak did not fully
integrate stakeholder interests (commuter rail authorities and state
governments), even though work that involved stakeholders was critical to
achieving project goals. The overall results of this poor management was
that many critical elements of the project were not completed, project
costs and schedules increased considerably, and the project goal (3-hour
trip time from Boston to New York City) was not attained. While there have
been many benefits from the NHRIP, including faster trip times between
Boston and New York City, Amtrak's management of this project clearly
demonstrates that Amtrak had difficulty keeping such a large-scale project
focused, on-time, and onbudget.

We also have ongoing work for this committee on Amtrak'management and
performance issues that we plan to report on later this year.

Mr. Chairman, that concludes my statement. I would be happy to answer any
questions you or the Members of the Subcommittee might have.

15Amtrak officials said that, because the Acela trains have been removed
from service, they are not currently paying NecMSC the fixed mileage rate
for its services.

16See GAO-04-94.

Contacts and	For further information, please contact JayEtta Z. Hecker at
[email protected] or at (202) 512-2834. Individuals making key

Acknowledgements 	contributions to this statement include Kara Finnegan
Irving, Bert Japikse, Richard Jorgenson, and Randall Williamson.

Related GAO Products

Intercity Passenger Rail: Issues Associated with the Recent Settlement
between Amtrak and the Consortium of Bombardier and Alstom, GAO-05152
(Washington, D.C.: Dec. 1, 2004).

Intercity Passenger Rail: Amtrak's Management of Northeast Corridor
Improvements Demonstrates Need for Applying Best Practices, GAO-04-94
(Washington, D.C.: Feb. 27, 2004).

Intercity Passenger Rail: Amtrak Needs to Improve Its Decisionmaking
Process for Its Route and Service Proposals, GAO-02-398 (Washington, D.C.:
Apr. 12, 2002)

Intercity Passenger Rail: Potential Financial Issues in the Event That
Amtrak Undergoes Liquidation. GAO-02-871 (Washington, D.C.: Sept. 20,
2002).

Financial Management: Amtrak's Route Profitability Schedules Need
Improvement, GAO-02-912R (Washington, D.C.: July 15, 2002).

Intercity Passenger Rail: Congress Faces Critical Decisions in Developing
a National Policy, GAO-02-522T (Washington, D.C.: Apr. 11, 2002).

Intercity Passenger Rail: The Congress Faces Critical Decisions About the
Role of and Funding for Intercity Passenger Rail Systems, GAO-01-820T
(Washington, D.C.: July 25, 2001).

Intercity Passenger Rail: Amtrak Will Continue to Have Difficulty
Controlling Its Costs and Meeting Capital Needs, GAO/RCED-00-138
(Washington, D.C.: May 31, 2000).

Intercity Passenger Rail: Issues Associated With a Possible Amtrak
Liquidation, GAO/RCED-98-60 (Washington, D.C.: Mar. 2, 1998).

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