Defending Contractors, Part 4: Beware the Selection Process

As installments #1 through 3 of this series illustrated, contractors are often blamed for incidents where all or most of the negligence was committed by the parties which hired them.

Where government subsidies support all or most transportation costs — like those for schoolbus, transit, paratransit, non-emergency medical transportation (NEMT) or other non-emergency services — these funds can only flow to (or through) a public agency — usually referred to as the “lead agency.”

That agency has three choices for providing the service:

  • It can provide the service itself.
  • It can engage a private contractor (or multiple contractors) to provide it.
  • It can engage a third party intermediary, known as a “broker,” to select and engage the contractor – and presumably monitor its provision of the service.
  • Where the public agency itself does not provide the service (two-thirds of schoolbus service and most fixed route transit service is provided “in-house”), it cannot pick a contractor or broker out of a hat. There must be some formal selection process – although many tricks still allow agencies to simply choose the contractor they want despite going through the motions of some process.

    Corruption is common, but subtle and sophisticated: Simple old-fashioned payoffs seem to be rare.

    RFPs and Operating Contracts: The Foundation for Negligence
    The contractor selection process begins with a “Request for Bids,” “Request for Service” or, more commonly, “Request for Proposals” (RFP). An RFP can range from an overzealous, micromanaged, needlessly-detailed tome to a single page questionnaire. Criteria can range from simply the lowest cost (known as “low bid”) to a more sophisticated structure that considers factors like the experience of the firm, the experience of the key personnel assigned to the project (often referred to as the “management team”), understanding of the problem, implementation plan, management plan and, finally, costs. In modes like paratransit service, where efficiency can differ significantly among bidders, non-cost factors can comprise a considerable percentage of a proposal’s score (or “weight.”). However, the disappearance of any design, and the increasing use of the same robots by many bidders, has reduced non-cost-related considerations in recent years.

    The proposal a contractor submits in response to this RFP usually (not always) affects its chances of winning the bid (being awarded the contract). But the RFP often contains requirements that undermine the efforts of that unfortunate contractor who wishes to provide the service safely and/or efficiently. And every RFP (and the operating contract developed to implement its wishes and requirements) demands that the contractor indemnify the lead agency, and hold it (and a string of other parties) harmless for any damages that stem from an incident that occurs during the provision of the service. Some RFPs and contracts even require the contractor to indemnify the lead agency for errors and omissions caused solely by that agency. So the first rule of bidding on a contract is to read it carefully.

    The best strategy is often to not bid.

    The contents of the RFP and the provisions within the operating agreement are also critical to the ability of one’s insurance carrier and its attorney to defend a contractor when an incident occurs. Of course, no contractor’s attorney or carrier will ever examine an RFP, much less advise a contractor about whether or not to bid on a particular service. Instead, if and when these parties must defend a contractor, they will be stuck with the RFP and operating contract’s provisions – and the promises that the winning bidder made in response to them in its proposal. And, as noted below, when an incident occurs, few defendants’ attorneys bother to examine the effects these documents’ requirements have on the incident. So unless a contractor is self-insured, why should it care? It only wants to win the bid.

    RFPs and Recalcitrance
    Truth be told, few public agencies know how to prepare an RFP to get the most qualified contractor – where they even want to. Obtaining the cheapest one is easy: Select the “lowest bid” consistent with a handful of basic requirements (most typically compliance with Federal, state and local statutes and regulations and the completion of endless “boilerplates” filled with administrivia to insulate the lead agency from liability exposure). Such primitive RFPs are still quite common, particularly in the schoolbus sector.

    More commonly – particularly with paratransit contracts and somewhat less so in fixed route transit contracts — RFPs may be complex. But even those that appear sophisticated are commonly filled with nonsense. The best example is an RFP that awards a large percentage of the score for “experience of the firm.” A large contractor usually wins the most points in this category, since that contractor has considerable experience, (including countless projects radically different than the one being bid on), and much of it was performed decades ago (and quite differently, largely because of advances in technology). This category also allows bidders to include summaries (and often resumes in a bloated appendix) filled with senior-level officials who will allegedly devote a tiny percentage of their time to the performance of service being bid on (but who rarely do).

    In real life, the lead agency has no means of, or intent to, monitor the extent to which this phantom network of “experienced” senior management personnel devote time to the service. Many of those included in this network no longer work for the company. Many are long-since retired or dead. But even where they are not, employees do not wire their brains together at night to learn what one another knows. Only the handful of individuals who worked closely on a particular project have some knowledge of what their fellow-individuals know. And the “project team” proposed may not have worked together on previous contracts. In short, this provision is almost always complete nonsense. If the RFP contains such a section, if significant points will be awarded for it, and if you are not a huge company willing and able to stuff your proposal with the fiction this provision welcomes, do not bid on the service.

    Fixed route transit and paratransit service contracts, in particular, are packed with provisions and incentives for contractors to commit safety compromises (see ) A future installment in this series will overview these opportunities, and identify ways potential contractors can identify and evaluate these risks before choosing to bid, especially on fixed route transit service (for which most schedules are often too tight, and many or most of those routes “let out to bid” are notoriously too tight). But future installments will also identify which deficiencies are the fault of the lead agency or its broker – a key to defending the contractor which fails to analyze these flaws and/or ignores them and is induced or forced by characteristics of the operating environment to commit safety compromises – which lead to lawsuits, damage awards, settlements and all the hassles, penalties, problems and costs that accompany them.

    Fraud and Foibles
    Many lead agencies simply want certain contractors, and engage in a bid process only as a formality. The bids are simply rigged to hand the contract to the service provider which the lead agency or broker wants. This practice is known as “wiring the bid.”

    This practice can take many forms. Among the most egregious is the requirement that the bidder possess financial resources far in excess of that amount needed to perform the service. This practice is most typical in NEMT and other non-emergency service RFPs designed to obtain brokers – which explains why only two brokers dominate the entire U.S. landscape (see Part 3 of this installment in National Bus Trader, June, 2021, or at ). Otherwise, all sorts of quirks can be used to wire bids. These quirks are rarely challenged. The morale: Do not bother. Do not bid.

    Another practice stems from the work involved in going out to bid. The mega-contractors have huge, bloated proposals “in the can;” They simply tweak and resubmit them for every new opportunity. For the agency seeking a broker or contractor, it need do nothing. Instead, existing contracts are simply “rubberstamped” – often with few or no changes, sometimes for decades. (In 2011, New York City went out to bid for schoolbus contractors for the first time in 37 years – and 64 of the 65 incumbents won, mostly in the same service areas in which they had been operating for nearly four decades – at least).

    Rubberstamping does not simply reflect the laziness of avoiding an “RFP process.” It also reflects the ugly reality that many bid awards are simply political: Contractors attend costly “rubber-chicken lunches” for the city councilpersons in their service area, and “call in the chips” when they are dislodged by even the most honest and scrupulous bid process that delivers a far-superior (and often less-costly) replacement. Bureaucracies rarely go to war against these politicians. However, the carriers and their attorneys forced to defend these incumbent contractors are stuck with them – and the often antiquated contract requirements that accompany these continuous renewals.

    Where existing contracts are not rubberstamped, proposals often mean nothing: Lead agencies interview all the “finalists” (and sometimes every bidder) and usually select the contractor which impresses the “evaluation committee” the most at the interview – completely disregarding the scores these competitors’ proposals received during their evaluation. This practice removes the incentive for creating a good proposal. And it removes the incentive to suppress costs. Of course, costs are already suppressed in many service areas by the fact that the major mega-contractors pay their drivers the least, contain the thinnest management structures, write the thickest proposals bloated by false promises, and have the slickest “presentation teams.”

    Well-run, often family-owned, businesses cannot compete by simply paying its drivers and management well and creating a safe operating environment (which, again, a poor RFP and operating contract often makes difficult. Regardless, carriers and their attorneys are forces to defend the winners of this competition – which would often be the losers if safety or reducing exposure had been considerations.

    Safety and Liability
    Another factor that directly affects safety and liability is the reimbursement rate. These rates or rate formulas do not vary much within any particular mode. But they vary widely among modes. Most transit and paratransit services pay their contractors by the hour. Schoolbus service is a mix: Some contractors are paid by the hour, others by the mile, others by the trip, and some paid for a minimum number of hours for each deployed vehicle. What is common to all these rate structures is that the contractor is paid when the vehicle is not moving, and also paid for deadhead time and/or mileage.

    One way or another, particularly with the lead agencies knowing little about system design or monitoring, and engaging in little or none of them, these failures are costly — particularly in schoolbus service, and particularly when service is not provided in “tiers.” On the positive side, schoolbus contractors usually earn enough money to operate safely. Otherwise, the unsafe providers operate largely unchecked, much less in a dangerous operating environment created by an often incompetent lead agency or its broker.

    One major problem in transit contracts is the fact that the lead agencies, not the contractors, design the routes and schedules, and select the stops (or, more commonly, their robots do). And these schedules are notoriously too tight. The contractors are simply stuck with them. As I noted in six installments about Tight Schedules (see National Bus Trader, February through July, 2019), or Tight schedules part 3: fixed route transit service on ), tight schedules translate into the commission of safety compromises (see National Bus Trader, September through December, 2017, and April through September, 2018) or ). Properly defending contractors in incidents where contractors’ vehicles were forced to operate on such schedules would necessitate examining them, and the safety compromises they understandably induce. But few defendants’ attorneys bother to do this – just as few plaintiffs’ attorneys bother to file suit against the lead agencies that created the dangerous operating environment.

    Paratransit service – most of which is provided by contractors (although not usually motorcoach providers) – contains similar problems. Not only are modern paratransit systems never designed, but the scheduling is almost always performed by robots. Yet the lead agencies often require their software developers to create schedules which no driver can possibly perform without committing countless safety compromises. So wheelchair tipovers (see ), as the most salient example, are rampant.

    As noted, few plaintiffs’ attorneys file against the lead agencies at fault (for the constraints they place on their software developers). The complexity is even worse when a broker is involved: Hardly any plaintiffs’ attorneys are willing to file against a broker – even where doing so will usually translate into enormous settlements far in excess of the value of the damages. As a consequence, the contractors’ attorneys are forced to defend their clients in incidents whose underlying causation is often not their fault.

    The worst abomination in rate structures involves the NEMT industry (see Part 3 of this series in the June, 2021 issue of National Bus Trader, or at Defending contractors part 3 the whistleblowers song ). Operating vehicles without a meter, NEMT contractors are simply not paid unless the vehicle is moving. No better formula could dissuade a contractor from doing any number of things (see Research has found that 73.6 percent of wheelchairs are secured (or properly secured) on fixed route transit service – where contractors are paid when the vehicle is not moving, and also paid for their deadhead time. In NEMT service, contractors are not paid unless the vehicle is moving (with at least one passenger on board – thus not including deadhead time). One can only imagine the tiny percentage of wheelchairs secured in NEMT service. But the contractors’ attorneys are stuck with the responsibility for defending them. And as with transit and paratransit service, few defendants’ attorneys ever take a peek at the underlying causation created by the lead agencies (in this mode, not even transportation bureaucracies) or their brokers.

    These short summaries reflect the failures of insurance carriers and attorneys (more about this in a future installment in this series). This problem begins because most plaintiffs’ attorneys are too cheap and lazy to file against the lead agencies (and particularly their brokers, where brokers are involved). Instead, they simply sue the contractors. But without an understanding of the roles, responsibilities, failures and corruption of lead agencies and brokers, insurance carriers and their attorneys are helpless in defending those contractors stuck – often unfairly – with the blame for the incidents.

    Holding the Guilty and Liable Accountable
    Future installments in this series will provide strategies and tactics for contractors to avoid or mitigate these situations, and for their carriers to instruct their attorneys on how to defend their clients when they cannot do so themselves. Presenting these strategies is the central purpose of this series of installments.

    These installments will provide a contractor with the tools to examine the systems they are bidding on, how to avoid bidding on those in which they will lose money and/or incur considerable risk, how to compensate for the safety abominations built into their contracts or the operating environments they inherit, and in some cases, how to modify the bid environment so that they have a chance to operate safety – or at least help their carriers and their attorneys identify those parties genuinely at fault when incident occur.

    The previous installment about the dynamics of the NEMT sector (see Part 3 of this series in National Bus Trader, June, 2021, or Defending contractors part 3: the whistleblowers song ) provided a salient illustration of the damage a lead agency and broker can cause, and why they are genuinely at fault for so many incidents for which their contractors are most often blamed. But these dynamics are far less complex in other sectors. In those sectors, contractors have a much easier time avoiding the pitfalls. And those responsible for defending them have a far easier time doing so – if they choose to listen and bother.

    When your carriers and attorneys fail to defend you properly – as they usually do – you have much to lose, including paying higher premium (at best) or losing your assets or business (at worst). So every contractor would do well to absorb the lessons about what to look out for before bidding on a transportation service. Similarly, every contractor would do well to insist that its carrier, and the carrier’s counsel, take a close look at the errors and omissions made by the lead agencies and brokers when incidents occur. Even if the plaintiff’s counsel is too cheap and lazy to file against these parties, a carrier’s counsel can “bring them in” – a strategy I have helped some savvy carrier’s counsel employ when the incidents are not largely their clients’ fault.

    When the house begins to crumble, the first thing to examine may be the roof. But the most important thing to examine is usually the foundation.

    Two examples illustrate these challenges – usually only undertaken when large sums of money are involved. In 1975 – anticipating President Carter’s promulgation of “full accessibility” (enacted in 1977), the Southern California Rapid Transit District went out to bid for transit buses with lifts in the front door – in order to preserve tens of thousands of metered parking spaces (buses with rear lifts require roughly60 more feet of bus zone length to align the rear door parallel to the curb). Because only General Motors produced a bus with a front lift, it was awarded the contract. One of the losers – AM General or Flxible – challenged the bid, claiming it was “wired” for GM. The lower court agreed, and tossed out the bid. As an expert witness in a case decades later, I helped a software developer get a state bid for scheduling software tossed out because the bid evaluation process was entirely subjective: The evaluation team had no methodology. Evaluators simply “sprinkled in points” where they liked what they read.

    Publications: National Bus Trader.