5th International Conference

Workshop 3 Report
Franchising and Tendering

Wendell Cox (Chairman)
Wendell Cox Consultancy, St. Louis

Didier van de Velde (Rapporteur)
Erasmus University, Rotterdam

1 August 1997


The main theme of this workshop was to review developments in the contracting out of public transport services. Several discussion themes were identified. One of these was a classification of the various forms of contracting-out, tendering, concessioning, franchising, etc. Other themes related to the assessment of the performances of the various regimes for different areas, modes and functions.

The papers

The paper titled Entrepreneurship and tendering in local public transport services, presented by D.M. van de Velde at the beginning of this workshop, focused on the place of demand revelation in various organisational forms and tries to summarise the elements of the discussion. Classification tools were presented. A main distinction was made between the models where all public transport services result from authority intervention and those models where independent companies are, legally speaking, the initiators of the services, even if in many cases authority-owned companies tend to dominate such models in the course of history. Three levels of planning and control were then identified to detail the analysis of organisational forms. This introduced a distinction between the strategic, the tactical and the operational levels that proved to be useful as a tool to clarify the discussions during the rest of the workshop and at the final plenary session of the conference. Three fundamental choices were then presented: vertical integration of all three levels vs. contracting out of some levels, direct negotiation vs. competitive procedures in the allocation of contracts and simple contracting out relationship vs. more complex relationships giving more planning powers (tactical level) to the operators.

The paper on The competitive tendering of public transport in Adelaide presented by Ian Radbone gave an update on the results of the implementation of the Adelaide model which had captured a lot of attention at the previous conference and had fostered high hopes. The paper comes to the conclusion that a modest success has been reached: modest financial savings, some new services and no strong evidence of the changes on patronage. However, the author cautioned that comparable "before and after" financial and operating data were not available for analysis. The workshop regretted that a possibly too cautious implementation of the model may have led to fewer results that what the conference previously had expected and recommended that the model be implemented somewhere at its full potential. The workshop also deeply regretted the limited information available on this experiment.

George Pund presented a paper titled Contracts on the Fringe: The problems of providing bus services in new urban areas of Sydney. This paper illustrates the problems related to the functioning of the 'commercial contract' regulation for bus operations in New South Wales. It argued that the involvement into local land use planning matters that is expected from operators is much more likely to function in already well established urban areas than in the developing urban fringe.

Eric Monami presented a critical evaluation of the Belgian experience with the regulation of land passenger transport by means of management contracts. A description of the reform that took place in Belgium was made before analysing some of the results of the contracting that has been implemented. The paper recommends avoiding excessive specifications of monitoring criteria and suggests to use a limited number of specific standards and a few indicators related to the perceived quality of the services. An attempt was made to link the operator's remuneration to its performance. The position of the customer and its opinion was the main topic of the discussion at the workshop.

Ian Wallis gave an update on a number of models implemented in Australia and New Zealand in a paper called Urban bus reform models in practice ­ Experience 'Down Under'. It showed that all models report substantial benefits from their reforms but that a clear classification was difficult to establish because of the lack of adequate monitoring and because of the sometimes limited experience with the models put in place. A conclusion was however that real competition (be it deregulation or competitive tendering) achieves greater cost-savings and faster than the various forms of indirect or threatened competition. Some argue however that these latter forms of competition would be as effective with more real threats than what had been implemented up till then. The paper defends the introduction of incentive structures as they offer the prospect of market-led allocative efficiency gains in non-commercial environments. The fact that operators should be in a better position to identify the needs of public transport passengers was reiterated in the discussion. It was however emphasised in the discussion that models will have to evolve according to local conditions. Possibilities for a larger usage of benchmarking models and contestability-based models were also discussed.

Frederick Salvucci made some Observations on the Buenos Aires experience with increased private sector roles in the production of commuter rail, transit and bus services. After describing the extensive changes that took place in the organisation of public transport services in the Buenos Aires area (concessioning of commuter railways, replacement of public monopoly in bus services by hundreds of regulated non-subsidised private companies), the author gave results showing dramatically improved performance and increase patronage. The author's conclusion was that this experience is indeed relevant to other situations but that it would be wrong to describe it as a simple 'privatisation'. The author argues that a strong government involvement in regulating, monitoring and investing in the public transportation system is essential, together with the need to seek approaches that ensure that all major stake holders either gain or are held harmless. Therefore the term 'public-private partnership' would be more adequate. The discussion at the workshop focused amongst other on the need for a stimulation of (foreign) competition in reform processes and also on the reliability of government as partner in the process described in this paper.

The competition effects on costs in tendering of bus contracts in Sweden were analysed by Roger Pydokke. The paper aimed at examining a number of hypotheses concerning those factors that may have influenced the bids for bus contracts in Sweden, such as how a PTA may influence competition and which aspects of competition have the most influence on costs. The paper concludes that the tendering procedure used by the PTA has no strong influence on costs. Bids in excess of four seem however to reduce costs. The number of bus-kilometres and the geographical location also seem to have some influence on costs but vehicle requirements do not. Here again the workshop regretted the limited availability of adequate data to analyse the consequences of tendering. The discussion also focused on the problem of the 'winner's curse'.

The results of a review of the Denver competitive tendering program were presented by Wendell Cox in a paper titled the Competitive contracting of transit services: Denver Experience. This review showed the substantial savings that have been achieved with the tendering of about a quarter of all bus services up till 1995. The savings enabled the RTD to increase the service levels by more than 15%. The discussion at the workshop focused on several issues related to the reform process. Here too some participants expressed their concern about the lack of any opportunity for service innovation for the operators in this type of operations.

The discussion

The papers presented at the workshop displayed a wide variety of models. A comparison of their performances and the formulation of recommendations as to the most efficient and effective organisational forms were however greatly hampered by the lack of adequate and complete data needed to achieve the analyses that the researchers had wished to carry out. Most workshop participants regretted this.

A main conclusion of the discussions of the workshop was that on many issues no consensus could be reached amongst the participants. Consequently it was agreed upon that the design of organisational forms would have to take the varying local purposes (cost reduction, increasing passengers, etc.) into account.

The workshop participants supported both route competitive tendering and area competitive tendering.

Area competitive tendering was favoured by some due to the belief that operators will be more entrepreneurial and be able to increase ridership with this type of model. In this context the Adelaide model was discussed at length and criticised as not having achieved its objectives and it was regretted that cost figures had not been made available. Proponents of the Adelaide model even suggested that state planners made the process so prescriptive that entrepreneurial activity was subdued. The hope of the workshop was the Adelaide model would eventually be implemented somewhere at its full potential.

Route competitive tendering was favoured by some due to the concern about insufficient competition in area competitive tendering and the implicit fear that it would eventually migrate into private monopoly or limit competition to all but the largest firms. This group favoured London and so-called 'Scandinavian' models.

Some participants, referring to alternative models where no systematic tendering is organised, cited movements toward "quality partnerships" in the UK and non-competitive area franchises in New South Wales and Victoria. Fears where however expressed by some that these might result in higher than necessary costs and lower public transport service levels. Much discussion developed around this theme of the role of the entrepreneur in the development of services and whether or not central planning was preferable in all cases.

The question that remained open was as to whether public transport market share can be increased in developed countries. The workshop had to observe that up till now little evidence could be produced with whatever type of contracting regime. Perhaps that the longer term consequence of some of the regimes will become clearer by the 6th International conference.

As far as the choice between gross and net contracts is concerned, and despite previous research suggesting that uncertainty of revenue projections results in higher unit costs where net contracts are used, a difference of opinion could still be witnessed within the workshop. Those favouring area competitive tendering tending to favour net contracts (operators taking the fare revenue risk) and route tendering proponents favouring gross contracts (government taking fare revenue risk).

An important topic in the discussions conducted by the workshop was the strategies that can be used to ensure that competition is maximised, also for the future. It was said that competition could be maximised by several strategies. In this respect it was illustrated that Government can purchase vehicles and operating facilities, making them available to successful tenderers through leases. Smaller tenders (in terms of number of vehicles required) and short contract length were also advocated but this caused considerable discussion. Some felt that contracts should be up to 14 years in duration. Others felt that the maximum contract length should be 5 years or less. Area competitive tendering proponents favoured longer contracts, while route competitive tendering proponents favoured shorter contracts. Serious concern was also expressed about the danger of collusion between operators.

The workshop reached the general agreement that meeting concerns of existing employees will enhance the success of reforms. This could require employee buyouts, or special provisions for existing employees to ease the transition to a competitive labour market.

The workshop thought that it is crucial for governments to be reliable partners in competitive tendering. Some governments do not keep to their contracts and this discourages competition.

In terms of classification system for competitive tendering, the workshop found the general approach of the van de Velde paper to be useful. The distinction between the three levels of planning and control (strategy, tactics and operations) was often used during the workshop discussions to clarify the set of relations between authorities and operators in the examples presented. Each specific legal setting creates in this respect a specific version of the ensuing relationships between the actors charged with the decision-making in these three levels. This framework was also used to discuss the question of where to draw the line between what is tendered and what is not as the division could theoretically occur at virtually any point between these levels.

Based upon the view that the ultimate objective of urban public transport is maximising ridership or market share, the following conclusions was suggested: the London model of route competitive tendering has been a success while the deregulation model outside London has been a failure. This finding was based upon the fact that while similar unit cost reductions had been achieved, the London model had maintained ridership while the deregulation model had sustained major ridership losses. Some participants maintained their preference for non-competitive contracts as implemented in Australia and reiterated the necessity to give the operators as much of the service planning powers as possible.

The Public Purpose
Demographic Briefs
Government Cost Review
Gov't Employment Fact Book
Highway & Motorway Fact Book
Intercity Transport Fact Book
Labor Market Reporter
School Transport Fact Book
Transport Fact Book
Urban Policy
Urban Transport Fact Book
Competitive Tendering Website
Intl Comp. & Ownership Conference

Contact by E-Mail
Subscribe (Free)
Corrections Policy & Rights

The Public Purpose
P. O. Box 841 - Belleville, IL 62269 USA
Telephone: +1.618.632.8507 - Facsimile: +1.618.632.8538
Demographics, Development Impacts,
Market Research & Urban Policy