Subject: Re: [NEXTEL-1] Toll fiasco

From: [email-masked]
Date: Fri, 27 Feb 2004 14:19:52 -0500

Subject: Toll Collect doesn't

Headline news last week in Germany, as well as in papers with an eye on
Europe [1,2,3], has been the failure of the Toll Collect consortium to
deliver a toll-collection system for heavy goods vehicles that use the
German Autobahn network. (Autobahns are the German equivalent of U.S.
freeways.)

The system is based on GPS tracking of heavy goods vehicles, using
boxes ("On Board Units", OBU) carried in the vehicles. The OBUs
contain GPS receivers, and forward their data to a central data
installation using European standard GSM mobile telephony.

The consortium consists of Deutsche Telekom, Germany's quasi-privatised
ex-public telephone operator, DaimlerChrysler, which own 45% each, and
France's autoroute toll system operator Cofiroute (a concern of Vinci SA),
which has 10%. The consortium has some 24 major subcontractors, amongst
whom are such well-known names as HP, Siemens/VDO, Sun, Vodaphone,
T-Mobile, Oracle, Peoplesoft, and SAP [4].

In-service date was supposed to be 31 August 2003. There are estimated to
be 1.4 million trucks which should pay a toll, of which 400,000 are from
other lands. It was planned to deliver 450,000 OBUs by the in-service date;
other users were to use static machines at entry points. There were
problems with the OBUs, and even five weeks after in-service date only
210,000 had been installed. There were also problems with the
bookkeeping software at the data center, which turned out not to have
appropriate interoperability with other systems used by truck
operators [4].

The contractual arrangements for developing the system were, to someone
like me, cause for concern. Although details of the call had been known in
essence since August 2001, a call for proposals was issued in April 2002
after a law putting the government's "Anti-Traffic-Jam Program" into force
had been passed. The contract was awarded to the consortium on 8th July
2002. The government apparently wanted a twelve-month development schedule.
One of the two final bidders said this was "unrealisable"; the winner (Toll
Collect, or Electronic Toll Collect as it was then known) proposed an
eleven-month development schedule, with a four-month trial period during
which the usual contractual penalties for non-performance would be waived.
Legal challenges held off starting work in earnest until September 2002.
The contract was slated to employ about 350 programmers and 80 SW testers.
The development costs are said to lie somewhat over EUR 600M (which is the
value of the low-price offer from a Swiss toll-system company, that
couldn't provide the necessary insurance and was eliminated early) [4,5].

Talks have taken place between the government and the consortium to
establish the rate of compensation for default and how things shall move
forward. The talks broke down on 17th February, with the government
declaring it would cancel the contract and declaring damages of around
EUR 6.5 billion ($8.2 billion) [8,9].

The consortium is already paying EUR 250K/day in fines since December 1,
2003, increasing to EUR 500K/day in March 2004. The government rejected the
consortium's offer of EUR 600M per year in compensation [2]. At least one
German journal is reporting a week after talks supposedly "broke down" that
the fine payment has increased to EUR 1M/day [6], but that represents only
some 60% of the rejected compensation offer, so it is hard to tell what is
happening.

The consortium says it has "solved software problems causing the delay"
[2]. DaimlerChrysler chairman Jürgen Schrempp, one of the most well-known
figures in German industry (and maybe in U.S. industry also) says "there
is a chance, even with this long delay, to make the system work" [1]. The
consortium has offered to deliver a system with reduced functionality by
31 December, 2004, with full functionality implemented a year later [2].

There are lots of figures floating around concerning revenue lost, and
costs, and such like. Numbers are seemingly hard-edged things, that bring
with them the aura of independence from politics and suchlike. I like to
perform arithmetic on such figures to see how they add up. When they
don't - and they often don't in this case - one can suspect that they
represent negotiating positions rather better than they represent a true
accounting. Here are a few, which I recommend treating with caution.

The project worth was said to be EUR 7.73 billion, with a service lifetime
of 12 years [5]. This figure amounts to ~EUR 54M/month. The government
estimates foregone revenue at EUR 156M per month [2] (derived from EUR 6M 
per day over a 26-day truck-driving month). Lost revenue from the former
"vignette" (sticker) system, which was taken out of service by 31 August
2003, amounts to EUR 30-38M/month. All new road projects and related
public-works projects have been put on hold because of the "revenue
shortfall" [3]. Some estimate that up to a quarter of transport ministry
projects may be cancelled in 2004, putting 70,000 jobs on the line [3].

One major problem appears to be that the government wrote this
EUR 156M/month anticipated revenue into its budget already. That is why
those road-building projects are on hold and those 70,000 jobs are
"endangered". Yes, that's right. Someone let a contract for a complex,
highly-distributed system, of a sort which did not exist anywhere before,
with a non-trusted, indeed partially non-trustworthy, user group
numbering in the millions, that would cost of the order of a billion
euros and ~450 technical-person-years to develop, which was to be in
full revenue service inside a calendar year from development start date.
And then apparently allowed the whole road-construction industry to become
dependent on that anticipated revenue, as well as part of the railways.

Another major problem appears to be that a consortium containing two
giants of German industry signed up to that astonishing contractual
schedule.

As Andreas Hagen wrote, concerning this so-called Public-Private
Partnership (also in German), the contractual politics "didn't do
citizens any favors. [It was] badly negotiated, and besides that, the
bear's hide was shared out before the bear was shot" [6, my translation].

The contract, by the way, has remained secret, although there is nominally
a requirement that it be public. Even the German parliament has not seen
it [5]. So few, if any, independent people with the capacity to evaluate
them know what the system requirements were or how well they were met. Or,
for those interested in the future rather than the past, how close the
technology is to meeting them.

The contract is so remarkable that few tech-savvies believe that the
consortium can have negotiated it in good faith. Some even have a hard time
believing that the government negotiated it in good faith, although more
are inclined to believe it just didn't know what it was doing.

The stories of the negotiations over default bring to mind the game of 
chicken, in which two drivers drive their cars head-on towards each other
at full speed, and the first to swerve loses (everyone cites [7], but I 
have just failed to find the example). One sees evidence of the strategy
of removing one's steering wheel and visibly throwing it out the car
window. But the current case is not a two-player game, nor even a zero-sum
game. It is a game of partial coordination, in the terminology of [7].
There is a dealer who owns both cars, employs one of the drivers, and keeps
the other in business. He is very concerned about the outcome, and prefers
not to lose either of his cars, but is likely to care much less about the
drivers. His name is Joe Public. Both sides have an obligation to Joe to
fix what is wrong, whether it be technical, contractual or political. It is
unlikely to impress Joe over the long term if one of the drivers throws his
steering wheel out of the window and then claims the other driver loosened
it.

It is clear that the risks of the contract were poorly calculated by
both sides. The government appears to have believed there was no risk
to itself, even though it can hardly seriously have expected
DaimlerChrysler and Deutsche Telekom to finance the entire German road
construction industry in the event of a default. It stands convicted of
bad planning. The consortium members appear to have underestimated the
damage to their reputations and consequences for future business that a
significant default would entail. There is even a suspicion that they
negotiated the original contract knowing, but not adequately conveying,
the odds that it could not be fulfilled. At the least, it exhibited
either hubris or bad faith, even though we do not know which.

As Chairman Schrempp said, "mistakes were made by all sides" [1].

Many technology-savvies have no problem in believing that such a system
could be delivered in good working order in three or four years. But for
many people including some of my colleagues there now appears to be
difficulty in believing anything Toll Collect says on the matter, not
necessarily for technical reasons.

Oh, yes, a word or two on the technical issues. Putting the blame
on "software problems" tells us little. It could have been that the
software development process did not measure up to best practice; it could
also have been that difficult engineering issues that could not be solved
in the hardware were pushed into the software and the software development
team didn't know how to solve them either. It could also have been that
there were design or specification problems which first manifested
themselves, or needed to be solved, in SW. Most likely, it was all three.

The Economist says that "important features were left out of the software,
such as the ability to work with the payment cards and accounting systems
used by most trucking firms. Worse, gremlins charged trucks for being near
motorways, rather than on them, or drained batteries while engines
were switched off" [3]. German sources give a more specific, longer list
of particular problems [4].

It also probably didn't help that the European Union issued a requirement
during system development that the design enable the data to be made
available to a variety of processing companies, presumably to enable
competition in the data-processing phase. In the original design the data
would be shared with just one processing company, DaimlerChrysler Services
Mobility Management [4].

It seems to me to be premature to sum up. I'll just leave it here,
with thanks to Heiko Holtkamp and Jan Hennig, who helped me in
finding sources.

PBL

References

[1] German engineering loses luster, Mark Landler, International Herald
Tribune, Friday, February 20th, 2004,
http://www.iht.com/articles/130404.html

[2] Berlin kills contract to build satellite-based toll system,
International Herald Tribune, Wednesday February 18th, 2004,
http://www.iht.com/articles/130098.html

[3] Road rage: European road tolls; Germany's truck tolls crash, The
Economist, January 24th-30th, 2004, available for a fee through
www.economist.com

[4] Detlef Borchers, Verursachbedingt verspätet, c't No. 22, 2003
(in German), available for a fee through www.heise.de

[5] Joachim Budeck, Dr. Egbert Meyer, Ausgebremste Automatik, c't
No. 21, 2002 (in German), available through www.heise.de

[6] Andreas Hagen, Zwischenspiel oder letzter Akt mit Toll Collect?
(in German), Telepolis magazine, 25th February 2004,
http://www.heise.de/tp/deutsch/special/eco/16827/1.html

[7] Thomas C. Schelling, The Strategy of Conflict, 1960 & 1980,
Harvard University Press.

[8] Stolpes Brief an Toll Collect [German Transport Minister Manfred
Stolpe's letter to Toll Collect] (in German), 17 February 2004, published 
by N-TV news channel and CNN Germany, available at
http://www.n-tv.de/5215294.html

[9] Der Kündigungsbrief von Manfred Stolpe an Toll Collect [also a copy
of Stolpe's letter] (in German), 17 February 2004, published by the
Süddeutsche Zeitung, available at
http://www.sueddeutsche.de/wirtschaft/artikel/880/26854/

Peter B. Ladkin, University of Bielefeld, http://www.rvs.uni-bielefeld.de

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