1. Transit Services organizational and Governance review

Transit Services organizational and Governance review

joint CommitteeS’ recommendations as amended

That Council:

1. Receive the report from Oliver Wyman entitled City of Ottawa Transit Services – Phase 1: Organization and Governance Diagnostic Review as detailed in Document 1;

2. Receive for information the revised organizational structure for Transit Services, which identifies the changes being made by management to improve operational effectiveness and accountability, as described in this report; and

3. ~~That the Joint Transit and Corporate Services and Economic Development Committees~~ ~~request that~~ ~~Council~~ Ddirect the City Solicitor and the Deputy City Clerk to include the development of a White Paper on Transit Committees and Transit Commission for mid-term Governance Review.

Recommandations modifiées dES ComitÉS conjoints

Que le Conseil :

1. reçoive le rapport d'Oliver Wyman intitulé City of Ottawa Transit Services - Phase 1: Organization and Governance Diagnostic Review, tel qu'il figure dans le document 1;

2. reçoive à titre d'information l'organigramme modifié des Services de transport en commun, qui montre les changements apportés par la direction pour améliorer l'efficacité opérationnelle et la reddition de comptes, conformément à ce qui est décrit dans le présent rapport;

3. Que le Conseil demande au chef du contentieux et au greffier municipal adjoint d’inclure la préparation d’un livre blanc sur les comités du transport en commun et sur la Commission de transport régionale pour l’examen de la gouvernance à mi –mandat.

Documentation

1. Deputy City Manager, Planning, Transit and the Environment report dated
18 June 2008, (ACS2008-PTE-DCM-0002).

2. Extract of Draft Joint Minutes 1, 18 June 2008, to be distributed prior to Council.

Report to/Rapport au :

Joint Corporate Services and Economic Development Committee and Transit Committee

Réunion conjointe du Comité des services organisationnels et du développement économique et Comité du transport en commun

and Council / et au Conseil

18 June 2008 / le 18 juin 2008

Submitted by/Soumis par : Nancy Schepers, Deputy City Manager/Directrice municipale adjointe,

Planning, Transit and the Environment/Urbanisme, Transport en commun et Environnement

Contact Person/Personne ressource : Michael Murr, Manager/Gestionnaire

Strategic Initiative and Business Planning/Initiative stratégique et planification opérationnelle

(613) 580-2424 x 25195, Michael.Murr@ottawa.ca

City Wide/à l'échelle de la Ville

Ref N°: ACS2008-PTE-DCM-0002

SUBJECT:	Transit Services organizational and Governance review

OBJET :	Transit Services organizational and Governance review

REPORT RECOMMENDATION

That the Joint Corporate Services and Economic Development Committee and Transit Committee recommend Council:

1. Receive the report from Oliver Wyman entitled City of Ottawa Transit Services – Phase 1: Organization and Governance Diagnostic Review as detailed in Document 1;

3. Direct staff to carry out a detailed Phase II analysis of a separate Transit Commission governance structure (Option 3a and Option 3b), as the basis for

consideration by Committee and Council in concert with the 2008 Mid-term Governance Review.

4. Funding for the Phase II analysis, in the amount of $150,000 be funded from the Transit Capital Reserve Fund.

RECOMMANDATION DU RAPPORT

Que le Comité mixte des services organisationnels et du développement économique et le Comité du transport en commun recommande au Conseil :

1. reçoive le rapport d'Oliver Wyman intitulé City of Ottawa Transit Services - Phase 1: Organization and Governance Diagnostic Review, tel qu'il figure dans le document 1;

3. demande au personnel d'effectuer une analyse détaillée d'étape II de la structure de gouvernance d'une commission distincte de transport en commun (option 3a et option 3b), en tant que point de départ pour la réflexion du comité et du Conseil de concert avec l'examen de mi-parcours 2008 de la gouvernance.

4. Que le financement de l’analyse d’étape II, d’un montant de 150 000 $, soit assuré à partir du Fonds de réserve en immobilisations du transport en commun.

BACKGROUND

The City Strategic Plan (Term of Council 2007-2010) identifies transit as a key service priority for the City. Moving people from cars to transit is an important strategy to maintain and improve the livability of the city and its environment over the decades ahead. In the City of Ottawa’s 2007 Citizen Satisfaction Survey, 24 per cent of citizens rated transit as the “most important issue facing the City”, making it the second highest issue of concern. In the same survey, 64 per cent of citizens indicated that they wanted increased service for transit, making it the highest rated service area priority for residents.

Over the years, the delivery of transit services has undergone a number of changes to its organization and governance structure. In the 1990s, OC Transpo operated as a separate commission before being integrated as a department into the former Region in 1999. In 2001, OC Transpo became the ‘Transit Services’ branch within the new City’s Transportation, Utilities and Public Works department. In 2006, Transit Services was merged into the new Planning, Transit and the Environment department.

In January 2007, the Mayor appointed a Task Force on Transportation to explore the future options for the City. In June 2007, the Task Force presented its report entitled, “Moving Ottawa”. The report made recommendations on a wide range of transit and transportation issues, one of which was to set up an arms-length operating company for Transit Services reporting to an independent board of directors appointed by Council. During the subsequent discussion of this report and its recommendation, Council approved the following motion:

“That the Task Force Recommendation concerning separating OC Transpo from the City bureaucracy and setting up an arm’s-length operating entity with an appointed board fully accountable to City Council be the subject of a report to a joint meeting of the Corporate Services and Economic Development Committee, and the Transit Committee…”

In response to the Council motion, Oliver Wyman, an international management consultant and subsidiary of Marsh & McLennan Companies, Inc., was retained in January 2008 to undertake an independent organizational and governance review of Transit Services. The review was divided into two phases:

o a Phase 1 Diagnostic Assessment which looked at the current governance systems and organization of Transit Services to identify key issues and improvement opportunities; and

o a Phase II Detailed Analysis, which subject to further Council direction, will be carried out to assess arms-length governance options with a focus on the recommended future state and the preparation for implementation.

This report summarizes the results and key findings of the Phase I Diagnostic Assessment, the organizational changes that have been made by management to address the findings of the review, and provides a recommendation for further analysis of potential governance options.

DISCUSSION

Transit Services’ (OC Transpo’s) desire to be a ‘mission focussed’ organization that delivers efficient and effective transit services to Ottawa citizens is being limited by both delivery challenges and performance issues. Oliver Wyman’s analysis of the current organization and governance structure found that OC Transpo is experiencing a difficult operating environment due to a number of factors including:

o A distributed decision-making framework that doesn’t easily support accountability

o Low customer and employee satisfaction

o Historical organizational evolution without a clear accountability framework

o Deteriorating financial performance

o Challenges associated with ongoing relationships across Service Level Agreements (SLAs)

In addition, the review found an increased pressure for change, resulting from a lack of shared vision and mission for the future, heightened public awareness and expectations, and the need to create a culture of service excellence (see Document 1, slide 2).

Benchmarking Organizational and Governance Systems

Oliver Wyman’s comparison of OC Transpo’s organization and governance against thirteen other comparable Canadian transit systems and two U.S. transit systems found that in general, the best service is provided when the organization has control over its core business functions and budget. When compared, OC Transpo was found to have:

· Deteriorating performance both financially and in the quality of service delivery

· Lower cost recovery ratio (operating revenues/direct operating costs) – the third lowest municipality compared

· Cost effectiveness (direct operating costs/passenger trip) less than the median

· Service and satisfaction levels below the median

· Significant pressure to improve the delivery of transit services from external stakeholders

· But has done well to promote service utilization with high municipal investment.

Summary of OC Transpo Organizational and Governance Findings

In summary, the review concludes that the current organizational structure of OC Transpo is complex with operational, planning and administrative support areas spread across four city departments. The key organizational and governance issues identified (see Document 1, slide 3) are:

· Ottawa lacks a shared vision for transit

· The role of Council, the Transit Committee and City management in transit planning and operations is not well defined, understood and/or reflected in behaviours

· A single point of accountability is lacking for OC Transpo

· There is a need to consider the broader National Capital Region in the planning and delivery of transit services

· Views on the structure and governance of OC Transpo are polarized and could be divisive.

In terms of governance specifically, the review describes the current governance structure of the Transit Committee as an Operating Board of nine Councillors with active involvement in day-to-day activities as well as policy. This view is founded in the gap identified by Oliver Wyman related to the long-term policies desired by Committee members (strategic development) and the day-to-day oversight of operational issues brought to Committee on a regular basis. This gap creates uncertainty as to expected outcomes where investment decisions are made.

There is a “felt experience” that there is a slow decision-making and delivery model since amalgamation and attention is required to re-establish Transit Services as an effective organization for Council members. It is believed the governance model has had an impact on the delivery of service since 2002. These perceptions are divisive without a clear justification as to the benefits that arise from a more integrated organization and accountability structure.

Defining the Criteria for Success

Based on the findings of the internal and benchmarking review, a series of ‘criteria for success’ were developed (see Document 1, slide 4) to provide the basis for the analysis and evaluation of various organizational and governance options. The criteria for success are as follows:

· Help the City achieve long-term priorities and outcomes for transit – to support key priorities such as ease of mobility, accessibility, environmental efficiency, economic efficiency, revenue and ridership

· Align with the scope and scale of operations and the importance of the program within the City’s context – to recognize transit as a top priority for residents and ensure operational flexibility to respond to changing demands

· Ease of access to municipal capital – to provide ability to prioritize and fund transit expansion via municipal sources

· Provide effective risk management – to manage all aspects of enterprise risk and compliance with federal regulations

· Support increased transparency and public accountability - to respond to increased public expectations regarding the management of public operations and use of public funds

· Strengthen culture of service excellence – to build employee morale and sense of community for staff to deliver service in Transit services

· Improve customer experience - to support common goals and common culture for higher standards of customer service including planning efficiency, service reliability, asset availability, accessibility and safety

· Provide for ease of implementation – to consider the amount of change from current model and level of risk associated with implementation, including organizational risk.

Organizational/Governance Options and Analysis

A series of five high-level organizational and governance options (see Document 1, slide 5) were evaluated based on their relative contribution (high, medium and low) to the ‘criteria for success’ described above. The options considered included three different organizational structures (Option 1a, Option 1b and Option 2), and two different governance models (Option 3a and Option 3b) as follows:

Organizational Models

Option 1a – Distributed Department

o Essentially the status quo, this option would maintain the current organizational structure while strengthening accountability-based relationships through a renewed service level agreement (SLA) with the various centres of expertise that support the delivery of transit services (e.g. Fleet Services, Supply Management and Real Property and Asset Management)

Option 1b – Key Operational COEs Move to Transit

o Builds on Option 1a, with key operational COE’s which have a direct and immediate impact on the customer experience (such as fleet services, facilities and inventory) being brought into Transit Services. Transit Services’ relationship with other administrative COE’s would be strengthened through a renewed SLA.

Option 2 - Unified Department

o In this model, all aspects of transit service delivery would be unified within a single branch including transit infrastructure and operations support, and administrative COEs.

Governance Models

Option 3a – Independent Organization Outside City Structure

o Creation of an arms-length organization (a ‘Transit Commission’) governed by City policies and funding, accountable for all aspects of transit services where board members are elected officials. May chose to purchase administrative services from the City where efficiencies/synergies exist.

Option 3b – Independent Organization with Mixed Board Composition

o Similar to Option 3a, an independent organization outside the City structure with Board comprised of both elected officials and directors-at-large.

Based on Oliver Wyman’s high-level analysis of the organizational/governance options against the criteria for success (see Document 1, slide 6), the following observations can be made:

Organization Models

o Each organizational model (Options 1a, 1b and 2) has a number of associated advantages and disadvantages, which often represent trade-offs between administrative efficiency (as characterized by transit being part of a larger organizational structure), and service effectiveness (where resources are directly aligned to support the delivery model).

o In general, there is an increasingly more positive impact on the ‘criteria for success’ as one moves from Option 1a to Option 1b to Option 2.

o Option 1b (Key Operational COEs Move to Transit) and Option 2 (Unified Department) offer significantly more benefits than Option 1a (Distributed Department) relative to the criteria for success. The consultant has recommended that Option 1a is not a viable option to move forward. Management has made organizational changes as a result as described later in this report.

Governance Models

o Option 3a (Independent Organization Outside City Structure) and Option 3b (Independent Organization with Mixed Board Composition) both have the potential to generate additional benefits beyond those resulting from organizational change alone (Options 1a, 1b and 2).

Steps to Improve the Organizational Performance of Transit Services

Based on the analysis and recommendations provided by Oliver Wyman, along with extensive consultation with Council, internal and external stakeholders, and the Executive Management Committee, the City has taken immediate steps to improve accountability and service delivery of transit services by making two targeted organizational changes.

On 6 June 2008, it was announced that effective 9 June 2008, staff in the Transit Fleet Maintenance Division of Fleet Services and the Materials Management, Transit Unit of Financial Services would report to the Transit Services Branch. On the same day, the transit support components of the Technical Services, Operational Support and Policy, and Municipal Fleet Maintenance Divisions of the Public Works and Services Department would also report to the Transit Services Branch.

This organizational change moves Transit Services to Option 1b (Key Operational COEs Move to Transit) as described above, and will improve service excellence by:

o Simplifying and strengthening the transit service delivery model

o Creating a single point of accountability for Transit Services

o Helping the City achieve long-term priorities and outcomes for transit

o Improving customer experience

o Strengthening the culture of service excellence.

Other changes to the service model will include the renegotiation of the Service Level Agreement between Transit Services and Real Property Asset Management (RPAM) to address service standards under the single accountability structure of Transit as a single purpose client of transit facilities. The need for Transit Services to manage and be accountable for its significant capital program in areas of information technology, Transitway infrastructure and other assets (stations, Park and Rides, etc.) requires re-establishment of project management expertise within Transit Services to ensure value is obtained from these projects.

Combined, these changes will improve employee morale and sense of community while achieving greater focus on delivery of services in the areas of transit availability and reliability. It will also provide for the integration of transit operations within Planning, Transit and the Environment department through the Deputy City Manager and the Director of Transit Services.

Potential to Improve Transit Services through Governance Structure

As stated previously, the comparator governance models (Options 3a and 3b) indicate a potential for increased performance in outcomes where the transit organization is independent from the general administration and operation of city services. This tendency is driven by a focus on clear public accountability, concentration on long-term planning policy and an increased operational oversight on the delivery of service. Where the governing board comprises members-at-large as in Option 3b, benefits are further enhanced. A local benchmark of the Ottawa Public Library is an example of this latter model where client satisfaction is very high.

The major factors affecting governance structures in Canada has been the impact of reduced provincial participation in funding of transit systems in Canada in the late 1990’s while ridership was declining or at a standstill. Most large systems are constructs of provincial legislation (such as Quebec transit systems, Metrolinx-GTA, Translink-BC) while smaller cities across Canada have looked to municipal delivery models with varying organizational structures. Oliver Wyman identified that in general, transit systems that are governed by a Board of Elected officials and members-at-large are characterized by having broader funding sources and a higher level of positive customer experience. In the case of Ottawa, the high levels of success of the transit system are partly due to the highest level of operating subsidy per capita in Canada.

A unique aspect of governance and the success of Ottawa’s transit system is the synergy of both OC Transpo and Société de transport de l’Outaouais (STO) to deliver a seamless transportation model for an increasingly regionalized transit network. In the nation’s capital, the role of the National Capital Commission (NCC) has an important relevance to the development and success of both systems. The recent desire to address policy and development attributes of the two systems has raised the debate of greater participation of elected officials and staff to work collaboratively in a joint manner. In other jurisdictions in North America, parties (elected or executive) from other jurisdictions serve on each other’s boards to represent the contribution of the other member organization (voting or advisory). Locally, in Gatineau for example, elected representatives of other municipalities served by STO sit as non-voting members of the STO’s board.

Staff is recommending that a detailed Phase II analysis be carried out of a separate Transit Commission governance structure (Option 3a and Option 3b) to fully assess the nature of an independent organization from the City administration, with the results to come back to Committee by September 2008 for consideration as part of the 2008 Mid-term Governance Review. The Phase II analysis would assess the optimal governance framework necessary to achieve greater effectiveness and performance, and would include at a minimum recommendations related to:

o Board membership composition

o Relationship with City Council, Standing and Advisory Committees

o Relationship with the STO

o Authority with respect to budget, user fees, and service standards

o Compliance with Federal, Provincial and Municipal regulations (labour contracts, Human Rights, PIPEDA, etc.)

o Relationship with City structure (long range planning and development) and use of shared services with City COEs

o Organizational state of readiness

SUMMARY

The findings and conclusions of the Oliver Wyman Review (see Document 1, slides 7 and 8) support the realignment of operations that have been made within the organization to help simplify and strengthen the transit service delivery model and create a single point of accountability for Transit Services performance. The move of the Transit Fleet Maintenance Division of Fleet Services and the Materials Management, Transit Unit of Financial Services as well as other transit support components of Public Works and Services to the Transit Services Branch will have a direct impact on customer satisfaction by creating a cohesive unit with the ability to clearly articulate and implement a shared vision for transit services.

Other changes being made to the service model will include the renegotiation of the Service Level Agreement between Transit Services and Real Property Asset Management (RPAM) to address service standards under the single accountability structure of Transit as a single-purpose client of transit facilities. Combined, these changes will improve employee morale and sense of community while achieving greater focus on delivery of services in the areas of transit availability and reliability.

The Oliver Wyman review also highlights the potential for further increased performance in outcomes where the transit organization is independent from the general administration and operation of city services. This performance improvement assumes that the independent board (described as Option 3a and 3b) is given sufficient authority and autonomy to allow it to function as a truly independent board.

Staff is recommending that a detailed Phase II analysis should be carried out of a separate Transit Commission governance structure (Option 3a and Option 3b) to fully assess the nature of an independent organization from the City administration, with the results to come back to Committee in August 2008 for consideration as part of the 2008 Mid-term Governance Review.

CONSULTATION

As part of their assignment, Oliver Wyman conducted a series of interviews and focus groups during the course of this review with City of Ottawa political representatives and senior staff, and members of the Mayor’s Task Force on Transportation. Representatives from thirteen other comparable Canadian transit systems and two U.S. transit systems were also contacted as part of the review.

FINANCIAL IMPLICATIONS

The cost for the Phase II Detailed Analysis is estimated at $150,000. There are no funds in the 2008 Budget for this work, however, funds are available for transfer from the Transit Capital Reserve fund to carry out this assignment. The total tax supported reserve fund balance is approximately $41M.

SUPPORTING DOCUMENTATION

Document 1 City of Ottawa Transit Services - Phase 1: Organization and Governance Diagnostic Review (full presentation on the City’s website)

DISPOSITION

Following City Council approval, Planning, Transit and the Environment will undertake the Phase II detailed analysis of a separate Transit Commission governance structure and will bring forward the results of this analysis to Committee and Council for consideration by September 2008.

CITY OF OTTAWA TRANSIT SERVICES - PHASE 1:

ORGANIZATION AND GOVERNANCE DIAGNOSTIC REVIEW DOCUMENT 1