T terminating parking contract early

Moving from flat fee to incentive-based deal

THE MBTA IS PREPARING to terminate early its contract with its existing parking lot operator and sign a new deal that is expected to grow the $40 million business and better align the contractor’s incentives with those of the T.

The T’s existing contract with LAZ Parking is scheduled to run through the end of 2017, but what appears to be a major loss of revenue due to theft at some of the facilities coincided with a wholesale review that concluded a new contract with a much different incentive arrangement was in order.

The T pays LAZ a flat fee of just over $9 million a year, or more than a fifth of the parking revenue, to operate its lots. After hiring a consultant to review the situation and collecting information from seven parking operators, the T has concluded it wants to offer a new contract that incentivizes the next operator to increase revenues, reduce expenses, and improve customer service.

Brian Shortsleeve, the T’s general manager and chief administrative officer, said the parking plan will be presented to the MBTA’s Fiscal Management and Control Board in the next couple weeks. If approved, the T will issue a request for proposals quickly, he said.

“The T has collected information over the past several months which suggests that a new approach to its parking management contract would be beneficial to both the customer experience and revenue growth,” Shortsleeve said in a statement.

Shortsleeve said the T’s consultant found “there is substantial room to adjust pricing in a way that encourages parking in underutilized lots, and captures upside from over-utilized lots.” He said technology could also be used to reduce employee cash-handling and help customers find available spaces.

Parking operations at the MBTA have long been privatized, but the new contracting approach reflects a new way of thinking at the authority as it expands the use of private contractors under a three-year exemption from the so-called Pacheco Law, which governs a state agency’s ability to contract out services performed by public employees to third parties.

“The T needs to start signing contracts with contractors where our incentives are aligned,” Shortsleeve said.

In a report to the Legislature last week on privatization efforts, the Fiscal Management and Control Board said much of the past year has been spent building up its procurement operation. Gerard Polcari, who was hired as the T’s chief of procurement in May 2015, told CommonWealth earlier this year that he was aghast to find that the agency was operating as if it was 1975. “All that was missing was a disco ball and shag carpeting,” he said. “It’s like the place was in a time warp. Nothing had changed.”

With better procurement systems in place, the T report said, a number of privatization initiatives have been launched, including the hiring of contractors to manage and monitor employee absences and to centralize dispatching for RIDE customers. The T is also running a pilot program using Uber and Lyft to transport RIDE customers and preparing to issue contracts for cash collection, automated fare collection, and warehouse operations.

“The board’s focus to date has been on contracting corporate services, such as cash handling and warehouse operations,” the report to the Legislature said. “But these account for only a small portion of total operating costs. If the T is to continue the progress it has made in improving performance, reducing operating costs, and shifting operating funds to meet critical capital needs, the Fiscal Management and Control Board must also address those areas that make up about 85 percent of all costs, namely operations and maintenance.”

The report said the MBTA annually spends $500 million on maintenance and $375 million on operations. Dividing total bus service costs at the T by total service hours yields a charge of $169 an hour. The report said private carriers with whom the T already contracts charge 30 percent less. To reduce maintenance costs, the report said, the T could lease vehicles or partner with train and bus manufacturers for heavy maintenance work.

The report also acknowledged that “contracting out services does not guarantee effectiveness.” One example cited in the report was a three-year, $36.5 million contract negotiated in 2013 for cleaning MBTA stations and facilities. The T said the contract ended up costing $53.1 million because compensation ended up being based on staffing levels instead of the performance-based standards included in the original agreement. The T is now shifting to the original contract terms and expects to save $8.1 million, although many of the workers say they will be laid off.

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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.

The parking contract, not mentioned in the report to the Legislature, appears to be another example of privatization failure. The flat fee arrangement offered the contractor little incentive to maximize revenues and the apparent theft has become a major embarrassment. The matter has been referred to Attorney General Maura Healey.

Still, the T may emerge unscathed financially. Under the terms of its contract with LAZ, the company is responsible for any loss of revenue due to employee theft or other actions. Another provision in the contract says “any discrepancies between usage and gross receipts as verified by MBTA will cause a penalty to be due of twice the monetary amount of the discrepancy between usage and gross receipts plus $200 per facility per day of discrepancy.”