Audit: T warehouse contract doesn’t cut it

Savings, performance don’t meet expectations

THE MBTA IS NOT GETTING the savings or the service it expected when it privatized warehouse operations in 2017, according to an audit conducted by a unit of Inspector General Glenn Cunha’s office.

During a three-year exemption from a state law placing restrictions on privatization efforts, the T signed a five-year contract with Management Consulting, known as Mancon, in February 2017. The T said the contract would cost $7.1 million a year, providing roughly $5 million a year in savings compared to the T’s existing in-house operation.

But the audit, which was  dated May 5 and covered the contract through most of 2019, found the savings were not as big as expected and the performance of Mancon in a number of areas was subpar. Many of the findings were foreshadowed in a CommonWealth report on Mancon in March 2019.

The cost of the Mancon contract was $3.8 million more than forecasted in the first two years when several consultants and T employees had to be hired to help implement the agreement. The cost was $8.1 million in 2017 and $9.9 million in 2018, according to the audit.  The cost through the first nine months of 2019 was lower at $5.7 million.

The T’s estimated $12.1 million-a-year in-house cost for warehouse operations, which was used to justify the hiring of Mancon, also came under fire in the audit. The report said the T could not provide the documents or information that were used to calculate the in-house cost. The report also noted that some of the estimates included in the calculation appeared inflated.

For example, the T had said 14 people who stocked shelves for the T’s old warehouse operation would no longer be needed if the contract was privatized, saving millions of dollars in personnel costs. But the auditors discovered 12 of the 14 never left, filling positions the T created for them when Mancon took over. The cost of salaries and benefits associated with those positions came to nearly $2 million in 2017 and $1.75 million in 2018.

The work performed by Mancon has also not been up to par, the audit said. During the early years of the contract, Mancon did not achieve inventory accuracy targets and failed to meet obligations for delivery of emergency parts within agreed-upon time limits. The company was fined repeatedly for the delivery issues.

The audit reported that Mancon delivers parts to T workers that are broken or damaged and is not penalized for doing so. The company also failed to live up to two provisions in the contract – conducting an initial inventory of parts when it took over the warehouse operation and providing an inventory system compatible with the T’s system. On both scores, the audit said, the T should consider taking legal action against Mancon for violating the terms of the contract.

The report also criticized the T for failing to manage the contract correctly.  “The MBTA does not independently verify the data used to calculated the KPIs (key performance indicators) is accurate and complete. Nor does the MBTA understand how two of the KPIs are calculated and, therefore, it cannot verify that the calculations are accurate,” the audit said.

Mancon was criticized for not employing staff with a strong knowledge of bus and rail parts, which can often result in the wrong parts being delivered to T employees working on repairs.  “The materials planners at the base locations generally lack the necessary knowledge and skills to perform their jobs,” the report said.

The the audit indicated MBTA officials were receptive to the concerns and recommendations included in the report. The T apparently created a presentation on the Mancon contract requirements for the chief mechanical officer and also launched a train-the-trainer program, where experienced MBTA staff tried to educate Mancon staff about bus and rail parts as well as other measure to improve Mancon’s performance.

The T issued a statement saying it appreciated the scrutiny and recommendations. “The MBTA has taken steps to improve its oversight of the contract,” the statement said. “A robust vendor management review program includes monthly KPI reporting and quarterly performance reviews with Mancon to ensure contractual obligations are being met. The MBTA also formed a qualified and experienced team of inventory and warehouse personnel to not only oversee Mancon but also provide critical assistance to continually improve the operations of MBTA inventory management. Today, Mancon is meeting the performance metrics of the contract and, through a collaborative partnership with the T, the firm will continue to be held accountable. ”

Sen. Marc Pacheco of Taunton, who sponsored the legislation requiring public agencies to do a thorough, state auditor-approved  cost-benefit analysis of any privatization of government operations, said the Mancon audit proves the value of the law.

Meet the Author

Bruce Mohl

Editor, CommonWealth

About Bruce Mohl

Bruce Mohl is the editor of CommonWealth magazine. Bruce came to CommonWealth from the Boston Globe, where he spent nearly 30 years in a wide variety of positions covering business and politics. He covered the Massachusetts State House and served as the Globe’s State House bureau chief in the late 1980s. He also reported for the Globe’s Spotlight Team, winning a Loeb award in 1992 for coverage of conflicts of interest in the state’s pension system. He served as the Globe’s political editor in 1994 and went on to cover consumer issues for the newspaper. At CommonWealth, Bruce helped launch the magazine’s website and has written about a wide range of issues with a special focus on politics, tax policy, energy, and gambling. Bruce is a graduate of Ohio Wesleyan University and the Fletcher School of Law and Diplomacy at Tufts University. He lives in Dorchester.

About Bruce Mohl

Bruce Mohl is the editor of CommonWealth magazine. Bruce came to CommonWealth from the Boston Globe, where he spent nearly 30 years in a wide variety of positions covering business and politics. He covered the Massachusetts State House and served as the Globe’s State House bureau chief in the late 1980s. He also reported for the Globe’s Spotlight Team, winning a Loeb award in 1992 for coverage of conflicts of interest in the state’s pension system. He served as the Globe’s political editor in 1994 and went on to cover consumer issues for the newspaper. At CommonWealth, Bruce helped launch the magazine’s website and has written about a wide range of issues with a special focus on politics, tax policy, energy, and gambling. Bruce is a graduate of Ohio Wesleyan University and the Fletcher School of Law and Diplomacy at Tufts University. He lives in Dorchester.

“It definitely makes the case for why we should have kept the law on the books [for the T],” Pacheco said.

In an email to legislative colleagues drawing attention to the audit, Pacheco said “this is simply a word of caution regarding proposals that enable the unchecked privatization of public services. I urge the members to maintain vigilance in reviewing legislation for language that authorizes or empowers wasteful public-private deals.  With the Commonwealth’s fiscal health in a particularly precarious state due to COVID-19, we especially cannot afford to squander public funds on costly privatization arrangements.”