Abstract:
This sequel accompanies HKS Case 2275.0, "Conflicting Constraints: Shashi Verma &Transport for London Tackle a Tough Contract."
The case introduces Shashi Verma (MPP 97) in 2006, soon after he has received a plum appointment: Director of Fares and Ticketing for London's super agency, Transport for London. The centerpiece of the agency's ticketing operation was the Oyster Card, developed and managed under the terms of a 1998-2015 PFI (Private Finance Initiative) contract called Prestige. Thus, in pursuing his goals for TfL ticketing -- a reduction of costs, expanded service, and adoption of convenient, lower cost technologies -- he knows he will have to negotiate with the contractor, a consortium called TranSys, governed by its two leading partners, Cubic Transportation Systems, a San Diego-based company specializing in automated fare collection equipment and service, and EDS, one of the world's largest information technology service providers. Though the Oyster system -- reliable and popular -- was widely regarded a smash success, Verma soon learns that within TfL, the Prestige Contract is the source of much frustration.
The case details the perceived shortcomings of the contract: a cumbersome process for negotiating variations, excessive costs, inadequate performance requirements, and poor incentives for the contractor to collaborate with TfL on potential innovations. While the contract does technically allow TfL the opportunity to opt-out early, TfL appears to have little practical ability to do so, as intellectual property for the complex system resides with the contractors. The case goes on to describe how Verma—taking some political and legal risks and using techniques of game theory—tries to steer TfL into a more favorable contract. The case ends with Verma, TfL, and the TfL board facing a dilemma—whether to go forward or retreat after a high court granted one of the contractors an injunction that will require TfL to defend its actions in a court trial (or settle out of court) if it goes forward with its plans.
This one-page sequel describes what happens: TfL does decide to go forward, does settle the legal matter out of court, and ultimately obtains a contract on much more favorable terms than the original Prestige. The video companion piece shows Verma in conversation with HKS Professor Richard Zeckhauser, as the two reflect on Verma's use of game theory, a subject taught by Zeckhauser.
Learning Objective:
The case introduces the challenges confronting a public sector manager when their operating capacity is external rather than internal, and—in this case—when the operating capacity put in place under an eight-year-old contract is poorly aligned with the manager’s present mission. In class, students are challenged to put themselves in Verma’s shoes—to define his problem, identify his constraints in solving it, and construct best alternatives. The case may be used to introduce basic principles of game theory and to introduce and practice the use of an analytic tool for decision-makers, the decision tree.
Please Note: The video portion of this case is included in the teaching plan and is intended for instructors to use in class.
