Management & Operations

7 Key Considerations for Your Fleet Procurement Process

Posted on January 25, 2016 by Ray Melleady

Courtesy AC Transit
Courtesy AC Transit

Fleet procurement comes with a set of challenges, many of which are unique to public-sector spending. The money that public transit systems spend belongs, in large part, to the taxpayers and the lead in any purchase process is accountable to them as well as other internal and external stakeholders.

Moreover, the process of fleet specification and procurement will result in one of the most critical and long-lasting decisions in a managers’ career. Quite often, the economic and service-related impacts will be felt decades after buses or railcars have been delivered and the bills have been processed. Managers should understand this and do everything in their power to optimize the process for the best possible long-term results.

The process begins with the establish-ment of procurement parity within the agency. The CEO will generally assign responsibility for fleet procurement and should consider the need to align who has authority to decide in a procurement process with who is ultimately responsible for maintenance of the asset. Usually this will be the most senior operations manager, a lead engineer, or the director of maintenance, but the authority is never one dimensional. For medium-to-large properties, the Finance Department will need to be involved with funding, and Procurement and Legal with regulatory requirements (attached to funding sources).
The following is a list of key suggestions to consider in administering a major fleet procurement:

1. Identify and engage key stakeholders: In any public fleet procurement process the list of stakeholders is long and it includes riders, bus operators, technicians and taxpayers, among others. The lead in any procurement process should recognize accountability to each of these groups. Your role is to both shape the agenda and ultimately make the final decision. Stakeholder engagement is never a mechanism to abdicate responsibility, but rather a process to gain input on critical areas that impact specific groups. If done effectively, key participants are more likely to embrace the outcome.

2. Look forward before looking back: Fleet planning should always start with a strong vision of what the future state of a bus or rail fleet operations will be at some distant point in the future. What does the customer and employee of the future look like, and what can we do to attract these groups to our organization or services? Begin with what you want not what you have and don’t restrict yourself to current fiscal realities. In my experience, there is more money in search of vision than vision in search of money. Create the vision and plan backward.

3. Look back after looking forward: Asset management includes far more than asset procurement. Make sure your property has completed an asset management inventory, condition assessment and fleet plan prior to starting the procurement process. Learn from critical mistakes made in past procurements and apply lessons-learned to the current process and technical specifications. Be aware of the agencies goals and ensure that your process is in lock-step with this direction.

4. Pay me now or pay me later: All too often, agencies purchase assets when funds are available, which creates major difficulties from an operating perspective. Despite the unpredictable nature of funding for capital, bus procurement should never be an event. Fleets should be planned and purchased using a deliberate and balanced approach that is based on expected lifecycles, with adjustments for service changes (growth/contraction). For example, a standard heavy-duty transit bus in the U.S. is defined as a 12-year asset, in Canada it will often be an 18-year asset, and some properties will define expected-life using their own operating characteristics. Whatever your number is, recognize there are benefits to buying one-twelfth of a 12-year fleet annually (or one-eighteenth of an 18-year fleet). Remember that fleets have an economic, service and technological lifecycle. A deferred investment in capital will generally be accompanied by an unplanned and unwelcomed increase in operating expenses.

When funding is tight, look for financing options. Debt financing can be an effective tool provided that it does not outlive the asset. In fact, financing options on long-term assets, like commuter rail and light rail, actually produce intergenerational equity, meaning the asset is paid over its useful life  and by  its active tax base and benefactors.

5. Know what you don’t know: As noted above, the impact of this process, and ultimate outcome, will be felt for many years, and often, beyond your time. Understand what you don’t know and leverage industry resources, including peer properties and multiple OEM’s to help develop a specification that is truly aligned with desired outcomes. Some properties will hire consultants to handle technical specifications or the entire procurement process. This may be more expensive, or when viewed within the context of total process management, actually save money over the life of the vehicle.

6. Develop the right specification: When developing a technical specification there are many things to consider — total cost of ownership, fleet continuity, etc. A well-written specification will be open to competitive bids, capitalize operating dollars, improve efficiencies and increase planned maintenance activities. Do not build the bus. Define your operating environment and your required performance characteristics and allow the bus builders to leverage their expertise to meet your specification. For every dollar in capital, a property will spend between $4 and $7 in operating expenses over the life of the vehicle. These amounts vary widely because lower price doesn’t always mean best long-term value. Choose wisely.

7. Choose the right partner: The evaluation of proposals or bids must be thorough and objective. Once a selection is made, be prepared to meet with winners and losers to review the scoring (or pricing if a bid) and final decision. Develop a partnership with the selected provider and look for ways to minimize risk and maximize value for both parties over the term of the procurement process.

In equipment maintenance, the most rigid adherence to good process does not necessarily ensure a good outcome. The assets must be specified and procured properly, using a well-developed and widely-supported fleet plan. The customers and employees of the future are counting on your approach.

Ray Melleady is Managing Director, North America, at USSC Group Inc.

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