NJ CONSORTIUM:MFS Gets 4th Extension, Cash, Management

Meanwhile Able/MFS continues to fail to deliver on the largest ETC contract in history, accumulates $25k/day penalties, needs large infusions of cash from outside, and has accepted outside managerial control. The outside management comes from rival system integrator TransCore, which has put two senior officers into the MFS operation on a contract basis.

MCI/WorldCom, the former owner of MFS has agreed to keep the company afloat with another infusion of cash – $25m this time. Apparently it was unable to rid itself of liability for the $200m of NJ performance bonds of MFS when it tired to close on the sale with Able. If MFS collapsed the NJ Consortium could seek hundreds of millions in damages with the MCI/Worldcom bonds as its security.

The consortium’s head NJ Turnpike chief Ed Gross continues to put an optimistic slant on developments saying “We are going forward in a positive way.” He says he encouraged MFS to seek outside help, referring to MFS new arrangement with TransCore. Back last October something similar began and then collapsed.

Gross says that he is protecting the consortium’s legal interests, while trying to get the job done as best he can. With money continuing to flow in from creditors or owners and another leading system integrator brought in to help, he thinks the Consortium is better off than if he terminated the contract. NJ transp commissioner James Weinstein says they still expect the whole system of 700 lanes covering the 3 NJ pikes to be running by March 2000.

Critics of Gross say that Able/MFS are not hurting as seriously as it sounds from the daily penalties since they are not being asked to pay cash. The penalties are accumulating as a book liability and, say critics, the expectation is that they will be forgiven as part of some final settlements. Repeated extensions detract from the credibility of the contract and could actually make it more difficult to make claims on the performance bonds, they also say.

Gross’ first letter to MFS (12/29/98) charged that its claims to have the VPC 90% ready were false and that its efforts “have to date been inadequate and unacceptable.” That letter was a formal notification of default citing the sections of the contract that MFS had breached. It is a very tough letter. It charged MFS with having “continuously failed to meet its obligations with respect to the establishment of a VPC” and notified it of the penalties or liquidated damages being assessed commencing 12/23/98 “until the VPC is fully operational.” It called for a new timetable and set a new deadline, adding: “In no event will the NJTA accept a proposal from MFS that does not guarantee delivery of an operational VPV by Jan 15, 1999.”

Critics of Gross say he has gotten progressively softer on MFS as evidenced by the repeated and lengthening extensions granted MFS (see table above).

Caltrans has had even worse problems of non-performance with MFS on its Bay area bridges. An official there told us that they have not filed formal notices of default but instead have a heavily documented case to use in the event they lose patience: “Of course with hindsight we got the wrong contractor, but so far we think the best thing is to work with them rather than issue them public notices of default.”

The leading Democrat in the NJ state assembly Richard Codey has said of MFS: “They should send this company packing... Obviously, what has happened to date is indicative of the incompetence of the company. We’re better off starting all over again.” (NY POST 4/6/99)

Easily said by someone on the outside, but as the number of missed deadlines increases it makes more sense. Each new ‘deadline’ has progressively less credibility.

Meanwhile there is a revival of talk of TransCore and MFS somehow merging again, in some kind of a spinoff of TransCore from its owner SAIC. SAIC is employee-owned and cannot float capital as easily as publicly owned and tradable companies. MFS has so much work so badly overdue and so many law suits in process against it, it is difficult to see how in its present shape it could be made to look like any kind of a net asset that anyone would want to acquire or merge with. Still, amazing things can happen. (Contact Ed Gross NJ Turnpike 732 247 0900)