ACQUISITION AND PROCUREMENT: Improved Management and Oversight of GE Diesel Locomotive Service Contract Could Lead to Savings
February 03, 2017 | Audit Reports
Amtrak’s (the company) fleet of 269 General Electric (GE) diesel locomotives power trains on 15 long-distance routes and 26 state-supported routes. These routes are an important source of company revenue, generating about $945 million in fiscal year 2016—about 44 percent of total ticket revenue. Since 2001, the company has contracted with GE to provide a variety of parts and related services to support the company’s maintenance of the diesel locomotive fleet. The current 5-year contract, signed in November 2013, has an estimated value of $165 million. As of November 30, 2016, the company has paid $91.5 million to GE for parts and services provided under this contract.
The company’s team for managing the contract consists of a contracting officer from the Procurement department, who is responsible for ensuring that GE is satisfying the terms and conditions of the contract and a technical representative from the Mechanical department, who helps the contracting officer provide oversight. Mechanical department personnel have two means of obtaining parts from GE: (1) they can request the part directly from GE (the preferred practice), or (2) they can obtain the part from the company’s inventory and submit a claim for GE to replenishment.
Our objective was to review the effectiveness and efficiency of the company’s process for managing and overseeing the contract with GE.
The company can improve its processes for managing and overseeing the GE contract. We found that with more effective management, up to $5.56 million in company funds could be put to better use. This includes $5.3 million for parts drawn from the company’s inventory—some of which GE may have been contractually obligated to replenish. Additionally, because the company does not have an effective process to ensure that credits for GE’s late delivery of parts are properly calculated and received, it missed opportunities to collect $265,000 in credits resulting from GE’s delivery performance.