SR 01-09-2018 3E
City Council Report
City Council Meeting: January 9, 2018
Agenda Item: 3.E
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To: Mayor and City Council
From: Gigi Decavalles-Hughes, Director, Finance Department, Revenue
David Martin, Director, Planning and Community Development
Subject: Contract Modification for IPS Group, Inc.
Recommended Action
Staff recommends that the City Council authorize the City Manager to negotiate and
execute a fourth modification to agreement #9496 (CCS) in an estimated amount of
$4,050,000 with IPS Group, Inc., a California-based company, to add merchant
processing services for parking meter transactions for the Finance Department. The
ten-year term of the contract will remain unchanged. This will result in an amended
agreement with a new total estimated amount of $21,594,169, with future year funding
contingent on Council budget approval.
Executive Summary
Since 2011, IPS Group, Inc. (IPS) has provided ongoing maintenance for the City’s
parking meters and sensors, battery replenishment, miscellaneous parts, credit card
processing communication services, and a web-based management system. Since
2003, TransFirst Health and Government Solutions, LLC (TransFirst), has provided
merchant processing services, including for the City’s parking meter credit card
transactions. In 2016, Council authorized staff to work with IPS in reducing the City’s
significant and growing parking meter credit card transaction costs. IPS proposes a
process through which the City could access IPS’s preferred interchange rate with Visa
and Master Card for regulated debit transactions. This would lower transaction fee costs
for parking meter transactions by an estimated $120,000 annually. The City would retain
TransFirst for merchant processing services related to other parking and non-parking
transactions.
Staff recommends a fourth modification to agreement #9496 (CCS) with IPS to add
merchant processing services for parking meter related transactions. The amended
contract would be for an estimated amount of $4,050,000 for the remainder of the
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contract, for an estimated amended total of $21,594,169. The ten-year term of the
contract would remain unchanged.
Background
IPS has provided ongoing maintenance for meters and sensors, battery replenishment,
miscellaneous parts, credit card processing communication services and a web-based
management system since 2011. TransFirst has provided merchant processing services
since 2003.
On October 25, 2011 (Attachment A), Council awarded contract no. 9496 to IPS Group,
Inc. (IPS) to purchase and operate parking meters and in-ground sensors. The contract
was for $7,560,000 for a five-year term with one five-year option to extend.
On March 19, 2013 (Attachment B), Council authorized the City Manager to negotiate
and execute a first modification for a Battery Replenishment Program, miscellaneous
parking meter parts, and increased credit card transactions processing. The
modification resulted in a total not to exceed amount of $9,694,345 with no change to
the five-year term.
On April 22, 2014 (Attachment C), Council authorized the City Manager to negotiate and
execute a second modification for a one-time purchase of 350 additional parking meters
with in-ground sensors for a total not to exceed amount of $10,296,950 with no change
to the five-year term.
On April 28, 2015 (Attachment D), Council awarded Contract No. 10053 to TransFirst to
provide merchant processing services, for an estimated total amount of $12.4 million
over a five-year period. The contract does not require that all City credit card
transactions be processed through TransFirst.
On May 24, 2016 (Attachment E), Council authorized the City Manager to negotiate and
execute a third modification to extend the term of the IPS agreement for an additional
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five years and to increase the contract total accordingly, for a not to exceed amount of
$17,544,169. This modification also provided the authority for the City to work with IPS
to find ways to reduce credit card transaction fees (merchant processing fees).
Discussion
The City currently operates approximately 6,000 single space parking meters with
varying enforcement hours and rates. All meters are credit/debit card enabled and are
predominantly used to manage demand and ensure turnover.
The City currently pays approximately $1.1 million per year to process over 5.3 million
parking meter credit/debit card transactions. An estimated total of $15.6 million in
parking meter revenue is collected per year. Most parking meter transactions
(approximately 58%) are through credit/debit cards, and these costs represent
approximately 40% of all the City’s credit card processing fees.
Under the City’s current contract with TransFirst, merchant processing fees consist of
interchange fees assessed by the credit card companies (Visa, MasterCard, Discover)
and a TransFirst fee. Small value transactions such as those made for metered parking
incur a higher fee as a percentage of the actual transaction amount than other credit
card transactions. For example, fees paid for metered parking equate to about 7% of
the value of the transaction as compared to 2.1% for non-parking transactions. Through
IPS, the City could take advantage of a preferred rate for certain debit/credit card
transactions through their merchant processing services provider because of their high
volume of transactions. TransFirst is not able offer the same rate for meter parking
transactions.
Council has previously directed staff to search for ways to reduce the City’s overall
merchant processing fee costs, which were $2.5 million in FY 2016-17 and which have
increased an average of 10-12% annually for the past four fiscal years as the city has
added more credit card enabled payment services. Staff estimates that switching to IPS
for parking meter credit/debit card transactions would save approximately $120,000
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annually. While this amount is small, it is a step in the right direction to ensure that city
operations are as cost effective as possible.
Vendor/Consultant Selection
In January 2011, the City initiated a trial program to test new single-space on-street
parking meters with electronic payment options. All companies that produce credit-card
enabled single or multi-space parking meters were invited to participate, and one took
part in the trial. Based on customer feedback and functionality, staff recommended a
single-space meter solution. IPS, a California-based company, was the only company
that could deliver a functional single-space product at that time. IPS single-space
meters have been widely deployed in Los Angeles, Beverly Hills, and West Hollywood
and are commonly accepted and known by on-street parkers in the Los Angeles area.
Financial Impacts and Budget Actions
Fees for merchant processing services are based on credit card usage. Staff estimates
the cost for merchant processing services over the remaining 4 years of the 10-year
term of the IPS contract to be $4,050,000, or $1,012,500 per year, for an amended
estimated contract amount of $21,594,169. The City currently pays approximately $2.5
million annually in merchant processing fees for all transactions. Use of IPS to process
debit/credit card transactions related to parking would result in a decrease in costs
associated with the TransFirst contract and would save the City an estimated $120,000
per year in merchant processing fees.
Funds for merchant processing services are available in the FY 2017-19 Biennial
Budget in the Finance Department in account 012241.522230 (credit card processing
fees). Future year funding is contingent on Council budget approval.
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Prepared By: David Carr, Assistant City Treasurer
Approved
Forwarded to Council
Attachments:
A. October 25, 2011 Staff Report (Weblink)
B. March 19, 2013 Staff Report (Weblink)
C. April 22, 2014 Staff Report (Weblink)
D. April 28, 2015 Staff Report (Weblink)
E. May 24, 2016 Staff Report (Weblink)
F. IPS Group, Inc. Oaks Form
REFERENCE – FOURTH
MODIFICATION TO
AGREEMENT NO. 9496
(CCS)