The city of Ventura, California escaped paying an Australian red light camera contractor more than $1.7 million as of last June by exercising a questionable contract provision. Under state law, municipalities are required to pay a single flat-rate fee to the private companies that own and operate automated ticketing machines. Ventura claims that it does not owe any money at all because, on May 22, 2006, it signed a contract with Redflex with a "cost-neutrality" clause.

"In order to ensure cost neutrality to the customer, customer will only be obligated to pay Redflex from the gross cash receipts received from Ventura County after first deducting customer operating costs," the contract states. "Cost neutrality is assured to the customer using this methodology as the customer will never pay Redflex more than the actual cash received from Ventura County after deducting customer operating costs."

According to documents obtained from the city, the provision ensures that as long as Redflex is able to issue a sufficient number of tickets to generate at least $15,000 and as much as $124,000 in revenue, Redflex will pocket 100 percent of the ticket proceeds. Under this arrangement, the city pays more or less money to Redflex based upon the number of citations issued, giving the company a direct financial incentive to boost the number of tickets issued.

The state legislature outlawed contingent-fee payment systems in response to a 2001 court ruling that found such contracts undermined the integrity of the evidence provided by private camera operators (view opinion).

"A contract between a governmental agency and a manufacturer or supplier of automated enforcement equipment may not include provision for the payment or compensation to the manufacturer or supplier based on the number of citations generated, or as a percentage of the revenue generated, as a result of the use of the equipment authorized under this section," section 21455.5(g) of the California Code states.

Last month a California appellate court judge applied this law to a similar cost neutrality deal struck between the city of Fullerton and Nestor Traffic Systems (NTS). The judge found the illegal arrangement invalidated tickets issued by the system (view opinion).

"The purpose of the statute is to avoid an incentive to the camera operator, as a neutral evaluator of evidence, to increase the number of citations issued and paid through the use of the equipment," Orange County Superior Court Judge Robert J. Moss wrote. "[Under the cost neutral contract], NTS has an incentive to ensure sufficient revenues are generated to cover the monthly fee."

A copy of the Ventura County red light camera contract and payment invoices can be found in a 250k PDF file at the source link below.