Whatever you feel about Ventra, the Chicago Transit Authority's smart fare card, two facts are clear: it's lost money and it's costing more than promised. As it turns out, the Chicago Transit Authority also managed to lose money on Ventra before it even existed.
According to records obtained from the settlement of a FOIA denial lawsuit with the CTA, it appears two men instrumental to the project—a then-CTA official and an advising former New York Transit official—not only sold the CTA 's own confidential information about the project to Toronto, but even managed to still get paid by the CTA when they found out. The agency, on the other hand, spent substantial legal fees trying to figure out how to deal with the situation.
But first, we need to back up for a moment.
In June 2009, public outrage over the $1.2 billion, 75-year lease of the city's parking meters to a Morgan Stanley-led conglomerate reached such heights that even the city's Inspector General criticized the deal, and called for further city oversight of public-private partnership deals. Days later, the CTA would ignore that advice.
Instead, the agency signed deals with outside financial advisors to oversee a two-step Request for Proposals process to modernize their fare collection system by outsourcing it to private companies. Records show that one of the advisors hired was Thomas Lanctot of the investment bank William Blair, which also just so happened to oversee the entire parking meter deal process. Per provisions of his contract, he was allowed to hire subcontractors with the CTA's approval to figure out the best way to build a privatized, credit/debit card payment-friendly, contactless "open fare" card reading system.
Enter Paul Korczak.
Formerly the head of MetroCard sales for New York City's Metropolitan Transportation Authority (MTA), Korczak oversaw two separate pilot programs for contactless credit card payments for the agency. He even contributed a payments industry white paper back in 2008, spelling out the business case for public transit agencies to offer optional debit cards to "the agency's unbanked ridership."
Korczak first appeared in the Chicago area in January 2009, advising the Regional Transportation Authority (RTA), which oversees the CTA, Pace, and Metra systems, about the merits of open fare payment. William Blair's invoices indicate that they hired his consulting practice, Korczak & Associates, LLC, as a subcontractor on February 4, 2010. However, it turned out the CTA wasn't his only client.
On April 22, Korczak spoke at an open fare informational meeting sponsored by the Toronto Transit Commission (TTC)—over 500 miles away from Chicago. On first glance, this was a confusing decision. The Greater Toronto Area's parent transit agency, Metrolinx, had already planned on implementing a smart card system developed in conjunction with Accenture called PRESTO. As TTC officials pushed the open fare concept as a better, more flexible long-term solution than the Canadian taxpayer-subsidized PRESTO technology, several Canadian outlets reported that Korczak was also advising on open fare projects in Chicago, New York City, Washington D.C., and Philadelphia. Accenture, ironically, had pitched their "inferior" PRESTO technology as the basis of their open fare system bid to Chicago—a fact that Korczak would have been well-aware of. (Accenture responded to both CTA RFP steps but ultimately withdrew from the process and did not submit a best-and-final-offer bid to the CTA.)
Korczak, however, wasn't the only CTA advisor to make out-of-town visits in the middle of the CTA project. White House logs hosted by the Sunlight Foundation show that Lanctot visited then-Presidential Chief of Staff Rahm Emanuel on October 2, 2009 and March 9, 2010. Years later, Emanuel would condemn the Chicago Parking Meter deal without disclosing his relationship with the man most responsible for the end result.
On June 2, 2010, the TTC awarded a $1.3 million contract to the KMA Group, a newly-formed partnership between Korczak and his new business partner, Dennis Marshall. They were tasked to advise the agency on an RFP process for an open fare payment system as an alternative to PRESTO.
There was one little problem: Marshall was still the CTA's General Manager of Business Development. Not only did he oversee key financial aspects of the open fare bidding process, he was even in charge of collecting the confidentiality agreements from interested third-party vendors.
Payment records to the CTA's outside legal counsel, Thompson Coburn LLP, note they had communicated with Marshall on CTA open fare-related issues on June 8, 9, and July 2. In addition, payment records to William Blair show that Marshall signed off on five separate William Blair payment invoices for Korczak's services, to the tune of $18,750 per month. The last invoice approved and signed off by Marshall was on June 30, 201, just weeks after he supposedly had left the CTA to work "privately" for Toronto.
When asked via email, a CTA representative did not clarify Marshall's exact date of departure.
On August 7, records show that Coburn drafted an "email to client re: ownership aspects of Blair/Korczak agreement." The timing is curious, as two days later, Toronto released its own Request for Proposals for an open fare system. At the same time, Coburn and the CTA held a conference over a "proposed amendment to Blair/Korczak agreement." And on August 11, the CTA tasked Coburn to compare the Toronto proposal with the draft RFP.
As it turns out, there were entire paragraphs and sections in the "Toronto Transit Commission Request For Pre-Qualification Statements" copied nearly verbatim from the CTA's RFP 1 and the CTA's not-yet-released RFP 2.
For example, both the TTC RFP and the CTA RFP 1 contain the same paragraph referring to Chicago and Toronto's respective riderships as "captive clientele" who were "well positioned to drive the rapid and widespread adoption of innovative contactless payment systems." Even the section formatting appears to be similar, down to the list of terminology abbreviations and the font employed.
The CTA also noticed some suspicious similarities. On August 12, records indicate several telephone conferences between Coburn, the CTA and Lanctot regarding William Blair's contract with Korczak. At the same time, Coburn drafted language for a release between Korczak, Blair and the CTA, along with "talking points for conversation with P. Korczak re: ownership issues and use of CTA confidential information and work product." The records also indicate that the CTA believed that the Toronto RFP was a specific copy of the fourth draft of their own Step 2 RFP.
Records also show that internal deliberations over "who owned what" per the terms the CTA/Korczak/Blair agreement, and the terms of the implied legal settlement agreement with Korczak would continue throughout the next several weeks.
William Blair invoices show Korczak made $93,750 off of official services, while WB eventually netted $1,000,000 for their services. Records also show Coburn made at least $11,517.60 alone off tasks directly naming Korczak from August 2010 onward.
As all this went on in the background, an August 25 press release from Mayor Daley's office listing off future CTA projects simply noted the agency was "continuing the process of seeking a private partner to help modernize the fare system by introducing an open fare system."
In the midst of all this, the CTA released its second RFP on September 18.
Toronto, meanwhile, shifted gears. By 2011, newly-elected Toronto Mayor Rob Ford nixed TTC's open fare project in favor of PRESTO. The future mayor of Chicago on the other hand, would make a different choice, as can be seen today with Ventra.
As none of the individuals involved—Lanctot, Korczak, and Marshall—would respond to a request for comment, plenty of questions remain: Who "owned" the language of the CTA's Rrequest for Proposal documents? What did the CTA and William Blair's "settlement" with Korczak consist of, and did Korczak receive more money as a result? Did anyone at the RTA, Pace, Metra, the Office of Mayor Daley, or the Illinois Department of Transportation know all this was happening at the time?
Sure, this city has had more dire scandals and financial challenges over the past several years. But it looks like we can now add Ventra to the seemingly endless list of classic (and dubious) incidents in Chicago politics.
All documents obtained from the Freedom of Information Act suit against the CTA can be found here.
·6 Ventra facts I learned from my FOIA lawsuit against the CTA [Culture Bore]
·Blogger sues CTA for documents related to Ventra contract [Chicago Tribune]
·Previous Ventra coverage [Curbed Chicago]
·Previous CTA coverage [Curbed Chicago]