This is not the first production fiasco, as I'm sure we're aware. Is it a flaw in the bidding process? I'm not an expert in this area, but is there even a penalty clause of some sort relating to meeting production deadlines? It seems that companies underbid so that they can get the job, then wind up either missing deadlines, and/or putting out a shoddy product. I think this is also happening in the awarding of some commuter rail transit contracts.
Yes, there are penalty clauses. As mentioned in the WSJ article: "Blown delivery deadlines could leave Nippon Sharyo liable for several million dollars of damage fees for violating the contract terms, sources familiar with the contract said. The states could use that money to pay for some railcars, but would likely have to find other sources to make up the shortfall."
A few million dollars in fees for missing the tight deadline will only pay for a couple of cars. The flaw in the bidding process is arguably with how long it took to write the specifications, requirements, write an RFP, and award the contract. I think the contract award to N-S was announced in late 2012, but that is just the award selection. Given the complexities of a multi-state contract, the Notice to Proceed might not have been given until some months later.
The problem is the stimulus deadline of September, 2017. N-S had a manufacturing plant that built passenger rail cars when they won the contract. The challenge as discussed (briefly) in the WSJ are all the requirements to buy all the parts from US vendors, meet FRA regulations, and design & fabricate a new design in the time allowed. In a normal build contract, if there is a 1 or even 2 year slip, the agency that awarded the contract might be unhappy and the contractor may take a hit in penalty fees, but the funding remains available, and eventually the rolling stock gets delivered. See the CAF Viewliner II and the seriously delayed Series 7000 car deliveries for WMATA as examples.
There is a fix for the deadline. Senator Durbin could team with one of the California Senators and insert a rider in an appropriations bill to give the FRA the authority to extend the stimulus deadline for up to 2 years to September, 2019 if the FRA determines there are legitimate reasons on a case by case basis to do so. Could probably be done in 2-3 sentences in a bill. The catch, of course, is that while such a rider could probably get through the Senate, there will be House Republicans who will go out of their way to block any such extension. In a normal functioning Congress, an extension would be no big deal. After all, the funds have already been obligated and "spent" from a budget viewpoint. But we don't have a normal functioning Congress.
Whether the FRA has a legal work-around the deadline for the bi-level stimulus funds, don't know. Pay N-S in advance with new full refund clauses if they don't deliver or something similar, if that is even possible.