Sep. 18, 2009 at 9:00 AM ET
Competition for the right to profit from parking tickets is apparently pretty cut-throat.
Last month, one of the nation's largest parking enforcement companies, Dallas-based Affiliated Computer Services Inc., sued competitor Duncan Solutions of Milwaukee, accusing it of extensive corporate cyber-espionage. Affiliated says Duncan found a way to tap into e-mails from its employees, and had been monitoring incoming and outgoing private messages for two years.
Welcome to the hyper-competitive world of law enforcement privatization. State and local governments around the country are racing to sell off driving-related enforcement duties to the highest bidder, often splitting the profits with companies that take over. As detailed earlier this week, cash-starved cities are turning up the heat on parking scofflaws, hoping to plug budget gaps by pulling in millions of dollars in what's sometimes called a "curb tax." The result has been rising frustration among some drivers who say they are being treated unfairly. Many may not realize that a sizable portion of their parking, speeding and red light fines goes to a private company's bottom line – and in some cases, enriches foreign owners.
For example, just outside Washington, D.C., in Montgomery County, Md., a contract with Affiliated signed in 2006 awarded the firm $16.25 for every for every speeding ticket it writes. A class action lawsuit is challenging the deal's legality.
Well before the current budget crunch, governments had been turning to the private sector to offload the unsavory tasks of enforcement and fine collection. Privatization enthusiasts compare parking enforcement to other functions that cities regularly outsource, like garbage collection. Some of the stories that surround the industry might remind you of garbage collection's ugly past. Tales of political payoffs, bribery, espionage and rampant unfairness abound.
In the espionage case, Affiliated alleges that Duncan employed a relative simple trick to spy on e-mails from dozens of employees.
The lawsuit, filed Aug. 18 in the Dallas U.S. District Court, reads like a spy novel.
Earlier this year, Affiliated employee Jeff Frank clicked "reply all" on an e-mail sent to him by a Duncan employee and noticed something strange. When he clicked on his own name in the e-mail header, revealing the underlying data behind it through the "properties" feature, the software showed his address to be JFrank@DuncanSolutions.com -- as if he were a Duncan employee.
The lawsuit alleges that Duncan had created a copycat e-mail address, hoping to trick Frank and others into sending internal e-mails out to Duncan-controlled servers.
Subsequent investigation showed another 25 such copycat e-mail addresses, Affiliated alleges -- one dating back to July 2007. To avoid raising suspicion, Duncan had set up an e-mail tool that automatically rerouted the intercepted messages back to their rightful recipient at Affiliated, according to the lawsuit.
"Duncan has gained a wholly improper competitive advantage by having the opportunity to review Affiliated's internal emails," the lawsuit alleges. "The stolen emails reveal not only information about specific prospective and existing clients, but also confidential and proprietary information regarding Affiliated's general business strategies and plans."
Affiliated did not respond to requests for comment at press time.
Jeffrey Remsik, a spokesman for Duncan, said his firm denies the allegations in the lawsuit.
"We dispute the facts as alleged and we will aggressively defend ourselves in court, and we expect to win," he said. He declined to answer additional questions.
How the attack might have worked
Kevin Rowney, head of the data loss prevention division at Symantec Corp. and an expert in espionage, said the alleged e-mail hack is among the most dramatic allegations he's ever heard.
"This ranks up there pretty high," he said. The competitive intelligence gained from reading all those e-mails could have serious implications for a targeted company. "For any organization, this would be a serious risk. For some organizations, this could be an existential risk. You could rip off enough customers that you could wipe them out."
The spy trick works because it takes advantage of a Microsoft Outlook feature that attempts to "do you a favor," Rowney said. Generally, Outlook e-mail display only "to" and "from" names, not underlying e-mail addresses, making it easy for an attacker to disguise the true destination. Also, once an e-mail is sent to a recipient, the e-mail address is cached and suggested later, when a user begins to type a name in the "to:" box. It would be easy for a sender to accidentally pick the copycat e-mail address when sending notes. Doing so would actually spread the "infection" around a company's e-mail, Rowney said.
The lawsuit also alleges that Duncan has an "intense competitive nature." In it, Affiliated cites a recent competition between the two firms involving parking meters in Dallas -- a competition Affiliated won.
"After losing, Duncan retaliated by sending the City of Dallas a broad FOIA request that included all documents relating to the implementation of the contract. A temporary injunction currently prohibits the City of Dallas from complying with Duncan's request," the lawsuit says.
Other lawsuits, accusations
Affiliated itself is no stranger to controversy. In Canada last year, the firm was accused of trying to bribe Edmonton police officers in an attempt to gain favor for a bid to get the area's red light camera business. The firm was acquitted of wrongdoing.
Another lawsuit filed in July by a driver advocacy organization, The Road Safety Awareness Group, in Canada says the firm "unduly influenced" the photo enforcement contract tendering process, unfairly collected personal information about Canadian citizens and spied on a journalist who wrote an unfavorable story about the company. The group is seeking the return of $177 million in tickets written by Affiliated since 2003. The province of Manitoba, also named in the suit, has asked a judge to dismiss it.
In 2006, two Affiliated executives – including CEO Mark King – resigned after they were the subject of an investigation by the Securities and Exchange Commission for allegedly back-dating stock options, an illegal method for increasing the value of stock options compensation.
There have been performance-related criticisms of Affiliated, too. In 2007, a report by the Office of the Auditor in Washington D..C. said the company mishandled its seven-year contract with the city for parking meter operation and enforcement. Complaints jumped to 89,840 in 2005, the first year of the contract, from 3,652 the year before, the report found. The office also concluded that the city paid Affiliated $26 million during the life of the contract, but could have operated the system itself for $18 million.
The same year, an Affiliated contact to operate 50 red light cameras in the city expired. The competitor who took over the contract, American Traffic Solutions, claimed 27 of the cameras weren't working.
Only months earlier, the D.C. City Council had renewed the parking meter deal with Affiliated for another five years.
Affiliated apparently had strong ties to the D.C. officials. In 2006, it gave $10,600 to then-Mayor Anthony Williams to help pay for a privately funded trade mission to Africa. It donated another $8,000 to other elected city officials. At the time, Councilman Phil Mendelson, who got $1,300 from Affiliated, told the D.C. Examiner newspaper that the money did not buy influence.
"(Affiliated) has always had a very good government relations effort," he told the paper. "And regardless of whether they gave contributions or not, they make a point of communicating with members on issues."
Duncan Solutions has also taken an interest in local politics. The company and its employees contributed $3,625 to St. Louis Treasurer Larry Williams in 2008, according to the St. Louis Business Journal. Early this year, Williams decided to lay off all 73 government parking meter maintenance workers and outsource their work to Duncan.
Enforcement of parking and traffic laws by private companies is controversial; it's also big business. Australia-based Redflex Traffic Systems, a red light camera firm which operates in hundreds of U.S. cities, estimates the potential nationwide market for speed enforcement at $10 billion annually and red light enforcement at $4 billion, according to a 2005 investors' presentation.
Lockheed-Martin, a government contractor best known for its aircraft division, was among the first to enter the private parking business. The original operator of the controversial Washington, D.C., system, it sold its parking enforcement division to Affiliated for a cool $800 million in 2001.
The case for privatization
Leonard Gilroy, an advocate for privatization efforts and a researcher at The Reason Institute, says private firms will always find a more efficient way to allocate limited resources than government agencies.
"There's nothing inherently governmental about a city running a parking meter operation," he said. "Governments … tend to under-price. So they have an asset and they can't maximize the value of that asset."
For example, Gilroy said, government agencies have a difficult time raising prices because of political pressure. So water treatment plants, toll roads, parking lots and other operations are run at a loss. Eventually, he said, "a death spiral" occurs as the government agency can't pay for upkeep.
Furthermore, "When a government is in the position of being the operator and the regulator, you don't have accountability," he said.
He cheered the city of Chicago's recent lease outsourcing its parking operations for 75 years in exchange for a $1 billion upfront payment. Deals like that allow cities to quickly modernize equipment and better track parking usage, he said.
He disagreed with civil liberties concerns expressed by critics, saying cities can write contracts that retain control over important functions, such a fine setting, adjudication and other law enforcement duties.
He hadn't seen the lawsuit filed against Duncan, and would not comment on it, but he made the point that government-run operations are hardly immune to such scandals.
John Van Horn is editor of Parkingtoday.com, a trade magazine and Web site that follow the private parking industry. He wouldn't comment on the lawsuit either, but he was dismissive of the negative publicity that companies like Duncan and Affiliated have received, saying it goes with their turf.
"Have you ever seen a positive story about parking?" he said.
There have been plenty of negative stories. The Web site TheNewspaper.com tracks news about private parking and traffic enforcement companies. It lists six U.S. cities where yellow light cycles were shortened after the installation of red light cameras, allegedly to enhance revenue.
"(Cameras) appeal to cities as the easy way to solve a crime," said Richard Diamond, editor of the site. "But the primary motive is money. When you have private corporations involved, there is no question that for the company there can only be one motive: profit for the shareholders."
Pointing to allegations that companies falsify evidence for adjudication hearings and often hire former police officers to grease the skids for government contracts, he said he was not surprised about allegations of espionage.
"It's a dirty business. You cannot look at the stacks of cases of corruption, fraud, bribery and not conclude that there's something wrong here," he said.
In some areas, consumers are growing frustrated with the automated justice. In Maryland's Montgomery County, for instance, local radio station WTOP discovered through Freedom of Information Act requests that 27 speeding cameras had been vandalized in recent months -- many spray painted to obstruct the camera lenses.
Barnet Fagle, a motorists' advocate at the National Motorists Association, says voters are expressing their displeasure as well.
"Any time (cameras) have been put up to a referendum they have died," he said.
New laws are impacting the discussion, too, he said. When Georgia passed legislation requiring longer yellow light cycles for intersections where cameras are installed, ticketing and revenue from the cameras plunged. Within months, cameras in Gwinnett County were disabled, because they no longer issued enough tickets to pay for themselves.
Anyone who's watched an episode of A&E's "Parking Wars," a cop-ride-along TV show based in Philadelphia, knows that drivers often are guilty of the offenses they are accused of.
But Fagle sees the issue as a fundamental argument over constitutional rights.
"I think the cameras are unconstitutional. According to the 6th Amendment, you have the right to face your accuser," he said, arguing that there's no way to face a camera or a computer provided by a private firm. Also, he said, when tickets are issued, drivers are "presumed guilty unless you prove yourself innocent. ... That's not what I learned in civics class."
Diamond, of TheNewspaper.com, said outsourcing also raises more practical concerns.
"You want a police force to have one goal, to make the community safer," he said. "When you throw in private companies, … you've created a situation where doing what's best for the public is not job No. 1. And there are plenty of cases where this turns into a problem. The slippery slope cases manifest themselves very quickly."
Become a Red Tape Chronicles Facebook fan.