Meetings

Status Report on the Financial Management Information System Project

In a memorandum to Committee, Capital and Grant Programs Manager Nina Rannells, Auditor-Controller Joseph Wire and General Manager Celia Kupersmith provided a status report on the District ’s Financial Management Information System (FMIS) project. The FMIS project is an extensive undertaking that will replace the District’s 30-year-old mainframe computer with an integrated information system to be used District-wide. Implementation of the FMIS project began with execution of contracts with SunGard Bi-Tech and Spear Technologies, Inc., to provide system software and configuration assistance for an integrated Finance, Purchasing, Human Resources, Payroll and Maintenance Management information system. The report provides the status of the project work scope, schedule, implementation structure, activities and expenditures through December 2004, which is approximately halfway through the implementation process. Integration of the two software systems selected (IFAS provided by Sungard Bi-Tech and Spear provided by Spear Technologies) is to be achieved through a series of interfaces between the IFAS and Spear operating systems. Implementation dates of key module groupings related to this project are listed in detail in the staff report.

The report stated that in August 1999, an Information Systems Strategic Plan produced by Metamor Industry Solutions recommended the replacement of the District’s aged and inefficient information systems. In June 2000, staff identified the most critical information system to be replaced and the Board authorized inclusion of such a project in the Fiscal Year 2001 Capital Budget. As a first step in the process, the Board of Directors (Board), by Resolution No. 2001-174 at its meeting of November 16, 2001, authorized a contract with Kerry Consulting Group to assist staff in identifying specifications for the purchase of a new system. A Needs Analysis was completed, which included interviews and workflow workshops with key staff and identified the District’s existing business processes and future automation opportunities with regard to all areas. This work identified a need for core information system functionality; therefore, following the completion of a project scope, the Board, by Resolution No. 2002-087 at its meeting of June 28, 2002, authorized a competitive negotiation process to solicit proposals for RFP No. 2003-D-1, Financial Management System and Other Related Items. The joint proposal submitted by SunGard Bi-Tech, Inc., and Spear Technologies, Inc., received the highest ranking by the Selection Committee, and staff entered into negotiations on final contract terms and conditions. Subsequently, the Board, by Resolution No. 2003-106 at its meeting of October 10, 2003, authorized execution of contracts with SunGard Bi-Tech, Inc., and Spear Technologies, Inc.

The report also stated that the following budget established for this project is $4.45 million, funded with approximately 50% District and 50% grant funds, and covers initial hardware purchases, software and system configuration, installation and set-up.

$3,000,000   Software License Fees and Services
$  700,000    Hardware and related equipment
$  400,000    District Staff Time (project management/support)
$  345,000    Miscellaneous/Contingency
$4,445,000   Total

As of this date, project spending is on target, with combined expenditures and encumbrances totaling $2.9 million, or about 65% of the total project budget. A copy of the report is available in Office the District Secretary.

At the meeting Nina Rannells summarized the staff report, describing the FMIS implementation details, such as the dates that certain modules will “go live” and the interconnectivity among the various FMIS components. Also, Ms. Rannells introduced each member of the project team, noting their roles in the success of the project thus far: Director of Procurement and Retail Operations Lori Murray; Director of Information Systems Robert Haar; Information Systems Project Manager Bruce Orcutt; Accounting Manager Bette Joe; Human Resources/Payroll Team Lead Colleen Day-Flynn; and, Information Systems Project Manager Marvin Miller (not present). One of the critical points she expressed about the team was that each member had to manage the responsibilities of his or her job while playing an integral role in this important project.

Discussion ensued, including the following:

• President Middlebrook expressed her support of the project and her gratitude to the project team for their accomplishments on the FMIS project, while still performing the regular duties of their positions.
• Director Murray stated that in order to achieve continued success in the program, it is essential to motivate the entire District staff to completely understand the new system, appreciate the benefits of the program and to accept change. She praised the team for their excellent achievement. She suggested that staff initiate a Team of the Quarter program to recognize the successes of the stellar work of this project team. In response, Ms. Kupersmith acknowledged that a Team of the Quarter program would be an excellent way to foster employee morale.
• Director Boro inquired as to whether the District could identify a tangible savings in system costs as a result of the FMIS project. In response, Mr. Wire stated that the cost savings to the District would be realized by improved efficiency of the information systems and the improvements in conducting the District ’s business processes.

Action by the Board – None Required

Approve Renewal of the Marine Insurance Program

In a memorandum to Committee, Auditor-Controller Joseph Wire, Secretary of the District Janet Tarantino and General Manager Celia Kupersmith reported on the annual renewal of the District ’s Marine Insurance Program for Hull and Machinery/Protection and Indemnity Liability Insurance (including Terminal Operator’s Legal Liability and Excess Protection and Indemnity Insurance) and Excess Marine Liability Insurance. This Program, which renews on February 28, 2005, will be continued until the February 24, 2005, meeting of the Finance-Auditing Committee. This matter will be presented to the Board of Directors for its consideration at its meeting of February 25, 2005.

The report stated that the District purchases Hull & Machinery/Protection & Indemnity Insurance in amounts equal to the approximate replacement costs of the ferry vessels, along with primary Protection & Indemnity limits of $1,000,000. The limits of liability for the excess Protection & Indemnity and Marine Liabilities total $75,000,000, and coincide with the limits purchased for non-marine liabilities. The District’s Insurance Advisor, Marsh Risk & Insurance Services (Marsh) informed the District that over the past ten years, the loss experience for the Marine Insurance Program has been adverse due to increases in the number and severity of hull and machinery damage claims, as well as increases in the amounts paid for several crew/employee injury cases. While the past three years show an initial reduction of loss, the past ten-year history influences the insurance marketplace and still shows the District at high risk.

The report also stated that the District has worked aggressively over the last several years to reduce its loss experience and has succeeded in claims reduction. This effort has been a primary focus of the Ferry Division upper management; and, the following actions have been taken:

• The Ferry Division established an active Safety Committee who meets once a month to discuss and evaluate safety incidents. This Committee has proven effective in raising awareness of safety-related matters, and has resulted in a reduction in open injury claims.
• A Ferry Division Safety Officer was designated three years ago to completely re-write and re-design all operations manuals and other operations documentation, resulting in the development of new deckhand training manuals.
• The Ferry Division management is taking a very active role in claims management, following up proactively on all incidents, whether or not they result in injuries. Through these efforts, the Division has been able to minimize the number of incidents that become claims.
• The report from Marsh stated that the Hull & Machinery and Protection & Indemnity categories of insurance have not been favorable to insurers for several years. For business accounts that have unfavorable loss histories, like that of the District, marine insurers are obtaining increases of 25% to 40% and, in some instances, have resigned from accounts when they are not able to achieve their premium targets. In addition, the marine insurers are facing a competitive market which has resulted in reduced premium fees. However, marine insurers have been successfully achieving premium and/or deductible increases on accounts with adverse loss experiences. Furthermore, the Terrorism Risk Insurance Act of 2002 (TRIA) continues to require marine insurers to re-evaluate terrorism exposures. The response of marine insurers to TRIA has been to reduce premium fess accordingly.

Marsh presented the following charts to the Committee:

• Exhibit 1 – Premium and Loss History for 1995 to the present
• Exhibit II – Schedule of Insured Vessels and Values for 2005
• Exhibit III – 2005 Renewal Options Comparison (as of February 3, 2005)

The proposed Marine Insurance Program renewal options provided in Exhibit III include the following options:

• Enter into an agreement with AIG as the primary contractor and Marsh will work with AIG to secure the remaining partners necessary to complete the Marine Insurance package at the rate of $597,542, plus Pollution coverage. Marsh feels this option is the most secure, even though at this time, it is a more expensive option.
• Continue to work with Fireman’s Fund to see if they can find enough partners to complete the Marine Insurance package. Marsh does not feel as confident about this option due to the low pricing quote received, but this option may be a more cost-effective solution, since the premium of $446,284 is approximately $150,000 less than the option with AIG.
• The quotation from ACE, the District’s carrier since 1970, was $699,264, a 28% increase over last year’s premium.
• Alternative underwriters, such as Zurich, IMU, and MOAC were approached to provide quotes, but were substantially higher than those listed above. Marsh recommends AIG as the most desirable based on the current status of each option. The total cost for renewal of the Marine Insurance Program at the recommended option reflects an overall premium increase of 16%.

Pending additional information for the quote from AIG, staff is recommending that the District approve renewing the Hull & Machinery/Protection & Indemnity Insurance with AIG and various underwriters at a premium of $457,000; approve renewing the Excess Marine Liability Program with AIG and various underwriters at a premium of $107,466; approve binding a separate Vessel Pollution Liability Policy at a premium of $4,853; and, approve renewing the TRIA coverage for the Excess Marine Liability Program with AIG and various underwriters at a premium of $28,223, effective February 28, 2005, with the understanding that sufficient funds totaling $592,689, plus the Vessel Pollution Liability Policy premium are available in the Fiscal Year 2005 Ferry Division budget to cover the increased premium payments in Fiscal Year 2005 and funds for Fiscal Year 2006 will be included in the Fiscal Year 2006 budget. A copy of the report is available in Office the District Secretary.

At the meeting, Mr. Wire summarized the staff report, stating that the District is seeking to reduce operating expenses by lowering the cost of insurance premiums. In the last ten-year period, the District paid out $2.4 million in premiums and the insurer paid out $4.1 million in losses. In the analysis of the past five-year period, the District paid out $1.45 million in premiums and the insurer paid out $1.8 million in losses. Mr. Wire noted that Workers ’ Compensation claims by maritime employees fall under the jurisdiction of the Jones Act; therefore, such claims must be included in the District’s Marine Insurance Program rather than be covered under the District’s self-insurance program. Mr. Wire introduced Scott Lamb and Art Goepp of Marsh, who were available to answer questions from the Committee.
Discussion ensued, including the following:

• Director Murray stated that the Marin County Transit District obtains partners in an insurance pool as a self-insurance program and suggested that the District consider this idea as a way to reduce insurance costs. In response, Mr. Wire stated that staff has presented the option of utilizing insurance pools; however, the Board has not elected to participate. In addition, Scott Lamb stated that, historically, insurance pools are not competitive.
• Director Eddie requested a delineation of the total losses that are shown in the 10-Year Premium and Loss History exhibit. In response, Mr. Wire stated that 20% of the total amount stems from losses due to vessel accidents and 80% of the total amount stems from the settlements resulting from Jones Act claims by ferry personnel.
• Director Harrison inquired as to whether the insurance broker receives a commission for placing this insurance. In response, Mr. Wire stated that Marsh does not receive commissions. The Marsh representatives present at the meeting confirmed Mr. Wire’s statement.
• Director Boro inquired as to why the incumbent marine insurer, ACE, is proposing higher rates if the District has reduced the losses over the past three years. In response, Mr. Lamb stated that the quotations are based on a ten-year history and loss payouts from the mid- to late-90s are substantially higher, and as a result affect the current renewal rates.

Action by the Board – None Required

Public Comment

There was no public comment.

Adjournment

All business having been concluded, the meeting was adjourned at 10:45 a.m.