Contracting Fixed-Route Bus Transit Service (2018)

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32 Introduction This is the second of two chapters presenting the results of a survey of transit agencies regard- ing experiences in contracting fixed-route bus transit service. The previous chapter addressed survey results related to the procurement framework, contract structure, transition issues, labor issues, and oversight. This chapter’s focus is on agencies’ evaluations of their experiences in con- tracting fixed-route bus transit service. Specific topics include agency assessment of its contract- ing process, challenges, and lessons learned that would be of interest to other transit agencies. Respondents were also invited to share any final thoughts. Agency Assessment of the Contracting Process Overall The survey asked transit agencies to rate their efforts to contract fixed-route bus service. The ratings are positive (Figure 20). A majority of respondents (58%) rate their efforts as “very successful,” and an additional 37% rate their efforts as “somewhat successful.” Large agencies are more likely to rate their efforts as “very successful” (85%). Challenges Respondents rated various potential challenges in contracting fixed-route bus service. Major challenges were defined as having a significant actual or potential effect on the agency’s decision to contract; minor challenges were defined as being of concern but without an effect on the deci- sion. No element was rated as a major challenge by more than half of the respondents. Need for oversight, size of agency staff, and service quality concerns were mentioned by at least one-third of respondents as a major challenge. Small agencies were most likely to cite the need for over- sight and the size of agency staff as major challenges. Midsized agencies emphasized the need for oversight and staff expertise in contracting as major challenges. Large agencies were most likely to cite service quality, size of agency staff, and workforce retention as major challenges (Figure 21). Agencies noted that a well-structured RFP can address most of the major challenges. Respondents also answered an open-ended question to describe the single major challenge in contracting fixed-route bus service as well as strategies to overcome this challenge. Oversight with limited staff, contractor competence and willingness to work with the agency, and loss of control over bus operators and training are the three challenges mentioned most often. One- third of small agencies also cited operator wages and their impact on employee retention. Other respondents named ensuring service quality and minimizing risk to bidders through clear but not overly prescriptive RFPs as the one major challenge. C h a p t e r 4 Survey Results Part 2: Agency Assessment

Survey results part 2: agency assessment 33 The most common strategies for overcoming the one major challenge are to work with the contractor to address issues and develop a partnership; modify future contracts/scopes of work; and establish a robust contract oversight program. Examples of specific responses are shown here. These represent the opinions of the respondents only and should not be construed as recommendations of this study. • Having very little control over the quality of service provided, unable to change the contractor com- pany culture to provide a better service to our customers. We have put in greater controls and penalties in the contract to allow some control over common customer complaints, however there are still issues that cannot be easily quantified or measured that affect the service quality. 5 5 1 1 6 7 11 2 0 10 20 30 Very successful Somewhat successful Neutral Somewhat unsuccessful Small Medium Large Figure 20. Agency rating of efforts to contract fixed-route bus service. 7 6 5 2 3 3 1 2 6 5 4 6 2 3 5 4 2 3 4 2 3 1 1 0 10 20 30 Need for oversight Size of agency staff Service quality Staff expertise in contracting Workforce retention Customer satisfaction Familiarity with FTA procurement Loss of control over service Small Major Medium Major Large Major Figure 21. Ratings of major challenges by system size. Note: Multiple responses allowed.

34 Contracting Fixed-route Bus transit Service • Ensuring that all potential contractors fully understand the RFP and all of the components required to ensure that the bids can be equally compared and scored, and to keep costs down by removing inflated rates when contractors are unsure of what actual costs will be. We have tightened our specifications and added several levels of pricing to the RFPs so that rates for different activities, such as Opera- tor training, can be billed at a rate lower than the regular rate that includes all costs associated with providing service. Contractor Oversight • With four contractors operating out of different facilities, none of which are owned by the agency, we have difficulty ensuring that they are meeting all of the contract requirements. We are working to over- come this by having dedicated agency operations staff work closely with the contractors. • Issues with the system are discussed with the contractor, we are pacified, promises are made, but no change occurs. The new contract will assess penalties. Benefits and Drawbacks Over half of responding agencies cite lower costs as a benefit of contracting, whereas access to contractor expertise, flexibility, simplicity, and limited liability are other benefits (Figure 22). “Flexibility” incorporates comments regarding the contractor’s agility in making changes with- out increasing the number of public employees, use of different-sized vehicles, and the practice of experimenting with new routes operated by the contractor before making them a permanent part of the transit system network. “Simplicity” refers to the contractor assuming responsibility for day-to-day operations, human resource issues, and regulatory requirements. Flexibility is more likely to be cited as a benefit by large agencies, whereas simplicity is cited more often by small and midsized agencies. Respondents also note drawbacks of contracting. Lack of control over day-to-day operations and operations staff leads all responses. Different cultures (referring to differing visions and goals at the agency versus the contractor) and the impacts of poor contractor performance on commu- nity perceptions of the transit agency are also drawbacks mentioned by at least 20% of respondents (Figure 23). Large agencies are more likely to note the extent of oversight required as a drawback. The most successful (as defined by the respondents) actions taken with regard to contract- ing include improving the agency’s RFP by reviewing peer RFPs, clarifying expectations and 5 3 2 3 2 9 4 1 3 3 1 7 3 5 1 3 0 10 20 30 Lower costs Access to contractor expertise Flexibility Simplicity Limited liability Operational efficiencies Small Medium Large Figure 22. Benefits of contracting. Note: Multiple responses allowed.

Survey results part 2: agency assessment 35 providing greater specificity; adding liquidated damages/penalties and stricter enforcement of contract provisions; and enhancing cooperation (Figure 24). The latter actions reflect different agency experiences with and approaches to contracting. These responses are virtually identical to the strategies reported to meet the one major challenge in contracting fixed-route service. Mid- sized agencies were more likely to cite regular operations/safety meetings as the most successful action, and large agencies were more likely to report centralization of contract management as important. Respondents were asked, “If you could change ONE aspect in the contracting process that your agency uses, what would you change?” The responses address nearly every aspect of con- tracting and are difficult to summarize. Only two changes are suggested by multiple respon- dents: allow more time for the process and own the facility. Small agencies were more likely to mention changes to the RFP itself, whereas midsized agencies noted changes to the overall process, and large agencies gave equal weight to both. 1 3 4 2 6 2 3 4 2 3 3 0 5 10 15 Lack of control Different cultures/conflicting goals Impact of poor contractor performance Amount of oversight required Small Medium Large Figure 23. Drawbacks of contracting. Note: Multiple responses allowed. 5 2 1 1 2 2 2 1 2 1 2 3 2 0 5 10 Improving the RFP Adding liquidated damages/enforcing the contract Working more closely with the contractor Centralizing contract management Establishing regular operations/safety meetings Small Medium Large Figure 24. The most successful action taken. Note: Multiple responses allowed.

36 Contracting Fixed-route Bus transit Service Lessons Learned Lessons learned that would be helpful for other transit agencies are summarized here. This includes all lessons reported by more than one agency. • Clarify expectations, rules, requirements, and agency goals in the RFP. Use your agency’s goals to develop the RFP and scope of work. It is important for bidders to understand agency goals, objectives and expectations so they can bid the contract accordingly. A clear, explicit RFP is the basis for a positive contracting experience. Train agency staff how to write a good scope of work. • Build an oversight plan, describe it clearly in the RFP, and follow through with a thorough and regular monitoring system to track contractor performance. It makes no sense for the agency to ask (and pay for) the contractor to do something without ensuring that it is done as requested. Hold the contractor to the terms of the contract from the start. Provide adequate funding for an oversight staff, and have the oversight team or person help in the transition. As one agency expressed: “Inspect what you expect.” • Establish and maintain open lines of communication between contractor and agency personnel. A true partnership is the goal, not an adversarial relationship. A positive, one-team approach makes contract management smoother and provides optimal service for the customer on the street. Contractor success equals agency success. • Allow for a long lead time in writing the RFP. Get input from all internal stakeholders. Contact peer agencies and incorporate their best ideas. Structure the process to allow time for potential bidders to review the draft RFP. They can point out flaws in thinking, unclear portions, or risk components that have a significant impact on costs. • Evaluate both the proposed local team and corporate resources. Your agency will live with the local team every day, but the proposed team is likely to change over the course of the contract. Include spe- cific steps that you expect from the contractor regarding selection and approval of management team members. The proposed local team is very important, but so is the process of replacing team members. • Supply facilities and vehicles and ensure that they are maintained over the life of the contract. This levels the playing field among bidders, provides more control over what is on the street, and avoids the trap that one agency reported in where the contractor leases the maintenance facility and no others are available nearby. • Be aware of the contractor’s profit margin. This is neither good nor bad, simply a fact of life regarding contracting service to the private sector. A number of responses do not fit neatly into these categories but reflect the different experi- ences and passion for this topic among respondents. A sample of these comments are reported here; these solely represent the opinions of agency respondents. • Front-line Supervision and Maintenance are areas that shouldn’t be contracted out. Those positions provide the real-time contractor oversight “eyes on the ground”; conflicts of interest can occur when those are contractor employees. • Agencies need to stay out of the management of contractor personnel. • Don’t ram liquidated damages down contractor throats. Offer incentives too. It’s not a game in terms of making your contractor absorb costs or trying to screw them over. Your reputation is affected and you’ll pay for it the next time. • Hold contractors to the same standard as the agency with regard to service quality and performance standards. • The important lesson the agency learned in the development and evolution of the RFP process is to consider the risk allocation between agency and the contractor. The agency removed risk components of the contract, which resulted in savings for contractor and the agency. • With the most recent procurement, we had finally gotten close to the service quality we expected and knew what resources were necessary on the contractor’s part; therefore, we required all vendors to propose the same number and composition of management, maintenance, administrative, supervision, and support personnel to prevent low-ball, naive bids. • Through this current procurement for a new operations and maintenance provider, we experienced protests from two of the three short-listed vendors. The protests were reviewed by a third party law firm and denied. The Procurement Manager and the selection committee’s detailed notes during every meeting were invaluable and told the story of how a fair and equitable decision was made. From this experience, I would encourage all procurement and selection committees to require a pre-proposal conference (we did) for all interested parties and explain in detail the: (1) Selection methodology; (2) Protest procedures; (3) Third-party review of protests.

Survey results part 2: agency assessment 37 • For agencies that are considering contracting out only a portion of operations: be efficient and strategic in deciding which services to contract out. For instance, one approach might be to contract out routes with low ridership while continuing to directly operate routes with high ridership; this would enable you to better control service quality on routes that are popular with customers. Unfortunately, our contracts were developed in a more ad hoc rather than strategic way. Final Thoughts At the end of the survey, we asked respondents: “Is there any other information you would like to share that could benefit other transit systems that contract fixed-route service?” Although only 14 agencies responded to this question, several themes are worth noting. • Oversight is critical and begins at the start of the contract. Once contractor performance deteriorates, it is very difficult to get it back to an acceptable level. • Be clear, specific and unequivocal regarding the type of demonstrated skills and experience (years of experience) required for the General Manager and Operations and Safety managers. Ensure the local team is qualified to deliver contract expectations. • Experience is the best teacher. Apply the lessons learned over the course of the contract to the scope of work in the next RFP. • It is invaluable to have someone on the review team who was on private contractor side. • Think about which model can best suit your agency, given your goals and challenges. A service contract may be better for you than a management contract, or vice versa.