What a difference an “eyeball to eyeball” meeting can make.
The news about a key Honolulu rail contractor had been getting more and more disturbing. Corruption allegations. Financial troubles. And those revelations were just the latest to raise serious questions about an Italian company’s ability to live up to its promise to deliver in Hawaii.
It got so bad that barely a week ago, Civil Beat reported officials would delay signing the $1.4 billion contract they wanted to award to design, build, operate and maintain the city’s planned rail system.
And then came a meeting Friday, where the CEO of Ansaldo STS, Sergio De Luca, the man ultimately in charge of getting the work done on time and on budget, met with board members of the Honolulu Authority for Rapid Transportation, and especially their chief questioner, First Hawaiian Bank CEO Don Horner.
When the session was over, board members said their tough questions had been asked and answered.
So what did they learn that changed the picture?
Essentially, they learned that Finmeccanica, the company that owns 40 percent of Ansaldo STS and 100 percent of Ansaldo Breda, the two companies that will together carry out the Honolulu project in a joint venture known as Ansaldo Honolulu, can’t sink them. They have the financial resources and technical ability to stand on their own, no matter what happens.
As Horner put it after the meeting, it was clear that De Luca is a man of experience (an engineer who’s worked on rail for 35 years) committed to hiring local people. (De Luca told the meeting that about 300 local people would be hired to operate the system.)
Never discount the importance of the personal touch. De Luca flew in from Italy for the meeting, the first time he’s appeared in person before the board. The last time he talked to them it was by videoconference, and even that was considered a big deal.
Also, reference checks on 10 projects came back positive, with one exception, and even that one wasn’t negative, just unsure.
And the financial data, examined by the bank president in tables presented by Ansaldo, seemed solid. No red flags were raised. In fact, one board member concluded that there’s been a lot of “misinformation” out there about the contractor.
Horner, chair of the finance committee, made it clear that the final decision rests with HART Interim Executive Director Toru Hamayasu. And while Hamayasu, as is his style, was cautious about next steps, saying his staff would still need to review the latest submissions from Ansaldo, he said the contract could be signed as early as next week.
The extraordinary meeting of the Finance and Project Oversight Committees Friday was called to review 10 contract topics, many of which had been raised by critics urging caution:
The organizational structure of STS/Breda and their relationship to Finmeccanica
The breakdown of contract work, payment timing and who would do the work
Where manufacturing would occur
Reference checks and any defaults or required use of performance bonds to complete jobs in the past 10 years
STS/Breda vendor defaults or defaults on any liabilities
Financial capacity, cash flow, liquidity and equity analysis of STS/Breda/Finmeccanica over the last five years
Current independent credit ratings of Finmeccanica, which is a guarantor for the project
Technical qualifications and the technology being used in the HART system
New contracts for STS/Breda over the last nine months
The list sounds like it could take all day. But De Luca worked his way through a 36-page PowerPoint presentation in about an hour, even with interruptions for questions.
He made the case for the company’s technical ability to deliver what it promises — citing a history in the U.S. dating back to the 1880s — and for its financial ability — pointing to an increase in net profit at Ansaldo STS every year since it went public in 2006.
He acknowledged it had been a tough year financially. But not because of the debt crisis in Italy or Finmeccanica’s woes. Instead, it was a contract in Libya for a major project that couldn’t proceed for what he said were obvious reasons.
DeLuca showed a graphic of three recent projects to make the case that his company consistently delivers on time and on budget. The biggest variance was this year in Riyadh, Saudi Arabia, where the cost overrun was 3 percent.
Questions were raised about performance and safety, particularly in Los Angeles where there had been reports of problems. The company produced a chart indicating that its fleet of rail cars there is that city’s best performing and said that problems meeting the delivery schedule and weight expectations for the cars were a result of a change in ownership on the client side.
The bottom line for Horner was the integrity of the process that had resulted in Ansaldo beating out two other competitors, both of whom unsuccessfully appealed. He said the process had been “diligently followed.”
When asked outright whether he was confident based on Friday’s presentation that Ansaldo has the technical and financial capability to build the system on time and on budget, Hamayasu held back from a definitive answer.
He just said he was “encouraged by today’s presentation.” Asked when he might have completed his due diligence and be ready to sign the deal, Hamayasu said “next week.”
Horner said the goal of the meeting had been transparency and to ask the hard questions.
“As chair, I am confident the process is sound and the questions we had have been answered.”
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