As Caltrain readies for another financial crisis that could strip riders of their favorite service or lead to tax hikes, the railroad is turning down an offer from a massive transit company to operate the commuter line at a savings of $24 million over the next five years.

The reason? Caltrain executives say they are getting "the best bang for their buck" by picking the second-cheapest operator -- a firm they say was so impressive it "blew their socks off" and will still do the job for less money than what they had budgeted for future years.

The Caltrain board on Thursday is expected to sign a new five-year, $398.6 million deal with Missouri-based TransitAmerica to operate Caltrain service at the start of 2012, taking over the expiring contract from longtime partner Amtrak.

The contract makes up more than 60 percent of Caltrain spending. The winning firm must hire conductors and engineers, maintain the railroad and handle most other nonadministrative duties.

But Veolia -- which claims to be North America's largest private transportation provider and operates commuter rail lines in Boston, Miami and Austin -- submitted an offer for the same job that was 12 percent cheaper than TransitAmerica's plan. Veolia's five-year estimate totaled $374.5 million and was the only proposal Caltrain received that would cut cost from the current Amtrak deal.

The difference between the two firms' offers, some $4.8 million annually, is enough to keep weekend service, night trains and other endangered service in tact. Facing a historic budget crunch, Caltrain raised fares and cobbled together enough bailout cash from local counties to maintain service this year but is expected to ask voters to approve some sort of tax increase next year to save service over the long term.


Despite the financial crisis, the agency decided cost would account for one-fourth of its decision on which operator was best. The remaining three-fourths had to do with Caltrain executives' interpretations of the firms' quality, including everything from experience and qualifications to management and maintenance plans.

"It's not like we're walking away from a chunk of money; we had to look at the whole picture," Caltrain spokesman Mark Simon said. TransitAmerica "presented us with a plan that basically just blew our socks off. We thought this proposal by TransitAmerica was really a creative and intelligent and thoughtful way to go about it, within a budget that made sense to us."

The winning firm is smaller, has fewer years of experience and not as many clients as the cheaper one.
TransitAmerica's parent company, Herzog, is 42 years old; Veolia has 150 years of experience. TransitAmerica does business only in the United States; Veolia operates 200 transit contracts and has deals in 30 countries. In 2009, TransitAmerica's parent had revenue of $401 million; Veolia's had $8.5 billion.

But Caltrain officials say TransitAmerica distanced itself from the pack during a grueling, yearlong process that began when 30 Caltrain executives, outside consultants and area experts vetted the proposals.

Later, Caltrain spent days interviewing the four finalists, called references and made unannounced visits to rail lines operated by the firms. As a surprise, they even presented the firms with a crisis scenario and asked them on the spot how they'd fix it.

When factoring in cost estimates and quality scores from Caltrain executives, TransitAmerica beat out second-place finisher Amtrak/Bombardier, while Veolia finished third and another firm, Keolis, came in last.
Caltrain has a history of spending more money to keep what it considers top talent.

It pays CEO Mike Scanlon a higher salary than any other transit boss in the state and in recent years raised its payroll for administrative employees and paid raises to its Amtrak contractors. This year, executives revised their initial budget upward in order to keep service intact.