Photo by thisisbossi on Flickr.
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.
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.