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Redflex losing contract bids amid Chicago scandal

By David Kidwell, Chicago Tribune reporter

12:51 AM EDT, April 12, 2013

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Seeking to reverse their fortunes amid a debilitating Chicago corruption scandal, top executives of Redflex Traffic Systems flew to Florida for a personal pitch to local officials having second thoughts about giving the company a major contract for a red-light camera system.

It wasn't enough.

The board of commissioners in Orange County, Fla., voted unanimously this week to abandon negotiations with Redflex, the highest-scoring bidder on the county's plan to install as many as 80 traffic cameras in suburban Orlando. Citing an ongoing federal criminal investigation into allegations of a $2 million bribery scheme in Chicago and the company's potentially shaky future, commissioners opted instead to go with their second choice.

"I just don't think it's appropriate for us to congratulate a company that has this type of core value failure," Orange County Commissioner Fred Brummer said before Tuesday's 7-0 vote against Redflex. "The appearance, to me, is just dreadful, and appearances matter."

Redflex officials had hoped the Florida contract would become their biggest in North America, replacing the Chicago program lost to a burgeoning investigation triggered by Tribune disclosures in October about the company's cozy relationship with a former city manager.

Instead it was the latest vote of no confidence for Australia-based Redflex Holdings Ltd. and its U.S. subsidiary in Phoenix, which are facing scrutiny from local governments across the country in response to the Chicago revelations. In recent weeks, several governments from California to Louisiana have raised concerns about their relationships with Redflex.

In Prescott Valley, Ariz., Town Council members have ordered staff not to consider Redflex when its contract is up for renewal in October. "I've lost faith in Redflex as a corporation," Councilman Rick Anderson said at a March study session attended by more than 50 people who came to oppose a continuation of the red-light camera contract.

In San Rafael, Calif., City Council members are expected to consider the bribery allegations in May when they take up the issue of whether to expand or kill a Redflex red-light camera pilot project now underway. "Just because of the nature of the allegations, I can't help but think it would be a consideration," Mayor Gary Phillips said.

And in Jefferson Parish, La., council members cited the company's Chicago troubles during a March vote to refund $19.7 million in red-light tickets collected by Redflex before parish officials shut down the red-light program there in 2010 amid a corruption scandal involving a lobbyist who worked for Redflex and numerous other clients. The money has been locked in an escrow account awaiting the outcome of a Redflex breach-of-contract lawsuit against the parish.

Redflex CEO Robert DeVincenzi personally lobbied for the Orange County contract, including face-to-face pitches the day before the vote. Afterward he released a statement saying Redflex "was honored to be considered for the opportunity to serve the citizens of Orange County" and repeating his contention that the company has moved past the scandal by replacing its leadership and installing new standards.

"We want our corrective action steps and our transparency to lead the industry in setting high ethical standards for how public-private partnerships are conducted," he said.

But in the short term, the scandal has cost Redflex tens of millions of dollars, and more losses are expected.

In a filing Thursday with the Australian Securities Exchange, Redflex said the company has spent $3.5 million on its internal investigation so far and expects "additional modest costs going forward" as it cooperates with authorities.

The loss of the Chicago contract will cost the company $17 million "on a full year basis," the company said, and there is "potential for revenue loss from other municipal contract terminations that may arise as a result of the disclosures associated with the investigative findings."

The backlash against Redflex follows Tribune reports about the relationship between Redflex and John Bills, the former city transportation official who oversaw its contract. A company-sponsored investigation found that the company had plied Bills with 17 vacation trips including airfare, hotel, car rentals, meals and golf outings. The company also acknowledged paying a longtime Bills friend, Marty O'Malley, $2 million as a Chicago consultant. Some of that money was likely intended for Bills, according to the company's findings, which said the arrangement will "likely be considered bribery by the authorities."

Bills and O'Malley have denied any wrongdoing.

After the company acknowledged it misled the city about the extent of the problem, its Australian stock plummeted, six top Redflex executives, including the board chairman, left the company, and Mayor Rahm Emanuel announced that Redflex will not be allowed to compete when its red light contract is up in June. Emanuel also barred the company from competing for his new speed-camera initiative.

Redflex's new board chairman, Michael McConnell, told stockholders in a global conference call last month that his top priority is to "take the necessary actions that give this company the best possibility to move forward."

McConnell also told stockholders that the company is investigating further wrongdoing "in two other geographies" besides Chicago. One source familiar with the investigations has confirmed that one of those places is Jefferson Parish, where local officials signed a 2007 deal with Redflex to install and operate red-light cameras.

In 2010 federal corruption agents in Louisiana subpoenaed Redflex and other clients of lobbyist Bryan Wagner, a former New Orleans city councilman who took a 3.2 percent commission deal from Redflex for his help in swinging parish votes the company's way. Wagner was introduced to Redflex by O'Malley, the consultant now at the center of the Chicago bribery allegations.

The relationship between Wagner and parish officials has led to several convictions, including one against the former parish president. None of the convictions or charges in the incident were related to the Redflex contract.

But amid disclosures about Wagner's lucrative commission deal, parish officials opted to suspend the red-light program and put all remaining proceeds from tickets into escrow. Redflex sued the parish for breaking the contract without cause, a case that has not yet been resolved.

As Redflex struggles to redefine its corporate culture and revitalize its U.S. business, the company is expanding into automated school bus cameras, which record motorists who illegally pass buses that are stopped to load and unload children.

Last May, just months before the scandal in its Chicago red-light program first broke, Redflex agreed to pay up to $7.4 million for a Rhode Island-based company that founded a program called SmartBus Live. The idea was to install cameras on the side of school buses to monitor cars that pass a bus while the stop arm is deployed. This new offshoot of Redflex is called Redflex Student Guardian.

According to Redflex, the company has been awarded 25 school bus contracts and 18 pilot programs in eight states: Rhode Island, Connecticut, Texas, Oklahoma, Georgia, Maine, Alabama and Washington.

Spearheading the company's grass-roots efforts to expand the bus camera prospects is the same Chicago public relations firm that figures prominently in Redflex's City Hall connections.

Resolute Consulting, headed by Emanuel's political ally and onetime campaign manager Greg Goldner, is the force behind the Redflex-funded not-for-profit Traffic Safety Coalition. The coalition is described in Redflex's annual reports as "a national grass-roots organization focused on promoting the merits of various traffic safety technologies."

Goldner's name first surfaced in connection to Redflex last year after Emanuel's successful push for his plan to install speed cameras that will tag speeders near school zones and parks throughout Chicago.

As part of his efforts to promote Redflex's expansion prospects, Goldner said, he hired Bills to work for the Traffic Safety Coalition soon after his retirement from City Hall in June 2011. Bills left the coalition in mid-2012.

dkidwell@tribune.com