CONTRACT AMENDMENT:Adesta Commits to Sept 30 for E-ZPass on NJ Tpk
Major aspects of the amendment are:
Sept 30 is set as a deadline for ET operations on the New Jersey Turnpike (NJTA) and for operations at all toll plazas on the Garden State Parkway, with a set of interim deadlines
an 8% increase to $165m is agreed to as the construction price of the four agency system
Adesta commits to placing funds in a segregrated bank account for the Consortium project and the Consortium agrees to making payments weekly into that account, apparently because of Adestas precarious financial position
lower standards are accepted for the video violations images: 80% fully readable overall and at least 70% readable at each of the four authorities
appointment of an independent evaluator of Adestas computer code, and the right of the consortium to appoint up to three code-writers to work at Adestas offices
some of the terms of a possible contract termination including the right of the NJTA to engage Adesta employees as consultants and to negotiate with other companies their takeover of the problem-ridden Violations Processing Center (VPC) from Adesta
The amendment is signed for the consortium by Ed Gross, exec-dir NJTA and by a new name at Adesta, a VP Philip A. Kernan wheres Vance Cartee, and our favorite Butch Dale? and by Billy V. Ray at Able, the nominal owners of Adesta. There was active discussion about bringing WorldCom into the contract amendment as the principal shareholder-by-default in Able. WorldCom has been forced to make repeated loans to Able/Adesta as holder of $500m of contract performance bond commitments from way back when it tried to sell MFS (now Adesta). Many of those loans have been converted into equity since Able was unable to pay any interest.
The amendment to the contract settles $29m of claims for work beyond the scope of the contract for $17m, the consortium says in a statement by the New Jersey Turnpike Authority which is the lead member of the five toll agency group. The Port Authority of New York and New Jersey is a formal member of the group but had its ET system installed separately and has customer service managed by Lockheed. Lockheed had bid for the consortium job and unsuccessfully challenged the award to MFS (now Adesta) politically and in the courts.
The consortium requested that WorldCom front up with an additional $10m to support the project in return for agreeing to suspend its withholding of payments for Adestas non-performance. This is not explicitly mentioned in the contract amendment but it is believed WorldCom is the source of $10m which the amendment requires to be placed in a segregated account for the consortium project.
Third Major Amendment
This is the third major contract amendment between the consortium and the contractor. The original contract signed March 11, 1998 provided for completion of all ETC work in 22 months and officials said this meant Dec 31, 2000. 700 toll lanes and all toll plazas on the four facilities (Garden State Parkway, New Jersey Turnpike, Atlantic City Expressway and Delaware Turnpike) were to be wired for ETC and equipped with video enforcement cameras. The first contract amendment related to delays in getting the violations processing system operational. June 18, 1999 saw the second major contract amendment with agreement by the Consortium to a staged schedule for installation of lane equipment. Installations on the Atlantic City Expressway and the Delaware Turnpike had been achieved more or less on schedule though there were serious shortcomings in the video enforcement system and in file transfers.
Under the 6/18/99 amendment E-ZPass was due to go live Dec 99 at the first toll plaza of the Garden State Parkway and to be completed at all GSP plazas on 169 out of 344 toll lanes within a year: 6/19/00. That has now been slipped three months to Sept 19 at 163 lanes.
The June 1999 amendment provided for ET to be operational at 157 toll lanes out of 339 at all 28 toll plazas of the New Jersey Turnpike by May 22, 2000. (TRnl#40 Jun 99 p16) The Turnpike announced the contractor was not going to meet that deadline early this year. The third amendment establishes the same Sept 30 deadline for the New Jersey Turnpike a more difficult job than the Garden State Parkway because it is a ticket system in which trips must be computed by matching up entry and exit reads. The Turnpike will now begin with 160 lanes out of 339 wired for ET.
If Adesta is 30 days behind interim deadlines or fails to meet the new Sept 30 deadlines the NJTA as lead representative of the consortium has the right to find a new contractor and terminate Adesta, the amendment states. (Item 2 p2) If it meets the deadlines but the work is not of acceptable standard, Adesta gets 30 days to comply. Liquidated damages are in an unpublished exhibit.
The amendment says the NJTA has agreed to $17m extra for work completed and under way. There is another $15m rise in the ETC capital cost to $165m. Adesta accepts that as settlement of all previous claims except for four customer service issues still being negotiated. Also still being negotiated is the substitution of Pulnix cameras for UK CRS cameras to improve the performance of the violations system.
Some $6m of payments are being withheld pending progress on the timetable.
A condition of the amendment, and the reason for Ables signature, is that Able Adestas parent company deposit $10m in a segregated account to be drawn on exclusively for making payments to suppliers to Adesta in the consortium project. (Item 6 p4) This is an effort to reassure suppliers who have been reluctant to deal with Adesta for fear it could declare bankruptcy at any time.
An independent trustee will have control of the segregated bank account, and will have the power to pay sub-contractors directly. (Item 8 p5)
On the troubled video enforcement system Adesta is required to make reports every 2 weeks on progress. $6m otherwise due is being withheld. The consortium will have the right to engage a third party to develop and operate the Violations Processing Center (VPC) if (a) the current backlog of violation disputes and a mailing are not done by Jun 15 (b) Adesta fails to show with a computer system simulation by Sept 30, 2000 that it can handle the design transaction volume (c) ETC deadlines are missed (d) & (e) VPC standards are not met.
Notwithstanding the adequacy of Adestas performance .... At any time after 60 days from the date of this Amendment, the NJTA shall have the right to initiate discussions with other persons and entities in order to select an entity as a substitute for Adesta in connection with VPC development and operations... (p6)
The amendment then lays down procedures for terminating Adestas involvement in the violations processing side of the job down to the level of delivery to NJTA of keys to doors, drawers, file cabinets, security alarm codes, equipment leases, user manuals, all software in source and executable form, and a catchall clause covering all other items... necessary to deliver the VPC in its current functioning form to a replacement contractor chosen by NJTA.
Under the heading Imaging Standards (p7) the Amendment commits Adesta to transmitting to the VPC fully readable images of the complete license plates of vehicles for at least 70% of the aggregated violations and ... of the class and other mismatched transactions occurring on a monthly basis on all of the consortium systems together. No single system may achieve less than 60%. The deadline for the 70%/60% is Sept 30, 2000. Adesta has to maintain these levels until Final Acceptance which will require at least 80% on the average of all the systems with no system below 70% readability on a monthly basis for a single stretch of 120 days.
Theres an out. If the standards are not met for an individual system Adesta can pay the tolls for images below the standard, and this will keep Adesta out of contract default. (p7,8)
Ed Gross head of the consortium told us in January the contractor had to achieve 75% usable images with its video imaging system when it was only achieving 55%. (TRnl#45 Jan 00 p7) He says the original contract signed with MFS had no percentage for performance but that MFS Best & Final Offer promised 98%. Gross told us this was quite impossible to achieve and that it was no use insisting they do the impossible.
The 70 and 80% numbers seem very low by comparison with numbers normally set for imaging of violators. One person in the business said any system should be able to achieve 98% of readable images. The consortium amendment expresses the requirement as a percent of total violators which includes those motorists who will deliberately obscure their license plates, or where weather and dirt prevent the license plate being read, so it is expected to be lower than those which have only readable images as the denominator.
One of the toll agencies told us that Adestas system is extremely erratic that its system gets to the high-60s some weeks but is often little above 50%. Gross says the present system is working now at about 65%. He says that he did a thorough review of what rates other video imaging systems are achieving and that 80% is the high end. Only Orlando FL he said is getting higher rates and he thinks that is because of its very clement weather.
We are setting he requirements quite high. 80% is very very good by the standards of what is achieved elsewhere in the US.
A fully operational prototype ET lane has to be delivered to each of the turnpike and the parkway, that is tested and approved by July 28. More than two pages of the Amendment are devoted to a new software development plan, which includes provision for the NJTA to get all software and firmware, including all licenses within 10 days, so that it can have an independent evaluator comment on its adequacy. Revisions have to score an 8 by Sept 1, 2000, a 9 by 11/30/00 and a 10 by 1/30/01. NJTA can appoint three code writers to work on the software development.
If the NJTA decides to terminate the whole contract or to take the VPC out of the contract, it has the right to interview and engage any of Adestas employees. (p10)
The segregated account clause (Item 17, p11) provides that from the date of the amendment all payments made to Adesta will be deposited in a segregated bank account, will not be comingled with other funds, and will only be used to pay to pay expenses directly related to the Regional Consortium contract.
Adestas owner Able is specifically denied access to the segregated account: Able shall not withdraw, sweep or clear any money from the Segregated Account, not shall Able exercise any control over any money deposited in the Segregated Account, nor shall Able direct Adesta to use or spend that money except for the project. (Item 18 p11)
Ables auditors formally reported doubts about its ability to continue as a going concern. Moreover it has serious legal liabilities hanging over it, far larger than its net worth, and serious problems with regulators. It has not been bidding on new work, and has been losing staff. It has only survived because of infusions of cash from WorldCom. The Regional Consortium is clearly worried that Adesta will go broke and leave its work incomplete, workers and contractors unpaid a general mess. Moreover the consortium needs to reassure suppliers to Adesta that they will get paid. (Conact Lynn Fleeger732 247 0900 www.state.nj.us/turnpike)