Legislatively Mandated
Competitive Tendering in Denver
1988-1998 Summary

RTD is required to competitively contract 20 percent of its bus service. Senate Bill #164 (1988) required RTD to competitively contract 20 percent of its bus service. The primary purpose of this legislation was to improve RTD's cost effectiveness. RTD, like other transit agencies, had experienced cost escalation in excess of inflation. The same concern has led to full competitive contracting conversion programs in London, Copenhagen, Stockholm, Helsinki, Perth, Adelaide, Melbourne, New Zealand and South Africa.

Competitive contracting has saved RTD more than $100 million. Average cost savings from 1989 to 1998 were 40 percent. Over the period, $101 million was saved compared to the cost of RTD operations..⁽¹⁾ The financial benefit to the community is even more, since RTD's private contractors pay state and local taxes, fuel taxes and license fees, unlike RTD.

Competitive contracting costs are falling. In 2000, costs per hour will be $46.94, compared to $52.64 in 1998 (Figure #1).⁽²⁾ These falling costs are the result of RTD efforts to encourage competition.⁽³⁾ Under fixed price contracts now in effect, total cost savings from 1989 will rise to $156 million by 2004.⁽⁴⁾

A higher legislative mandate would produce higher savings. RTD staff analyses indicate that if RTD were required to competitively contract 35 percent of its bus service, additional savings of up to $24 million would be achieved over the next four years.

Competitive contracting has improved RTD's overall cost performance. Before competitive contracting, RTD costs were rising above inflation. Competitive contracting has reversed this trend through both direct contract cost savings, and through the "ripple" effect (competition has induced better cost performance within RTD).⁽⁵⁾

RTD bus system costs per hour rose 24.3 percent before competitive contracting, but have fallen 22.3 percent during competitive contracting (Figure #2).

Ripple effect savings are evident in RTD's 10 percent cost per hour reduction in direct (in-house) costs since competitive contracting began.

Competitive contracting made it possible for RTD to significantly increase bus service while building light rail. RTD would have required considerably more to operate service without competitive contracting and its competitive influence on direct costs. RTD would simply not have been able to increase bus service and built light rail without competitive contracting.

If RTD costs had continued to rise at the 1979-1988 rate, $387 million more would have been required to operate service from 1989 through 1997.

Even if RTD costs had risen at the rate of inflation (lower than RTD cost increases before competitive contracting), $191 million more would have been required to operate service from 1989 through 1997.

RTD has been able to increase bus service because of the competitive contracting cost reductions.

In the nine years before competitive contracting (1979-1988), RTD bus expenditures rose 8.7 percent (inflation adjusted), while service levels were reduced 12.6 percent.

During the nine years since competitive contracting began (1988-1997) RTD's bus expenditures rose 4.3 percent (inflation adjusted), while service levels increased by 34.3 percent (Figure #3).

RTD has substantially increased bus ridership since competitive contracting began. From 1988 to 1996, RTD ridership rose 27.6 percent --- the largest ridership increase of the nation's 25 largest bus systems (Table).⁽⁶⁾

During the same period, 18 of the nation's top 25 bus systems lost ridership.

RTD's bus service increase from 1988 to 1997 was three times the ridership of the RTD light rail line.

Most of the ridership increase is attributable to the higher levels of bus service that RTD was able to provide --- a direct result of the competitive contracting environment.⁽⁷⁾

From 1989 to 1997 approximately 65 million additional bus riders were attributable to RTD's improved performance under competitive contracting.

In 1997, approximately 40,000 new bus riders per day were attributable to RTD's improved performance under competitive contracting.

ENDNOTES

1. Calculated from data in KPMG Performance Audits, RTD Management/Administration Study, 1996 (Mundle & Associates and Wendell Cox Consultancy) and RTD staff memoranda for services competitively contracted since publication.

2. 1999 costs not used because services will be operated under the old more costly contracts and new less costly contracts.

3. The large 1998 procurement attracted six proposers, five of which were not incumbents. The previous procurement of the same packages (1993) attracted only the two incumbent operators.

4. Actual cost savings will be higher through 2004, since some contracts will be rebid before the end of the period. At current inflation adjusted rates, it is projected that costs savings will be $168 million from 1998.

5. Dr. Elliot Sclar of Columbia University has published a paper for the Amalgamated Transit Union claiming that the RTD competitive contracting program has saved considerably less than these estimates. There are a number of difficulties with Dr. Sclar's analysis, such as a failure to account for higher service levels and excessively low internal cost estimates. An RTD analysis characterizes Dr. Sclar's analysis as an "inaccurate comparison." (Regional Transportation District, Rebuttal of "Paying More, Getting Less").

6. Analysis of National Transit Database 1988 to 1994 (latest year available for national data).

7. Approximately 87 percent of the new ridership is estimated to be attributable to RTD's improved cost performance under competitive contracting. The balance is attributable to the small increase in overall bus expenditures (3 percent).