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Settlement with toll vendor includes contract extension with discount

Post by Jordan Schrader / The News Tribune on July 18, 2012 at 1:52 pm | No Comments »
July 18, 2012 1:52 pm

Washington’s Department of Transportation says a contractor will give up $6.4 million as payback for last year’s delays in tolling Route 520 and moving to a new statewide tolling system.

That’s on top of $1.5 million in payments the state has already avoided paying to Electronic Transaction Consultants. The company runs the toll system’s back-office and customer-service operations.

But the full amount of the legal settlement will only be recouped if the state follows through with plans to extend its contract with ETC for another four years.

Rather than handing over a check, the company will meet most of its obligations under the settlement by sharing a secret: its software code. The state will receive a license to ETC’s software without paying royalties, something a state consultant has valued at $4 million. The rest of the settlement comes in the form of $2.4 million in future discounts.

With the license in hand, agency knows it can switch contractors in the future without having to move to a new system, Toll Division Director Craig Stone said.

Despite that extra insurance, the settlement is more evidence ETC and the state will continue their relationship. As long as several upcoming benchmarks are met, ETC said the five-year, $23 million contract will be extended an extra four years through 2018 at a price tag of $26.6 million. That’s after the $2.4 million discount.

“We do have confidence in ETC,” Stone said in an interview. “We want to put this behind us and move forward (with) lessons learned. ETC collects a third of all electronic tolls in the nation.”

About $600,000 of the discount will go to pay the Tacoma Narrows bridge account, Stone said.

“Tacoma Narrows bridge costs are being recovered and the toll payers are being held harmless from this,” Stone said. “They will bear no cost associated with the delay and in fact in the long term there will be savings in the operations costs” from moving to a statewide system with economies of scale.

ETC took over toll processing in February 2011. Delays and problems plagued the transition. After errors in mailing out tickets to the right Tacoma Narrows drivers, the contractor and the courts threw out many of the infractions, causing a loss of revenue for the bridge.

The same year saw repeated delays in the start of tolling on the Route 520 bridge over Lake Washington, which will pay to replace the bridge. Drivers finally started paying to cross the bridge in December, nine months later than planned.

The state had a contractual right to penalize ETC $300,000 for every week of delay. State officials gave up the right to charge those damages for the early months in exchange for a promise to recoup the actual cost of the problems, but Stone said the contractor is effectively being charged the weekly penalty for 21 weeks’ worth of delays in the later part of the year by paying $6.4 million.

That’s more than the state has incurred in actual damages, Stone said. He said the state has already recouped all but $600,000 of the damages.

ETC said in a statement that the settlement “avoids what could have been significant costs associated with a dispute review process and potential litigation costs.”

It quotes CEO Tim Gallagher saying: “Throughout the project, ETC Corporation has worked as a true partner with WSDOT to deliver one of the industry’s most advanced toll systems, going above and beyond the scope of the contract to support WSDOT and its Good To Go! program.”

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