With a mostly proven track record in providing efficient paratransit services under their belts, contractors are beginning to expect an increase in other areas of business including rail, due in part to the ever-growing costs for public agencies to maintain these systems. METRO Senior Editor, Alex Roman, recently spoke to three of the industry’s heavyweights about the growing market and the benefits that could arise for public transit agencies that choose to contract out their services, as well as the state of the industry today.

Dick Alexander, Sr. VP, Business Development
Veolia

Is the contracting business still growing or has it flattened out in the last few years?
Dick Alexander: It did flatten out for a bit, but it’s starting to grow again. As more systems try to get new services on-line quickly, they are starting to turn to the private sector a little more to fulfill that need. We also have systems that are hurting because fuel prices have eaten into their budgets, so they are starting to explore alternatives. The trend is going to be up, and we’re starting to see a little of that now.

Is there a particular sector of business that is growing or perhaps shrinking right now?
None of it is declining. We’re seeing a lot more growth in rail and there are many streetcar projects starting up out there. Rail has grown pretty dramatically and is about to grow even more. On the transit side, we’re hearing a lot more about BRT; we haven’t seen a lot of systems come on-line yet, but there’s much more interest in it as an alternative.

There’s a lot of growth in paratransit, which is more incremental rather than new system growth. We’ve had two New Starts projects this year, which are in areas that never had transit before. We’re also starting to see a bit more of that, as well.

You already provide rail services, is that correct?
Yes. Veolia does commuter rail in Boston; the Metrolink service in L.A.; the Sprinter service in Oceanside, Calif.; commuter rail service in Austin, Texas; and Tri-Rail in Miami.

Do you think your experience with rail puts you in a great position for those new projects?
Definitely. We are one of the largest rail providers internationally and the largest private rail provider in the U.S.

Can you discuss the logistics of training operators, customer service reps, and other employees?
Well, Veolia has the operator development program, which is a trademark training program that we’ve developed. It’s a 22-module course that teaches everything from safety to customer service to understanding the physics and dynamics of a moving bus. It’s a combination of classroom and practical training, both off the road and on.

We also have other training programs that teach people how to assess their customers’ state of mind and work toward improving their experience. Often customer service is an issue of perception. How you manage that perception is the difference between whether the customer has a good or bad experience. This is something that was developed for Veolia in North America and is now in place worldwide. There’s never been a program like it developed, which is specific to the transit customer and improving their experience.

We also have a whole series of maintenance training programs. In this industry, you have a lot of component training that vendors offer for their particular product, but what the industry has lacked is a comprehensive training that pulls all that together. Our training programs are designed to address that area. We also have a whole series of training programs for our employees that provide transit information to customers, where they are trained to be able to communicate effectively and comprehend effectively what’s being asked.

What are the main reasons that so much paratransit is contracted out?
Paratransit is a complicated business and it takes experience and skill sets to manage that well. The private sector has developed those skill sets pretty effectively. Right now, it’s about 90 percent contracted. So, part of it is that it’s just something where there’s a capability for private operators to step in.

Can you talk a little bit about the contract with RTA in New Orleans?
We’re actually still in the process of negotiating the contract, but New Orleans has a special place in our heart. We operate the Jefferson Parish service there, which is the Parish next to New Orleans. When the hurricane hit, we were impacted like the thousands of other people down there and really put a major effort toward recovering that service and helping our employees through that whole crisis. The RTA went through a similar experience down there, and we saw an opportunity to help them recover and grow their transit system back.

The RTA has gone from operating more than 350 buses down to just around 80. It’s been a huge transformation of that service, partially because the demographics have changed and partially because there’s a lot of recovery to be done. What we hope to be doing down there is taking over the operation of the RTA and providing investment, technology, technical expertise and new leadership to really start growing that system again and reshaping it to the change in demographics.

What we hope to do is introduce a much broader spectrum of services to the community, and get it operating like it used to. New Orleans was one of the best-utilized urban transit systems in the country, but now they need help.

Is the population beginning to expand a bit more over there?
Population is coming back much faster then the transit system has been able to. Where that population is located has changed, but it’s at about 70 percent of its original size. There are whole new travel patterns now because many people have moved to Baton Rouge. As a result, the traffic between Baton Rouge and New Orleans is very thick. Now, for example, commuter rail makes sense where before it didn’t, and we want to be able to look at those types of options.

What are the latest trends in the industry?
What’s interesting is if you look at contracting models in Europe versus contracting models in the U.S., it’s approached very differently. In Europe, the contracting model is much more oriented toward results; they’ll tell you what the budget is, the kind of services they want and what their goals are for the system, and based on those dollars they want us to tell them what we can provide them in investment, technologies, service schedules, you name it. It’s a much more results-oriented process. I think this trend will probably begin to start spreading to the U.S.

It’s a change in contracting that will be good because it will allow private sector involvement to really unleash its ability to provide a whole range of features and services that are designed to achieve goals and results, as opposed to just filling a gap. In Europe, for example, if the goal of an authority is to grow ridership, we actually take a risk on passenger revenue. In other words, we will, through our own analysis, commit to growing ridership X percent. And, if we achieve those gains or surpass them, we’re rewarded with the extra fares that are generated for the investment we made to achieve those gains. If we don’t make those gains, we’re at risk and we lose money or simply do not make as much as we should.

 [PAGEBREAK]Laura Bell, President
First Transit and First Services

Why, generally, do public transit agencies choose to contract services? What kind of positive benefits can contractors provide public transit agencies?
Laura Bell: The reasons that public transit authorities are drawn to contracting are as compelling as they are broad. Our customers tell us they are attracted by economic efficiencies and benefits that we offer in terms of bringing to bear huge economies of scale, for example in risk management or fuel purchasing. Some report that the core competencies of an experienced industry organization, such as training, customer call centers and others, allow them to focus on their own core competencies. And, for others, the service we provide fits, as a practical matter, into a larger strategy where we are one of many complimentary partners.

Contracting transportation service is hardly a novel solution, but rather one that allows public and private entities to stretch their resources, while at the same time providing much-needed jobs and services to a community. The benefits are innumerable.

How has the merger with Laidlaw impacted your company?
While the execution of change on this scale is a long process, the results of our merger with Laidlaw have exceeded expectations. The merger of the two companies is going well as a result of the approach taken by upper-management to start with an intense examination of best practices from both legacy organizations.

The merger allows us to offer our customers cost efficiencies and economies of scale previously unavailable in our industry. But, perhaps the most important result of the merger is the great pool of industry talent that has been brought under one roof. We are most proud of our people and the benefit we are able to provide to our customers through their service.

Is the contracting business still growing or has it flattened out in the last few years?
The contracting sector is definitely growing, particularly in new marketplaces that we are exploring. We have positioned ourselves to leverage the changing nature of the industry by recognizing new strategic business opportunities that in the past may not have been included in the traditional definition of ‘public transportation.’

How has your company prepared itself for the growing paratransit market?
The combination of First Transit’s legacy paratransit business with Laidlaw has enhanced our customer base. This has increased our capabilities in this market and we are well positioned to take full advantage of the forecast sector growth.

We have also increased our call center capabilities, which we believe gives us a platform to better service the paratransit market.

What new ideas, markets has your company begun to delve into in order to grow business?
We have more than 50 years of experience in fixed-route, paratransit and shuttle services at the national and local level, including brokerage call centers, on-demand response, inmate transportation, airport and university shuttle services and much more. In addition, with FirstGroup’s considerable rail experience in the U.K., this would seem a logical market for us to further expand in the U.S.

What are your company’s biggest challenges?
We face some of the same challenges that many transportation companies are confronting at the moment, including the rising cost of fuel and finding enough qualified personnel to keep pace with business growth. And, as a direct effect of our overriding commitment to safety, we are constantly looking for ways to ensure the safety of our employees and passengers.

We’ve put aggressive strategies in place to focus on fuel efficiency, that range from driver training techniques to matching optimal operating specs and employee retention goals.

Tell me about a new or unique contract that you’re excited about.

We are excited about the statewide contract we just won in Louisiana to serve as the prior-approval agent for the state’s non-emergency Medicaid transportation program. The program is designed to improve access to covered medical services for Medicaid eligible families and individuals.

Our job is to operate the call center that confirms eligibility and coordinates transportation for those who need assistance in accessing the medical care they need. There are currently 40 First Transit employees fielding an average 70,000 calls per month. This contract represents the diversity of services that we are able to offer, in terms of our ability to bring a wealth of expertise to the table and form an integral partnership with our customer.

Press releases often talk about the addition of new technology and safety features. Are those usually put into place at the agency’s insistence, or is there a push by your company to increase safety?
Safety is at the very center of everything we do. We are constantly looking for new technologies, new vendors and new ideas on how to enhance our safety offering. We’ve invested in obvious safety technologies such as GPS and DriveCam, as well as back-end software systems to enhance basic management services including background and payroll tools. And, we are heavily involved in the development of software to support everything from safety and security to call center operations.

It will come as no surprise, too, that as our customers demand high performance on safety, we are able to draw on the breadth and depth of experience across the FirstGroup family for best practices. Many appreciate the fact that this includes everything from rail to school buses.

Can you talk about the logistics of training operators, customer service reps and other employees?
For us, training is not a one-time thing. In fact, it is our belief that a driver, for example, should never be finished with training. Training and development constitutes a significant investment of our annual operating costs. Of course our new-hire training, regardless of role but in particular for drivers, requires a heavy commitment. Employees are also then obligated to undergo a certain number of hours of training every month as a condition of employment.

Do you work with unions?
In short, yes. We have a history that includes decades of union relationships and a long track record of general labor peace born from such relationships, as well as experience managing in union environments.

Our labor philosophy is supported by our company-wide commitment to ‘Freedom of Association.’ This means that we respect every individual’s right to choose to associate with a union or to choose not to support union membership. Both union and non-union employees are eligible for employment and advancement across our company.

 [PAGEBREAK]Jon Monson, Chairman
MV Transportation Inc.

Is dealing with unions becoming increasingly difficult?
Jon Monson: The two large unions we deal with are the Amalgamated Transit Union and the Teamsters. We have outstanding relationships with both unions, and they understand that as a private sector employer we have to be competitive over time. If we’re not we can lose our contract, and that helps in our negotiations together. We have the ability to use the size of our company to do things for our employees that maybe a smaller public entity cannot do, or there may be restrictive laws in certain states that make it harder for public entities to obtain the right kind of labor agreement, so we have had a great deal of success. If you look at why contracting is cheaper, it’s not necessarily because the drivers are paid less money, a lot of it is in the work rules; we tend to not have agreements that are very restrictive in terms of how the workforce is deployed or scheduled. If we need to have a dispatcher drive, a driver dispatch or we want to cross-train people, our labor agreements generally allow those kinds of things, which makes everything more efficient.

Is the addition of new technology and safety features usually put into place at the agency’s insistence, or is there a push by your company to increase safety?
We invest more than $2 million a year into research and development. I don’t think anybody else does that. A few examples include our national telephone system that our clients can participate in called the Interactive Voice Response System. What that system does is call or text passengers if there’s a change in the bus schedule. We use it to schedule our drivers as well, and it also enables them to call a toll-free number every night, punch in their driver number and hear what time they are required to report to work. We also track that all of the drivers have checked in, which really helps us reduce absenteeism.

We’ve also developed a system to enable the drivers’ daily vehicle inspection to be done on either a cell phone device that’s connected to a maintenance computer or a mobile data terminal in the vehicle that’s used for scheduling purposes.

We’ve invested a lot of money in these types of technologies because it helps make our service more productive, and in turn, keep the costs down for our customer.

So, would you say that a private contractor is a little more efficient than a public transit agency?
If you measure the operating costs per revenue hour and exclude the cost of capital, because in most contract arrangements the public entity is providing the capital, the operating costs for the private sector are significantly lower, usually in the range of anywhere between 15 percent to 35 percent, depending on the project. Our company, for example, has a workforce of 13,000 people, and in terms of administrative staff, human resources, accounting and things like that, it’s less than 150 people. If you were to go to a big public entity, you’d typically find much larger administrative overhead. We do a lot to keep that down.

Is the contracting business still growing or has it flattened out in the last few years?
If you look at it by segment, certainly the paratransit business is growing very rapidly because of the increasing age of the U.S. population, and the fact that as people age they tend to be more likely to be disabled. The demographics are causing paratransit and its ridership to grow much faster than the rate of inflation. As a result, that part of the contracting business is very healthy. Our studies show that more than 90 percent of paratransit is contracted because it is very difficult to run and it’s very expensive.

The fixed-route part of contracting is very prevalent in smaller communities. There’s a segment of cities ranging in population from 20,000 to 150,000 people that are now starting to contract out their fixed-route services, generally because otherwise they’d have to build a big staff of people that would have to be experts in transit, which can be difficult. In many large urban areas, such as L.A. or San Diego, there has been a significant amount of contracting, and those opportunities are continuing to grow.

The third segment, which is something we don’t operate now but we’re seeing these opportunities in the future, is the rail business. There are many New Starts occurring for both commuter and light rail programs, and we see more opportunities being created for the private sector in either the design-build-operate-maintaining of the system, or with more specific parts of their system that can be contracted out.

Is there anything that you’re exploring or currently using to help secure new contracts?
It’s not really public transit per se, but our firm has been engaged by some large employers outside of the public sector to provide transportation for their employees. A prime example is with Microsoft Corp. where we have designed, built and now operate both a commuter bus program for their employees and an on-campus, on-demand shuttle system for people going between buildings. It’s a very large and significant system in the Seattle area that operates independently of public transit, so they’re able to have more control over their own destiny in terms of the kinds of services they offer.

You feel that market will continue to grow?
Yes. As the price of fuel continues to increase, many large employers have a need to transport their employees over longer distances between where they live and where they work. Oftentimes an employer can set up their own commuter bus system to help their employees avoid the cost of commuting and, frankly, make them more productive. That is one of the things we’ve noticed with the Microsoft project.

How are things going competitively? Are you fighting for the same contracts or are there plenty of opportunities for everyone?
Our company has grown in the course of 10 years from having 600 employees to more than 13,000, and that’s because we are very competitive. We’re the only firm in our industry that has grown organically. In other words, we have not made acquisitions, — well, we have done a few but very small — so all of our growth has been by competing for contracts, with many of the contracts we have won coming from our competitors. There are other good firms that have grown and done so by acquisition, so the competitive environment has changed in that there are different players competing for contracts then there were ten years ago. The business is still very competitive, and that’s certainly good for the public sector because they are getting exceptionally good pricing on contract services and typically get many bidders for contracts.

Can you talk about the logistics of training operators, customer service reps and the rest of your employees?
With very few exceptions, we provide all the training for our employees. We have an extensive driver training program, and in some metropolitan areas where we have multiple contracts, we may train drivers in a group, which helps make it more efficient. Much of the training is common; defensive driving, sensitivity training and those types of things. Each specific contract will also have its own specific training requirements for operating a transit system that are designed by the public agency. We also do a lot of technology training, because we’re a technology heavy company.