Thursday, December 8, 2011

It's the System, stupid!

I could have called this article "Dissecting LRT Procurement Options", but I figured this might grab your attention.  "Procurement".. what a snoozer, huh?  Snore.

Bear with me, and you might be surprised.  But I'll warn you, this is a long one!  Here we go:

 Region staff are promoting, essentially, a privatized LRT system within Waterloo Region through a "Public-Private Partnership" (or 3P).  They have put together nice bulleted lists of why some privatization is good, but more privatization is better, and all privatization? That's the cat's meow.  You can sift through the gory details here.

But I'll try and boil it down for you.

Gimme a D!... Gimme a B!

There's a number of procurement options, which include a private company (or more likely, consortium) taking on various parts of the procurement and operation of our LRT system.  Each of these parts is referred to by letter, according to the guide below-- most of which should be self-explanatory:
  • Design
  • Build
  • Finance - securing short-term financing during construction
  • Operate - System operation on a 30-year contract
  • Maintain
So DB is Design-Build.  A company is contracted to conduct both final design and construction of the system.  DBFOM is Design-Build-Finance-Operate-Maintain: A company or consortium sees the system from the very start, and ends up running it, employing drivers and maintaining its own vehicle stock.  A few options in between like DBFM, DBf, DBOM... also "DBB", which is Design-Bid-Build, where the Region does its own design and then seeks a builder. (I guess that should be just "B".)

Region staff believe DBFOM is the way to go.  They view it as a way to transfer construction and operation risk to the private company, insulating us all from construction cost overruns, and the difficulties of maintaining, staffing and operating this line.

I respectfully disagree: I believe private operation works against us.

Where does this train lead?

Let's take a moment to remind ourselves why we have LRT coming to Waterloo Region:
  • Population is exploding.
  • The cities will choke on traffic and sprawl past their borders unless they intensify and reduce the percentage of travel by car.
  • Our goal is to move transit from less than 5% to around 14% of trips by 2031.  (Though more is better.)
  • LRT has greater capacity, attracts greater ridership, and promotes intensification.
  • The current plan is to put LRT along the "spine" in Kitchener and Waterloo, and provide express buses and Bus Rapid Transit to Cambridge and along the major routes.
  • The long-term plan is to expand LRT to Cambridge.
For transit to meet its goals, it must be effective and attractive.  It needs to get people where they need to go, in reasonable time, at reasonable cost.  If it fails, we will not reap the intensification effect, and we will pay a punitive cost in road expansion to meet the demands of drivers who have no alternatives.

So we need to place transit in a position to succeed.  The core of the system may be LRT, but buses will still, largely, be left holding the bag anywhere off the main line.  To move effectively, riders will need a well-integrated transit system as they shift from bus to train, route to route.

We already have obstacles to good integration in the form of compromises in LRT line length (cutting Cambridge out of phase 1) and in station placement (route splitting in Uptown-- discussed here at length-- and in Downtown, and a criminally poor station placement around the University of Waterloo that seems to go out of its way-- literally-- to make connections harder.)

So given a goal of making our transit system effective and attractive, we need to take a critical eye to the Region's idea of privatization.  Privatization is not about making a good system, it is about mitigating risk at the expense of a good system.

And unfortunately, for our goals: it's the system, stupid!  It needs to work well as a whole. It needs to grow.  It should be intuitively obvious that privatizing part of the system will detract from the whole.

Everything in Moderation

The Region hasn't built an LRT system before, so we're probably in a position to benefit from someone who can design and build us up one before we start drafting our own detailed construction plans.  And you know what?  That's cool.

But the Region also has no experience running an LRT system, and this is one of the reasons why privatized operation is attractive.  However, if we're aiming at growing LRT later, and making it a part of a well-integrated system that responds to ridership growth, the Region needs to learn by doing.

Suspect Logic

Let's talk about what staff sees that is so attractive about privately operated LRT:

Cost and Risk: A private company will have to shoulder risks of construction and operation.  The Region retains ridership risk, but is insulated from operating expense and complexity.  A private corporation will keep costs down by being more efficient.
The Reality: Private sector efficiency requires competition.  Competition is not found in a 30-year monopoly.  Ultimately, if things go bad, private companies come back hat in hand for greater subsidies-- or they walk.  This was demonstrated in Melbourne.

Line Quality: A private company that will operate a system will design one with efficiencies that will make it better.  Over time it will run it better.
The Reality: The system will be designed to do precisely what we spec it to do now, with no eye towards the future.  Contracts designed to tie payments to metrics, make sure the private company "owns up" on performance, can have unintended side effects like buses that speed and refuse to pick up passengers in Auckland. Operation will aim to maximize profit, not transit availability or frequency. An LRT line to be operated privately will be built to extract subsidy out of government first and foremost.

Experience: A private company will have more experience operating a system.  They can better handle a small system's pool of drivers for scheduling vacation.
The Reality:  When it comes to staffing, six weeks of YRT/Viva strikes (and counting!) suggest that maybe private handling of staffing isn't a strength.  And when things go south, the local government has a figleaf to hide behind instead of solving the issue. It sits saving $70K a day in withheld operator fees and stonewalling its angry citizens. Veolia and First Transit, the involved companies, have combined profit of over a billion dollars a year around the world: they can afford to wait, to bring a recalcitrant union in line. Meanwhile, York Region chokes.

Also, it's unlikely that vacation scheduling is some kind of critical advantage we need to pursue.  Besides, a private company is hardly going to fly in drivers from other cities to fill its Christmas-time roster gaps.

Finally, hire consultants to advise on system startup.  A good consultant is a wonderful thing: brings ready experience when you need it, and goes away when you are done.

Forgetting ourselves, and forgetting Cambridge

The transit system of Waterloo Region is a work in progress, with some ambitious goals to transform how we move and the shape of our community in the coming decades.

We need to be committed to growing that system, and that requires full control over its most critical aspect.  Having LRT at arm's length makes every schedule adjustment, bus realignment, and policy change subject to the whims of a company whose goals are very different from ours.

Private operation will also make negotiation for expansion all the harder.  Staff almost admits this: they suggest "choice for integration and expansion" will be "impacted".  I would say that we would have abandoned control of our own fate in creating an effective, attractive transit system.  We will make it harder to expand and adapt the whole system for the public good.

Cambridge, are you listening?  How do you see a hand off of a half-built LRT line to a private company affecting its completion?

Not alone in fearing 3P

London (UK) had to take back control of its own privatized tube in a privatization that backfired when it came to "cost reduction".

This transit consultant points out that efficiency only comes from competition, that integration with 3P pieces is hard, and that a private operator's focus on revenue can come at the expense of service and ridership.

The Public Transit Coalition explains why they oppose privatization in Toronto, nailing the high points.  And here are fears about private LRT in Toronto.

Here is a good deconstruction of the seedy underbelly of the successful, but crippled and costly Canada Line in Vancouver where the operator underbuilt the line to save itself money.

The Fallacy

Here's why private operation of city transit generally doesn't work: It's not profitable.  It's not meant to be.

Most transit systems are subsidized.  Privately operated systems are only viable if they receive a subsidy for operation.  They aren't motivated by the desires of the government providing the subsidy in any way that isn't clearly spelt out in contract.

So governments try to codify their desires in contract.  But transit is complex, and that makes for very complex contracts.  You can only write clauses for what you know, not for what you may learn in the future. 

A transit system, like a road network, is best when provided as a public good.  If we are dissatisfied with it, ultimately we can take action at the political level.  A private transit system, on the other hand, is operated as a cost centre, and if we are dissatisfied in it, all we can do is... not use it.

And that would be missing the point.


  1. Excellent post; you've said it better than I have. Retweeted and crossposted.

  2. I agree with your post. I must say I was very disappointed in regional council when I heard about this 3P option. The regional council is taking the easy way out and in my opinion doing totally the wrong thing.

    It is not like an LRT system has never been built before anywhere before. Is it not possible to hire the talent required to design and build it? If they had no idea then how were they ever able to cost it initially?

    What is so much more difficult laying rail than building roads? You tender the work out and have prey-qualified bidders that are able to get the work done like is done building other infrastructure. University of Waterloo pumps out some pretty bright people in Engineering that are instructed for just this kind of thing. Why does council think we can not handle it?

    Waterloo Region already runs a transit system so how incredibly hard is it to dovetail in a LRT system. A multi organization approach will not work. Look at the mess in getting public transit functioning in the Greater Toronto area between the different systems. It does not work.

    I don't think there is enough money in this project to have a private company make a profit on top of it. We have to get away from the notion of having public infrastructure controlled by private companies. Do we really want the decisions made on Wall Street about our LRT rather than in our own region? This infrastructure needs accountability to the taxpayers of Waterloo Region not the shareholders of some corporation in New York, Berlin, or Hong Kong. This project is for the 99% of the population for a select group of people to get even richer. I remember when the 407 was privatized by the Harris Tories. In the time I was using that system the cost to me went up 400% . I could no longer afford to use it and had to increase my time spent commuting to Toronto by 1 hour each day. As well a Cabinet Minister left the Government to sit on the Board of the 407. Will that happen here?

    Why is it always assumed the private sector does such a better job getting things done? The economic turmoil we are in is a direct result of this idea being a fallacy.

    And while we are at it why does it need to take years before we put a shovel in the ground? Why do the wheels need to turn so slowly? Every day this is not built makes the cost of this project more expensive. China & South Africa built high speed rails in short time frames. I would only assume that the engineering required to build those systems is that much more difficult than an LRT.

    With this revelation I now think this project will not get done at all or will be done poorly or not respecting the spirit of building the LRT in the first place. I hope I am wrong.

  3. Chris, content aside (I'm still working my way through this latest development and have not formulated an opinion) ... I'm just happy to see an increased level of scrutiny and dialogue!

    My oft-made point (for which I've been criticized by members of Regional Council and members of pro-LRT groups) is that the most effective oversight MUST come from those who consider themselves LRT supporters. For this project to be successful, blind faith must be discarded and thoughtful scrutiny (like your post) must generate a persistent public dialogue.

    Great job.

  4. Karen,

    Thanks for the kind words. My main concern in this whole matter is that the overarching goal of radical uptake in transit use requires an excellent system, and putting the critical piece of that system behind a PPP interface hurts that goal, *even if* the PPP itself more or less works out.

    I've read even more interesting stuff today, some of it either positive or neutral on PPP and I'm processing that. LUAS in Dublin is, so far, the most positive 3P outcome I have found for transit. I may have some afterthought to post.

    Other factors are at play here in KW though. We have an "aggressive schedule" (in software I openly call this a euphemism for "effing impossible) and I am afraid this will get railroaded in the course of just over a month and be locked in without real thought on the implications.

    So we have to react strongly.

  5. thanks Chris for this thoughtful piece. I am particularly struck by the Melbourne report. I have started a Word document listing my pros and cons.