Signing bonus

The Michigan Department of Transportation (MDOT) operates an Advanced Traffic Management System (ATMS)/Advanced Traveler Information System (ATIS) on 180 miles of metropolitan Detroit freeways. The major ATMS/ATIS components include inductive loop and magnetometer vehicle detectors, 64 changeable message signs (CMS), 170 closed-circuit television (CCTV) cameras and an overheight truck detection system. A speed warning system is currently being designed for installation in 2004. In addition to these primary field devices, there are multiple 2,070 advanced traffic controllers throughout the system, and central hardware at the Michigan ITS (MITS) Center which includes video wall monitors, computers, rack equipment and a communications system. Future system expansions will add new devices, equipment and infrastructure in terms of the number of devices and type and age of the devices, both at the MITS Center and in the field.

To support the field elements of the system, MDOT owns and operates a communication network that has been deployed over time under multiple contracts. It is a hybrid wire-line and wireless system of spread-spectrum radio, microwave, fiber-optic, SONET, 10BaseT local area network (LAN), coaxial cable and twisted pair cable. The communication network permits the devices throughout the system to operate as a cohesive unit over the entire 180 miles of the system.

Although the system, as deployed and expanded, is a fully functional system and meets the needs originally intended, comprehensive preventive and emergency maintenance services are required to keep it in proper working order. MDOT is currently in the proc-ess of contracting for all necessary labor, equipment, tools and materials to maximize system availability and efficiency.

In the process of developing the contract documents to select a new service provider for the maintenance of the entire system, MDOT went through a rigorous process of evaluating contract mechanisms and decisions to ensure that the new contract meets the needs of MDOT both in 2005 and into the future. This article outlines the key decisions that were made, including the options that were evaluated and the pros and cons of each of those options.

They’re hired

The first issue that needed to be addressed was why to contract the maintenance services out versus keeping them in-house and performing them with full-time MDOT employees. The costs associated with hiring outside firms for engineering and maintenance services are often significantly higher than if those same services were performed in-house.

MDOT chose to hire an outside firm based on the current lack of maintenance staff with ITS experience and on the inability to hire new personnel and increase the number of full-time equivalent employees (FTEs) throughout the department. Over the past 13 years, the total MDOT budget, including construction, operating and maintenance expenses, has increased over 100%. During that same period of time, the staffing levels have fallen 27%, and there is no support outside of the department to increase staffing. Therefore, to hire new maintenance staff for ITS would require reducing the head count in another division within the department.

The other reason to hire an outside contractor is staff retention. The expertise gained over just a short period of time in performing the maintenance of some of the devices in any ITS deployment can increase the value of an employee significantly higher than most public-sector organizations’ ability to pay that person. In the past, many public-sector agencies have had a significant amount of “brain drain” to the private sector.

Choice of contract

Once the determination to hire outside contractors to perform the maintenance services is made, the next issue that must be addressed is the contract mechanism that will be used to pay the contractor.

The first option evaluated was the use of individual purchase orders (PO) or task orders to fix issues as they arise. The advantage of a PO is that it gives the contractor very specific instructions and the department can maintain very strict control over the contract. The disadvantage is that POs require a significant amount of paperwork to be generated by the department, they typically have limited dollar amounts capping them and they are not effective for preventive maintenance.

The second option was the use of a construction-type contract with individual pay items. This is a standard contract used throughout DOTs for construction projects. These contract types are very effective if the DOT and the contractor have a very specific scope of services that must be performed.

The third option is a service-type contract that would pay the contractor for the specific time and materials used in the course of the contract. MDOT determined that a service contract was most appropriate since it allowed the contractor to have flexibility in how they performed their services, gave flexibility in the bid process and did not require detailed specifications for each specific maintenance activity.

Method of payment

Closely tied to the contract mechanism used for the contract was determining how to pay the contractor for the services provided. The first option evaluated was to pay for the level of effort expended to service the system. Although this is an easy contract to administer, there is no incentive for the contractor to use their resources efficiently through the course of the contract.

The second option is to pay for equipment days of service. Under this option, for example, the department pays the contractor a fixed amount for every day a device is functional, regardless of the level of effort required to keep that device operational. There is some difficulty in administering a contract of this type since the department needs to maintain a database of which devices are operational on every given day. However, this contract mechanism permits an innovative approach by the contractor in how they maintain devices. It is simple to define and it provides an incentive for the effective use of staff hours.

The third option is to pay for services by a work order, which is very similar to using a purchase order or task order to fix each individual item. This option is difficult to administer since the proj-ect manager must define each problem and issue an individual order to rectify each problem. Pay items would likely overlap and there is not much incentive for the contractor to utilize their resources effectively.

Based on performance

With most contracts, some sort of performance requirement is necessary to ensure that the contractor meets the requirements set forth in the scope of services. Unfortunately, with most contracts, the only recourse the department has for non-performance is to terminate the entire contract. The addition of performance requirements penalizes the contractor if certain items are not performed in a timely fashion or if the response time when a maintenance problem is identified is not reasonable.

Some of the issues with performance requirements that the department weighed include the potential for increased bid prices if penalties are proposed and an increase in the administration time for monitoring and inspecting performance. Effectively adding performance requirements to a contract ultimately requires a good partnership between the department and the maintenance provider.

Tracking purchases

The field and central office hardware and equipment used in an ITS deployment raise a number of challenges over a typical maintenance or construction contract. For example, with most DOTs technology equipment purchases are regulated by their associated information technology division which rarely interacts with the ITS component, potentially adding a layer of confusion to the process. Therefore, the decisions about how to include the purchase of equipment in the maintenance contract needs to be carefully thought out.

During the development of the maintenance contract, MDOT evaluated four options for equipment purchase. The first was to have the contractor include the purchase of equipment in their pay items. This option requires a significant amount of risk on both the department and the contractor in terms of potential future claims and in terms of the contractor’s estimating the amount of spare parts needed.

The second option is for the department to provide a hard estimate of the quantity of equipment needed and then have the contractor bid based on that estimate. Although this option establishes prices for each item for the entire contract, it provides a low incentive for the contractor to do cost-effective repairs. It is difficult to define, and, in the event of the future need for a non-specified part, there may be no effective means to purchase that part.

The third option is for the department to own the inventory and supply the contractor spare parts as needed. This method puts the entire burden of the inventory of spare parts on the department, which is difficult to administer and raises the potential for delay in repairs due to the unavailability of hardware. The final option is the development of a lump-sum equipment bank. This option sets a predetermined amount the contractor is expected to use each month or year to purchase spare parts. As spare parts are needed, the contractor procures the part, thus drawing down the amount available in the bank. This mechanism also permits for material markup in Michigan.

Third-party bust

The last item to be considered is how to handle third-party damage. Third-party damage is typically handled separately from the other maintenance activities since it is impossible to plan for. The first option MDOT evaluated was to exclude this activity from the scope and use other purchasing methods to perform these repairs. This option has the potential to cause delays in repairs necessary to initiate and approve an individual PO or TO. It also is difficult to differentiate claims of damage by others from normal damage or contractor negligence.

The second option is to include a budget in the contract and a provision for “as-authorized” work with an estimate. This option permits flexibility from both the department and the contractor, however it does require an estimate each time it is needed and provisions need to be made in the event the damage was more extensive than originally thought.

The third option evaluated was to authorize repairs on an individual basis with a budgetary estimate. This option is quick to authorize, because an e-mail from the project manager may be sufficient and is not as complex to administer. However, this option does require a significant amount of trust between the department and the contractor.

Comforting to know

Although the above are just a sampling of the decisions that need to be made in the development of a maintenance contract for ITS, they represent the complexity of the overall issue and the need to make a lot of decisions in advance of actually writing the contract or RFP. It also is important to remember that the department resources, especially people and time, are valuable and need to be used where they can generate the most benefit. It is important that any contract that is developed for maintenance of ITS assets is a contract that the project manager is comfortable with. Taking time to develop a good contract will go a long way in keeping that comfort level high. The use of shorter-term contracts with preapproved extensions should be considered to keep from being locked in to a contract you are not comfortable with.

TME