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Buses and Motorcoaches: Competitive Contracting, Exploitation and Impunity

As Originally Published by National Bus Trader May 2009

By: Ned Einstein
Tel: 212-766-1121
Email Mr. Einstein

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As most motorcoach community members know, contracting plays a major role in much of our operations - including the 30% of motorcoach service provided to schoolchildren on field trips, as well as the commuter-express service provided under contract to transit agencies. Because competitive bidding is required for contracted services by virtually all public agencies, the providers of these services must bid aggressively - often at considerable risk - in order to obtain the contracts to perform them.

Without factoring in the nuances, nothing seems terribly wrong with this practice, from the general public's perspective, at least on the surface: Service still operates, and the taxpayers save money. Regrettably, the form this practice generally takes translates into the public or "lead agency's" cost-savings accruing at the expense of paying the bottom rung of the service structure - the drivers - far less than it pays its own drivers. Other than exploiting drivers and mechanics, most other "savings" that may accrue from competitive contracting are negligible and illusory.

Public Screwing and Truant Scrutiny

A few years ago, contractors in the State of California were practically run out of business altogether by Governor Schwarzenegger's opposition to private contracting, claiming that all contracting did was reduce costs by placing the savings on the backs of the drivers. Whether this principle reflects a political sleight-of-hand or profound ignorance may remain forever a mystery. This is because if this claim is indeed true, it is the sole fault of the lead agencies involved - primarily transit agencies and school districts - not their contractors.

The reason for this practice stems from a single, nearly universal tactic (trick might be a better word) employed by lead agencies: The failure to cite a minimum driver's salary (presumably a reasonable one not terribly different from those salaries paid to the public agencies' own drivers) in the Request for Proposals (RFP). What follows from this omission, and why it creates such serious safety risks, are not hard to understand. This is maintenance, fringe benefits, employer taxes, fees, uniforms, rent, and to a somewhat lesser degree management - cost every bidder roughly the same. So without the provision for a minimum driver's salary in the RFP, bidders are effectively forced to compete by paying their drivers as little as possible. Even when some non-cost items are included in the bid evaluation process, the general result is that the winner is still often the bidder with the lowest-paid drivers. Thus, Governor Schwarzenegger's claim was not only misdirected, but a self-fulfilling prophesy. But make no mistake about the fact that the practice and its results are the fault of the lead agencies who create the RFPs, not the bidders.

A bidder can, of course, always walk away from a situation where such RFPs are lacking. The problem is, of course, that this provision is almost always lacking. So by definition, to stay in business as a contractor, one has no choice but to pay drivers as little as he or she possible can, and as a result, cope with constant driver shortages, and a litany of other problems, throughout the duration of the contract period. This problem drains away management time from practically everything and anything else, particularly when management personnel are forced to drive - as they often are during periods of acute driver shortages. In some operations I have examined, every member of management, including every single dispatcher, drove a schoolbus every afternoon. The rarity of player-coaches in professional sports illustrates the folly of such an approach. This is particularly true as a safety and liability matter, although it often has other consequences, including the inability to focus on optimizing system performance. Concerns for safety are tossed out with the bathwater.

Low bid approaches to contracting also translate into safety and liability problems largely because, when drivers are paid paltry salaries, their operations are usually characterized by sketchy drivers and poor performance. Among other things, poorly-paid drivers generally have a poor understanding, retention and application of their training. They almost always display a bitter attitude about their management, a disdain for their passengers, and a marginal commitment to their responsibilities. The result is poor service and high exposure.

Remedies and Impunity

Like anyone else, contractors must be careful to avoid collusion. But there is nothing collusive about banding together - before and especially during the pre-bid conference - to demand that some form of "living wage" be incorporated into the RFP process in the form of a minimum driver's salary.

There are some creative ways lead agencies can avoid the problems that largely low bid-oriented RFP's otherwise yield. One approach common to paratransit service RFP's is the inclusion of non-cost factors in the proposal evaluation process. Transit agencies have also begun to include non-cost factors even in fixed route service RFPs. One notable early example was that of the Los Angeles County Metropolitan Transportation Authority's bid for feeder service to its third rail line (the Green Line). In this RFP, bidders were asked to actually design the routes. The winners were chosen largely on the quality of their designs, not simply their costs. Of course, like many transit agencies, the agency's planning staff cheated in the selection process - including the rejection of one bidder who offered to provide service to all 13 stations for the ball-park fee that the Authority estimated could cover service to only half of them.

Failing to select the most worthy bid is a common feature of many U.S. transit agencies, regardless of the evaluation criteria. Often frightened by the best bid, lead agencies all too often select the second-best. Naturally, such an approach presents a quandary to potential bidders: How does one prepare the second-best proposal? Further, this injustice is compounded by the process of interviewing all the "finalists." In most cases, the scores they accumulated for 99 percent of their work are disregarded, and the agencies simply select the interviewees with whom they feel most comfortable.

Other bidding abuses are common. One of them is the allocation of the worst routes to the contractor - routes that typically contain little or no recovery time. This practice is often compounded by the lead agency's leasing of its near-mothball vehicles (typically for $1 a year), since Federal funds cover 80% of the vehicles they purchase. Knowing how much maintenance is likely to cost to maintain a more-than-12-year-old transit bus is obviously hard to predict. Eventually such practices can backfire. As an example, a number of contractors in one state are currently being sued by their drivers' unions for the lack of meal and other breaks identified in their labor agreements. A few of the smallest of these cases have already been settled, for bug bucks. Of course, such lawsuits are only "transitional," since the lead agencies, not the contractors, design the routes and schedules. So after this run of lawsuits has been resolved, one can expect the contractor-defendants to recoup their losses by subrogating their claims against the lead agencies whose corruption created the impetus for the first tier of lawsuits in the first place.

Sometimes, even the evaluation of non-cost factors is problematic. This occurs often in paratransit service RFPs, where the illusion of a bidder's efficiency comprises a substantial percentage of the scoring. The illusion itself occurs because the bidder is often forced to rely, for scheduling and dispatching, on software typically developed and supported by yet a third party over which it has no control. Naturally, the software developer has different goals than the operating contractor. As a consequence, the schedules created are often too tight - a problem exacerbated when the operating contractor's selection is governed largely by and RFP that failed to include the provision for a minimum driver's salary. The resulting operation quickly deteriorates into a protracted war between the operating contractor and the software developer - a war that lead agencies almost always resolve in favor of the software developer - a developer those algorithms have replaced what marginal knowledge and understanding of service provision the lead agency might have had before abdicating these responsibilities to a bunch of computer geeks.

Prescription and Ironies

With or without the inclusion of non-cost factors in the bid process, the principle flaw in most competitive contracting relationships stems from the lead agencies' failure to incorporate a reasonable minimum driver's salary into the RFP. If you are competing for contracted service, your best chance for a sane operating environment is to insist on the inclusion of such a provision, particularly during the pre-bid conference typically held during the early stages of the proposal preparation period. Especially if you know your competitors, it should not be hard to garner their cooperation in insisting upon, much less publicly lobbying for, the inclusion of such a provision. But make no mistake about this: If you fail to obtain this provision, the real loser often is the bidder who actually wins the bid. For it is that bidder who will inherit the operating nightmare that winning such a bid brings about, and which that bidder must bear throughout the duration of the contract period.

Realistically, contractors may enjoy a semi-hiatus from this problem in the next few years, or perhaps for a long time, if our economy continues to tank like I suspect it will, and unemployment rates soar. But even if finding cheap drivers becomes easy in such an environment, there will be little joy and much frustration managing a work force composed largely of the bitter under-employed. Worse still, should the economy begin to recover in the middle of the contract period, your management had better like driving, because they will likely be doing a lot of it, as your work force will abandon ship for high-paying opportunities. When this happens, also expect to spend what small increments of extra time you have defending yourself in the lawsuits that the mayhem from this chaos will invariably yield. That is, of course, unless you are one of those rare individuals who requires no sleep.

Ned Einstein is the President of Transportation Alternatives, a passenger transportation and automotive consortium engaged in consulting and forensic accident investigation and analysis (more than 600 cases). Specializes in elderly, disabled, schoolchildren. Mr. Einstein has been qualified as an Expert Witness in accident analysis, testimony and mediation in vehicle and pedestrian accidents involving transit, paratransit, schoolbus, motorcoach, special education, non-emergency medical transportation, taxi, shuttle, child transport systems and services...

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