Contracting Fixed-Route Bus Transit Service (2018)

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58 Introduction The purpose of this synthesis is to explore issues and document effective practices in the con- tracting process for fixed-route bus transit service. Findings from the literature review, survey responses, and particularly the case examples identify and assess elements contributing to a well-thought-out process of procurement and oversight to ensure quality fixed-route bus transit services. The survey of transit agencies was important in defining the current state of the practice. The sampling plan developed a sample of 45 transit agencies that contract all or part of their fixed-route bus service. Thirty-seven completed surveys were received from the 45 agencies in the sample, a response rate of 82%. Four partially completed surveys were also included in the survey analysis. Survey results address the procurement process, contract structure, transition issues, oversight, labor issues, challenges, agency assessments of the contracting process, and lessons learned. This study also included a brief survey of firms that provide transit services (i.e., contractors) to obtain their views of the contracting process. With the assistance of panel members for this study, the study team received surveys from six of the seven contractors contacted. Inclusion of the contractor perspective is important in providing a full picture of all elements of the contract- ing process. Case examples provide additional details on procedures, challenges, lessons learned, and keys to success. The six case example cities and agencies are: • Denver, Colorado: Denver Regional Transportation District; • Lawrenceville, Georgia: Gwinnett County Transit; • Moorhead, Minnesota/Fargo, North Dakota: Metropolitan Area Transit; • Oceanside, California: North County Transit District; • Petaluma, California: Petaluma Transit; and • Woodbridge, Virginia: Potomac and Rappahannock Transportation Commission. This chapter summarizes key findings, presents conclusions from this synthesis project, and offers areas for future study. Findings identify and assess the factors contributing to the success. The chapter is organized in six sections: • Findings from the survey and literature review; • Agency assessments; • Lessons learned—agencies; • Lessons learned—case examples; • Contractor assessments and lessons learned; and • Conclusions and areas for future study. C h a p t e r 7 Conclusions

Conclusions 59 The future research needs offered here would address the need for a best-practices guide; impacts of technology on the oversight process; peer-to-peer networks that could assist in the contracting process; effects of different contracting methods; and service integration issues at agencies that contract only a portion of fixed-route bus service and/or use multiple contractors. Findings from the Survey and Literature Review Contracting Seventy-eight percent of responding agencies contract all of their fixed-route bus service. Over 90% of all respondents have contracted fixed-route bus service for more than 10 years. Cost-related factors are the most common reason for contracting, followed by acquiring exper- tise, minimizing the size of agency staff, and responding to board mandates. Procurement Framework Responding agencies most often develop an RFP for fixed-route contracting services by adapt- ing the agency’s standard RFP template and/or by reviewing similar RFPs developed by other agencies. The agency website is the most common means used to publicize the RFP, and the majority of respondents also use national transit publications, local print media, and transit- specific online media. Price, experience, and the technical capacity of the contractor are the most heavily weighted criteria used to evaluate proposals. Most responding agencies developed an IGE or ICE of the expected cost of the contract to identify unrealistically low and high bids. The most common sources for the IGE or ICE were historical information and peer experience. Although most agencies have not received unrealis- tically low bids in their contracting processes, several means to deal with low bids were reported, including extensive analysis and discussion with individual contractors, a best-value procure- ment process not based solely on cost, a requirement to break down costs by functional area, and use of an external consultant who specializes in price realism in contracts. The competitive environment for fixed-route transit service appears strong, with 83% of responding agencies receiving at least four bids and 70% reporting that the number of bidders either increased or remained the same on the most recent RFP. Only 16% of respondents received a protest on their most recent RFP. Contract Structure Over 70% of contracts were for 3 or 5 years, and an option to extend the award was included by 87% of respondents. The basis for payment is most commonly revenue hours, followed by variable costs plus a fixed fee. Over 80% of respondents include contractor performance provi- sions as part of the current contract. Liquidated damages and/or other performance penalties are twice as likely as performance incentives to be included. The dollar amounts associated with either incentives or penalties vary widely. Slightly over half of all respondents have assessed liquidated damages or performance penalties under the current contract. Most respondents are aware of at least the possibility that inclusion of liquidated damages or performance penalties could increase the cost of proposals, but only 43% state that inclusion definitely increases the cost of proposals. All survey respondents provide the buses. Nonrevenue/support vehicles are the only item provided by the contractor at a majority of responding agencies.

60 Contracting Fixed-route Bus transit Service Transition Issues Most (78%) agencies have not changed contractors within the past 3 years. Among those that have changed contractors, most report that the transitions are at least acceptable. Difficul- ties with the transition center on labor and equipment issues and a general lack of cooperation between the incumbent and new contractors. The most common dispute is over the condition of the vehicles. Labor Issues Most respondents report no labor issues related to contracting. Specific issues that have arisen involve collective bargaining agreements, wage and benefit levels, and continuity of employ- ment. An actual or threatened strike, low wages, poor benefits, frozen pension plans, and dif- ficulty in attracting and retaining quality staff are the most serious labor issues reported. Most transit agencies note that the most serious issue either has not been resolved (in many cases negotiations are ongoing) or was resolved through difficult negotiations. Oversight The importance of oversight is reflected in the near unanimity of monitoring contracted fixed-route services. Elements related to maintenance, safety, data, money, and day-to-day operations are monitored by at least half of the respondents. Most respondents indicate that specific staff members have responsibility for monitoring performance. Some larger agencies place responsibility for monitoring performance on a specific unit within the agency, and some smaller agencies reported that no one person or unit has this specific responsibility. The median number of agency employees (in FTEs) involved in contractor oversight is three. The range of responses was from zero to 41 FTEs. Over three-quarters of all respondents state that they are in daily communication with their contractor. Locating the agency and the contractor in the same building encourages daily com- munication. Eighty-six percent of respondents rate the quality of communication with their contractors as good or very good. Responsibility for data collection is almost evenly split between the agency and the contractor, with several agencies noting that responsibility is shared. Over 80% of respondents make at least some of the operating data available to the public. Agencies publish, post, or otherwise make data available in various ways, including a formal response to requests made under local public records law, on the agency website or the NTD website, in printed reports, or in monthly reports to the agency’s governing body. Performance standards, either agencywide or contractor-specific, and customer input are the most frequently cited means of evaluating contractor performance. Agencies with multiple con- tractors typically apply the same performance standards to all contractors. Service integration did not emerge as an issue in the survey among the 22% of respondents that contract a portion of their fixed-route service. Communication is the typical means of resolving conflicts, although several agencies do use performance penalties or liquidated damages. Most respondents cite monitoring all aspects of contractor performance or communicating with the contractor as the most important issue regarding oversight. The literature review supports the conventional wisdom that contracting results in lower costs but reduces agency control and can reduce service quality. Several authors note that transaction costs in preparing the bid and overseeing contractor operation reduce the expected cost savings. Successful contracting experiences are notable for their clarity in terms of roles and responsibili- ties and good communication and teamwork among all parties.

Conclusions 61 Agency Assessments Survey respondents assessed their agency’s experiences in contracting fixed-route bus transit service. Specific topics include challenges, agency assessment of its contracting process, and lessons learned that would be of interest to other transit agencies. Respondents were also invited to share any final thoughts. A majority of respondents (58%) rate their efforts to contract fixed-route bus service as “very successful,” and an additional 37% rate their efforts as “somewhat successful.” Need for oversight, size of agency staff, and service quality concerns were most often rated as a major challenge related to contracting. No element was rated as a major challenge by more than 40% of the respondents. Oversight with limited staff, contractor competence and willingness to work with the agency, and loss of control over bus operators and training were the three most often mentioned responses to an open-ended question regarding the single biggest challenge faced by the transit agency. Working with the contractor to address issues and develop a partnership, modifying future contracts/scopes of work, and a robust contract oversight program are the most common strate- gies for overcoming the single biggest challenge. Benefits of contracting include lower costs, contractor expertise, flexibility, simplicity, and limited liability. Drawbacks of contracting include lack of control, different cultures, and poor contractor performance. Improving the agency’s RFP by reviewing peer RFPs, clarifying expectations, and providing greater detail was the most successful action related to contracting, as reported by the respon- dents. Stricter enforcement and cooperation were also mentioned, reflecting different agency experiences with and approaches to contracting. Allowing more time for the RFP process and owning the facility were the only responses mentioned more than once in response to the question: “If you could change ONE aspect in the contracting process that your agency uses, what would you change?” Respondents proposed a variety of changes to specific elements or requirements included in the RFP, to the evaluation process, and to the overall process. A clear and specific RFP, the need for oversight, and ongoing communication to forge a part- nership rather than an adversarial relationship are the most frequently mentioned lessons learned regarding contracting fixed-route bus service. The number of topics addressed in the responses to this question reflects the different experiences and passion for this topic among respondents. Several respondents provided final thoughts at the end of the survey. Their comments stress oversight throughout the contract, a clear RFP with expectations specifically communicated, the opportunity to learn from every contract, a careful decision on what contracting model works best for the agency, and the value of including someone who has worked on the contractor side on the evaluation team. Lessons Learned and Keys to Success from Case Examples Although each agency has specific concerns of its own, recurring themes emerge throughout the case examples as expressed in the following paragraphs. • Be clear and as specific as possible in the scope of work and the RFP as a whole. Attention to detail will avoid problems during the contract.

62 Contracting Fixed-route Bus transit Service • Oversight is important to contracting success. • A true partnership with its contractor is the goal for several agencies. Although this may appear to conflict with oversight, agencies have achieved robust oversight and a strong partnership by clarifying expectations (through a carefully crafted RFP) and having open communication. • Input from peer agencies and contractors is extremely useful in developing the RFP. The agency’s own experience over the course of the contract can identify improvements for the next RFP. • Defined wages and benefits can even the playing field in the bid process and minimize staff turnover during the contract. • Develop a detailed cost sheet in the RFP. This will help the evaluation panel understand dif- ferences in proposed costs among bidders. • Allow plenty of time for the RFP process. Contractor Assessments and Lessons Learned The extent to which contractors and agencies agree on major elements of the contracting process for fixed-route bus transit service is striking. Both sides emphasize the importance of a clear, detailed RFP that accurately reflects the agency’s goals, sufficient time in the RFP process, and evaluation criteria other than cost. More broadly, there is agreement on the value of ongoing com- munication in building a true partnership as opposed to an adversarial relationship and an under- standing that contractors bring valuable expertise and new ideas from their experiences elsewhere. There are some differences in emphasis. Oversight is important on the agency side, whereas contractors do not address oversight extensively in their responses. Contractors accept the need for oversight, asking only that it be a fair process. Contractors are interested in being part of the RFP development process through response to a request for information and pre-RFP meetings with the agency. Transit agencies tend to focus more on an internal review of the existing con- tract and a review of RFPs from similar agencies as a means of improving the next RFP. Both the agency and the contractor surveys indicate that staffing the local team is a flashpoint where misunderstandings and disagreements are likely to occur. Some agencies raised the issue of “bait and switch,” saying they were promised certain personnel who did not become part of the management team. Contractors noted the difficulty in keeping a strong team together, especially during a lengthy procurement process. A scenario in which the transit agency has final say in the selection of key management personnel offers a way around this dilemma but is most likely to work if a real partnership has been forged. Conclusions and Areas of Future Study Overall Assessment Transit agencies are generally pleased with their contracting efforts. A majority of respondents (58%) rate their efforts to contract fixed-route bus service as “very successful,” whereas only 5% rate their efforts as less than successful. Benefits and Drawbacks Lower costs, access to contractor expertise, greater flexibility, simplicity, and limited liability are among the benefits of contracting. Drawbacks of contracting include lack of control, different cultures, and poor contractor performance. Agencies noted the need for oversight with limited staff as a major challenge.

Conclusions 63 Inclusion of and willingness to use penalties protects the agency; these may be balanced with incentives for good performance. RFP Process A clear and specific RFP with expectations specifically communicated that includes a thorough scope of work and highly detailed cost sheets is the most critical element in the RFP process. Attention to detail upfront helps to avoid problems during the contract and is helpful to contrac- tors in their bid preparation process. A thorough scope of work and highly detailed cost sheets provide clarity throughout the process to bidders and to the evaluation team. Allowing more time for the RFP process is a prudent course of action. Extensive internal review to improve the RFP based on the agency’s contracting experience and to ensure that each department’s concerns are addressed will strengthen the RFP. Consultation with peer agencies to learn from their experiences is helpful. Review of peer RFPs can also help in the decision on what contracting model will work best for the agency. Contractors expressed strong interest in having an opportunity to provide input to a draft RFP (possibly through a request for informa- tion process) to identify unclear provisions and elements that may discourage bidding. Both peer agencies and contractors can point out flaws in thinking or mistakes and identify elements that could increase the price without necessarily adding benefit. Transit agencies and contractors suggested several ideas to level the playing field and encour- age multiple bids. Networking with contractors at conferences, providing advance notice of the RFP release, encouraging contractor visits before or during the formal RFP process, defining detailed personnel requirements and minimum wages, and minimizing capital expense by pro- viding an operating and maintenance facility and equipment are ways to make the contracting process simpler and more transparent. Evaluation The evaluation process is important. A competitive procurement process is not solely price based. A strong, detailed RFP will include clear criteria for evaluation and the weight given to each criterion. The proposed local team and corporate experience are both important in the evaluation pro- cess. Many agencies give more emphasis to the local team as the people they have to live with every day, whereas others recognize that the local team is likely to change, and support from the contracting firm is important. The two surveys revealed contrasting views of an issue sensitive to both sides: agencies state that the proposed local team is subject to “bait and switch” tactics, and contractors are keenly aware of the difficulty in keeping a qualified team together, especially if the procurement process is extended for whatever reason. One potential solution is to require agency interview and approval of all local management personnel. Transition Condition of the vehicles is a major issue in the transition from one contractor to another. Some agencies rely on third-party inspections to resolve disputes. Oversight A robust oversight program is critical to contract success. Oversight can mitigate the issue of loss of control over day-to-day operations by the agency. A key to a successful oversight program

64 Contracting Fixed-route Bus transit Service is to ensure that all parties know and agree on what is measured and how it is measured. New technologies have helped the “how” part of oversight. Contractors accept the need for oversight, asking only that it be a fair process. It also helps to keep customer service in-house to ensure that the agency hears about any problems directly from its customers. Penalties are almost always and incentives are sometimes part of the agency’s oversight program. Contractors would prefer a better balance between penalties or liquidated damages and incentives; about twice as many agencies assess penalties as offer incentives. It is useful to remember that although contract compliance is important, the agency wants the contractor to succeed. A related observation in one case example noted that liquidated damages are a neces- sary evil: the agency wants the service, not the money, but money is the surest way to get the contractor’s attention. Another interesting observation was that once contractor performance deteriorates, it is difficult to get it back to an acceptable level. Communication and Partnership Agencies and contractors both view a real partnership as the goal. Open and frequent communication at all levels is a critical element leading to the possibility of partnership, and it begins at the beginning of the process. Agencies have achieved robust oversight and a strong partnership by clarifying expectations (through a carefully crafted RFP) and by a willingness to work together to solve whatever problems may arise. Negative experiences reported by both sides often had poor communication and resulting mistrust as the core of the problem. Several respondents noted that when the contractor is successful, the agency is also successful. The degree to which contractors and agencies agree on major elements of the contracting process for fixed-route bus transit service is striking. Both sides value a clear scope of work and RFP, a selection process that allows sufficient time and is based on evaluation criteria other than cost, ongoing communication, the value of the agency’s local knowledge, and the contractor’s expertise. Areas of Future Study Findings from this synthesis suggest five areas of future study, as described here. A best practices guidebook: There is little guidance for agencies considering contracting, and the process can be especially daunting for an agency going through it for the first time. Sample RFPs and timelines included in appendices to this report are useful, but a best practices guide would draw from a wider group of agencies and might also include pitfalls to avoid. The impact of technology on the oversight process: As noted, advances in technology can simplify agreement on how a particular performance standard is measured. However, technology is a big challenge for a small agency that does not have enough staff to manage all the technology it wants to manage. Are there differences in licensing arrangements for software in the procurement process? Is it appropriate to allow the contractor to operate and manage some technologies? If so, how are the data verified? Some agencies are including innovation as an evaluation criterion as a way to encourage contractors to propose new technologies. What would help small agencies transition to an oversight process based more on technology? An industry-based, peer-to-peer network that could provide assistance for agencies involved in contracting: Inclusion of selected RFPs for contracting in the appendix to this report is a step in the right direction, providing a starting point for an agency interested in contracting but not knowing where to start. An electronic forum with a focus on the contracting process, possibly under the auspices of APTA or National Rural Transit Assistance Program, would provide a means of connecting agencies with each other.

Conclusions 65 The effects of different methods of contracting: The surveys for this synthesis did not ask about the specific type of contracting, although it did ask the transit agencies about elements of service that were contracted. It would be interesting to know in greater detail the benefits and drawbacks of specific types of contracts. As contracting evolves, there are likely to be additional permutations of contract types; for example, the literature review discussed performance-based contracting, but all examples cited in those studies came from outside North America. Service integration issues at agencies that contract a portion of fixed-route service and/or have multiple contracts: Over three-quarters of all survey respondents contract all of their fixed- route service. The survey did not discover any pressing issues in service integration, but the Denver RTD case example reflected an awareness of this issue, and it may be more important in agencies that recently began to contract a portion of their fixed-route service. How is service integration addressed initially, and how does it evolve over time? Should there be a separate numbering scheme for contracted routes? Are identical performance standards applied to con- tracted routes? How are routes selected for contracting? If the number of transit agencies that partially contract increases, these questions will be increasingly important, and guidance will be useful.