WSDOT Toll Collection System Replacement

More than 20 years after removing the last remaining toll (in 1985 on the Hood Canal Bridge), Washington returned to tolling in 2007 to pay for the new span of the Tacoma Narrows Bridge. Since then, WSDOT has expanded tolling operations to include:

• State Route (SR) 520 bridge
• SR 99 tunnel
• SR 167 high-occupancy lanes between Auburn and Renton
• Interstate 405 express toll lanes between Bellevue and Lynnwood

The agency’s Toll Division works in coordination with other divisions and external agencies for the procurement, development, operation and strategic financial planning of the state’s toll collection system.

The Toll Division’s plan to replace its original tolling system was restructured into two contracts. The first would develop and maintain back-office systems. This includes hardware, such as computer equipment, and the software needed for the system to function. The second contract, awarded to a different company, encompassed all elements of customer service operations. It included hiring, training and managing the people who handle billing and accounts, as well as customer concerns and disputes.

The Toll Division followed state requirements and many leading practices to replace the first-generation tolling system. State Department of Enterprise Services (DES) guidelines recommend identifying business needs early in the planning process by defining the problem or opportunity to be addressed. Our review of project management literature confirmed the importance of such advance planning.

During the planning and procurement phases, managers in the Tolling Division established the project needs. As a result, WSDOT decided to split the system vendor and customer service into two contracts. This decision was intended to attract better quality bidders and improve the Toll Division’s visibility of system issues.

We evaluated WSDT’s project management in 10 areas: five in the planning and procurement phases of a project, five that occur during a project. Several areas address both state requirements and leading practices, and WSDOT met both. They included:

• Determine project needs during planning
• Conduct a financial review of vendor suitability
• Identify project risks early in planning
• Evaluate risks as they occur and adjust plans to mitigate them

DES guidelines and project management literature also recommend that project managers identify and track risks throughout a project. The Toll Division also considered risks starting early in project planning and continued risk mitigation during contract management.

Despite the Toll Division’s efforts to minimize risks, vendor performance delayed the project by more than two years. The back-office system vendor repeatedly missed deadlines and needed numerous extensions. The many missed deadlines meant the launch date was delayed at least eight times.

Notwithstanding the delays, division managers decided to continue working with its contractor rather than find a new vendor. Because the vendor owns the operating system software, hiring a new vendor would have required starting the software development process from scratch. Additionally, engaging a new vendor would have incurred more delay and required additional funding. This is because WSDOT would have needed both more time and additional funds to advertise and award a new contract. The Office of the Chief Information Officer, which provided required oversight of the IT systems portion of the replacement project, endorsed the division’s decision.

We found two broad problems at the vendor of the back-office replacement system contributed significantly to project delays.

First, the vendor struggled to follow the WSDOT’s documentation requirements. To ensure quality standards, WSDOT required the vendor follow a linear software development approach. This means gaining approvals at each step before the vendor can move to the next step of development. The process also required extensive documentation of the product plans and design. The vendor said it was less familiar with working that way. It was more familiar with an iterative approach to software development. The vendor’s unfamiliarity resulted in deliverables that did not meet WSDOT’s standards.

As time passed, Toll Division managers realized project scheduling was insufficiently detailed to keep the project and vendor staff on track. In 2019, a Division consultant took over scheduling responsibility from the vendor.

Second, the vendor struggled to hire and retain staff in critical positions. Specifically, the vendor found it difficult to comply with WSDOT’s requirement that its technology project manager be located in Washington for the duration of the project. Additionally, frequent turnover in other key positions staffed by the vendor caused further delays.

While Phase 1 delivered core functions along with some new functions upon launch, the Toll Division deferred other features to Phase 2.

WSDOT and its vendor did not complete Phase 1 of the toll collection system replacement project until July 2021. At that time, WSDOT estimated that the cost of the entire project increased from $30 million to $43 million. Much of the $13 million in cost overruns were driven by extending other contracts while waiting for the back-office system to be ready.

A liquidated damages clause in the contract with the back-office system vendor will help the state recoup most losses. The original contract clause had a maximum cap of about $500,000, but Toll Division managers negotiated additional liquidated damages. In the end, these additional damages exceeded the amount in the contract by about $10 million.

However, because some components were deferred to Phase 2, the true cost of the project will not be known until it has been completed. Furthermore, WSDOT relied on a reporting method that did not include total project costs. Agency staff explained that they used the reporting format required by the Office of the Chief Information Officer. This format focuses on technology costs. Notwithstanding, state government transparency and project management best practices would recommend reporting all costs of the project to interested parties.

We made a series of recommendations to WSDOT to reduce the risk of delays on future information technology projects. They should also help the agency maintain continuity in the management and oversight of future projects. We also recommended that WSDOT address the need for complete reporting of total project costs. The agency should develop a public cost reporting method that reflects all costs for the Toll Division’s projects.