Letter Report on The Compliance of New York City Bike Share, LLC With Its Agreement with The Department of Transportation for The Bike Share Program

Introduction

This Letter Report concerns the New York City (City) Comptroller’s audit of New York City Bike Share, LLC’s (NYCBS’) compliance during Calendar Year 2018 with its agreement with the New York City Department of Transportation (DOT) for the Bike Share Program (the Program). The objectives of the audit were to determine whether NYCBS properly reported all revenues derived from the Program; made accurate and timely payments to the City; and complied with other major financial requirements of its agreement, including maintaining specified insurance coverage and a Service License Agreement (SLA) escrow account in accordance with the terms of the agreement. In addition, we determined whether DOT had proper oversight over its agreement with NYCBS.

On April 13, 2012, the City, via DOT, entered into an agreement (Agreement) with NYCBS to launch a self-service bicycle sharing program within the City. Under the Agreement, NYCBS is responsible for designing, building, operating, maintaining, and publicizing a network of publicly available bicycles for City residents and tourists. The original Agreement was set to expire on May 26, 2019; however, DOT amended that Agreement and extended the term to May 26, 2029.  As of September 2020, NYCBS maintained an inventory of 17,000 bicycles that were available for rent. At that time, bicycles rented through the Program could be obtained from and returned to any of the 1,081 docking stations located throughout the City and Jersey City.

In accordance with Section 10.2 of the Amended and Restated Agreement dated October 24, 2014, NYCBS is required to share 5 percent of its revenue with the City for bicycle ridership revenue that exceeds $30 million and 5 percent of all other revenue that exceeds $10 million, including from sponsorship fees, merchandise sales, and station-move fees charged to property owners and businesses for temporary removal or relocation of docking stations.  In addition, NYCBS is required to place $1 million into an SLA escrow account each year for parking meter revenue that the City has not collected due to the placement of docking stations in parking spaces and to maintain insurance coverage as stipulated in the Agreement.

According to the certified schedule that NYCBS submitted to the City, NYCBS collected $36,087,781 in bicycle ridership revenue and $16,741,652 in other revenue for Calendar Year 2018 from its operations in the City. (NYCBS excludes revenue generated from the Jersey City operation from the revenue reported to the City.) On March 1, 2019, NYCBS remitted $501,336 to DOT in shared revenue from the Program.

Audit Findings and Conclusions

Our audit found that NYCBS generally reported its bicycle ridership and other revenue from its operations in the City accurately and, for the most part, paid the required revenue sharing percentage to the City, as stipulated in the Agreement. However, our audit also found a number of deficiencies in NYCBS’ contract compliance. Specifically, we found that NYCBS may have failed to maintain sufficient insurance coverage; underreported $1,447 in other revenue generated from a station move; was unable to provide supporting documentation to substantiate its allocation of revenue and sales tax for its Jersey City operation and so could have underreported revenue from its City operations; and did not comply with the terms of the Agreement in relation to maintaining the “SLA escrow account” in a financial institution during the audit scope period. Under the Agreement, NYCBS is supposed to set aside funds in a specified amount to: (1) compensate the City for lost revenue from the removal of metered parking spaces to accommodate NYCBS’ docking stations; and (2) provide the City with funds as “liquidated damages” if NYCBS does not perform in conformity with SLA.

We also found that, while DOT generally properly oversaw NYCBS’ compliance with the Agreement, there were two notable exceptions. Specifically, DOT did not enforce NYCBS’ obligation to maintain sufficient insurance coverage. In addition, DOT did not enforce NYCBS’ obligation to maintain an SLA escrow account in a financial institution. Moreover, to the extent the parties may have agreed to amend the terms of the Agreement to reflect NYCBS’ current practice, DOT failed to do so in writing as required by Section 26.31 of the Agreement, which states, “no provision of this Agreement nor any Appendix or Exhibit shall be amended or otherwise modified, in whole or in part, except by a written instrument, duly executed by the City and NYCBS and approved as required by applicable law.”

Audit Recommendations

· NYCBS should maintain insurance coverage that meets the required amounts stated in the Agreement.

· NYCBS should maintain all of the insurance coverage required by the Agreement and should maintain fully executed insurance policies and ensure the insurance documents that demonstrate its compliance with the Agreement are readily available for DOT’s review.

· NYCBS should ensure that it reports all Program revenue to the City and remit $72 to the City for the under-reported revenue it received for moving a bicycle docking station.

· NYCBS should ensure that all allocations to the Jersey City operation are adequately supported by point-of-sale and other pertinent records.

· DOT should ensure that NYCBS always maintains the required insurance coverage.

· DOT should review NYCBS’ supporting documentation for the Jersey City operation and determine whether NYCBS accurately excluded its Jersey City revenue and sales tax from Program revenue.

· DOT should ensure that NYCBS continues to maintain an SLA escrow account with a financial institution as required by the Agreement, which requires NYCBS to establish an SLA escrow account at a bank.

· DOT should ensure that all amendments or modifications to the Agreement are in writing as required by the Agreement.

Agency Response

In NYCBS’ response, NYCBS agreed with three recommendations and disagreed with Recommendation #1, insisting that it has maintained all required insurance coverages during the term of the Agreement. In DOT’s response, the agency generally agreed with the findings and recommendations.