Out of the 42 months during the audit period where incentives could have been earned for performance, the monthly incentive caps were exceeded, as follows:
- The on-time performance cap was exceeded for six months (14% of the 42 months reviewed), totaling $54 over the monthly cap.
- The train staffing cap was exceeded for six months (14% of the 42 months reviewed), totaling $84 over the monthly cap.
- The train seating cap was exceeded for four months (10% of the 42 months reviewed), totaling $105,237 over the monthly cap.
Additionally, the annual incentive cap for train seating was exceeded for one year (29% of the 42 months reviewed), totaling $105,210 over the annual cap.
As a result, the MBTA is paying Keolis more than is permitted under contract for monthly and annual performance incentives.
Authoritative Guidance
Section 6.5 of Schedule 6.1 of the amended MBTA contract with Keolis, dated July 1, 2020, states,
The Operator shall be entitled to earn up to $7 million per Agreement Year in Performance Incentive Payments, inclusive of incentives and the incremental investment necessary by the Operator to achieve the enhanced customer experience desired by the Performance Incentive Payments. The [On-Time] Performance Incentive Payment shall be subject to a cap of $2 million per Agreement Year; the Performance Incentive Payment for Coach Seating shall be subject to a cap of $2 million per Agreement Year; and the Performance Incentive Payment for Train Staffing shall be subject to a cap of $3 million per Agreement Year. The amount of the potential Performance Incentive Payments, and the Agreement Year caps for each category of Incentives, will escalate in each Agreement Year, commencing in the first month in Agreement Year 8 and in the first month in each Agreement Year thereafter, at a rate equal to the percentage increase in the Net Annual Fee for the current Agreement Year over the Net Annual Fee for the prior Agreement Year. The Performance Incentive Payments which the Operator may earn in any given calendar month shall be capped at 1/10 of the annual potential Performance Incentive Payments applicable per category for that Agreement Year.
Reasons for Issue
The MBTA does not have adequate policies and procedures to monitor the monthly and annual performance incentive caps. According to MBTA officials, the issue regarding the train seating cap was caused by a clerical error, in which the train seating and staffing amounts on the invoice were transposed, and it was never corrected. For fiscal year 2024, the MBTA applied the incorrect escalation factor when calculating the annual cap for all incentives. Although the error was identified before the year ended, there was still a net overpayment for each incentive.
Recommendations
- The MBTA should establish adequate policies and procedures to monitor and enforce the monthly and annual performance incentive caps. This should include a monitoring component that ensures that there is sufficient, appropriate ongoing supervision and reporting on this issue, including financial reviews of the contract and the payment of incentives.
- The MBTA should implement a verification process to ensure that the correct escalation factors are used when calculating the annual cap for all incentives. This will help prevent errors and ensure accuracy in future fiscal years.
Auditee’s Response
The MBTA disagrees with some of the SAO’s analysis and has provided a detailed breakdown in its responses to the exceptions provided by the SAO. The Monthly and Annual payment incentive program caps were exceeded by a net of $165 over the audit period, representing 0.0006% of the total $26,010,032 earned by Keolis. This number is also reflected in the discussions withing Finding 1. Further for each of the exceptions, please find the MBTA’s responses:
- For the on-time performance cap, the MBTA agrees with the SAO’s finding that the on-time performance cap was exceeded for six months, totaling $54.
- For the train staffing cap, the MBTA agrees with the SAO’s finding that the train staffing performance cap was exceeded for six months, totaling $84.
- For the train seating cap, which the SAO found was exceeded for four months, totaling $105,237; $105,210 of this amount was caused by a transposition within the train staffing value in July 2022 which was addressed in the offsetting transposition error on the train staffing invoice. The MBTA otherwise agrees with the SAO’s finding that the train seating cap was exceeded for four months, totaling $27.
- For the annual incentive cap for train [seating], which the SAO found was exceeded for one year, totaling $105,126 . . . [this overpayment] was offset by the underpayment of the train staffing incentive due to a clerical error transposing the two values on the first invoice of the month.
Auditor’s Reply
We acknowledge that a clerical error made by the MBTA related to the transposition of the train seating and staffing amounts on the invoice may have led to the monthly and annual caps being exceeded. This error highlights an underlying issue of ineffective controls and insufficient oversight processes. These incentive payment caps were established for a specific purpose, and the fact that they were allowed to be exceeded indicates a failure in the processes designed to enforce them. We urge the MBTA to implement our recommendations in order to prevent similar errors in the future and ensure that the monthly and annual caps are applied appropriately.
| Date published: | March 4, 2025 |
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