Taipei's Subway Project Is Way Off Track

A fight with Matra is spooking other foreign contractors

Jessie Chen, a 25-year-old saleswoman at a Taipei exporting firm, nervously rides the city's new commuter train every day. The line, which finally opened in March, four years behind schedule, cuts Chen's commute to about six minutes from the 45 it used to take by bus. Still, she's uneasy. After a computer failure in early June stranded some 2,000 passengers on the elevated track for up to 40 minutes, Chen has doubts about the line's safety. She escaped the ordeal only because she went to work early that day. "That was a little problem," she says. "I hope I'm not on the train when a big problem happens."

Sparking her concerns is a bitter standoff between Taipei and the maker of the train system, Matra Transport. On May 30, executives of the French company stormed out of Taiwan, frustrated by the lack of progress in a long contract dispute. The relationship between the two sides is so poor that when the computer breakdown occurred four days later, the Taipei mayor accused Matra of sabotage, a claim the company quickly denied. The agency charged with operating the subway system has ordered a police investigation.

FINGER-POINTING. Unfortunately for Taipei residents, the troubles may be a glimpse of the future. Matra is but one of 20 foreign contractors working on Taipei's $18 billion, multi-line subway and elevated-train system, which is scheduled to be completed in 2000. Infuriated by the city's mismanagement of the project, Taipei voters in 1994 elected as mayor the opposition firebrand Chen Shui-bian, who vowed to clean up the mess. Ever since, Taiwanese officials have taken a harder line in negotiations with the likes of Matra. Now, when it wants to be seen as a logical Asian base for multinationals, Taiwan is faced with one of the region's most spectacular contracting failures.

What went wrong? The French may bear some of the responsibility for slowdowns caused by numerous technical mishaps. But Matra and others blame a bureaucracy that places final decision-making authority in the hands of government auditors, not the agency overseeing the work. As a result, officials are reluctant to make decisions--especially ones that are favorable to foreign companies--lest they be criticized or accused of corruption. Another problem is that Taipei insisted on retaining coordination of the civil construction work on the various lines, a colossal job that the city realized too late it lacked the expertise to pull off.

The latest trouble erupted on May 29 when the Department of Rapid Transit Systems, the agency overseeing subway construction, filed for foreclosure against Matra's $18 million performance bond. Officials say they had no choice. Two dozen cars are in the shop with brake problems, and Taipei officials say the driverless trains in service are too noisy and skip stations 7.5% of the time. "Sometimes they just don't open the door and move to the next station," says transit spokesman Swen Ker-li. "Before they fix all these defects, how can we give them their performance bonds?"

NO NEGOTIATION. The foreclosure infuriated Daniel Bourasseau, Matra vice-president and Taiwan manager, who claims that Taipei already owes his company $110 million. Matra, which supplied cars, tracks, signals, and power systems for the line, says the problems are a natural part of the startup of a new line. Fed up, Bourasseau bought eight full-page ads in Taipei newspapers denouncing the transit department for "a material breach of contract that Matra deplores." Then he and eight Matra engineers headed back to France. "Real negotiations are impossible," he fumes. "If we tell them the extra work will cost $100, and they say $80--that would be negotiation. What's happening is we say the extra work costs $100, and they say zero."

The two sides have been at odds almost from the start, back in 1988. When the transit department had trouble clearing the site and getting workers and raw materials, Matra technicians had to sit around Taipei for months. An arbitration panel ruled that the city owed Matra $37 million, but Taipei took the decision to court and got it overturned on procedural grounds. "We didn't think the arbitration was a fair process," says transit spokesman Swen. Matra is appealing the decision to overturn the arbitration finding, but the city's actions have spooked other foreign contractors. "To have the decision overturned by the local court seems to be against the spirit of arbitration," says one executive. "The point is to avoid going to court."

OTHER BEEFS. The situation got worse once the trains started making trial runs in 1993. During the testing, the wheels on several cars burned after the brakes locked up and dragged the rubber on the tracks. Matra says the brake troubles have been fixed and says the transit department is responsible for the system's current woes. "Rather than solve problems as they arise, [officials] keep referring to the contract and paralyze the whole system," says Bourasseau. Although they lacked experience in building a rapid-transit system, Taipei transit officials did not hire an outside consultant to coordinate the numerous subcontractors involved in the project. As a result, the job was plagued by chronic delays and substandard work. For example, cracks were found in 162 of the 342 concrete piers that support the elevated track.

Matra isn't the only foreign company that has a beef with Taipei. Earlier this year, another French company, TSO, which built tracks for a heavy-rail line, stopped work in a payment dispute after Taipei authorities asked the company to fix a problem with the track bed that TSO said was not its fault. An American engineering consortium--American Transit Consultants, which includes contractors Bechtel Group, Parsons Brinckerhoff, and ICF Kaiser International--also is in arbitration with Taipei over a payment dispute worth some $2 million. "Disagreements of this sort are common on large projects of this type," says one engineer. "But ordinarily, the two sides find a middle ground before disaster strikes."

CONCESSIONS? The government is aware of the problems and is trying to fix them. "There are too many people making decisions and not enough accountability," concedes John Chien-chung Li, vice-chairman of the Public Construction Commission, the government agency charged with revising the government procurement law. After the Matra fiasco, the transit department has allowed the principal contractor of another commuter line to oversee the civil engineering work as well as its own subcontracting. Moreover, Li says an initial reform bill to remove the government auditors from the process is ready to be submitted to Parliament. But it will take two to three years to finish the job.

In the meantime, Taipei transit officials say they can survive without Matra by putting local technicians to work maintaining the system. They concede, however, they would be better off getting the French engineers back on the job. Bourasseau puts it more emphatically: "Once spare parts have run out, Taipei will have to get back to Matra." But given the heated rhetoric, anything that smacks of capitulation may be tough to sell in Taipei. "We paid such a high price, but we don't have a very good quality train," Jessie Chen says. Unless the two sides make up soon, she and other commuters may have more nerve-wracking rides in the future.

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