DENVER CORRECTS LEGISLATIVE REPORT: Wendell Cox Consultancy

Denver Transit Agency
Corrects Savings Figures, Buys Buses
January 30, 1997

Denver Competitive Tendering Savings $88 Million
Denver Transit Agency Reports 40 Percent Savings

In 1994, RTD reported to the Colorado state legislature and the State Auditor that competitive tendering costs had risen nearly to internal RTD cost levels. In 1995-6, The Mundle/Cox Management Administration Study ⁽¹⁾ found that this cost comparison had been invalid, in that the capital costs of competitive tendering were included, but the same costs were not included with respect to internal operations. Moreover, competitive capital costs were artificially high due to RTD's requirement that new buses be purchased. In that RTD is able to and has leased its own vehicles to private providers for use in RTD competitively tendered services, Mundle and Cox concluded that the vehicle capital costs were a policy cost rather than a cost of competitive tendering.
RTD was able to improve its cash flow position by requiring the private providers to purchase new buses, which could be purchased later by RTD under the terms of the contracts. At the time, most RTD capital reserves were used to construct a light rail line. Nonetheless, it was a costly method for purchasing vehicles. Mundle and Cox estimated RTD's ultimate cost at $52 milion, compared to a cash purchase price of $35 million. As a result, RTD exercised the purchase option in 1996, to minimize the excessive capital costs. The Mundle/Cox report, using the methodology developed for RTD by KPMG Peat Marwick, estimated savings from competitive tendering at 31 to 35 percent from 1989 through 1994.
RTD staff estimated that the most recent competitive tendering had produced savings of more than 40 percent.
RTD has provided state officials with corrected savings figures.

Footnote

1. Management/Administration Study for the Regional Transportation District , Mundle & Associates and Wendell Cox Consultancy, 1996.

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