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It took a week, but city officials finally sent us answers to a few seemingly straightforward questions we've had about the bidding process behind the deal to privatize Chicago’s parking meter system. They also left a few others open.
As we wrote last week: In March 2008, according to records obtained through a Freedom of Information Act request, the city received packets from ten firms interested in leasing the meters for 75 years. The packets outlined the companies’ financial standing and proposals for managing the system. City officials initially said they’d screen the packets and determine who could continue the bidding process in June. (Click here and scroll down to page 20 to see a PDF of the city's proposed timeline for the deal.)
But the city didn’t end up asking for dollar-figure bids until November, and when it did only two of the interested firms responded. A week later they sent in a second set of bids—their “best and final” ones—and the city announced that Morgan Stanley was the winner at about $1.2 billion.
So what happened to the other interested companies? And why the five-month delay?
City budget department spokesman Pete Scales says most of the firms dropped out of the process on their own. “Eight of the ten RFQ responses were deemed qualified--only Chicago MP and Mad Park [PDFs] were not,” he wrote in an e-mail. “The other six teams either removed themselves from the process or did not submit bids--typically in these transactions, not every qualified team completes the process and submits a bid. However, to ensure the strength of the competitive process, the city does not disclose how many bidders remain in the process at the time of bidding.”
Scales didn’t explain why the timetable had been slowed down. “The June bid date was listed as part of an ‘approximate timing’ schedule in the RFQ,” he wrote. “As always, the city moves a transaction forward in an expedient manner while allowing itself a flexible schedule to ensure the best possible outcome for residents and taxpayers.”
The two companies that went through with the process, Morgan Stanley and a group led by Macquarie [PDFs], offered bids so close to each other--$1,008,500,000 and $964,226,025, respectively--that the city asked them to go through a second round, Scales said. “Per the bidding rules, when two bids came in within 10 percent of each other, the City acted on its right to ask for a best and final bid from each. This is a common practice in these transactions, and it ensures the city receives the highest possible value for the asset.”
In the second round Morgan Stanley outbid the Macquarie group $1,156,500,000 to $1,019,022,803.
The bid documents themselves (click here and here to see the PDFs) don’t include any specifics about how the winners would manage day-to-day operations. The management failures of Morgan Stanley’s subcontractor, LAZ Parking, so far are what have caused so much furor over this deal.
Meanwhile, Mayor Daley’s previous privatization deals come with their own pitfalls. I was pretty happy I was going westbound instead of eastbound on the Skyway yesterday afternoon, when traffic was backed up for hours behind the toll booths. WBBM radio reported that the jam happened because only two toll collectors were on duty.