MTA loses $2 million in currency miscalculation.

Contract terms could have been switched in February

The Los Angeles County Metropolitan Transportation Authority's cost for 15 light rail cars has increased by more than $2 million because its staff failed to take action to convert the contract's payment terms from yen to dollars, the MTA board learned last week.

In memos to the Rail Construction Corp., MTA staff revealed how "expert" currency traders convinced them not to enter into a "yen swap" in its contract with Sumitomo Corp., as authorized by the MTA board last February. As a result, as the dollar continued to decline against the yen, the price of the cars went up.

The MTA is buying 15 cars from Sumitomo for its Green Line rail. The original contract amount was $44 million, but the price is now at $49 million, thanks to the currency fluctuation problem, inflation and a $828,937 change order for "spare parts, special tools and diagnostic testing equipment."

The change order was approved by the MTA board at its Nov. 17 meeting, but Chairman Richard Alatorre ordered the staff to prepare a report on the yen issue.

When the issue was raised at the meeting by MTA critic John Walsh, MTA Treasurer Terry Matsumoto and other staff members were unable to address the subject.

Nick Patsaouras, alternate MTA board member for county Supervisor Mike Antonovich, asked Matsumoto whether the MTA had paid the expert advisers who advised against converting the contract to all U.S. dollars. He also requested an itemized list of all the increases in contract charges.

According to the RCC memos, authored by Green Line Manager of Contracts Linda Ford-McCaffrey and Project Manager David Sievers, the MTA board authorized its staff to convert the yen portion of the contract to dollars last February because the contract price had already increased about $500,000 due to currency fluctuations.

However, the yen swap did not take place because "a poll of major currency trading banks at that time indicated that the yen (conversion rate) was likely to improve from the 117 (per dollar) range where it was trading, back into the 120 to 125 range by the end of the calendar year," Instead, the dollar rate declined further to the 105 yen range.

The Sumitomo contract has been controversial for years. Originally, Sumitomo was awarded a contract for many more cars, but that contract was canceled due to a wave of buy-American sentiment. Later it was reinstated for 15 cars.

In other business at last week's MTA board meeting, the board approved additional contracts with Tutor-Saliba Corp., despite concerns about an ongoing investigation into the safety of subway tunnels built by the company, and allegations in newspapers that Tutor has been low-balling competitive bids only to make money later through change orders.

The board did place conditions on the new contracts, stating that the contracts could be canceled without penalty to the MTA if the tunnel investigation shows negligence on the part of Tutor.

Some board members wanted to delay awarding the contracts for construction of Metro Rail stations on Vermont Avenue, but staff said delays would cost the MTA $2 million per month.

Antonio Villaraigosa, board alternate for county Supervisor Gloria Molina, commented that the MTA board agendas are so lengthy that the board members are frequently ill-prepared to make decisions, and the board should therefore meet more often.

Several board members commented that they are growing weary of being "embarrassed" by newspaper stories. Other controversies discussed at the meeting included published stories about board travel expenses and about delays in the signing of the L.A. Standard Car contract for future Green Line cars.

"In the minds of everyone out there, we are completely out of control," said Villaraigosa.

Alatorre referred the matter to the board's executive management committee. He added that the board will soon have a retreat at which such matters may be discussed.