Toll Plaza O&M Contracts: Scope, Responsibilities and Key Considerations

A toll plaza appears to be the simplest task on a roadway. When a vehicle comes to a complete stop, the exchange of funds takes place and the gate opens.

It's not. Behind each one of those lanes is an O&M contract for the toll plaza. Honestly, I think that is the single most troublesome part of the whole system. This is where money, service quality and legal issues come together. Who runs the lanes? Who repairs the reader when it breaks down at 6 p.m.? What happens if there isn't enough cash in the drawer to cover the count? If you can't find an answer to your question in the contract, people typically figure out their own answers, and they do so with penalties and angry emails.

All three parties to the contract can benefit from what we have provided here. Authorities will be able to understand the process of creating a scope of work that protects the authority’s financial interests as well as the safety of those using the roads. Contractors/Operators will be able to identify where the actual risk is located prior to pricing a bid. Technology/Advisory Providers will know exactly when their responsibilities end and another party’s begins, although this may seem simple, it is not.

What a Toll Plaza O&M Contract Actually Is

O&M means "operation and maintenance." An O&M contract on a toll plaza will cover both of these functions: operating the plaza each day, and maintaining all of the equipment (booths, lanes, lights, etc.) at the plaza in good operating condition for a set amount of time.

How it is packed will depend upon the project. There may be some plazas which are part of a concession that the concession holder has responsibility for during the life of the concession. There may also be plazas that are managed by an authority that has contracted with an outside agency to manage the plazas via a public procurement process. Finally, there may be plazas which are being turned over to a specialist operator by the concession holder.

Common contract models

Models are different. Sometimes the government controls the program and contracts out the job. Sometimes the concessionaire does the entire job. Compensation can be a set amount of money, based upon how well someone performs their job, or determined by the amount of income generated.

None of them are necessarily better than the others. The actual question is easier: can the person who has the responsibility for managing each risk, manage it?

The three parties

Defining the Scope of Work

The only section of the document that needs to be correct is this one. A proper toll O&M scope of work should be detailed enough that you can look at any random Tuesday and determine if the activity was performed, or not performed.

Begin with operations: lane control, whether collection is manual, electronic (ETC), or both; shift personnel; money collection, reconciliation; treatment of exempt/special vehicles. Next, maintain the facilities. Booths, canopies, lanes, lights, signage. Differentiate between preventative maintenance (scheduled checks) and corrective maintenance (fixing problems after they occur), since these types of maintenance are handled differently financially.

Technology and systems includes lane hardware, ETC and RFID readers, cameras, software, network, data, and cyber security. This is where most blocks of information on technology and systems receive only one vague sentence in an article on technology and systems, although they really need a full page.

Then there’s revenue assurance (audits, reconciliation, stopping leakage, handling violations and non-payment), customer service and safety (incidents, traffic, emergencies, complaints), and reporting and compliance (MIS, audits, statutory and safety requirements).

Tip: scope items that most often get left vague

• Who pays to replace equipment that fails from age rather than misuse
• Who handles software updates and licence renewals
• Where preventive maintenance ends and corrective begins
• Who owns cybersecurity and data backups
• How disputed transactions and exempt-vehicle claims get settled
• Who leads when an incident involves both operator staff and vendor systems

Hold your draft up against that list. Anything that makes you pause is a future argument.

Who Is Responsible for What

The authority is responsible for setting policies and tariffs, providing land and access to that land, approving items on a timely basis, sharing data with others, and paying money at the specified time. In addition to these responsibilities, the authority must continue monitoring the agreement after signing. If there are no parties monitoring an agreement, then over time the agreement will begin to deviate from what both parties initially agreed upon.

The manager operates the plaza every day, manages staff (hiring & training), provides upkeep, meets service level agreements (SLAs), and reports on operations. Responsibilities of toll plaza operators need to be documented in great detail. When a lane is closed for three days, "reasonable care" is not enough.

Technology and consulting firms provide technical assistance (uptime/support), installation/integration, employee training, and external evaluations/reviews. Additionally, they assist with the transition from one operator to another, or with the update of an existing system.

A RACI matrix is the fastest way to prevent people from guessing who will do what. The R stands for Responsible, the A for Accountable, the C for Consulted and the I for Informed. This RACI matrix is an example of what yours might look like; however, you can customize it based upon your contract.

Where disputes usually start

When cameras used to monitor lanes die on a Friday afternoon, was the camera knocked by an employee or did it arrive at the site with a fault? If there is no mention in the contract of who will check, repair and pay for such repairs, then each side may take weeks to blame each other for the camera failure, and during this time, the lane will remain closed. It is better to establish a process for repairing cameras before they fail, rather than after they fail.

Key Considerations Before You Tender, Bid or Sign

Whether you’re writing toll tender requirements, building a bid, or about to sign, slow down on these.

Performance measures (standards) and service level agreements (SLAs). Measure what you can: uptime, transaction time, and reconciliation accuracy. While words such as "efficient" and "prompt" may sound good to most people, if there is a problem/dispute, it will be hard to prove either was achieved. The authorities need to establish standards that are measurable. Bidders need to ensure they have the resources/staff required to meet the target set out in the tender. Providers need to ensure their promised uptime is consistent with the operator's expectations.

Payment and penalties. You want to find out how the contractor will be paid (fixed, variable, or both) and if they will receive additional compensation for performing well. Also, you need to understand how liquidated damages/penalties will apply. If there are no caps on liquidated damages/penalties, and there are no provisions for relief events, then a bad period of time that is beyond the contractor's control can result in loss of profit for the entire month.

Risk allocation. The person with the most control over managing the risks should carry them. Who carries which risks? If traffic falls short of forecast, who bears the costs? What constitutes force majeure? When there are changes in laws or tariffs after a contract begins, who will bear the additional expenses? And when equipment becomes outdated, who is responsible for replacing it?

Technology transition.The technology used for tolls will continually evolve. It is important to determine in advance how the technology will be updated, how new technology will integrate with existing technology, and who will pay for the update. Without prior agreement in the contract regarding these issues, the first technological upgrade may result in a dispute or negotiation.

Manpower and labour compliance. Set up staffing standards, employee training, salary levels and government mandates. Employees who are not paid adequately or trained properly will negatively impact your service delivery and may result in legal issues for all parties involved. Be sure to check with the most recent labor laws prior to finalizing this section.

Data ownership and security.The electronic collection raises the bar for deciding who owns the transaction data, what they can view and how long the audit trail will be maintained. Also, it adds pressure to decide how confidential information will be protected.

Evaluation criteria.The lowest cost doesn't mean that's the best deal. A really cheap bid typically means there was a cut-back in some areas such as maintenance, employee training, or technology. These cuts will ultimately result in increased down-time and/or disputes. When evaluating bids from different companies, consider their experience, and their past performance (track record) in addition to the cost. If a bid is substantially cheaper than all of the others, find out why before you get excited about how much money you saved.

Handover and exit. Think about what you will need to do at the end of your first day. This includes having the ability to take control of the operation if the company performing the contract is unable to continue operating, providing support to the next company that will operate, and defining how the assets should look when they are turned back over to the authority.

Common Pitfalls and Red Flags

Most issues result from a brief list. The scope of work as stated in a contract previously used with technology that is outdated. Service Level Agreements (SLAs) which are unachievable, and there are substantial penalties for non-compliance, without the option to request relief events. A low bid that does not include the cost of maintaining the technology throughout its lifetime. No dispute resolution or escalation procedures. There are overlapping duties or gaps in responsibility between the operator and vendor, where each assumes that the other will handle those duties.

Best Practices for a Contract That Works

1. Write scope and responsibilities in plain terms you can test. If you can’t check it, you can’t enforce it.
2. Build in review points. Technology and traffic will both change.
3. Pay for outcomes, like accurate collection and good uptime, not just hours worked.
4. Talk to operators and technology providers before the tender goes out. A pre-bid consultation catches practical problems early.
5. Use independent audits and open reporting so everyone trusts the numbers.

Conclusion

An O&M contract with a toll plaza is much more than just some forms to fill out. It determines how much money you will make, how safe people will be on the road, and the quality of the service they receive over time. Many disagreements about this contract begin because there are no clear definitions in the contract itself regarding what each party should do, or what each party's responsibilities are. When both parties clearly understand their roles and responsibilities in the contract, everyone wins.

If you are an authoritative body, establish a scope of work that is measurable and manageable. If you are an operator, carefully review the risks outlined within the contract prior to establishing pricing. When providing technological or advisory services to an operator, clearly define your limitations with them and document this agreement in writing as soon as possible.

GreenTech ITS provides Toll Management Services that cover both operations and technology. Whether you are developing a new tender, reviewing a current agreement, or require Highway O&M Services and support with toll plaza operation and maintenance, please contact us so we can discuss the requirements of your project.