City Hall

Veolia Transportation Deal: Phoenix Gave Away More Than $3 Million to Veolia by Waiving Poor Performance Fines. UPDATED

(Updated with links to several documents, including Veolia's performance records)

Phoenix has given away more than $3 million - so far - to Veolia Transportation, a transit company that operates buses throughout the city.

It's $3,295,573.86, to be precise.

That's how much Phoenix would have collected in fines from the French transit company had city officials not agreed to waive four month's worth of penalties for things like late, broken or unkempt buses.

A significant savings for the Veolia executives who have Phoenix Mayor Phil Gordon's girlfriend on their payroll as a consultant and Gordon's good friend Billy Shields as a paid lobbyist.

And that $3.29 million tally only covers July, August and September, according to records obtained by New Times. Given that Veolia has racked up about $1 million worth of fines each month, it is likely that Phoenix also lost out on another million bucks for October.

A majority of the fines Veolia would have been slapped with are for late buses. For example, buses showed up late to bus stops nearly 50,000 times in those three months.

If a bus is six minutes late, that's a $20 fine. Ten minutes late? That costs the company $40. Late-bus fines top out at $250 each time a bus shows up more than 30 minutes late to a stop.

Phoenix put those fines in place to ensure that bus patrons received the best service. City officials made it clear in the city-bus contract that those fines would be strictly enforced.

Why would it remove them for Veolia? What incentive does the company now have to provide quality service? And why would a cash-strapped city agree to let revenue from a international corporation slip through its coffers?

Phoenix Public Transit Director Debbie Cotton was out of town and unavailable for comment.

Based on city records, officials agreed to a "four month delay" of fines "due to the change in the type of contract" Phoenix was using to provide bus service (moving from a management contract to a fixed-cost contract).

That statement makes it seem like the city made a last-minute contract change and Veolia needed time to adjust.

Not the case.

Phoenix agreed to waive those fines in May - at the same time that City Manager David Cavazos brokered a deal to pay Veolia $27.5 million in Chicago to settle out issues it had with Veolia's a previous city-bus contract.

Veolia was well-aware that Phoenix was using a different type of contract before the city even put its $385 million city-bus contract out on the street for bids in June 2009.

In fact, when Veolia was going through the interview process in late 2009, prior to winning the contract, they touted that the city was making the right decision by switching to a new type of contract.

(Phoenix previously operated under a management contract in which the city reimburses a transit company for city bus service and tacks on a management fee. Under a fixed-rate contract, the transit company gives the city a flat, per-mile cost to provide bus services.)

It was an "appropriate response to the current financial situation" because Veolia would take on the risk and also have better control over cost-saving measures, Veolia execs explained to Phoenix transit officials.

There are a few other things that don't add up:

In the settlement agreement that Phoenix and Veolia reached in Chicago, city officials said they eliminated a $50,000-per-day fee that would be assessed if workers went on strike "in recognition of the significantly shortened transition period" for Veolia as it moves from its old city-bus contract to a new one.

Consider, however, that Veolia was awarded the new city-bus contract in January 2010, and already had six months to prepare - the same amount of time the 11 other companies who bid on the contract would have had if they had won the bid.

Or, you could go back to June 2009 when they first started competing for the contract and that adds up to a year-long "transition period."

Also, Veolia touted its "unique" ability to provide an "orderly and seamless" transition when it was vying for the Phoenix contract.

"We also believe that our relationship with our unions, our understanding of the system and current services provides Veolia a unique ability to make this transfer in an orderly and seamless manner," execs wrote in response to a question from Phoenix transit officials.

If Veolia has been providing bus service in Phoenix for about three decades, shouldn't they already have a handle on how to transition from one contract to another?

It's unclear why Cavazos linked the settlement of the old contract to the terms of the new one.

Despite getting what amounts to a $3-million-plus gimme from the city, Veolia was still hitting up Phoenix for another $2.3 million to help finalize a contract with the Amalgamated Transit Union.

Phoenix rebuffed Veolia, but union officials say they are being pressured by company execs to also make a run at the city for the money.

It's ironic that when Cotton was asked by the Federal Transit Administration to explain a conflict of interest raised previously by New Times involving Veolia and Phoenix Mayor Phil Gordon, she said that Phoenix chose Veolia because their bid was $14 million lower than any other bidder.

What kind of money is Phoenix really saving when you start taking into account changes it has had to make to appease Veolia? Figure on at least $4 million in lost fines.

Since Phoenix also agreed - as part of the infamous Chicago settlement - to allow Veolia to establish a review panel and challenge future fines, it could be that Phoenix will forgo even more of those "strictly enforced" penalties.

And how does the $27.5 million Phoenix paid Veolia to settle issues involving the old contract factor in to financial picture?

Sure, city officials say they reached that nearly $30 million settlement to avoid a potential lawsuit from Veolia - but if Veolia hadn't been awarded the new contract, executives would not have been able to use it as leverage the way they did.

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Monica Alonzo
Contact: Monica Alonzo