The Case for Outcome-Based Procurement in Transit

Posted on July 12, 2017 by Ben Whitaker - Also by this author

Transit officials are faced with an unprecedented volume of transformative technologies from which to choose, it’s more vital than ever that the focus shifts to outcomes.
Transit officials are faced with an unprecedented volume of transformative technologies from which to choose, it’s more vital than ever that the focus shifts to outcomes.
Would you buy cash-handling services and dictate to the security firm what type of armored truck and cash counters to use? By the same logic, why would you buy an innovative transit product or platform and mandate how the vendor designs the technology? You likely would not — and why would you? Aren’t you more concerned with the outcome — the money/passengers arrive safely and quickly to their destinations — than the means?

Transit agencies have spent decades worrying more about product specifications than outcomes when it comes to the procurement process, and there were good reasons for this. Software was considerably more static than it is today. Ensuring the product you selected ticked all the boxes on purchase was critical in ensuring agencies got maximum value when the system was delivered. This, however, is no longer the case.

Today, software is delivered from the cloud, and what you buy on day one will look considerably different a year after it is purchased. So why do agencies still procure in the same way? Transit officials are faced with an unprecedented volume of transformative technologies from which to choose, it’s more vital than ever that the focus shifts to outcomes.

Outcome-based procurement fits our new environment

Outcome-based procurement puts the onus for success on the vendors bidding for a contract, rather than on the agencies specification, which has a huge impact on the overall process and outcome. The agency is not selecting a technology in the hopes that it will work; it is challenging vendors to deliver successful outcomes. This reduces the likelihood of expensive deployments, overruns, change-orders followed by lackluster performance, and prioritizes positive outcomes over all else, providing plenty of scope for innovation.

To continue our transit example from before — how might a city improve the capacity and efficiency of its transit system under an outcome-based procurement model?

First, the city could state the desired outcome metrics upfront, rather than the specifications of the result. A reduction in fare collection costs together with various customer satisfaction measures could be a couple of options for metrics to measure against a new fare collection system. From there, it’s up to vendors to determine how best to reach those goals in a cost-effective way.

Overall, outcome-based procurement reduces risk for agencies while opening up opportunities for innovative and cost-effective solutions to rise to the surface...

When it comes to determining which proposal to select, the agency would evaluate alternatives against the consistent set of outcomes and metrics, which is much easier than trying to predict how one tactic will ultimately fare in the real world. It may turn out that, for example, installing tracking beacons on buses that allow riders to know exactly when one will arrive, reduces wait times substantially enough to significantly raise satisfaction metrics. This would be far more cost-effective than procuring more buses, but may be unlikely to emerge under a typical input-based procurement process as this technology may not have qualified based on the detailed specification set out in the RFP.

Contrast outcome-based procurement with a highly specific RFP, where agencies end up specifying so many custom things that all vendors have to tailor and bespoke their solutions, creating something custom, with custom maintenance. None of them can bring their “A-Game” or make best use of their off-the-rack solutions, which drives up price, delivery time and maintenance costs, while driving out innovation.

A reduction in fare collection costs together with various customer satisfaction measures could be a couple of options for metrics to measure against a new fare collection system.
Masabi
A reduction in fare collection costs together with various customer satisfaction measures could be a couple of options for metrics to measure against a new fare collection system.
Masabi

Vendors bear the burden of success

Outcome-based contracts also place the burden of upkeep of technology and security updates on the vendor, together with the pressure to ensure that their solution platform provides them with the necessary agility to adapt to changing consumer choices to keep serving according to the service agreement’s set, without any need for a change order to be paid for by the transit agency.

If the procurement is outcome-based:

  • The vendor has to come up with a solution and can make the best use of their core tech to achieve it.
  • Maintenance and upkeep naturally forms part of the outcome, as long as service level agreements are clearly set.
  • If the environment changes during the lifetime of the project, but the problem statement (the requested outcome) is still valid, then the vendor can make adjustments to cope within the existing contract and payment structure.

Overall, outcome-based procurement reduces risk for agencies while opening up opportunities for innovative and cost-effective solutions to rise to the surface, particularly as key infrastructure ages and cities look for big changes to win back riders. Of course, making any change to procurement is difficult, but to give an agency the best chance of benefitting from the furious pace of consumer technology change, as well as hedging against whatever changes take place over the next five to 15 years, a new strategy is vital.

Ben Whitaker is head of innovation for Masabi.

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