Walker Administration “Default of Contract” cost to taxpayers nearly $50 million

Train manufacturer Talgo filed a “Default of Contract” suit against Governor Scott Walker and Wisconsin DOT Secretary Mark Gottlieb in Dane County Circuit Court today. Court documents filed today show that the Washington-based train manufacturer notified the state on April 4, 2012 that the “trainsets” were ready for required service testing to be conducted by WisDOT.

The state has attempted to claim that Talgo is responsible for testing, but the contract makes clear that WisDOT bears that responsibility (emphasis added):

All parties acknowledge and accept that 49 CFR 238.111 provides that the Operator (or railroad, as the case may be) not the Contractor is responsible for performing a pre-revenue service acceptance testing plan. Contractor will diligently work with Department and such Operator to ensure that the Operator’s pre-revenue service acceptance testing plan is efficiently implemented.

Wisconsin was sent an invoice for $4.599 million dollars on April 23, 2012 which has remained unpaid. On July 25, 2012 Talgo served a “notice of default” on Mark Gottlieb, DOT Secretary. The notice gave the state 30 days to cure default (emphasis added):

In short, Wisconsin is in default of its testing obligations under Section 14.02 of the Purchase
Contract, which has caused significant and costly delays on the project. Talgo is also very concerned with WisDOT’s stated intent to place the train sets into storage rather than in revenue service, which also constitutes a material breach and default under the Purchase Contract, as the Purchase Contract clearly requires WisDOT to place the train sets into revenue service (see, for example, Article 9 of the Purchase Contract).

Meanwhile, Wisconsin is also in default of its payment obligation regarding Invoice number 2012- 1.6, dated April 23, 2012. In addition, WisDOT has also wrongfully terminated the December 30,2009 Maintenance Agreement between WisDOT and Talgo - constituting an Event of Default under both that agreement and the Purchase Contract - which Talgo will address by separate letter.

Wisconsin did not reply within the required 30 days to cure default. The Maintenance Agreement referenced in the default letter between Wisconsin and Talgo was terminated by the trainmaker on November 1 as another breach of contract (emphasis added). Gottlieb was hand-delivered notice of Purchase Contract termination on November 1. If the state is found in breach of contract, Wisconsin (and its citizens by default) would lose all rights under the contract, and be on the hook for nearly $50 million plus court costs(emphasis added):

It has been more than one hundred days since Talgo served its Notice of Default upon Wisconsin.
Wisconsin has still not cured its default.

Accordingly, pursuant to the terms of the Purchase Contract, Talgo is hereby immediately
terminating the Purchase Contract. Wisconsin remains obligated to pay all its “previously accrued liabilities” under the Purchase Contract. You have received invoices for the balance of the Purchase Contract prior to your receipt of this Notice of Termination.

Talgo CEO  Antonio Perez hits the nail on the head with his statement today (emphasis added):

“We invested in the State of Wisconsin by building a manufacturing facility in
Milwaukee and creating manufacturing jobs. We built the trains and
otherwise performed our obligations under our agreements with the State of
Wisconsin. In return, rather than being “open for business” the State used
every conceivable excuse, whether fair or not and whether lawful or not, to
ensure that Talgo did not receive what it bargained for, including by refusing
to pay for the trains that Talgo completed. I don’t see how any company
would in the future choose to do business with the State of Wisconsin when
the State has shown that it cannot be trusted to honor contracts that it
signed.”

“Talgo has become the innocent victim of a political agenda. Before
Governor Walker was inaugurated, he wrote an open letter to President
Obama saying, “Governor Doyle and Secretary La Hood say we can’t stop
the train. I say, just watch us.” The Governor chose to “stop the train” by
breaching its contract with Talgo.”

WEDC and Walker’s budgeting tricks are just the tip of the iceberg. Ideology and cronyism over responsible governance have become the hallmarks of the Walker Administration. Not only did Walker’s actions regarding Talgo COST jobs, they will now COST taxpayers millions of dollars payable long after he is out of office.

The Office of DOT Secretary Mark Gottlieb emailed the following comment to Badger Democracy:

The Department of Transportation participated in a formal mediation process with Talgo just last week in a good faith effort to resolve disputes related to the delivery of completed trainsets. We are disappointed that process was not successful.
 
Talgo has failed to complete or test the trainsets and they do not meet even basic federal standards, such as those required under the Americans with Disabilities Act (ADA).
 
The department will defend against this action and continue to act in the best interests of Wisconsin taxpayers.”

The Walker Administration has yet to respond to request for comment.

 

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