We recently completed a research effort for the Reason Foundation, “Dispelling the Myths – Toll and Fuel Tax Collection Costs in the 21st Century”, that investigated the collection costs of tolls and motor fuel taxes. Our findings suggested that all electronic tolling (AET) can be very cost effective compared to increasing taxes. How? By rethinking the way we do things.

A Case Study Approach
Since the toll industry has been going through a period of rapid change and collection cost data are difficult to interpret, we studied three all electronic toll (AET) operations (the new norm) that have been successful in reducing toll collection costs to identify commonalities:

• Colorado Department of Transportation (CDOT) I-25 Managed Lanes
• Fort Bend County Toll Road Authority (FBCTRA), and
• Tampa-Hillsborough Expressway Authority (THEA).

All are all relatively small operations. Tolls charged on each facility are toward the low end of the range typically encountered on today’s modern urban toll roads; and, CDOT’s and THEA’s express lanes are reversible – open to customers in only one direction at a time. These characteristics suggest that their cost of collections should be higher than those encountered elsewhere. However, all three agencies have achieved operating cost efficiencies that many larger toll operators have not yet obtained. The methods by which they have accomplished this offer a glimpse into AET best practices.

Our Findings
First, we must recognize that all three of toll authorities are relatively new and were not saddled with operations plans and business rules developed when automatic coin machines were considered new technology. Second, they were also not burdened with high labor costs from legacy operations. They were thus in a position where they could easily engineer their systems and operations for the future, not the past. However, there are several discriminators that should be stressed. Specifically, all three agencies:

• Focused on minimizing operating costs and reducing risks;

• Contracted with nearby toll authorities for account management and transaction processing services; and,

• Avoided establishing a large, full-time administrative staff and the infrastructure necessary to house that staff by outsourcing many of their management functions.

By starting with an operations plan consistent with current technology and rethinking how a toll agency can be structured and managed, these toll authorities have achieved operating efficiencies that would be otherwise unreachable. A critical part of their success has been via implementation of the classic make/buy analysis for all services required.

In fact, FBCTRA is, literally, a virtual authority that has outsourced its management functions to a vendor – enabling them to eliminate their facility costs and reduce their management costs to an absolute minimum. Another benefit of this approach is flexibility. FBCTRA’s Board could replace its management team if ever found reason to do so – an option usually not available to those ultimately responsible.

For more information on how to make your toll operation more efficient, please contact us at

http://www.etransgroup.com/contact

Thank you.

© 2014 The eTrans Group, Inc.

Hackers that attacked point-of-sale terminals at Target stores captured personal data of more than 70 million Target shoppers during the recent holiday season; and, Target was not the only retailer attacked. Nieman Marcus also appears to have been subject to a similar siege. IntelCrawler, a cyber intelligence firm, recently suggested that there are several other U.S. merchants currently plagued by similar malicious software.

How Does This Affect Us in the Tolling Industry?
AET systems require extensive payment card processing. Since tolling is considered politically incorrect by some, toll operations may be at greater risk compared to other, less visible targets. Therefore, it may not be a matter of if the toll industry will be subject to an attack, but when.

The direct cost of a data breach, estimated to be over $3 Billion to Target, could be significant. However, the direct cost may be small compared to the loss in public confidence. A major breach at one toll facility could quickly cascade and become a public relations nightmare for the entire industry.

Industry Security Standards
All major credit card processors must meet data security standards established by the Payment Card Industry Security Standards Council. The Payment Card Industry Data Security Standard (PCI DSS) was created to increase controls on cardholder data to reduce credit card fraud. Compliance is verified annually. Large volume processors are required to have an external Qualified Security Assessor review their systems and operations and prepare a Report on Compliance, which may include a list of improvements that must be implemented to minimize the risks associated with a breach in security.

How Could A Data Security Breach Happen?
PCI DSS establish a baseline for data security requirements. Thus an operation can be PCI DSS compliant and still not be secure. PCI DSS compliance comprises a series of high-level concepts that allow operators the flexibility to implement the most appropriate security controls for their environment that meet the intent of the standards. Also, PCI DSS verification is a process that occurs at a point in time. It is the responsibility of the operator to sustain compliance throughout the year. Rapidly changing technology and an increasingly aggressive group of people intent on defrauding the system make this an ever increasing challenge.

What Should We Do?
We should be aggressively managing data security issues. In addition to meeting minimum PCI DSS standards, we should strive to achieve higher security levels than those mandated, including:

• conducting an immediate review of all operating policies and procedures and correcting any short-falls identified

• retaining a data security expert to stress test current systems and operations

• upgrading systems and modifying operations policies and procedures where recommended

• verifying that upgrades and modifications were successful, and

• periodically (at least bi-annually) reviewing/stressing our systems and operations to ensure that data security requirements are being sustained.

Other suggestions on how best to manage this challenge are welcome.

© 2014 The eTrans Group, Inc.

A number of metrics can be used to measure the success of a toll project. However, the most fundamental of all is the development of a sustained revenue stream that recovers the costs of the project. A number of toll projects have been criticized recently for failing to meet this minimum requirement:

“Government to Rescue Empty Toll Roads ”
“Tollway Could Default Without Refinance Plan”
“Moody’s Downgrades Toll Road Company”
“Toll Road Agency Generates $1.7B in Red Ink”, and
“Bidders Sought for Bankrupt Toll Road”.

In these situations the traffic and revenue forecasting process typically receives the brunt of the blame, but estimating revenue is just one of many functions that needs to be conducted properly for the project to be a winner. Once funding has been established the road to a sustained revenue stream is long and fraught with a myriad of complex tasks that must all be appropriately managed for the toll project to be a success. To criticize the traffic and revenue estimates when a project is struggling or fails financially may be diverting attention from other, more serious problems in the project development and implementation process.

Factors That Can Impact Revenue Beyond Control of the Project Development Team
A number of events beyond control of the project development team can arise that impact the project’s revenue stream, including:

• major economic downturns
• significant increases in the costs of vehicular transport (e.g. fuel)
• policy and regulatory changes
• errors in the budgetary planning process, and
• variations in the public’s anticipated acceptance of the project.

Ideally, these risks have been identified, their potential impacts on revenue considered in the revenue studies and a contingency fund has been established to mitigate their impact on the project’s viability.

Other Factors That Can Impact the Project’s Feasibility
Marketing the project and managing costs during project development and operations are also critical to success. Traffic and revenue forecasts inherently assume that those marketing the facility and managing construction and operations will make the most appropriate decisions to sustain the project. Unfortunately, this is not always the case.

An independent review of the project design, procurement, construction and operations phases, a role typically referred to as that of the “owner’s representative”, includes:

• verification of the operations plan (including marketing)
• value engineering of all design efforts
• confirmation that the procurement process is competitive and appropriate
for each acquisition
• corroboration of work progress (schedule, content and changes)
• site inspections
• systems testing and verification, and
• systems and operations audits once the facility is open to revenue service.

Retaining experienced professionals to be the “owner’s representative” during project development and implementation can help avoid mistakes and manage the challenges that inevitably arise and have a significant impact on a project’s viability.

Conclusion
Over the last several years independent verifications of revenue estimates have been routinely sought. An independent review and evaluation of project design, procurement, construction and operations functions is also warranted.

© 2014 The eTrans Group, Inc.

Our last two posts:

• noted that vendor/client relationships in the toll industry have become more confrontational and identified a number of direct and indirect costs associated with confrontation

• explained that converting operations plans to take advantage of new, automated technology, coupled with rapid growth in the industry, has led to this challenge, and

• concluded that, as we move into a period of increasing economic austerity we have a fiduciary responsibility to our customers to keep costs to a minimum.

So how do we reduce the costs of confrontation?

The first step towards resolving an issue of this nature is to recognize that it is a problem and needs to be addressed.

The second is to be proactive about resolving the issues that lead to confrontation before it happens. Recognizing that both the client and the vendor must benefit from the relationship, this includes:

1) establishing a positive working relationship during the procurement process

2) identifying the common goals of those on the project delivery team at the start of the contract negotiations process, and

3) ensuring that all project requirements are clearly defined in the contract.

Once the contract is signed and the project is underway, this also includes:

4) managing the project keeping everyone’s common goals in mind

5) each party fulfilling its individual responsibilities to the extent possible

6) addressing contentious issues when they first arise and encouraging an open discussion of the concerns associated with each challenge (including letting everyone explain what they need)

7) giving credit where and when it is due (sometimes those that appear to be “the enemy” can solve your problem if you give them a chance), and

8) tempering legal advice with each project’s needs.

And, perhaps most important, those of us advising this industry must recognize that we need to do everything we can to reduce confrontation on each project to avoid a conflict of interest on our part.

Other industries have found that a process called Project Team Alignment can help minimize conflicts. Though this process is likely most effective at the inception of a project, it has also been productive when utilized during the project after conflicts arise, and has been found to be most effective when implemented on an on-going basis throughout the life of the project. Integration of the Project Team Alignment function into the contract requirements for managing each project can help reduce conflict; and, if done correctly, we can all spend much more time enjoying life like in the picture above, than working overtime trying to find a path through unnecessary chaos.

More information on Project Team Alignment can be obtained by contacting us at: etransgroup@gmail.com
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Photo courtesy of Luis Alberto Sanchez, eTrans’ associate in San Juan, PR.

© 2013 The eTrans Group, Inc.

In our last post we:

• noted that vendor/client relationships in the toll industry have become more confrontational

• identified a number of direct and indirect costs associated with confrontation, and

• concluded that, as we move into a period of increasing economic austerity, we have a fiduciary responsibility to our customers to keep costs to a minimum.

So how did we get here?

Over the last several years the toll industry has been growing rapidly at the same time it is has been converting its operations to take advantage of new, automated technology. The combination of growth and change has resulted in a shortage of experienced professionals. The results of this manifest in several ways.

The nature of the contracting process requires that clients clearly define what they want and the rules for obtaining it. However, lack of knowledge and experience can result in contract requirements not being clearly defined or, in some cases, over-defined. Inappropriate requirements sometimes are also included in contracts, such as:

• Unrealistic schedules (in all phases).

• Price is weighted too heavily in the vendor selection process.

• Significant penalties are imposed for lack of performance (sometimes against metrics that are not critical).

• Commensurate rewards for exemplary performance on key performance measures are not offered.

• Intellectual property rights are ignored.

Policy or statute mandates that make the project far more complex than is necessary can also increase costs if not managed properly.

Vendors also contribute to the problem, including:

• not challenging the client when unrealistic expectations and requirements are imposed;

• low-balling the price with the intent of playing the ‘change-order game’;

• overpromising what can be delivered (from a functional, performance and schedule perspective);

• failing to deliver even core, minimum functionality necessary to sustain a toll operation with financial integrity; and,

• getting attorneys and politicians involved in decisions at the project level where operations and technical requirements should prevail.

Then there are the legal advisors and consultants, who sometimes do not have the training or experience to provide the advice their client’s need, which can result in confusion, misunderstandings and additional conflict. Some advisors even recommend establishing an environment where conflict prevails, then bill for time to manage the chaos their advice creates.

The result is that many clients pay more than anticipated and do not get what they want. In some cases, clients do not even get what they need to sustain a viable toll operation. Challenges such as dissatisfied customers, unnecessary operating costs and revenue short-falls plague many projects. Worst case scenario: there is an expensive legal battle to resolve open issues, resulting in additional costs to all but the attorneys and advisors.

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Original artwork courtesy of projectcartoon.com http://www.projectcartoon.com/cartoon/354627

© 2013 The eTrans Group, Inc.

A contract is a voluntary relationship that establishes formal, legal obligations between two or more parties, with the intent that all parties benefit from the relationship. Therefore, one might expect everyone affected by a contract to work cooperatively towards reaching each other’s goals. However, confrontational client / vendor relationships have become an increasing problem in the toll industry.

The costs of this are significant; and, impact everyone, including our customers.

The direct costs of confrontational relationships are obvious and easy to identify. From the client’s perspective, these costs reduce funds available to pay off bonds, and build, operate and maintain the facilities for which the tolls are being collected. From the vendor’s perspective, they reduce net revenue; and, in some cases, can impact their viability as an ongoing operation.

There are also a number of indirect costs from this situation. The more significant of these include:

• unnecessary delays in procurements (clients avoiding the challenges others have encountered)

• false starts in the procurement process (several procurements have been recently cancelled)

• increased systems and operations costs (vendors anticipate the costs of conflict and consider it in their pricing)

• losses in staff productivity, and

• increased physical and emotional stress on everyone in the industry.

These indirect costs can also be significant. Some are also incurred by those not involved in the confrontational relationships.

With financial constraints becoming an ever increasing concern, the toll industry can’t afford the losses that confrontational relationships impose. We also have a fiduciary responsibility to our customers to keep these costs to a minimum.

Our next post will identify some of the major reasons why this has become a problem in the toll industry; and, the following post will offer suggestions on how to avoid conflict, as well as successfully manage controversy when it occurs.
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Original photo courtesy of HAAP Media.

© 2013 The eTrans Group, Inc.

A “toll” in the purest sense is a user fee; and, in most cases, is collected to recover the cost of bonds sold to finance a specific roadway or bridge. Unlike taxes, paid whether one uses the facility or not; when a facility is funded by tolls, if you don’t use the facility, you don’t pay for it. The concept is simple, straightforward, easy to understand and, arguably, one of the fairest approaches to infrastructure financing . However, the word “toll” has developed a negative connotation in the U.S.

A rebranding effort on the word “toll” similar to that which the food industry has successfully completed with  “prunes” is thus warranted.

To those who might suggest that the toll industry is too disparate to accomplish this, the roadway safety industry has recently, successfully, rebranded the term “accident” with “crash”, since most incidents are preventable. The questions, thus, becomes:

            1) What term (or terms) should be used for rebranding?

One source of inspiration for such a rebranding effort can be found in the cable TV industry. Most of us pay a user fee for cable TV and internet services, including a fee for basic monthly service, with up-charges for premium TV, internet access and special programming. However, these very successful companies never use the term “toll” or “user fee”. They give each basic programming package a unique name, like Xfinity®, U-verse and Star-TV,  and offer premium services by bundling commonly desired programming and services, or by providing programming On Demand™.

            2) How do we make the rebranding effort successful?

An open discussion is welcome.

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* Juliet, Romeo and Juliet, William Shakespeare.

© 2013 The eTrans Group, Inc.

Image courtesy of SXC.hu and HAAP Media

Most Americans feel that their roads are already paid for through motor fuel taxes. You hear it all the time:

“Fuel taxes are already sky high.” “What does the Government do with our gas tax?”

But building and maintaining roads is expensive.

The Federal Excise Tax on gasoline has not changed for 20 years. Some state fuel taxes are indexed to inflation; but, many are not – and most of those have also not been raised for years. And, even though fuel consumption rates are going down, increasing fuel taxes is not a viable option today.

So what can we do?

We have two basic options:

1) Increase federal involvement or

2) Increase user fees.

Continued federal involvement can restrict the benefits of other options. Federal tax exemptions can cloud the benefits of projects financed by state and local governments. Federal subsidies open up funding to pork barrel politics, instead of making improvements where they are most warranted. And Federal regulations, such as prohibitions of tolls on Interstate Highways, can eliminate viable options.

Allowing state and local governments to apply user-fees to existing Interstate Highways where we need to increase capacity or do major repairs would go a long way toward fixing the funding problem. It also makes sense.

However, public acceptance of this approach will require an honest, national dialogue of the facts. A discussion on alternative  revenue sources and shortfalls in available funding is required. The benefits of road user fees, including the fact that they allow us to make improvements now, versus 20 years from now, is also important.

We may find that most people are not against user fees, just wasteful spending.

Re-instating IBTTA‘s ‘There are no Free Roads™’ campaign would be a great start at this public information effort.

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First published at www.tollingtheline.blogspot.com September 3, 2013, revised on republication.

© 2013 The eTrans Group, Inc.