DRAMA:MFS

Controversy swirls around big toll system integrator MFS. The company is being lambasted in California for failing to meet a highly publicized Labor Day deadline to open electronic toll lanes on several San Francisco Bay bridges. The company has taken years longer on the project than expected and it will lose heavily on the $30m project, it says.

“We’ve gone through hell developing this system. It was far more than we bargained for. It involved a lot of difficult research and development. But we are nearly there now. It is a matter of just weeks beyond Labor Day and we’ll have a lot of it up and running,” we were told by Michael Breslin the new president of MFS Transp Systems. MFS have gone through four program managers and spent over $40m already on a $30m contract, is the talk.

Caltrans officials told us that MFS has had unexpected trouble producing the software to tie the various systems together. One harsh critic there told us: “We’ve been ironing bugs out for longer than I care to think. We’re ironing out bugs on top of bugs on top of bugs. I think frankly we got the wrong crew.”

Earlier many of the difficulties were attributed to California’s complex vehicle classification schedule but this has been simplified by the legislature and now poses no special challenges.

Called ATCAS (Automated Toll Collection and Accounting System) the project involves not only electronic tolling but new vehicle classification, enforcement and accounting systems for all the toll operations on 7 Bay area bridges and eventually 2 in southern CA. The 7 bridges in the Bay area handle 900k veh/day and include the San Francisco-Oakland Bay Bridge a 10-laner which vies with the George Washington bridge in New York City as the most heavily trafficked bridge in the world with around 250k veh/day.

In mid-1996 a Caltrans engineer Ron Slade created a furore by posting an internet statement suggesting MFS was about to have its contract voided for non-performance. (see TRnl#5 Jul 96 p6) He said the computer system set up by MFS repeatedly crashed and that the overall setup had “failed tests.” Slade’s statement contained some exaggerations and was mistaken in its interpretation of the contract situation, which was outside Slade’s expertise. And of course it was not offically authorized. But it signaled some serious problems way back, some of which apparently persist to this day, notably an unstable computer system. It was a computer crash just this Aug 14 that was the final straw in causing Caltrans officials to defer the Labor Day openings on the Bay area bridges. The crash disrupted the latest 30-day period of tests on the Carquinez bridge.

Moersch “off bleeding edge” (Jan 97)

In mid-1996 both MFS and Caltrans said they were close to having an operational system and that they hoped to have it working for the public by the second quarter of 1997. In the first week of 1997 then CEO of MFS Kevin Moersch said: “We’re off the bleeding edge at last. We are extremely pleased we have moved past these first phases of testing and can continue forward with system deployment.”

A news release issued by Caltrans quoted their chief James Van Loben Sels as saying: “The prototype system tested on the Carquinez bridge has complied with contract specifications and we are confident in moving forward.”

In fact they opened the first installation, a dedicated ET lane July 30 97. Some 10k tags have been issued and some 4k to 5k vehicles a day use it. They love it. In fact the major problem is that too many zoom through at too high a speed. There have been no accidents but Caltrans officials have expressed concern about safety with the sharp speed difference between the stop-&-go traffic in the mixed lanes versus the high speeds in the ET lane.

Even though patrons were loving it, from Caltrans viewpoint it didn’t work properly, according to one official, and for a while there were error rates as high as 30%. But they were steadily reduced. In April this year the official in charge told us: “As far as our patrons are concerned it is working fine. The accuracy is about what we expected but we have some work still to get rid of some glitches in the system. We’re hoping to have it worked through in the next few months.”

Apparently quite a number of ET patrons were still getting free rides and there were infuriating system crashes and unexplained discrepancies. We couldn’t get Caltrans to say explicitly in recent days whether this dedicated lane is now operating to specifications. MFS says it is formally accepted and that it passed tests. Caltrans has at times resorted to mumble-mouth legalisms that would do the Clinton/Gore White House proud, such as saying that MFS has been in “constructive compliance” with its contract.

A Caltrans official did tell us that tests of ten mixed ET and manual collection lanes on the Carquinez are “very close” to specs but vehicle classification is still not quite to contract. Accuracy in that equipment of 99.6% had been achieved, close to the 99.8% specified, but not there. (That is a drop in specs from the originally specified 99.995% which we are told was mutually agreed to be impossible to achieve. See TRnl#16 Jan 97 p5) The official says that the Carquinez bridge is unusually difficult for vehicle classification because of the “large number of really wierd rigs we get.” It is a popular area for boating and the traffic has an unusual number of boats, camping equipment, hunters and recreational vehicles (RVs).

MFS early on switched automatic license plate read systems because the first system, the UK CRS which is the worldwide market leader, could not be gotten to give adequate results at this installation.

Anyway we are presently assured by all concerned that in a matter of weeks ET will be starting on the major Bay bridges. There are to be two dedicated ET lanes on the Bay bridge and a single ET lane on the other bridges to start with. Good luck to them all!

3m e-tags?

Mike Breslin MFS’s president told us he thinks this could be one of the world’s biggest systems for electronic tolling with a potential for 3 million tags in use. 200k have already been supplied, the first lots from Texas Instruments, later ones from Toronto’s Sirit Corp which bought the TI toll business earlier this year. Sirit just got another decent tag order for 100k at $30ea in the first contested contract in CA. Amtech bid but lost to Sirit. Breslin told us work on the $500m NJ toll conversion contract is on track, and that the company’s bids for a major part of the electronic toll business in Korea and Holland look promising.

Disabling problems?

Meanwhile there is continuing drama over MFS’s ownership. It is in the process of being acquired from its present owner Worldcom, the telephone giant, by Able Telecom, a small Florida-based group. The Able takeover followed an attempt by Sirit and Kevin Moersch and other senior MFS people to buy MFS. Sirit says that their buy was 98% complete and that Able was to hold a small minority share of the equity. Sirit is suing Able and others associated with Able charging misrepresentation, fraud and deception by Able and its associates (the legal complaint is posted at www.sirit.com). Meanwhile a Wall Street analyst Manuel Asensio has been issuing strong “sell” recommendations on Able shares and has produced a series of reports charging Able with corporate reporting irregularies, rapid turnover of chief financial officers and fraud against stockholders, making the management of Able look like a bunch of bumbling losers, if not outright crooks (see www.asensio.com.)

Asensio says that Able and MFS have been running up major losses. MFS so long as it was a subsidiary of Worldcom has not had to publicly report its results but the purchase price of about $100m for a company with a lot of business and 700 employees hardly suggests great profitability. Asensio charges Able with having concealed losses and a precarious financial situation from its public shareholders. Asensio says that Able is having great trouble financing the purchase of MFS and says it has only made down payment by resorting to what he calls a “$20 million bottomless convertible with 1,000,000 stock warrants.” So reluctant are banks and underwriters the takeover will only be achieved with more heavy watering of Able stock, the analyst says.

Kevin Moersch the former president of MFS told a New Jersey newspaper he did not like the ethics of top Able people and suggested he got out when it seemed Worldcom wanted to sell to them. We talked to Bill Thompson the former boss of the MFS transp unit now headed by Breslin and he said he got out strictly for personal reasons. New Jersey taxes meant he would lose a huge amount of money on his MFS stock if he stayed on in the state, and anyway he needed a “sabattical.” He has moved to Scottsdale AZ. Thompson did say thar Sirit and the management buy-out missed some deadlines and that this may have been why Worldcom and Able got together to do the end-run around Sirit and Moersch.

Able officals did not return our phone call seeking their side of the story. Nor did Rick Wiedinger, the Worldcom official in charge of the sale of MFS. Breslin says he was not part of the management group working with Sirit and thus was not privy to details of the MFS sale process. Michael Briand at Sirit directed us to their press releases and the text of the law suit on their website. (Contacts Charles Price Caltrans 510 286 4478, Mike Breslin MFS 609 235 5252, Frazier Gaines Able 561 688 0400, www.sirit.com, www.asensio.com NOTE: Contacts are for you the reader to followup with. Unnamed sources for our reports may, or my not be, people we name as contacts. Sometimes “contacts” listed have played no role whatever in the report, but other times...)