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Comptroller report outlines serious administrative problems with Tramvia contracts

Published on June 09, 2022

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The Cuenca tramway has been in operation for a year and a half without all the legal conflicts being resolved. The Municipality of Cuenca has not been able to legally receive the system nor collect two fines totaling $9.2 million.

In the report approved in May 2022, the Comptroller reported observations on five Cuenca tram contracts, covering the period from January 1, 2017, to May 31, 2021, which correspond to the administrations of Marcelo Cabrera and Pedro Palacios.

One of the contracts analyzed was the one that the administration of then mayor Cabrera signed on December 6, 2017, with the French consortium ACTN (made up of the companies Alstom, CIM Groupe and NGE Contracting) for the completion of the workshop yard, the preparation of the tram platform and the implementation of technological systems.

It was a contract for $48 million. The consortium was supposed to finish the work started by the previous contractor, who abandoned the works a year earlier.

ACTN carried out the works on the last section of the route, mainly in the Milchichig sector (north). This consortium was in charge of the implementation of stops, signaling and traffic lights.

Although the term of the contract expired in November 2018, the Municipality of Cuenca has not been able to receive the system because the contractor has not resolved the observations that appear in the provisional reception act signed on September 10, 2019.

It refers, for example, to the works carried out in the sector of Avenida España, in the Milchichig sector, which, according to the Comptroller’s Office, are “exposed to a process of deterioration of the asphalt layer and the road structure.”

The report details that the Municipality of Cuenca “should have required the contractor to make the arrangements and take appropriate action in the face of delay and non-compliance or make the arrangements in a timely manner charged to the guarantee of faithful compliance.”

Due to the delay in solving these problems and in the delivery of the works, the Municipality of Cuenca applied a fine of $4.6 million to the ACTN consortium, which is equivalent to 10% of the amount of the contract. But the company raised a dispute with the State Attorney’s Office, which has prevented the payment from being made.

The current director of the Tram, Jorge Moscoso, says that the Municipality will not receive the system if they do not comply with the established parameters.

He says that most of the problems have already been resolved, but he cannot anticipate when the final reception will be finalized.

The repair of the fissures in the asphalt of España Avenue and the damage to the ticket sales system are pending. The latter also requires a technological update because the system was acquired with terms of reference drawn up a decade ago.

Failure to notify the fines in a timely manner

The Municipality of Cuenca also had problems receiving the contract signed in 2013 with the French consortium GME CITA, which was in charge of supplying, installing and assisting with the commissioning of the tram system.

CITA (whose representative is Alstom) was in charge of providing the trams and other goods and services. Its original term was three years, but due to delays in the construction of the tram platform, it was extended for two more years, until December 2018.

When the deadline was met, the consortium had not delivered all the goods established in the contract. On that occasion, the Municipality “did not take the appropriate and timely actions to ensure full compliance with contractual obligations,” says the Comptroller.

In other words, the municipal administration of that time did not notify CITA of the respective fines in a timely manner.  This meant that the pending observations were not resolved by the contractor, who ended up applying the full right acceptance (i.e., considered  the contract completed).

In Ecuadorian legislation, the reception of full rights is applied as a consequence of the silence of the contracting entity before the express requirement of the contractor to carry out the definitive reception of the contract.

The fines arrived when the contractor already considered the contract delivered. In November 2019, the Municipality imposed a fine of $4.6 million.

This fine, as well as the guarantees of faithful performance of the contract, have not been collected because there is a precautionary measure from the CITA consortium before the Paris Commercial Court.

In her response to the Comptroller’s Office, the director of the Tram during that period, Carolina Ormaza, explained that the Municipality of Cuenca opposed the full reception and filed a lawsuit that is still under trial in the District Court of Administrative Litigation.

“If the sentence is favorable for the GAD, the contract would return to its previous state and can be terminated or received,” she said.

Spare parts depend on a single supplier

Added to these administrative messes is another issue that the local administration must resolve: the purchase of spare parts for the operation of the tram, which has begun to cause problems.

For about six months for example, there has been technical damage to the APS system, which is what allows trains to take electrical power from a third rail laid on the ground, instead of overhead power thru a catenary.

This system is applied in an extension of 4.2 kilometers, when the tram crosses the Historic Center of Cuenca. In that section there are electrical power boxes that are blocked and require repair, but the repair is not easy.

The Tramway coordinator, Jorge Moscoso, explains that, by having a specific technology, the only supplier of spare parts for the system is the French company Alstom, with which there are disputes to be resolved.

Moscoso emphasizes that in the original contract that was signed in 2013 with the CITA consortium, Alstom undertakes to have the stock of spare parts, “but there is no contractual obligation, there is no commitment to supply, in the shortest possible time and as a priority, the spare parts that are required,” explains Moscoso.

The current batch of spare parts is at its end, admits Moscoso who says that the Municipality has already started the purchase process, but it has not been able to advance “due to the differences in the public procurement laws of Ecuador and France.”

The amount earmarked for the acquisition is $2 million and the management of the Tram hopes to finalize the purchase this year or by the beginning of 2023.

Another pending issue that the Cuenca Municipality must resolve in the coming months is the integration of the system with urban buses, which is blocked by the refusal of the Cuenca Chamber of Transport.

Currently there are 16,000 passengers per day. The goal of the municipal administration is to increase that number to 50,000. To meet this goal, the integration of five feeder lines is required in the coming years.

The director of the tram says that if the goal of 50,000 passengers is met by 2027, the system will be able to sustain itself economically.

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