OPERATIONS COMMllTEE APRIL 21,201 1

Los Angeles County Office of the Inspector General 21 3.244.7300 Tel Metropolitan Transportation Authority 818 West 7" Street, Suite 500 21 3.244.7343 Fax

@ Metro Los Angeles, CA 9001 7

OP3 OPERATIONS COMMllTEE

APRIL 21,201 1

SUBJECT: Office of the lnspector General (OIG) Report on the Procurement Process for Metro ElevatorIEscalator Maintenance and Repair Services

ACTION: Receive and File

RECOMMENDATION:

Receive and file this OIG report.

CONCLUSION:

The OIG finds no significant deviation from Procurement Policies and Procedures or actions by the bidders that warrants termination and rebidding of the RFP.

The Office of the lnspector General (OIG) is reporting the results of its limited review of Metro's procurement process to solicit the proposal for maintaining elevators and escalators in the Metro transit system.

At the Metro Board meeting in January 201 1, Metro staff presented for approval a five year, firm fixed unit rate contract for $44,377,356 for the maintenance and repair of 265 elevators and escalators. After the competitive process, Metro received only one proposal. The Board expressed concern that only one contractor submitted a proposal for such a high value contract. In particular, the Board would like confirmation that Metro took appropriate steps to encourage competition in the procurement process for the Request for Proposal (RFP) for ElevatorIEscalator Maintenance and Repair Services.

The OIG reviewed this matter in three parts. Part I is a review of Metro's procurement process as carried out by staff. Part II is a review of any of the prospective bidders' activities that might have reduced competition. Part Ill is a nonexhaustive look ahead to elevatorlescalator related options Metro might consider in the future to reduce its costs, increase competition, decrease reliance on bidders, and otherwise protect taxpayer dollars while offering world class service to the public to promote usage of the Metro transportation system.

Part I. Review of Procurement Process

We reviewed the procurement process to determine whether it was conducted in accordance with Metro policies and procedures. The results of our review of significant requirements are the following:

A. Background - Higher Contract Requirements

In response to past Board and staff concerns about elevatorlescalator service, the current RFP for 201 1-2016 includes increased contractual requirements such as:

Addition of third shift work. More repairs and major preventive maintenance work to be performed after hours and on weekends for better customer service. Level of dedicated technical personnel increased from 16 to 18. Liquidated damages increased because of more "extra critical" units. Required monthly testing of escalator brake torque versus annual testing. Increased labor cost per the new International Union of Elevator Constructors agreement. Repairs caused by vandalism and abuse, which result in corrosion issues, slashed handrails, and step tread damage.

The current RFP also provides for additional elevator/escalators service for the opening of more lines such as Eastside and Expo. In addition, the State of California has become more stringent in their enforcement of standards, shutting down units that previously would have been able to operate until repairs could get scheduled and completed.

B. Request for Proposal Outreach

In September 2009, prior to the issuing the RFP, Metro began direct outreach by issuing a letter to invite seven major escalatorlelevator maintenance contractors (ThyssenKrupp, Otis (~mtech),' Schindler, Kone, Excelsior Elevator, Mitsubishi, and Fujitec) to attend the annual inspections of Metro's elevatorslescalators, which took place October 2009 through January 2010. Only one company attended the inspection.

On June 4, 201 0, the Metro Senior Contract Administrator personally called the seven major elevator/escalator maintenance contractors about the pending release of the RFP. That same day ClienWendor Services also sent an email notification to the seven major elevator/escalator maintenance contractors to announce the solicitation release on June 7, 2010.

On June 7, 2010, Metro issued and posted RFP No. OP85102554 on its internet website to solicit proposals to provide services including the furnishing of all labor,

1 Amtech Elevator Services is affiliated with Otis Elevator Company.

OIG Report on the Procurement Process for Metro ElevatorIEscalator Maintenance and Repair Services

personnel, material, replacement parts and components, tools, equipment, lubricants and supplies to provide and perform full and complete preventative maintenance, service, repair, inspection and testing of every type and description on all Metro elevators and escalators in such a manner that the elevators and escalators shall operate in a safe and reliable condition at all times.

After the RFP was released, Metro held a pre-proposal conference to explain procurement requirements on June 22, 201 0. Six elevatorlescalator companies attended the pre-proposal conference. However, Metro received only one proposal from Mitsubishi Electric and Electronics USA, Inc.

The RFP includes three Statements of Work for the proposers to bid on (Base, Alternate 1 and Alternate 2). All of the requirements in the Base Statement of Work apply to both Alternate 1 and Alternate 2 Statements of Work, except for modifications to Section 13 (Maintenance and Repair Service Program and Staffing) that require additional staffing and shifting more routine maintenance work during nights and weekends versus the Base Statement of Work. Alternate 2 is the most comprehensive.

C. Requirements to Publicize Procurement

FTA Circular 4220.1 F, Chapter VI Subsection 3d(2) Procurement Procedures (a) Publicity, and the Metro Acquisition Policy and Procedure Manual, Chapter 4, Section 4.3.1G, require that the request for proposals be publicly advertised. Metro staff took the following actions to publicize the RFP:

Contacted by telephone seven major elevatorlescalator repair and maintenance vendors and advised them of the RFP. Sent an email to notify the seven major vendors about the release of the RFP. Posted the RFP on the Metro internet website.

The RFP was not publicly advertised in a newspaper of general circulation. It was documented in the procurement file that: "A review of the procurement file has revealed that the advertisement request was not placed for this project. On May 25, 2010, the Contract Administrator submitted the advertisement request to the Client Vendor Services Department. However, as a result of impending reductions in force and movement of personnel, the request was overlooked and never placed. This fact was discovered after the receipt of proposals."

There is no likely significant impact by this oversight because there are only about a half dozen companies in the County that are large enough and technically competent to handle services in the RFP and these companies were notified about the RFP by telephone and email.

D. Requirements When Single Proposal Is Received

Section 7.28 of the Metro Acquisition Policy and Procedures Manual states that: "In the event a single bid is received in a sealed bid procurement, it is advisable that the MTA

OIG Report on the Procurement Process for Metro Elevator/Escalator Maintenance and Repair Services

staff conduct both a canvas of Vendors to determine why there were no other Bidders and also an analysis which documents that the price is fair and reasonable."

1. Metro Survey of Vendors

Five days after only one proposal was received by the August 6,201 0, deadline to submit Metro staff surveyed six companies that did not submit a proposal to determine reasons for not submitting proposals to the RFP. One company did not respond to the request for information, and another company stated that the reason for not submitting a proposal was that they had other business priorities. Of the remaining four companies, three cited liability and risk exposure concerns as the reasons for not submitting a proposal. One company stated: "The biggest challenge in pricing the Request for Proposal are the unknown factors." Another company stated: "It is our opinion that Metro is looking for a contractor to maintain and own the elevators and escalators and that is an enormous risk to US.,,

Table I-Reasons for Not Submitting Proposal to RFP

2. Cost Analysis

Reasons for Not Submitting Proposal Do not know how to allocate resources Size of contract Level of service required Liabilitylliquidated damages Risk exposure to vandalism, water damage, equipment failures Parts availability

At the request of the Procurement Department, Management Audit Services (MAS) performed a review of Mitsubishi's cost proposal pertaining to the following areas: labor cost, indirect cost, and materials, tools, vehicles, and miscellaneous cost. On October 29, 2010, MAS issued a report,' which concluded that for Alternate 23 a questioned cost difference of $6,666,054 was found. This difference consisted of $1,420,771 direct labor, $1,702,068 labor overhead, $2,623,759 materials and tools, and $919,456 general and administrative expense.

Independent Auditor's Report, Agreed Upon Procedures, Elevator 1 Escalator Maintenance and Repair Services, RFP OP-85 10-2554, Mitsubishi Electric USA, Inc., Report No. 1 1-CON-CO 1.

The RFP consisted of three Statements of Work (Base, Alternate 1 and Alternate 2). The Statement of work for Alternate 2 was the most comprehensive, and Metro negotiated with the proposer based on the proposal submitted for Alternate 2.

Company


X X X X X X

X 1 2 3 4

X X X

X

The total proposal amount was $50,251,788. After negotiations using the results of the MAS report, Mitsubishi agreed to an amount of $44,377,356, which is a $5,874,432, or 11.7%, cost reduction to Mitsubishi's proposal offer.

Table 2-Results of Nenotiation by Catenory

h I Proposal I Negotiated I Cost 11

I I I

Totals 1 $50.251.788 1 $44,377.356 1 $5.874.432 I

E. Other Requirements

1. Pre-proposal Conference: On June 20, 2010, representatives from six companies attended the pre-proposal conference. Because five prime contractors participated in the pre-proposal conference, there was no indication that only one proposal would be received. Section 7.12 of the Metro Acquisition Policy and Procedures Manual requires:

Pre-proposal conferences shall be announced to all prospective bidders in the RFP, and the conference should be held as early as possible after the solicitation date. Any substantive clarification resulting from the pre-proposal conference should be identified in an addendum. The Contracting Officer shall prepare a written report of the conference and shall make a copy available to all prospective bidders and other attendees.

Monthly maintenance and repair As needed repairs Net value of units removed and added

We verified that Metro staff complied with the above requirements. Any clarification from the conference was provided to prospective proposals in amendments 1 to 5 to the RFP, and a copy of the written report of the conference was provided to the prospective proposers.

2. Independent Cost Estimate: Section 4.22.1 of the Metro Acquisition Policy and

cost $44,755,010

4,760,000 736,778

Procedures Manual requires that Metro "shall prepare independent cost estimates prior to receiving bids and proposals." Metro staff obtained an independent cost estimate totaling ~42,925,876~ from a consultant firm prior to the receipt of the cost proposal.

3. Metro Disadvantaaed Business Enterprises (DBE) Program: Metro has a DBE

-

Cost $39,051,928 4,6000,000

725,428

Program in accordance with 49 CFR Part 26. As a requirement of compliance

Reduction $5,703,082

160,000 I 1.350

The estimate does not include cost for future units and contractor mark up.


with 49 CFR Part 26, Metro has set an overall goal for DBE participation on its federally assisted contracts.

RFP No. OP85102554 Elevator/Escalator Maintenance and Repair Services states that the contract for the RFP may include a DBE Anticipated level of Participation (DALP) percentage established by Metro.

However, the RFP also advises Bidders and Proposers that if a DALP percentage is established for this contract, obtaining the DALP percentage for the contract is encouraged but is not a condition of award or an element of responsiveness.

We met with Metro Diversity & Economic Opportunity Department staff concerning the assignment of a DALP for this RFP and confirmed that Metro's DBE program currently is a voluntary program which does not disqualify a prime contractor even if the prime contractor does not meet the DALP percentage. Because this is currently a voluntary program Metro does not make an assessment of whether prime contractors who did not meet the DALP made adequate good faith efforts to achieve the DALP percentage goal. However, Metro repeatedly encouraged bidders at the Pre-Bid Conference to outreach to DBE firms.

For this RFP Metro assigned a DALP percentage goal of 5%. The Contractor's proposal included a Small Business Commitment of 1.08% DALP. The Contractor will use one of the two DBE firms used in its 2006 contract with Metro. The other DBE firm is not included in current proposal.

Our review also found that there were three bidders that submitted a proposal for the contract that was signed in 2006. The files showed that these three bidders achieved the 5% DALP percentage goal in 2006 when it was a mandatory DBE program. Two of the three bidders in 2006 RFP included the same DBE firm, Elite, as the current Contractor is proposing to use.

For the RFP, we found that Metro made the following efforts to outreach DBE firms:

Identified and provided to the bidders on the RFP the names and addresses of 171 Specialty Firms and 48 Janitorial Services Firms (total 219 firms) that may be able to perform certain areas of maintenance and services related to elevator/escalator repairs; Provided information regarding the RFP opportunity to the Transportation Business Advisory Council on May 6,201 0; Two DBE firms attended the Pre-Bid Conference; and Posted the RFP on Metro website.

According to Procurement staff, Metro's Internet posting may also include "Blue" postcard notifications based on NAlCS or SIC codes; however, this is not a

OIG Report on the Procurement Process for Metro ElevatorIEscalator Maintenance and Repair Sewices

requirement. Because the major elevatorlescalator companies were notified of the release of RFP, "Blue" postcards were not sent.

There is insufficient evidence of any particular number of DBE's contacted by the Contractor out of the 21 9 businesses of which they were informed of by Metro, or if other DBE's would be interested in participating in this RFP if there was greater publication of the RFP based on the history of participation in the prior RFP proposals. It is certain that Metro did make efforts to notify the DBE community through TBAC, notice to the bidders, and publication of the RFP on our website, and that since the DBE program is voluntary, the level of DALP proposed is not a basis for disqualification of a bidder under current Metro Procurement Policies and Procedures.

Part II. Bidder Activities That Minht Have Lead To Less Competition

The OIG reviewed bidders activities and patterns of behavior to determine if there was any indication that they were discouraged from active bidding on this RFP by the current Contractor.

A. OIG Independent Survey ElevatorIEscalator Companies

The OIG conducted an independent survey of the major elevatorlescalator companies that did not submit a proposal to determine the sincerity of their determinations not to bid and if there are any patterns of behavior or other factors external to Metro contributed to that determination.

Representatives from one of the companies met with the OIG staff and the Contract Administration Manager on March 10, 201 1. They stated that the company's decision not to respond to the RFP was primarily based on two factors - risks and liabilities.

Risk - The company representatives expressed concern that they would be responsible for uncertain costs for "Acts of God" such as earthquakes and flood damage. They were also concerned about being held accountable to pay for repairs resulting from vandalism. The company representatives felt that they were being held responsible for events that they have no control over or power to mitigate. Liability - The company representatives were concerned about pricing out unknown cost factors attributable to water and flood, vandalism, and earthquakes. Also, they were concerned about pricing out the liquidated damages provision in the RFP. They would like to have a cap placed on these unknown risks and liquidated damages.

2. A representative from another company confirmed that risk and liability were factors for not submitting a proposal.


3. A representative from a third company confirmed that "the biggest challenge in pricing the RFP is the unknown factors. The inclusion of vandalism combined with the penalties for elevator issues out of the company's control is difficult to quantify."

4. A representative from the fourth company said that "we did not have any reason that we did not bid on this work."

5. A representative from the fifth company stated that "we are not interested in bidding the contract.. . because we spent a lot of time on previous proposals."

B. Survey of Other Transit Agencies

As part of the review, we also contacted five other transit agencies (CTA, WMATA, NYMTA, BART, and MARTA) to find out what issues they encounter in their elevatorlescalator repair contracts. Two of these transit agencies do their own repair work in house, and three contract it out.

One of the three agencies that contracted out elevatorlescalator repair work also experienced receiving a single proposal. We were advised by the agency's elevatorlescalator staff that their contract requires the "service provider to cover all vandalism after $650 and the contractor indemnifies the agency for everything." The agency staff queried companies that came to the pre-bid meeting, and was told that these terms are the reason they did not submit a proposal. We were told that in order to get more proposers on future contracts, it might be necessary to modify the terms and conditions to reduce the amount of risk that is assumed by the contractor. A representative from another transit agency stated that they did repairs in- house; thus, "there is no question of the contractor submitting any request for vandalism or water intrusion related damages." This agency also uses contractors to perform "modernization" work which involves replacing parts such as chains, sprockets, and gear reducers that are beyond the scope of regular maintenance and repair.

As part of the review, we also looked for indicia that might involve unfair competition or negative market segmentation. We conversed with state and federal prosecutorial offices and other inspector general offices. We also researched certain public databases related to elevatorlescalator companies doing business in the USA. No adverse information was found.

ANALYSIS of Parts I and 11.

Our analysis of this matter follows: Although the contract requirements are stringent, they appear to be based on historical experience to maximize service to customers and minimize equipment downtime.


The current RFP requires the contractor to assume greater risk; thus, the cost of this contract will be higher than a basic repair contract, and potentially fewer firms might bid. On the other hand, with the comprehensive requirements in the current RFP, Metro has assurance that repair and maintenance costs will not increase even though repairs caused by vandalism or water damage increase. Eliminating or reducing some of the comprehensive requirements in the RFP (such as the contractor assuming the risk for vandalism and water damage) could increase competition. However, this might result in additional disputes or litigation with the contractor on which repairs were caused by these events, and ultimately in higher costs if Metro had to pay for numerous repairs caused by vandalismlwater damage. If Metro re-procures the RFP, there is a risk that Metro might end up getting less service at a greater cost now that our cost estimates are known and the limited competition issue is revealed.

The Procurement Staff accomplished the goal of obtaining a bidder who meets our requirements at a price near our cost estimate. Based on the results of our review and the above analysis, we believe that the Metro Board should consider the staffs report to approve the contract.

Part Ill. OTHER CONSIDERATIONS

Listed below are some areas that could be evaluated for future potential process changes andlor alternatives that: (1) could increase the level of competition andlor responses to a elevatorlescalator maintenance and repair services RFP, (2) reduce the risk and therefore price of elevatorlescalator repair, and (3) offer additional alternatives to Metro concerns on this matter. A single bidder at this time is only one step away from no bidders in the future, and it is reasonable to assume costs will continue to increase as our equipment ages and expands in number as our system expands.

Tiered A~proach: Consider preparing future RFPs for elevatorlescalator maintenance in a manner where proposers would have an option to bid on different levels of requirements that are more diverse than the levels available in our current RFP. For example, the RFP could have three levels such as basic (that is more basic than currently offered), mid, and high. The high level would be equivalent to the requirements in the current RFP (Alternate 2), and the basic level would not include requirements for the vendor to assume comprehensive risks and liability which was a concern to most vendors. This would increase opportunity for more companies to bid on the contract and more importantly increase the alternatives for the Board to consider cost wise even though it might mean a reduction in some service response times or result in Metro assuming more of the risk. It would also give the BoardIMetro management information on how much more the high level requirements cost versus the basic level.

2. In-house Cost Estimate: In anticipation that Metro might in the future receive no bid at a reasonable price or might not find a contractor willing to meet Metro


requirements, consider preparing an analysis on how much it would cost to perform the work in-house. This information could also be used to assess the reasonableness of a single proposal, and consider whether Metro could perform the service at a higher level or at a lesser cost.

Value Enaineerina: Maximize value engineering in designing transit systems to reduce the number of elevatorslescalators andlor reduce maintenance requirements or costs. For example:

Standardize makelmodel of equipment. This will reduce the number of different types of parts to buy and store and reduce the number of different systems that mechanics have to learn to work on. Avoid long escalator spans in favor of a step approach. Shorter spans with landings might be easier and less expensive to maintain when only one section breaks down; therefore, only part of the escalator distance is out of service. Design systems to use more ramps and fewer elevatorslescalators that need maintenance through the life of the system. Determine the most reliable, long-lasting products to purchase over less expensive, less reliable products. Ensure that all new installations meet and get upgrades to the highest standards and guidelines such as the APTA Heavy Duty Escalator Design Guideline.

4. Life Cvcle Costs: When designing the system and specifications, consider the life cycle costs for maintaining elevatorslescalators. For example:

Would a better and more expensive item or part lead to less maintenance costs? Would placing elevatorslescalators in more visible areas reduce vandalism? Would protecting escalators against weather reduce maintenance versus the added construction cost?

5. Prioritize Repair Response Timeframes: Consider prioritizing which equipmentlstations require a high response repair time. For example:

An inoperable escalator may not need a high response time if the station also has an elevator. An inoperable elevator may not need a high response time if the station has more than one elevator. An inoperable elevatorlescalator may not need a high response time if the distancelheight it travels is relatively short or if there is an alternative for wheelchairs.

6. Hiah Requirements for Onlv Defined Events: Consider applying high repair response standards to only certain defined events. Otherwise, use a basic standard.

7. Weather Protection: Protect escalators from the weather to reduce maintenance costs and reduce liability risks.


8. Staffina Stations: Unlike some other transit agencies, Metro does not have staffed stations. Consider a pilot program to determine if manning a station reduces maintenance costs and/or increases revenue.

9. Surveillance: Evaluate whether placing surveillance cameras near elevators/escalators and inside elevators would decrease vandalism. The appearance of cameras would serve as a deterrent.

10. Eaui~ment Qualitv: Evaluate whether elevators/escalators are being purchased based on which items have the lowest life-cycle maintenance costs; and whether it is cost effective to purchase the best qualitynowest maintenance equipment at a higher price.

11. Vandalism: Evaluate whether the cost of additional security reduces vandalism repair costs and whether the security costs more than the repair costs.

12. Downsizina of Contract: Evaluate whether breaking out the contract by region, equipment lines, type, manufacturer, or other criteria creates additional competition and a lower overall price. (We understand staff has now evaluated the regionalization of contracting since we first prepared this board report).

13. Buv A Com~anv: Evaluate whether purchasing a distressed small/medium company which repairs elevators and escalators would be more cost effective. A distressed company may exist in these economic times and have an inventory of parts, staff of skilled repair technicians, and truck fleet that could be made a subsidiary of Metro and only service Metro and other transportation related businesses in the region.

14. Com~lete A Studv: Evaluate other alternatives that may reduce elevator/escalator maintenance and costs.

/ Acting l n s p e s General

Prepared by: Jack Shigetomi

OIG Report on the Procurement Process for Metro ElevatorIEscalator Maintenance and Repair Services Page 1 I

OPERATIONS COMMllTEE APRIL 21,201 1

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