Greater Greater Washington

WMATA gets turned on to public-private partnerships

It didn't get a lot of attention outside the lighting industry, but WMATA recently awarded a contract to Philips Electronics, a private company, to light all of its parking garages. These kind of innovative contracting approaches could help the transit agency save money and improve performance.


Photo by thisisbossi on Flickr.

The contract reflects the new trend of public-private partnerships (P3s), not unlike what Maryland is using to build the Purple Line. Done right, P3s can allow public agencies to lower operating costs, create value, and provide better service.

Philips is required to finance, install, and maintain lights and fixtures for 10 years after new lights have been installed. In return, WMATA makes payments on a pre-set schedule that Philips submitted in a competition with other firms, and that presumably will cover Philips' installation and maintenance costs. WMATA will continue to pay the energy bills for lighting in the garages.

Working with private companies lets WMATA tap outside knowledge

Unlike contracts that specify the installation of a product that WMATA will maintain, this contract with Philips asks for the firm to provide a service according to a specified set of performance standards that covers elements like:

  • Quality of lighting to be delivered in parking areas, stairwells, and other areas;
  • Time allowed before damaged fixtures must be repaired;
  • Installation of motion and light sensors and remote controls to provide lighting only when it is needed; and
  • Requirement to install energy-use meters and to provide detailed use and savings monitoring.
The contract also includes a financial guarantee from Philips that the energy savings promised will actually happen.

Also unlike traditional contracts that seek a specific product, WMATA's solicitation for lighting services did not seek any particular technology. Bidders had the latitude to propose whatever technology they thought was the most cost-effective way to meet WMATA's lighting and other requirements.

This approach allowed WMATA to benefit from outside expertise, and transferred the risks of deploying new lighting technologies, as well as the responsibility for conducting risk-reward analysis, to outside vendors whose bread-and-butter that is.

In the scope of WMATA's operating budget of $1.7 billion, the energy savings from the garage lighting contract will not be proportionally large. WMATA estimates that it will save about $2 million annually in electricity purchases and maintenance costs using this contract, which represents a little more than one-tenth of one percent of its operating costs.

To be fair, $2 million can pay for a lot of meaningful bus service improvements. But whether or not this number by itself is large, doing something new to save money and provide improved service definitely deserves applause.

More government agencies turn to performance contracts

There are growing numbers of system-level performance contracts nationally and overseas. Within the DC region, the Maryland Transit Administration is using a performance contracting approach to build, operate, and maintain the Purple Line.

In Pennsylvania, the 2012 Pennsylvania Public Private Partnership Act authorized PennDOT, its department of transportation, to include operating costs as part of the overall proposal that contractors submit for infrastructure construction, repair, and rehabilitation. PennDOT is now moving to bundle bridge reconstruction projects together to take advantage of the economies that this allows.

Noting that operations and maintenance make up between 80 and 90% of costs throughout a transportation asset's lifetime, vendors biding on Pennsylvania bridge contracts will in the future be able to operate and maintain bridges for as long as 40 years. This flexibility will allow PennDOT to solicit bridge reconstruction contracts that emphasize bridge availability and life-cycle costs, and to benefit from state-of-the-art civil engineering expertise that may reside outside the agency.

International transit agencies take performance contracting even further. STIB, the Brussels-region transit agency, enters into regular, 5-year contracts with its governing body. These contracts specify levels of performance that include ridership growth, transit mode share, system expansions, station renovations, customer satisfaction, service reliability, passenger information, and escalator availability.

The most recent 5-year contract between STIB and its governors and funders set very specific performance goals:

  • At least 40% of tram and bus shelters equipped with vehicle arrival time devices by 2017
  • A minimum escalator availability rate of 94%, growing by 0.25% each year over the contract period.
  • A minimum of 10 new stations equipped with toilets.
  • Operating cost savings of 116.4 million to be reinvested in service improvements.
  • Financial bonuses and penalties for hitting or missing infrastructure state of repair targets.
  • Purchase of 43 new rail vehicles to support automated rail transit operations.
  • Preparation of studies for conversion from human-operated to automated, human-monitored rail service.
In addition to cost efficiencies and service improvements, performance contracts also offer value creation opportunities. When installing new lighting fixtures, there are opportunities to install sensors and systems to meet other operating and business needs, too.

As Forbes points out, if you're a large parking lot owner, the installation of smart sensors at the same time new lights are installed can yield parking space occupancy data that is useful for customer information, real-time pricing, and yield-management.

The key question is whether WMATA has a good experience with the performance contracting approach, and whether the approach can be expanded more broadly throughout the transit agency. If this model meets expectations, performance contracting could meet other WMATA needs, like lighting stations, tunnels, and surface parking lots; other mechanical systems such as heating, cooling, and equipment maintenance; or at a greater scale for bus and rail operations.

Public-private partnerships allow public agencies to use the private sector's knowledge and expertise to their advantage. WMATA's taking a small step by using one to light its parking garages, but it could signal a new era of lower costs and higher performance for the agency, benefitting everyone who uses it.

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Nat Bottigheimer is a professional transportation planner and consultant with a background in public policy and real estate economics. Until 2012, he was an assistant general manager at WMATA, where he promoted bike and pedestrian access, sustainability, bus priority investment, TOD, data and information sharing, and more. He moved to Princeton, NJ in 2012, where his wife is an astrophysicist. 

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I ask this with a completely neutral tone: but it seems like what much these savings usually boil down to is use of non-Union work. Is that a fair statement? Or are they really (projecting) acheiving greater efficiencies of some kind?

by BTA on Feb 11, 2014 1:13 pm • linkreport

@BTA Roughly three quarters of the total savings come from energy use reductions, the remainder from longer lifespan of newer fixtures requiring less frequent replacement by workers. So, predominantly efficiencies...

by Nat Bottigheimer on Feb 11, 2014 1:27 pm • linkreport

@BTA

Your believe that using a nonunion workforce is where the cost saving will be derived is totally unfounded. Using LED luminaries will cut WMATA's electric bill by more then half. Lighting is second greatest power load WMATA has. I have seen the difference between using vapor or florescent lighting compared to LEDs, the difference between the KW hours consumed is staggering. The other difference is the cost of the legacy lighting compared to LEDs, the high upfront cost of the LEDs will be offset by their incredibly lower power consumption and longer service life.

by Sand Box John on Feb 11, 2014 1:43 pm • linkreport

Great article Nat. You and WMATA are to be congratulated for this approach that takes advantage of what the public and private sectors do best, and allocates the risks and rewards appropriately.

by Rick Rybeck on Feb 11, 2014 2:07 pm • linkreport

International transit agencies take performance contracting even further. STIB, the Brussels-region transit agency, enters into regular, 5-year contracts with its governing body.

I love this concept.

They use something similar in Paris, where STIF (the governing body for Ile-de-France) sets the region's policies and serves as the funder for transport services, while RATP (the transit agency) is the operator for the Metro. I believe the concept itself is an EU directive.

STIF's contracts with RATP serve as a framework for the operator's service and capital planning: http://www.ratp.fr/en/ratp/r_70070/ratp-stif-contract-for-2012-2015/

by Alex B. on Feb 11, 2014 2:24 pm • linkreport

Lots of numbers in this post, but one important one missing: how much is WMATA paying this company?

Who owns the lights? What happens at the end of 10 years?

Why is WMATA still paying for the power? What incentive does Philips have install the most efficient lighting when they aren't even paying the bills?

by Tim on Feb 11, 2014 2:34 pm • linkreport

Outsourcing by any other name...

Seriously, I'm not saying this is a bad move. As presented here, the Phillips thing looks like an OKish deal. But it seems to me this approach is not without issues.

To start with, you mention taking advantage of the private sector's knowledge and expertise. Which is all well and good - but there are questions to be asked about knowledge transfer.

I think we can all agree there are subject areas where Metro as an institution should have the best available expertise and capability internally, like driving buses, making timetables and planning routes. There are other areas where they should have lots of expertise, but where some use of outside contractors may be appropriate - such as maintenance and construction. And still other areas which should clearly be entirely external - such as the actual manufacturing of lightbulbs, trains, or platform tiles.

Lighting design and maintenance is probably in the middle area. It's not actually a core function of the organization, but it's an important, ongoing one and, systemwide, there are a lot of lights - even just the garages. It may be fair to say that the organization doesn't currently have sophisticated internal expertise in this area. But the first question to ask is then not just "who's selling it on contract", but also "do we need that expertise internally" and "how could we leverage the [necessary] contract with a lighting vendor in order to transfer the necessary knowledge and enhance our internal capacity".

Certainly at least some internal expertise is required. How else will compliance and performance be adequately monitored and enforced? What will happen when the contract eventually does expire? Does a 10 year contract provide the right incentives to the vendor to leave the system in good shape upon exit? Will Metro have the necessary expertise at that time to take over, or to obtain a better contract, perhaps with a different vendor? Or will the existing vendor simply have the organization over the barrel for an expensive shakedownrenewal?

Too often, the answers to these question are not positive. My impression is that with many organizations, the move to (seemingly) cheap outsourcing results in an internal hollowing out. Instead of using the opportunity to improve their internal expertise, channels of communication and capacity, the existing capabilities are simply allowed to languish and atrophy. Eventually, no one is left internally who knows enough to even specify what the organization actually needs, let alone make sure a contracted vendor is actually providing it. Cue an endless stream of expensive, bloated contracts and outsourcing disasters. (AFAICT, modern Federal IT infrastructure projects are a great[/frightening] example.)

I suspect this situation is further exacerbated to the extent that these sort of deals are perceived as a great time and effort at the executive level of an organization. With the stroke of a pen, they don't have to think about [X] for [Y] years. No need to think about staffing, or put the effort into rebuilding the possibly dysfunctional internal expertise and procedures. Nope. Simple. Sign the contract, and it's all out of sight, out of mind for [Y] years. While their organization is being hollowed out. While the contractor is collecting their checks, but perhaps slacking on their follow-through.

Now, I'm not saying that any or all of this is happening here - perhaps these questions have been asked and satisfactory answers are available. But I didn't see the answers in this piece. I think a little less rah-rah and a little more detailed scrutiny is definitely merited.

by jack lecou on Feb 11, 2014 2:41 pm • linkreport

@BTA:

One of the reasons these contracts can produce cost-savings is that they align incentives better than traditional design-build contracts where a private firm builds (or modernizes in this case) the infrastructure and then hands it over to the public agency. If payment is dependent on meeting a certain performance standard, the private-sector partner has a greater incentive to build a better piece of infrastructure at the outset that will last and produce savings over the span of the contract.

by 202_cyclist on Feb 11, 2014 3:09 pm • linkreport

Private sector commercial real estate owners have been doing this for about 20 years. Companies like GE and Johnson Controls were early adopters of this new business service line, but a number do it now.

Johnson Controls would come in, spend ~5 million upgrading portions of an office buildings HVAC or light system (even water systems), and then get a piece of the savings for 10-15 year period. We’ve done it a number of times for our buildings in DC. Typical payback time for a shared savings program like this is about 3-4 years for GE, then they get a piece of the profit for the next ~6-10 years.

Commerical RE owners love it because it doesn’t mess with cash flow, the upgrades are funded by the “GE”, and the energy savings are immediate and substantial.

Some school districts started getting in on the action ~ 5 years ago but there really isn’t any reason all levels of state and federal government couldn’t get in on the action.

by Arkie on Feb 11, 2014 3:13 pm • linkreport

WMATA recently awarded a contract to Philips Electronics, a private company, to light all of its parking garages.

Why only parking garages? What about pedestrian areas? WMATA is totally and completely incompetent about maintaining the lighting along the WFC station pedestrian path. My state delegate was nice enough to get involved and even he couldn't get WMATA to do their job on a consistent basis.

by Falls Church on Feb 11, 2014 3:27 pm • linkreport

[This comment has been deleted for violating the comment policy.]

by UnsuckDCMetro on Feb 11, 2014 4:10 pm • linkreport

Nat, nice article and interesting application of P3 and performance-based contracting. Any information on what WMATA had been spending on lighting previously?

by Jonathan Gifford on Feb 11, 2014 5:23 pm • linkreport

Mr. Bottigheimer:

I wholeheartedly agree that public-private partnerships and performance-based contracting are the way to go - particularly at WMATA. [Deleted for violating the comment policy.] It might be a good idea to think outside the box in order to change institutional culture. Hindsight is indeed 20/20.

by Kenneth Powers on Feb 11, 2014 8:01 pm • linkreport

@Tim

WMATA is for all practical purposes paying Philips Electronics nothing. They will recoup their investment from the cost saving on the power not consumed. WMATA will pay Philips Electronics an amount slightly less then the difference between what WMATA would pay PEPCO and Virginia Power had the efficiency upgrades not been done. In other words WMATA will budget for electricity as if nothing had changed, the actual bill will be less, Philips will be paid a from the difference but not the entire difference. Philips recoups their investment and make a profit, the total cost to WMATA is less.

As other have said WMATA need to do this in other areas.

I would like to see them do this with station and tunnel lighting. There is no need to light tunnels, stations, passageway, mezzanines and platforms when nobody is present.

by Sand Box John on Feb 11, 2014 10:25 pm • linkreport

Performance Based Contracts (PBC) are the way to go when procuring specific services such as this one. PBC requires knowledge and experience to award and a lot more time to manage than other contracts. WMATA did a great job. We should also look into the 5P's process.
D.C. contracting shop is still trying to figure out how to manage a Firm-Fixed Price contracts, I promise we will get there soon.

Current Contract Specialist for DOD-DARPA

by Pedro Rubio on Feb 12, 2014 1:31 am • linkreport

[This comment has been deleted for violating the comment policy.]

by Kenneth Powers on Feb 12, 2014 9:00 pm • linkreport

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