Boardroom Tension

By Jerry D. Haight


The boardroom reeked with tension dripping from the cold stone faces on each side of the table. This day it was a battlefield. On one side were three officers of General Motors of Michigan. On the other were three from Grumman Bus Company of Delaware Ohio. One sought 24.8 million dollars for 160 transit buses, the other 31.3 million. This was the day of decision; there could be but one winner.


The year before, the Federal Government declared bids for transit buses be based on the overall cost taking into consideration fuel, oil, antifreeze, air conditioning and transmission fluid consumption, tire mileage, cost of engine, transmission and brake maintenance, battery replacement, and bulb life.  It must include the cost of replacing rubber components such as belts, bellows, wipers and suspensions. The rules of bidding required the bid price of each bus be added to over twenty two items of cost spread over the service life of twenty years.  For example if the estimated miles driven by a transit bus is 42000 per year, the estimated fuel cost is $164,945 computed at 5.5 miles and $1.08 per gallon. This cost in addition to the other items spread over time is what the Fed termed “Life Cycle Costing” or “LCC”. Most Transit System Directors used another anachronym, ABOCCN. It stands for “Another Bureaucrat’s Over the Coo Coo Nest. If memory serves, it seems the mandate incorporated language like “The LCC shall be implemented and utilized in all Federally Assisted Procurements of such magnitude as to warrant the application therefore and granting thereof Federal Assistance.”


In 1980, the year of this battle, the standard propulsion unit for a transit bus was a 340 Detroit V8 diesel engine with an Allison transmission. Detroit Diesel was a wholly owned subsidiary of General Motors as was Allison Transmission. The Grumman Bus Company bought all their engines and transmissions from GMC. The engines were the same in each bid.


Six months earlier, bids for the transit buses were opened from the two competitors and evaluated. GMC’s base bid was $155,000 per bus compared to the Grumman bid of $196,000 per bus, a difference of $41,000 each. It was under the LCC that Grumman claimed theirs was the low bid.  The full scope of ABOCCN developed as the details emerged. It seemed that Grumman claimed an LCC fuel cost of $118,000 compared to GMC’s LCC of $160,000. When questioned, the Grumman officers insisted their bus would get nearly 12 miles per gallon. GMC claimed their bus would get nearly 6 miles per gallon. The rest of the LCC items claimed by Grumman were similarly flawed.  All bids were taken under advisement with the final decision three days away. It seemed that Grumman was about to win nearly 6.5 million dollars for lying. Since the Federal mandate forbade disputing any LCC claim there was nothing this transit agency could do about it. Oh really?  

  

Way behind the scenes, a seemingly insignificant amendment to a bill in congress added the LCC rules to the Urban Mass Transit Administration procurement procedures. The original bill had nothing to do with procurement or the Urban Mass Transit Administration or the Department of Transportation. As it turned out, The Grumman Bus Company was a major contributor to the Senators from Ohio as well as that of several Ohio representatives to Congress. Furthermore, it was rumored that a close relative of an Urban Mass Transit Administration employee was an officer of Grumman.


Wrestling with the issue over two sleepless nights, an idea emerged. The one ingredient missing in the perplexing situation was the present value of the 6.5 million. How can one justify paying this large amount for a very dubious future benefit? The idea was to reject all bids and restructure the request for proposal to include the time value of money in the evaluation of bids. The massive calculations, however, would be extremely complex to administer and would require the ability to track costs of the separate items dynamically over twenty hypothetical years and, at the same time continuously track the time value of an adverse price differential i.e. the 6.5 million dollars.  


Once hatched, the scheme required a computer and a custom program. For about two months, the transit system staff interviewed many programmers but could not find any that were viable. One proposed a three year time frame and a cost of $750,000 but most simply rolled their eyes and shrugged - - “impossible”.  


As it turned out, the son of the transit system’s executive director had one of the first PC’s, an Osborne computer having a four inch screen, two floppy drives, a CPM operating system and a development program called BasicA, a creation of Bill Gates. Never having written software, the executive director, nevertheless, “appropriated the machine”, started writing the computer program, encountered almost every possible error, corrected, re-run and finally finished the program within about three weeks.     


When word got around about the software the men of Grumman Bus Corporation were incensed. They complained that the purpose of the LCC was to reward contractors for creative bidding and threatened court action. The transit system reminded them the provisions forbade disputing any LCC claim. They retorted it only applied to the transit system, but not bidders. Their feet began to sink in the quagmire of their own protestations as they filed a complaint to the Urban Mass Transit Administration which was overturned. When they again threatened court action, the Executive Director of the Spokane Transit Authority told them he would send a copy of the software to every transit system manager having an active transit bus bid. They acquiesced.  

       


Even with snow flurries swirling around the buildings of downtown Spokane, frost on the windows and the outside temperature well below freezing, it still seemed much colder in the Board Room than outside. At the end of the table stood a suitcase sized computer with a four inch green phosphorus screen with a title in the middle that read Spokane Transit Authority Life Cycle Costing System by Jerry D. Haight, press any button to continue. My administrative Assistant, Carolyn was at the controls and as the contents of the bid documents were read, she entered the information into the computer and finally pressed “start”. Twenty minutes later, the results appeared on the screen. GMC was awarded the bid and the transit system saved 6.5 million dollars.


It seemed like a sweet victory when Grumman did not protest further until realizing the fact that Grumman was in the exact same competition for 630 buses in a consortium bid that included Cincinnati, Youngstown and Cleveland Ohio.