| Organization: | Office of the State Auditor |
|---|---|
| Date published: | January 16, 2025 |
Executive Summary
In accordance with Section 12 of Chapter 11 of the Massachusetts General Laws, the Office of the State Auditor has conducted a performance audit of the Massachusetts Bay Transportation Authority (MBTA) for the period January 1, 2018 through September 30, 2023.
This is one of a series of reports that the Office of the State Auditor is issuing as part of a performance audit of the MBTA. Other reports focus on high-risk areas such as Keolis1 contract provisions, the MBTA’s contract management of its contract with Block By Block, as well as topics focused on ensuring safety of MBTA riders, employees, and the general public.
This report focused on the MBTA’s Automated Fare Collection System (AFC) 2.0 project, estimated to cost $960.2 million, which includes an approximately $935.4 million contract, known as the Amended and Restated Project Agreement. This project was created by the MBTA to replace the current Charlie Ticket / Charlie Card fare collection system with an advanced tap-and-go system that would allow the public to use multiple forms to pay fares. The new AFC 2.0 system will be installed on subway, commuter rail, bus, trolley, and ferry lines.
In this performance audit, our goal was to determine whether the MBTA was properly managing its financial risk associated with this contract. We examined this issue by auditing whether the MBTA was providing appropriate oversight on this contract and whether it adequately protected itself against financial loss by having a security bond in place. We focused on these areas to help determine whether the MBTA was properly monitoring the “day to day” of the project and to determine whether it structured its contract to ensure that it and the public were properly protected in the event of contractor failure. Our goal was also to determine whether the project costs stated in the contract fairly represented the actual costs of the project, or whether, and to what extent, the MBTA used its own employees to assist with the completion of the AFC 2.0 project. We further sought to determine whether the MBTA calculated the costs associated with using its own employees for this project.
During our initial audit work, we learned of a submittal process that occurred between the MBTA and the contractor. These submittals are sent to the MBTA, which then is required to provide a written determination for each submittal. These submittals are, in effect, work orders and change orders. As work progressed through the various stages, the MBTA received submittals from the contractor that the MBTA was required to approve or send back to the contractor to address deficiencies or inconsistencies identified by the MBTA within 15 days of receipt. This submittal and approval process documents and demonstrates the MBTA’s oversight of the contract. Since this process is required to have written documentation, and thus we were able to collect evidence, we chose to audit this process to determine whether the MBTA provided appropriate oversight over the contract.
We also reviewed any security bonds in place to protect the MBTA. The purpose of security bonds for this project was to provide a financial recourse to the MBTA if the contractor did not fulfill its obligations.
During the audit, we learned that MBTA employees were being used to assist in completing the project. We chose to examine the costs associated with these employees because these would be additional costs incurred by the MBTA for the AFC 2.0 project and therefore would be information of interest to the public.
The purpose of this report on the MBTA was to determine the following:
- whether the MBTA follows the submittal review period stated in Section 8 of Appendix 7 of the Amended and Restated Project Agreement to determine compliance with this specific section of the contract;
- whether the MBTA has a security bond in place for the Amended and Restated Project Agreement and ensured that this bond was provided by an entity with no financial connection to the AFC 2.0 project contractor, consistent with good industry practices; and
- to what extent the MBTA used MBTA employees to assist with the completion of the AFC 2.0 project.
Below is a summary of our findings, the effects of our findings, and our recommendations, with links to each page listed.
| Finding 1 | The MBTA’s Amended and Restated Project Agreement allowed deadlines to be overridden. |
| Effect | By not having controls in place to verify and report on timely delivery of projects’ milestones, the MBTA risks encountering significant delays related to contract delivery of the AFC 2.0 project. This affects the public by delaying their use of a more efficient system that will lead to quicker service and results in overspending of public funds because of change orders, price escalation because of inflation, and other cost pressures. Overuse of contract extensions may render project timelines meaningless and can have significant impacts on the timely delivery of such a large, complex project. |
| Recommendations |
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| Finding 2 | The MBTA violated Section 29 of Chapter 149 of the General Laws by not ensuring that the SI obtained a surety bond for certain work performed on the new AFC. |
| Effect | By not obtaining a “security by bond” for the AFC 2.0 project, as required by law, the MBTA may not be able to recover money it paid for the $935.4 million contract in the event that the contract is not completed. Additionally, a contractor may not fulfill the contract if a security bond is not in place. Typically, in a security bond, the contractor would turn over assets in the amount of the contract to the surety company. This would allow the MBTA to receive these assets as recourse if the contractor fails to fulfill its obligation. The lack of a “security by bond,” therefore, potentially puts a drain on public resources to complete a project for which the MBTA has already committed time and money. A security bond in place would at least allow the MBTA to recover some of its expended funds. |
| Recommendation | The MBTA should follow state law and require all contractors performing construction, reconstruction, alteration, remodeling, repair, or demolition to MBTA public works projects to obtain security by bond to cover one half of the total contract price in accordance with Section 29 of Chapter 149 of the General Laws. The MBTA should, in the essence of ensuring that contractors have surety by bonds in place, detail the bond requirements in the procurement process documents. This could serve to notify any potential contractors of their obligation to obtain a surety by bond before a contract even begins. |
| Finding 3 | The MBTA did not reconcile its payroll records to its general ledger. |
| Effect | If the MBTA does not reconcile payroll records to its general ledger, then payroll could be misstated and project costs attributed to the AFC 2.0 project and other MBTA projects and services could be inaccurate, making it difficult or impossible to determine the cost and cost effectiveness of different services offered to the public. Additionally, it is possible that MBTA employees could have been overpaid or underpaid if payroll records are inaccurate. |
| Recommendations |
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| Finding 4 | The MBTA did not ensure that all its information system users completed cybersecurity awareness training. |
| Effect | If the MBTA does not ensure that all its information system users complete cybersecurity awareness training, then the MBTA may expose itself to an increased risk of financial and/or reputational losses. |
| Recommendation | The MBTA should ensure that all its information system users complete cybersecurity awareness training as part of initial training and on an annual basis. |
1. This is the company contracted by the MBTA to operate its commuter rail services.
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