Toll-switch penalties waived

SYSTEM CHANGES: State worries about company’s finances if fines are enforced despite right to enforce them

September 4, 2011 

Washington has the right to charge its contractor millions of dollars in penalties for delays in moving to a new statewide tolling system.

But actually enforcing the fines would be risky, say state transportation officials and their consultants. Draining Electronic Transaction Consultants Corp. of every cent it owes, they say, could get in the way of the larger goal of making sure the company accomplishes its mission.

The state has agreed to waive at least the first few months of potential fines in exchange for recouping its costs related to delays and glitches. Those amount to a smaller fine for the contractor.

The contract signed in 2009 with ETCC set a deadline of Jan. 18 for the Texas-based company to begin running the state’s back-office tolling operations and sending Tacoma Narrows bridge tolls through the mail for those who don’t pay on the bridge. For every day of delay, the contract allowed for $10,000 in fines.

The deal allowed for even bigger fines for missing a March 19 deadline for the start of tolling on the state Route 520 bridge. The company was to pay $300,000 every week.

That tally would top $12 million now that the projected starts for both 520 bridge tolling and the Narrows bridge pay-by-mail system have been pushed back to December.

Both sides agreed to those and other fines, known as liquidated damages, as part of a five-year, $23 million contract. As recently as April, the Department of Transportation said in a news release that contractors would be “held accountable for meeting their performance measures and ensuring tolling operates as planned,” and noted: “All contracts include clauses related to liquidated and actual damages that WSDOT will enforce, as appropriate.”

The key words: “as appropriate.”

State toll director Craig Stone said exacting fines to the fullest extent risks “putting a vendor out of business,” starting a two-year process all over again.

“Our goal is to get a system up and running,” Stone said. “We’ve got to make sure this vendor is viable and able to get in place the equipment and software needed, and to get up and running.”

A month after the news release, the agency and ETCC signed an update to their contract: “In lieu of paying Liquidated Damages, Vendor shall be responsible for WSDOT’s actual costs” – the cost of tasks the contractor should have performed itself.

Through June, state agencies deducted more than $150,000 from ETCC’s checks, with plans to take another $400,000. State officials added more than $200,000 to that tally after problems this spring led to thousands of Narrows bridge tickets being forgiven.

“We are clearly holding them accountable for damages,” Stone said.

Those deductions pale in comparison to the more than $4 million the contractor would have owed during the same period if the contract hadn’t been updated to set new summer deadlines and waive liquidated damages.

The new deal kept the door open for penalties to be enforced in the future if the latest deadlines weren’t met – and they weren’t, so WSDOT says it could enforce penalties for the second half of this year.

Whether that will happen is part of ongoing negotiations with the company, Stone said.

But fines would add to a pile of financial challenges for ETCC, which declined to comment for this story. The delays in tolling Route 520 mean the company is missing out on more than $400,000 a month in payments from the state.

Add that to problems it has had in other states. Louisiana transportation officials sued the company over failure to complete work on a computer system and there’s a dispute in Florida over late work.

“If everybody hits them with a million dollars a month in damages, how long can they survive?” said J.J. Eden, a former North Carolina toll official who leads an expert panel reviewing Washington’s toll system. “Even if you were to end up owning the company, what does that give you? You start over.”

A report this month from the expert panel said the state is better off negotiating some concessions from the company than demanding cash.

With that leverage, the panel said, officials could seek the rights to the computer code behind ETCC’s systems, allowing the state to make changes in the future. Or they could press for changes in the company’s staffing or the locations of its servers.

The report also said ETCC doesn’t shoulder all the blame for the delays. WSDOT set the company on an unrealistic schedule, the panel concluded.

Rep. Larry Seaquist said the waived penalties reflect worries at WSDOT.

Officials at the agency, the Gig Harbor Democrat said, have been telling lawmakers “they are quite nervous about the business viability of ETC. If they press them too hard, ETC could go under. So they apparently are feeling trapped.”

Jordan Schrader: 360-786-1826

What’s owed toll contractor

Comparing the price tag on the statewide tolling project to what’s actually been paid to Electronic Transaction Consultants Corp. as part of its five-year, $23 million contract:

PHASE 1. Paid through June: $270,000.

In the first phase of the statewide tolling project, the contract called for ETCC to receive $750,000 for meeting eight milestones. The contractor has met just three of the milestones: one involving planning, another involving data for the Tacoma Narrows bridge, and a third that marked ETCC moving into its offices and customer service centers. For meeting those, ETCC so far has earned $300,000 with 10 percent held back until later. The company is expected to eventually accomplish the remaining tasks and be paid for them, presumably the original amount of $750,000.

PHASE 2. Paid through June: $1.87 million.

ETCC was to be paid more than $2 million for accomplishing several tasks in the seven months just before the start of tolling the state Route 520 bridge March 19. ETCC met the goals, even thought it didn’t meet the deadline, so it was paid the full amount, minus a 10 percent holdback.

PHASE 3. Paid through June: $123,000. Payments missed through June: $1.39 million.

Once tolling was to begin in March, ETCC was to receive $405,000 per month for running the new statewide system. Now that the Department of Transportation has moved the deadline to December, the contractor is missing out on that payment every month. Through June, that’s a loss of nearly $1.4 million. The state did reimburse ETCC for some operations in this period, paying $123,000.

PENALTIES. Deducted through June: $156,000.

The state is deducting money from ETCC’s payments to cover costs to WSDOT and the Washington State Patrol related to delays and problems with tolling. Costs include payments to consultants and to the WSDOT staff who helped ETCC staff fulfill orders for Good to Go accounts. WSDOT deducted $105,000 from ETCC through June. The patrol is reviewing tickets for drivers on the Narrows bridge who don’t pay, long after those fines were supposed to be replaced with pay-by-mail tolls, so the state deducted $45,000 through June with another $94,000 projected. There’s also $6,000 in deductions for rent. Still to come: $308,000 in deductions for ETCC being a month late in taking over duties from previous vendor TransCore; and more than $200,000 in deductions to make up for the state’s lost revenue from the Narrows bridge between mid-February and early July. Tickets from that period were thrown out.

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