This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In its 2012 Annual Report findings in Metrolinx – Regional Transportation Planning, the Auditor General of Ontario found that Metrolinx, a government agency, significantly increased the scope and costs of its regional transit fare card system, the “Presto” system, after the initial contract award. As the Auditor General noted, these changes made the Presto system the most expensive transit fare card system in the world, with nearly $500 million (CAD) added to the original award for a total of what at the time was more than $700 million (CAD):
When the Presto fare card was initially developed, the Toronto Transit Commission (TTC), which has over 80% of the GTHA’s transit ridership, had not agreed to implement Presto on its system. Along with the city of Ottawa, the TTC has now conditionally approved Presto’s adoption subject to satisfactory resolution of some key issues. However, to meet the requirements of Ottawa and Toronto, Presto Next Generation (PNG) is currently being developed at an anticipated cost of $498 million. In total, more than $700 million could be paid to the contractor for developing the original Presto system and PNG. We acknowledge that Presto is intended to be the primary fare collection system on GO Transit and municipal transit agencies in the GTHA and therefore must be flexible enough to meet the needs of agencies and to adjust to new technologies as they become available; however, it will be among the more expensive fare-card systems in the world.
The Auditor General found that these costs could have been reduced through the competitive tendering of the additional scope changes:
Rather than competitively tendering the development of PNG, Metrolinx decided to develop it by way of open-ended change orders under the existing vendor’s contract. We believe that tendering would, at the very least, have informed Metrolinx of potential new developers and whether other vendors might have had more cost effective technology solutions.
However, while open competition would have been the optimal approach to costing the scope changes, system compatibility issues impeded the ability to bring in third parties to perform scope change work. This case study underscores the importance of developing initial scoping strategies based on long-term use plans, rather than shorter-term objectives that may be based on lower and more immediate budget approvals. As reported in the Toronto Star on September 7, 2018, Metrolinx subsequently announced that Presto costs had already escalated to $1 billion and were projected to increase to $1.2 billion by 2021.