TTC: Flexity Streetcars Testing & Delivery (Bombardier)

[drum118]

If 60 cars in the open market is a $350MM cost...how does that compare to the option price in the contract with BBD? The answer to whether the option is exercised may be given in the spread between the option price and the market price.

The price I used is BBD price.

Going to the market could see that price go up or down, depending when it happen and numbers.

I understand TTC going to the market for the additional cars is on the table at this time and could happen this year depending on delivery.

As it was pointed out to me, a contract is a contract with all cars being here by 2019 and its not TTC problem. TTC doesn't care about BBD problems and they want the cars as requested by the due date that has been push back a year all ready.

If Minneapolis got 10% free cars for their fleet due to BBD problems, TTC would be looking for about the same to cover all their cost and delays. Anything less than 5% will be a rip off for TTC.

 

[TOareaFan]

The price I used is BBD price.

Going to the market could see that price go up or down, depending when it happen and numbers.

I understand TTC going to the market for the additional cars is on the table at this time and could happen this year depending on delivery.

ok....I misunderstood your post.....but, still, if the price of 60 cars at the option price is $350MM ....what is the current open market price for a fleet of 60 cars....if the difference is large I would expect TTC to find a way to work things out with BBD and order the cars from them (assuming they are needed).

 

[smallspy]

ok....I misunderstood your post.....but, still, if the price of 60 cars at the option price is $350MM ....what is the current open market price for a fleet of 60 cars....if the difference is large I would expect TTC to find a way to work things out with BBD and order the cars from them (assuming they are needed).

The current market price is whatever someone will charge us for the pleasure of designing and building 60 custom cars. It may be $350mil - but it may be more or less depending on what they think they can charge to cover all of their (not inconsequential) development and manufacturing costs.

The reality is that with the Canadian dollar doing what it is that the BBD option is likely to be the most cost-effective option. Assuming that the City doesn't go for the even more cost-effective option of simply not buying more cars.

Dan
Toronto, Ont.

 

[WIlliam XU]

ok....I misunderstood your post.....but, still, if the price of 60 cars at the option price is $350MM ....what is the current open market price for a fleet of 60 cars....if the difference is large I would expect TTC to find a way to work things out with BBD and order the cars from them (assuming they are needed).

To be honest, I don't think that Bombardier even want's the additional order at $350 million given how far the Canadian Dollar has fallen and the ForEx implications that come from that.

 

[TOareaFan]

To be honest, I don't think that Bombardier even want's the additional order at $350 million given how far the Canadian Dollar has fallen and the ForEx implications that come from that.

You are probably correct....but that is the value of options.....if exercised by city, BBD would have to honour it.

 

[books]

You are probably correct....but that is the value of options.....if exercised by city, BBD would have to honour it.

That may be true but Bombardier first has to honour the original contract. You have to be able to walk before you can run.

I wonder if the current slowdown at Bombardier is related to the retooling they are supposed to be doing for the second Thunder Bay Flexity line. If so, once they do get that second line up and running can Bombardier catch up in order to deliver the forty streetcars promised for 2017?

 

[TOareaFan]

That may be true but Bombardier first has to honour the original contract. You have to be able to walk before you can run.

As it relates to an option....no they don't. If it is a standard type option it is one way...with the TTC....they have an option to purchase 60 more vehicles at a set price. They can excercise it as they see fit (within the time limits that would be defined in the contract).

 

[books]

As it relates to an option....no they don't. If it is a standard type option it is one way...with the TTC....they have an option to purchase 60 more vehicles at a set price. They can excercise it as they see fit (within the time limits that would be defined in the contract).

So with an option the price is set and can't be changed (e.g., to account for inflation or any other factor Bombardier could think up)? This is an honest question, I'm not that familiar with commercial contracts like this.

Could Bombardier refuse to give the TTC free streetcars in compensation for late delivery? Would that have to be enforced through litigation?

 

[TOareaFan]

So with an option the price is set and can't be changed (e.g., to account for inflation or any other factor Bombardier could think up)? This is an honest question, I'm not that familiar with commercial contracts like this.

Disclosure: I have not read the contract between TTC and BBD.....but, yes, typically options are at a price. So a manufacturer sells X number of vehicles (common in airline industry and transportation) for $X per vehicle and grants an option to the purchaser to increase the order size at the same price. This is usually time bound (either by "X" date or by delivery of "X" vehicle").

Could Bombardier refuse to give the TTC free streetcars in compensation for late delivery? Would that have to be enforced through litigation?

this is a totally different area and not tied to options at all....it would be dealt with in the "penalty" or "default" (or both) section of the agreement. Could they refuse to compensate via free vehicles....sure, if that is not one of the remedies or penalties in the deal. They may, also, dispute whether they are in default at all. For instance, it is quite possible that the only "hard" timeline in the deal is the final date for delivery of the final vehicle and all the other timelines that we have been dealing with in public are just estimates for planning purposes.....so, without reading the contract/agreement, it is impossible to know if they really are in default at this stage or not (feel free to jump in anyone who has read the agreement or has read a synopsis of the agreement prepared by an independent party).

 

[rbt]

This is usually time bound (either by "X" date or by delivery of "X" vehicle").

They have to be time bound as an agreement that doesn't terminate isn't a legal contract (in Canada at least).

 

[TOareaFan]

They have to be time bound as an agreement that doesn't terminate isn't a legal contract.

sure, I meant time bound within the context of the agreement.

Ie. if the whole agreement runs 5 years...the option might have to be exercised by, say, month 48...or something like that....not typical for them to be left open for the entire length of the agreement.

 

[nfitz]

sure, I meant time bound within the context of the agreement.

Ie. if the whole agreement runs 5 years...the option might have to be exercised by, say, month 48...or something like that....not typical for them to be left open for the entire length of the agreement.

The option has to be exercised by the time vehicle 60 is delivered. So if they stick to the current schedule, Q4 2017.

 

[rbt]

sure, I meant time bound within the context of the agreement.

Ie. if the whole agreement runs 5 years...the option might have to be exercised by, say, month 48...or something like that....not typical for them to be left open for the entire length of the agreement.

I had imagined options being exercised decades or centuries after the initial order was fully delivered.

Thanks for the clarification; I understand what you meant now.

 

[TOareaFan]

I had imagined options being exercised decades or centuries after the initial order was fully delivered.

Thanks for the clarification; I understand what you meant now.

ha ha...I was a bit clumsy with the wording....but even if within the agreement the options were not separately time bound they would not survive past the conclusion of the deal that they were in in the first place.

 

[books]

Could they refuse to compensate via free vehicles....sure, if that is not one of the remedies or penalties in the deal. They may, also, dispute whether they are in default at all. For instance, it is quite possible that the only "hard" timeline in the deal is the final date for delivery of the final vehicle and all the other timelines that we have been dealing with in public are just estimates for planning purposes.....so, without reading the contract/agreement, it is impossible to know if they really are in default at this stage or not (feel free to jump in anyone who has read the agreement or has read a synopsis of the agreement prepared by an independent party).

It would be interesting to know:

1.) If there are recurrent deadlines in the contract, or if the public discussion has thus far centred around estimates given by Bombardier to the TTC to allow the TTC to schedule the retirement of its CLRV/ALRV fleet. However, the TTC is suing Bombardier for "schedule delays" which makes me think that there are deadlines other than the final one.

2.) What are the penalties, if any, written into the contract re free vehicles.