Colin Buchanan and Partners EC Contracts –Final Report

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Contents Page

1. INTRODUCTION 1-1
1.1 Background 1-1
1.2 Report Structure 1-1
2. STATISTICAL ANALYSIS 2-4
2.1 Introduction 2-4
2.2 Dataset 2-4
2.3 Data issues and problems 2-5
2.4 Data Analysis 2-6
2.5 Impact on Demand Growth of Public Transport Usage 2-8
2.6 Conclusions 2-10
2.7 Commentary on the Results 2-10
3. CONTRACT SUMMARIES 3-12
3.1 Collection to date 3-12
3.2 Description of and Results from the Collected Contracts 3-14
3.3 Distribution of Contracts between Gross and Net Cost 3-15
3.4 Scope 3-16
3.5 Contract Length 3-16
3.6 Penalty and Incentive Regimes 3-16
4. CASE STUDIES 4-17
4.1 Introduction 4-17
4.2 Tendering Authorities 4-17
4.3 Services tendered 4-17
4.4 Bus services 4-18
4.5 Light Rail/Metros/Trams 4-18
4.6 Heavy rail 4-18
4.7 Ferry and air services 4-19
4.8 Other services 4-19
4.9 Operators 4-19
4.10 Tendering 4-20
4.11 Risks and Rewards 4-21
4.12 Quality Monitoring 4-21
4.13 Potential Improvements 4-22
5. GUIDE INTRODUCTION 5-23
5.1 Purpose and Organisation of Guide 5-23
5.2 Definitions 5-25
5.3 Other Information sources 5-25

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APPENDIX A – CONTRACT SUMMARIES

APPENDIX B – CASE STUDIES

APPENDIX C – CONTRACT GUIDE

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1. INTRODUCTION

1.1 Background

1.1.1 The European Commission DGTREN appointed Colin Buchanan

and Partners (CBP) to lead a study into contracts for public passenger
transport. The overall aims of this study are:

• To collect a sample of existing contracts, to prepare standardised

summaries of those, to translate those summaries into English,
German and French and to put them on a database accessible via
ELTIS.

• To analyse the contracts collected and compare and contrast their

contents;

• To undertake interviews with a sample of authorities and operators to

understand their views and experience on how contracts have
worked;

• To produce guides on good practice in Contract Design and

Management to assist those with little practical experience.

1.1.2 The study team comprises CBP in association with Hamburg

Consult (HC), Trasporti e Territorio (TRT) and Daniel le Maire. Data
collection is focussed on the UK, Germany, Italy, France and Sweden.

1.1.3 This report is the Final Report.

1.2 Report Structure

1.2.1 The first stage of the report is an analysis, based on publicly

available data, of changes since around 1990 in the performance of urban
transport systems, distinguishing between controlled competition, closed
markets and deregulation (open access), with respect to passenger
numbers, the balance of revenue between fares and subsidies, and
employee numbers. The results of this analysis can be found in Chapter
2.

1.2.2 The report then proceeds to examine specific contract details,

focussing on the roles and responsibilities of the contracting authority
and the operator. The information gathered from this exercise has been

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summarised into a database of all the summaries collected. Chapter 3

also examines some key results arising from an initial analysis of this
database.

1.2.3 Chapter 4 introduces more detailed case studies, covering cities,

countries, contracting authorities and operators. The purpose of the case
studies was to ascertain how contracts have operated in practice, to
highlight areas of good practice and identify where improvements can be
made.

1.2.4 The knowledge accrued from the contract summaries and case
studies has been used to develop guide to contract design and
management in Chapter 5. Its key objectives are to inform those
embarking on such ventures of the options available and to give guidance
on good practice when tendering and preparing contracts/franchises.

1.2.5 Conclusions to the report are presented in Chapter 6. Figure 1.1

overleaf demonstrates the links between the different parts of the report.

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Figure 1.1

REPORT STRUCTURE – OVERVIEW

1. Introduction

Describes the background to the report and how it was

prepared.

2. Statistical Analysis

How effective is competitively tendered compared with

non-competitive public transport ?

3. Contract Summaries and Database

Describes the procedure for summarising contracts

and includes a database and key results

4. Case Studies

How have contracts worked in practice? Detailed studies of

cities, countries, operators and contracting authorities

5. Contract Guide

Gives guidance on contract options and good practice

6. Conclusions

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2. STATISTICAL ANALYSIS

2.1 Introduction

2.1.1 In 2001, the European Commission (EC) collected some data that
found that cities using controlled competition experienced a 1.8%
increase in the annual rate of change in numbers of passenger journeys
compared to a 0.7% decrease for cities without competition in public
transport. Cities using deregulation without significant control by public
authorities experienced a 3.1% per annum decrease in numbers of
passenger trips. The proportion of operating costs covered by fares
increased by 1.7% a year for cities using controlled competition whilst
cities without competition and cities using deregulation without
significant control experienced a 0.3% increase.

CBP gathered data from Jane’s Urban Transport Systems for 43 EU

cities: 29 with no competition, 10 with controlled competition and 4 with
deregulated competition (the data for deregulated cities in the UK were
drawn from the DfT report “Transport Statistics 2001”). The aim was to
review, expand on and validate the analysis undertaken and the
conclusions drawn.

The criteria for city selection were:

- data for at least 6 years (thus enabling a comparison over a five

year period); and

- cities with a population of at least 500,000.

As there were insufficient cities available with controlled competition,

the condition was relaxed for controlled competition cities so that a
minimum population of 200,000 was required.

The next part of this chapter examines CBP’s data and looks at the
various performance indicators. The final part compares CBP’s analysis
with the EC’s and draws some conclusions.

2.2 Dataset

The data gathered for the individual cities contained changes in

passenger journeys, fare coverage and change in employees for the
combined public transport system in the city. Changes between start and

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end years for each city were used to give an annual average percentage
change.

Data were collected that would be able to provide indicators of operating

efficiency and demand for public transport. The key data collated were:

• Passenger journeys

• Vehicle kilometres

• Number of employees

• Fare coverage: operating costs ratio

The initial criteria for including cities was:

- population in excess of 500,000 (but see para. 2.1); and

- at least 6 years of data in order for 5 year comparisons to be

made.

2.3 Data issues and problems

The data used had various associated problems which will have
influenced the findings. The key issues were :

1. Data were constrained by the information that the operator or

authority published. The most recent data available varied from 1999
to 1995. The type of data available varied between city and mode.
Comparisons were only therefore possible where the
authority/operator provided the data and where the data were
available for two different years to enable a change in the efficiency
ratio to be calculated.

2. The data may not always have been consistent. Changes in the
approach to data collection and changes to the network (number of
routes or lines) could have been made, both of which would result in
the start and end periods not being directly comparable.

3. Many other factors can contribute to the performance of the

respective cities or individual modes. Different countries may have
implemented their competitive environments in different ways with
different outcomes. External factors such as population and economic

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growth and changes to transport policy significantly affect public

transport usage.

4. While the data may not necessarily match up with the timing of
introduction of changes to the market structure in all cases , it is
likely nonetheless that where the market change has taken place
during the time-series, it would expected that, given the short length
of the time-series, that the process of planning and implementing of
controlled competition would already be a strong influence on
performance.

2.4 Data Analysis

The data collected have been broken down by the existence of different
forms of competition and by city. The changes in relevant indicators of
public transport performance have been calculated to provide an
indication whether there is an association between competition and
effectiveness.

The 4 deregulated cities were all taken from the UK, as this is the only
EU country where public transport operates in a deregulated market.

Table 2.1 shows the changes in passenger journeys, fare coverage ratios
and the number of employees for cities with no competition over the
range for which data were collected. Table 2.2 shows the same results
for cities where there is an element of controlled competition, or where
public transport has been deregulated.

The CBP analysis found that there has been a small average annual
decrease in passenger numbers of 0.2% for cities with no competition
and an annual increase of 1.7%, where controlled competition has been
introduced. There has been a drop of 2.6% each year with deregulated
competition.

The fare coverage ratio has increased at a slightly higher rate (1.2%) for
cities with controlled competition than cities with no competition (0.5%).
For de-regulated competition, there is also a low increase of 0.1%,
although in these cases fares tended to cover most of the operating costs
already.

There was an average annual decrease in the number of employees of

2.1% in cities with no competition and an increase of 1.2% in cities with
controlled competition. With deregulated competition, data were not
available on employees for the period covered.

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It is important to underline, however, that these data are not statistically

significant.

There is greater variability in changes to average annual passenger

numbers, fare coverage ratio and employees, in the controlled
competition group than in the group with no competition. Changes in
public transport performance indicators depend on a number of possible
factors, only one of which is the introduction of controlled competition.
The results with the lowest variability are with deregulated competition.
This may be because they are all from the same country.

Table 2.1 Average Annual Percentage Change in Key Indicators:

Cities with No Competition.
Start End Passengers Fare Coverage Employees
City
Amsterdam 1992 1999 -0.5% 0.8% 2.2%
Barcelona 1991 1997 -0.5% 3.8% -0.3%
Berlin 1991 1998 -2.9% 1.0% -6.2%
Bochum 1991 1999 2.5% -1.9% -1.6%
Bologna 1991 1996 -5.6% 0.8% -6.8%
Brussels 1991 1996 1.7% 0.2% -0.7%
Cologne 1992 1999 4.5% -1.0% -2.1%
Dortmund 1991 1999 1.5% -2.4% -0.2%
Dresden 1991 1999 -1.5% 0.5% -6.4%
Dublin 1992 1999 1.1% 2.2% 0.9%
Dusseldorf 1991 1999 0.7% 0.0% -1.3%
Essen 1991 1999 0.7% 1.5% 0.6%
Frankfurt 1992 1999 -0.6% 1.9% -3.8%
Genoa 1990 1997 -3.6% 0.6% -3.8%
The Hague 1991 1997 1.6% 0.5% -2.5%
Hamburg 1991 1999 -2.4% -0.8% -2.3%
Hannover 1991 1999 0.1% 1.1% -2.3%
Lisbon 1991 1996 -3.1% -0.6% -4.2%
Marseille 1992 1998 -1.6% 0.7% 0.5%
Milan 1991 1996 -2.2% 2.1% -3.3%
Munich 1993 1998 -0.2% -1.6% -2.5%
Nuremburg 1991 1999 1.9% 0.7% -1.8%
Paris 1992 1999 0.3% 1.4% 0.1%
Porto 1990 1999 -1.8% -1.1% -3.2%
Rotterdam 1992 1997 0.1% 2.2% 2.3%
Stuttgart 1992 1999 1.6% 0.1% -1.8%
Valencia 1991 1997 1.9% n/a 1.0%
Venice 1991 1996 -1.1% 2.3% -2.9%
Vienna 1991 1997 2.4% -1.9% -4.7%
Average -0.2% 0.5% -2.1%
Maximum 4.5% 3.8% 2.3%
Minimum -5.6% -2.4% -6.8%

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Table 2.2 Average Annual Percentage Change in Key Indicators:

Cities with Controlled or Deregulated Competition.
Start End Passengers Fare Coverage Employees
Controlled Competition
Copenhagen 1992 1998 3.9% 1.5% 8.3%
Helsinki 1992 1997 1.0% 1.1% -1.9%
London 1991 1997 1.8% 5.8% -4.1%
Lyon 1991 1997 -0.7% 0.1% -0.1%
Stockholm 1992 1997 1.9% 2.6% 0.0%
Lille 1992 1999 0.9% 1.3% 0.2%
Gothenburg 1990 1996 1.1% 4.0% 0.0%
Bordeaux 1991 1999 -0.2% -4.4% -0.5%
Nancy 1990 1995 -3.2% -0.6% 0.3%
Strasbourg 1992 1997 6.6% 0.3% 8.6%
Average 1.7% 1.2% 1.2%
Maximum 6.6% 5.8% 8.6%
Minimum -3.2% -4.4% -4.1%
Deregulated Competition
Birmingham 1990 1999 -1.4% n/a n/a
Liverpool 1990 1999 -2.4% n/a n/a
Manchester 1990 1999 -2.9% n/a n/a
Newcastle 1990 1999 -3.8% n/a n/a
Average -2.6% 0.1% n/a
Maximum -1.4% n/a n/a
Minimum -3.8% n/a n/a

2.5 Impact on Demand Growth of Public Transport Usage

Table 2.3 shows public transport usage in cities with no competition. On

average, demand for trips per head of population has declined by 0.4%
per annum from 350 to 340 per annum.

This compares to Table 2.4, which shows an increase of 1.1% with

controlled competition from 260 to 270. Demand has therefore remained
broadly stable across all the cities, with no clear relationship between the
scale of usage in a city and the trend in demand.

In cities with deregulated competition, there has been a consistent drop in

passenger journeys per capita across all the cities. Demand has declined
from 150 to 110 trips per head per annum, an average annual drop of
2.6%.

Passenger trips per capita are presented in tables 2.3 and 2.4, to show
demand in the cities. Population data were taken from Jane’s Urban
Transport Systems and are consistent with the other data gathered.

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Table 2.3 Public Transport Usage In Cites without Competition.

Passenger Trips Per Capita
Before After Annual
Change
No Competition
Amsterdam 360 340 -1.1%
Barcelona 280 290 0.5%
Berlin 290 230 -2.9%
Bochum 200 150 -2.8%
Bologna 310 250 -3.7%
Brussels 180 190 1.7%
Cologne 180 230 4.4%
Dortmund 150 180 1.9%
Dresden 310 300 -0.7%
Dublin 170 140 -3.0%
Dusseldorf 320 350 0.9%
Essen 150 170 1.2%
Frankfurt 250 240 -0.8%
Genoa 300 240 -2.8%
The Hague 240 200 -2.2%
Hamburg 220 160 -3.5%
Hannover 270 270 -0.1%
Lisbon 910 830 -1.7%
Marseille 180 170 -0.4%
Milan 650 580 -2.2%
Munich 330 330 -0.2%
Nuremburg 260 300 2.0%
Paris 1,150 1,240 1.0%
Porto 770 820 0.7%
Rotterdam 210 200 -1.2%
Stuttgart 270 310 2.4%
Valencia 160 160 0.2%
Venice 600 570 -1.1%
Vienna 410 440 1.2%
Average 350 340 -0.4%

The figures show that on average, demand for public transport is highest
in cities with no competition for public transport contracts, and is at its
lowest for cities that have deregulated. Some cities, for example, Paris,
show very high trips per capita. This is probably because trips in Jane’s
include trips by people (such as commuters and tourists) not included in
the overall population figures. The key to the impacts is the growth rate
in each city.

Table 2.4 Public Transport Usage In Cites with Controlled or

Deregulated Competition.
Before After Annual
Change
Controlled Competition
Copenhagen 170 210 3.9%
Helsinki 370 370 0.0%
London 280 330 3.2%
Lyon 180 170 -0.7%

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Stockholm 810 830 0.3%

Lille 90 100 0.9%
Gothenburg 190 190 0.1%
Bordeaux 310 310 -0.2%
Nancy 110 90 -4.1%
Strasbourg 110 150 7.3%
Average 260 270 1.1%
Deregulated Competition
Birmingham 160 140 -1.4%
Liverpool 130 100 -2.4%
Manchester 100 80 -2.9%
Newcastle 210 140 -3.8%
Average 150 110 -2.6%

2.6 Conclusions

A comparison between CBP and the commission’s data (see table 2.5)
shows that CBP’s data is broadly in line with the EC’s analysis, although
there are some discrepancies due to the expansion of the datasets.

Table 2.5 Comparison of EC and CBP data on annual average changes

in Public Transport Performance Indicators
Passenger Journeys Fare Coverage
Competition EC CBP EC CBP
None -0.7% -0.4% 0.3% 0.5%
Controlled 1.8% 1.1% 1.7% 1.2%
Deregulated -3.1% -2.6% 0.3% 0.1%

The same trends are observed even if the magnitude is slightly different.
It is therefore reasonable to conclude that CBP’s analysis validates the
work undertaken by the EC.

2.7 Commentary on the Results

Role of External Factors

Changes in cities’ transport sectors are influenced by demographic,

economic and political factors, which vary widely between individual
cities and countries. Methods of introducing controlled competition also
vary between cities and modes and may achieve differing levels of
success.

Changes in the supply-side of the public transport sector in major

European cities are also affected by any number of economic and
political factors. Political decisions about how public transport is used to

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further urban transport strategies are a major factor. In London, for

example, the mayor has cut bus fares to promote their use.

The Process of Introducing Competition

Countries introduce controlled competition at different rates. The UK

privatised its rail operations over two years whilst The Netherlands,
Germany and Sweden have a combination of public and private
involvement and of open and closed markets. There will also be differing
numbers of operators in certain markets depending on their size. For
example in London there are 39 different bus operators compared to 5
private and 1 municipally owned in Helsinki.

Deregulation of public transport has occurred only in the UK and under

the same legislative requirements, and so the data produced make for a
more consistent comparison.

Employee Numbers

The chief impacts have come from the supply-side. In terms of absolute
numbers, cities with no competition have cut staff whilst maintaining
services, whilst employment in cities with controlled competition has
increased slightly.

It is important to note, however, that the number of employees employed

by a company will be determined not only by efficiency measures but
also by the size of the network served and the intensity (i.e. frequency)
with which this network is exploited. Therefore, great care should be
taken in using figures pertaining to employment levels.

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3. CONTRACT SUMMARIES

3.1 Collection to date

A significant element of the study is the collection of actual contracts
between authorities and operators. The consultants have collected 49
such contracts in total. This chapter describes the summarisation
process, the development of a database for these summaries and key
results arising from the database.

The main issues concerning the collection of the contracts are:

• Contract length/complexity - many of the contracts are extremely
long and complex. Some extend to 500 or 1,000 pages. We have
chosen to summarise contracts into a consistent format, in order to
make them more understandable and to illustrate the implications
rather than reproduce the legal jargon.

• Contract Comparability - the outputs to this study are intended to

inform interested parties as to the differences between different
contract types in terms of their contents, application and outcomes.
The summary format will enable users to access and compare what
different contracts say about (for example) variation clauses much
more easily than a reproduction of the entire contract would do.

• Confidentiality - the team have encountered some issues about

confidentiality, people reluctant to discuss contracts, people who
although willing to release the contracts require authorisation from all
the involved parties (difficult to obtain) and people who although
happy to talk about the contracts are not willing to release written
versions.
Table 3.1 lists the contracts collected and their characteristics.
Table 3.1 List of collected contracts
COUNTRY MODE AREA
Germany Rail Westfalen Sud
Germany Rail Oberelbe
Germany Rail Thuringia
Germany Rail Muensterland
Germany Rail Schleswig Holstein
Germany Rail Rheinland Pfalz N
Germany Rail Erfurt
Germany Bus Bad Segeburg
Germany Rail Brandenburg
Germany Bus Steinburg
Germany Rail Rhein-Ruhr
Ireland Air National

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Ireland Metro Dublin

France Combined Lille
France Combined Bordeaux
France Bus Dunkerque
France Combined Toulouse
France Bus Creil
France Bus Perpignan
France Bus Lorient
Italy Rail Rome
Italy Bus Rome
Italy Bus Rimini
Italy Rail Lombardy
Italy Rail Lombardy
China Bus Hong Kong
Australia Bus New South Wales
Australia Rail Victoria
Sweden Bus Stockholm
Sweden Rail Stockholm
United Kingdom Bus Lincolnshire
United Kingdom Bus West Sussex
United Kingdom Bus Cheshire
United Kingdom Bus London
United Kingdom Bus London
United Kingdom Bus Merseyside
United Kingdom Bus Merseyside
United Kingdom Bus Merseyside
United Kingdom Bus Staffordshire
United Kingdom Bus Strathclyde
United Kingdom Bus Strathclyde
United Kingdom Ferry Scotland
United Kingdom Light Rail Croydon
United Kingdom Light Rail Manchester
United Kingdom Rail Chiltern
United Kingdom Rail East Midlands
United Kingdom Rail National
United Kingdom Rail Gatwick
United Kingdom Rail West Midlands

Table 3.2: Contracts by mode

UK GER ITA FRA SWE OTHER

Bus 11 2 2 4 1 2
Rail 5 9 3 1
Metro/LRT 2 1
Combined 3 1
Ferry 1
Air 1
TOTAL 19 11 5 7 2 5

giving a total of 49 contracts.

Each of these contracts has been summarised and they are reproduced in
Appendix A (in English, French and German).

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3.2 Description of and Results from the Collected Contracts

Country
Contracts have been collated from six EU member states: UK, Germany,
Italy, France, Sweden and Ireland. In addition, there are three contracts
from outside the EU (Hong Kong and Australia). These are designated
as N (for Non-EU) contracts in the database.

Mode
Contracts have been collected covering several modes: heavy rail, light
rail/metro, bus, air, ferry and combined (principally bus and light rail).
There are therefore six mode classifications in the database.

Area
The area in the database enables the user not only to focus on
geographical areas of interest but also to determine whether a particular
contract is urban, regional or national in nature.

Contract Type
Classifying contracts needs to strike a happy medium between being
over-complex, which renders a classification system effectively useless,
and over-simplification, which will adversely affect the quality of any
queries made of the database.

The key factors used to determine contract type are risk, asset ownership,
scope, incentive regime and tariff freedom.

Risk
There are three major risks associated with transport operation: revenue
risk (demand is below expectation, service quality is poor, etc.),
operating cost risk (maintenance costs, fuel bills, and so on) and capital
cost risk (purchasing and replacing assets). This last category is dealt
with under asset ownership.

Operating cost risk is usually transferred to the operator whilst revenue

risk may stay with the authority, so that the operator hands over all
revenue to the authority, or else the revenue risk may also transfer to the
operator. The former is classified in the database as gross cost and the
latter as net cost. When the tendering authority retains both types of
risk, this is referred to as a management contract.

Asset Ownership
Assets (infrastructure, rolling stock, and vehicles) may either be the
responsibility of the contracted ownership or else the tendering authority

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may specify what vehicles should be used. Although there are “shades of
grey” in this area, the database will classify contracts as either
“Operator” in the first instance and “Authority” in the second.

Scope
Contracts range in scope from tendering a single bus route to an entire
multimodal urban network. Scope is therefore defined as follows:
• for buses, heavy rail and air: one (route), several (routes) or the
entire network;
• for metro and light rail, all contracts in the database are let on the
basis of the entire network; and
• combined networks will be classified as either several or entire, by
definition.

Incentive Regime
Certain contracts have explicit penalty and incentive regimes for operator
performance measured against targeted outputs. This classification is
therefore limited to yes or no.

Tariff Freedom
An overview of the contract summaries indicates that there are
effectively just two levels of freedom. Some freedom means that the
authority sets maximum fares and the operator is at liberty to price below
these maximum levels and/or introduce new promotional fares. None
applies to contracts in which the Authority sets all fares.

In the case of UK rail services, however, there are some fares which are
regulated by the Strategic Rail Authority, mainly season ticket and Saver
(advance purchase) fares. Other fares, such as “walk on” single fares on
long distance routes, are unregulated. These contracts are classified in
the data base as having some tariff freedom.

3.3 Distribution of Contracts between Gross and Net Cost

Some 45% of contracts are net cost, with the operator taking most risks
for both revenue and costs with the remainder, bar two, being gross cost
contracts.
There is a difference between the two key modes of bus and rail,
however, as table 3.3 demonstrates.

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Table 3.3: Distribution of Gross vs Net Contracts between Bus and

Rail (number of contracts excluding air, ferry, etc.)

Gross Net
Bus 15 8
Rail 7 10

3.4 Scope
The vast majority of contracts are for several routes or the entire
network. Single route contracts generally are only used in a rural (bus)
or regional rail context.

3.5 Contract Length

The average length for rail contracts is 10.3 years (standard deviation1:
4.6) whereas for bus the average contract length is 4.5 years (SD: 1.7).
One reason for the difference may be to do with the life of the assets, as
buses have a significantly shorter life than rail rolling stock. The
contract length for rail services, however, falls far short of the average
life span of rolling stock, which is in excess of 20 years.

3.6 Penalty and Incentive Regimes

Almost all contracts have penalty clauses for underperformance which is
defined in various ways, including punctuality, cancellations and
customer satisfaction surveys. Relatively few contracts appear to include
bonus systems, however. Presumably, contractors, in effect, award
themselves ‘bonuses’ by reducing their operating costs (in almost all
contracts, operating cost risk is borne by the operator). Melbourne
explicitly rewards operators for increasing passenger volumes.

1
Standard deviation is a measure of variability about the mean.

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4. CASE STUDIES

4.1 Introduction
Ten Case Studies were undertaken based on discussions with operators,
tendering authorities and other stakeholders. The purpose of the case
studies was to ascertain how contracts have operated in practice, to
highlight areas of good practice and identify where improvements can be
made. Copies of the Case Studies are at Appendix B and cover
• London
• Helsinki
• Sweden
• Italian rail
• Strategic Rail Authority
• Arriva
• Emilia Romagna
• Strathclyde
• Rome
• Lombardy

This chapter provides a brief overview of the Case Studies main points of
interest.

4.2 Tendering Authorities

The tendering authorities vary in scale from national bodies such as the
Strategic Rail Authority in Great Britain to small regional Counties in
Sweden. They operate under various EC Directives principally relating
to public procurement and national legislation depending on the policy
and strategic goals of the national and regional governments. Whilst
tendering has principally been introduced to reduce costs there has also
often been a desire to increase private sector involvement and
competition in public transport provision. Authorities have tended to
encourage competition for the market rather than within it although there
are examples of the latter in both the bus and rail sectors and between
modes as well. However, the latter is often at the expense of integration
between modes.

4.3 Services tendered

Tendering has mainly covered the provision of local bus services but the
process is being steadily extended to light rail (eg Croydon), metros (eg

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Stockholm), ferries (eg Strathclyde), air services (eg Ireland) and heavy
rail services (eg Great Britain). Rail is the area where the least progress
has tended to be made and outside Great Britain tends to be limited to
local rather than long distance services.

There are several examples of direct competition in rail services in Great

Britain; these examples are principally the result of the tendering system
rather than an explicit desire to have competition within the rail system.
Examples include:

London – Birmingham (two companies on one line and a third on a

different line);

London to Gatwick Airport (three companies using two different London

termini);

London – Ipswich ( identical lines and termini)

London – Glasgow (two companies using entirely different termini and

lines).

4.4 Bus services

A wide range of tendering procedures have been used for bus services
ranging from whole networks through area contracts to individual routes.
The Authority usually retains responsibility for route planning,
timetabling and fares.

4.5 Light Rail/Metros/Trams

The main activity in tendering services has occurred as new lines are
built and brought into service eg Dublin and Copenhagen. Here the
operator may be involved in the consortium building the new line or
come in at the end once the line has been built. However, there are
examples of existing routes or networks being tendered, eg Stockholm
and Melbourne.

4.6 Heavy rail

Heavy rail services have traditionally been the responsibility of the
national state owned rail companies. However, responsibility for funding
local rail services has started to be delegated to regional or local

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authorities as in Germany, Sweden and Italy. This has led to the

tendering of some of these services. Great Britain has gone one step
further by tendering the whole of its passenger rail services.

4.7 Ferry and air services

A wide range of revenue supported ferry services operate throughout the
EU ranging from local estuary crossings to international services. Many
of these supported-services are now tendered, in line with EU legislation.
EU Regulations allow national governments to procure, through
competitive tendering for time-limited contracts, air services on routes
that are not provided commercially. Such services now operate in, for
example, France, Ireland, and Portugal.

4.8 Other services

Many authorities provide special services to meet the needs of the
mobility impaired often using demand responsive services and school
children. The latter especially have had a long history of being tendered
out to the private sector and were often the only bus services operated by
non-publicly owned companies. Coach services have historically been
operated commercially and there are few examples of tendered services.
In Great Britain there is the interesting situation where the main national
coach operator (which is a private company) sub contracts almost all its
commercially operated services to local operators.

4.9 Operators
A similar pattern has evolved in virtually all countries where public
transport services have been competitively tendered. In the bus sector
there tended to be a number of medium sized municipally owned
companies and a large number of small private operators. The former
were either privatised or allowed to bid for contracts outside their area.
This led to a large number of bids as the first contracts were let.
However, over time the sector has rapidly consolidated so that most
markets are dominated by 4-5 companies, often pan-European.
This has resulted in a reduction in competition for future contracts.

Authorities have taken various measures to encourage new entrants

including:
• Moving to gross cost contracts thereby reducing the bidders’ risk

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• Letting route rather than area contracts to encourage smaller

companies to bid
• Requiring bidders to sub contract a certain proportion of services
• Maintaining ownership of local depots and specialist equipment as
lack of access to local depots has been found to be a key entry
barrier.

In Sweden, smaller companies have also grouped themselves into co-

operatives to bid for contracts thereby enabling them to compete for large
contracts while maintaining their independence.

The rail sector was very different with virtually no significant private
passenger operators in most countries before tendering started. This led
to new bidders (either existing management teams or the larger bus
companies). With a few exceptions, rail contracts are now
predominantly held by large multinational public transport operators.

The opposite position has tended to occur with air and ferry services:
these are mostly provided by local small companies rather than by
multinationals. In part, this is due to the small aircraft used for most
tendered air services which tends to favour smaller operators and the
need for local knowledge for many of the ferry services, with little
synergy arising from running a large number of operations that are
spatially very dispersed.

4.10 Tendering
In the vast majority of cases the Authority tendering the service provides
information on
• Service specification ie the route(s) and frequency which they wish to
be provided

• Vehicle specification ie the capacity and characteristics of the

vehicles to be used
Contracts for buses were generally for a three year period although there
is now a move to longer contracts often five years but in some cases up
to ten years.

Air service contracts awarding an exclusive right are subject to a three

year maximum period by EU law. EU law also requires most ferry
contracts to be limited to 5 years. For heavy and light rail far longer
contracts are usual (sometimes in excess of 15 years), depending on the
scale of capital investment required.

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4.11 Risks and Rewards

Overall, there is a tendency for contracts to be let on a gross cost basis.
There are a number of reasons for this including:
• Reduces the need for expensive customer surveys to allocate revenue
between operators where there are extensive off-bus revenues (for
example, where tickets are widely available through other operators –
a ticket bought at a railway station which is valid on buses operated
by another party – or through non operators, such as retail stores).
• Reduces risk for the operator thereby encouraging more bids for the
contract
• Fares are usually set by the Authority thereby reducing the scope for
operators to significantly increase patronage and revenue.

However, it soon became apparent in many locations that gross cost

contracts incentivised operators to reduce costs at the expense of service
quality. Authorities therefore began to build into their contracts
incentives and penalties depending on performance. These can either be
contract extensions or cash payments or deductions. In some cases the
operator also retains a share of additional revenue achieved over and
above a certain target level. Operators complained however that many
incentive payments did not cover what they believed to the key measure
of their performance and that was patronage. (Again a problem for
Authorities is that this requires expensive passenger surveys to
accurately assess numbers carried.)

These issues are covered in much greater depth in the Guide to

Contracting (Appendix C).

4.12 Quality Monitoring

This initially tended to focus on key outputs such as reliability and
punctuality. However, as greater emphasis was placed on quality issues
this has been extended to include customer surveys to collect information
on softer issues such as
• Driving standards
• Information provision
• Cleanliness of vehicles
• Helpfulness of staff etc
This information is used either to enable Authorities and operators to
discuss areas of concern or to calculate penalty or incentive payments.

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4.13 Potential Improvements

Similar patterns have occurred across Europe with the tendering process.
When services were originally tendered the key issue tended to be
reducing costs and this was done successfully with substantial savings of
up to a third. However, it is now recognised that this was at least in part
at the expense of quality. As contracts have been renewed quality
standards have been raised with contract specifications now covering in
more detail a wide range of quality issues covering
• Vehicle specification especially with regard to accessibility
• Reliability and punctuality
• Information provision on board and off vehicles
• Staffing and training

Authorities have also tried to identify barriers to entry and reduce them
wherever possible to increase the level of competition.
As the easiest cost cutting measures have already been achieved, the
level of competition reduced and the requirement in new contracts for
improved quality standards, tender prices have risen in the UK faster
than inflation in the last few years according to a report by the
Association of Transport Co-ordinating Officers.2

Where Authorities used the initial cost savings to reduce their overall
transport budget this has led to problems as they are unable now to
procure the same level of service provision as previously. More
enlightened authorities such as Helsinki used cost savings to the benefit
of all stakeholders by splitting them three ways to increase service
provision, reduce fares and reduce the overall level of subsidy. Tender
cost increases can therefore be more easily handled as the Authority has
retained within its budget the majority of past cost savings.

With the tendering of new light or heavy rail lines it is important to have
the operator involved during the construction stage to ensure the built
system can be operated efficiently. There are a number of examples
where the operator is unable to provide the level of service it desires due
to cost cutting measures during construction which in the long term result
in reduced revenues or higher operating costs. One example is the
Croydon Tramlink; because of cost over-runs, economies in the later
stage of development included putting in single rather than double track
in some places. The result is that the speed and frequency of service are
restricted.

2
please see http://www.atco.org.uk/policy/contpr00.htm for more details

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5. GUIDE INTRODUCTION

5.1 Purpose and Organisation of Guide

The European Commission has introduced a proposal for a Regulation of
Public Service Requirements in Public Passenger Transport. This will
require that whenever an authority awards an exclusive right and/or
operating cost subsidy, that it does so through a public service contract.
The Regulation will also require the opening of most remaining closed
public transport to "controlled competition".

This Guide to Contract Design and Management provides a practical

information source for authorities and operators who are either facing the
need to contract for the first time or who are interested in improving how
contracts are awarded and managed.

Specifically, it informs those embarking on such ventures of:

(a) the options available; and

(b) good practice when:

- tendering;
- negotiating contracts;
- designing contracts/franchises and
- managing those contracts once in place

In this first chapter: a number of important terms are defined; the various
types and categorisations for contracts are listed (and their defining
features summarised); and the decision-making process when designing a
contract is outlined.

The Introduction is followed by:

(a) An overview of contracts for public passenger transport (Chapter

2).

(b) Analysis of the key policy issues and how these interact with
different contract types (Chapter 3);

(c) Analysis of key contractual issues which can be included within

most contract types (Chapter 4)

(d) some important considerations with regard to tendering (Chapter

5);

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(e) key issues relating to contract management and monitoring

(chapter 6)

(f) conclusions (Chapter 7).

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5.2 Definitions
For the purposes of this Guide the term:

(a) "Controlled Competition" refers to the awarding of an exclusive

right to operate a route, or a number of network routes, to a single
operator (or possibly consortium) following a competitive
tendering process - along with the exclusive right, the authority
may also grant subsidies to the successful operator in
compensation for the fulfilment of public service requirements;

(b) "Authority" refers to a publicly-owned organisation with a legal

responsibility to provide and/or regulate public transport services
in a specified geographic area;

(c) “Operator” is used to denote the company operating the public

transport services, irrespective of whether services were tendered
or how this tendering took place;

(d) "Net Cost Contract with Investment (NCCI)" refers to a contract

(normally also for a fixed period of time) that involves operators
providing, in addition to the more normally specified public
transport services, both the required vehicles/rolling stock and
any fixed infrastructural facilities - for example, in the case of:

- bus operators - depots (and perhaps bus stops)

- rail operators - some combination of track, depots and/or
stations

(e) "Deregulation" refers to a situation in which operators are largely

free to enter and exit the market for transport services at will -
though in certain circumstances, there may remain fixed periods
of notice for start-up and service withdrawal and caps on the
maximum fares that might be charged.

5.3 Other Information sources

This Guide has been produced as part of a research study for DG TREN
which included the collection of a number of contracts between
authorities and operators. Summaries of these contracts have been
placed in a database available through ELTIS.

The study team also undertook a number of interviews with authorities

and operators which have helped to inform the analysis presented within
this guide. Interviews were held with, inter alia:
- Arriva;

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- Strathclyde Passenger Transport Executive;

- Transport for London;

- Croydon Tramlink;

- Department for Public Enterprise, Ireland;

- Stockholms Lokaltrafik; and.

- Svenska BusbranchenRiksfoerbund
A full list of contacts made and meetings held by consultants:
Bruno Ginocchini, Gustavo Minguzzi, Regional Agency for LPT,
Bologna

Benedetta Sevi, Department of Infrastructure and Mobility. Region

Lombardy

Gianni Scarfone, Technical Committee for Management of Contract,

FNME Spa, Milano

Carlo Scoppola, Francesco Salvelli- Atac Spa, Roma

Andrea Boitani, Contract Management Committee, Rome

Pier Luigi Martini, Tram Agenzia, Rimini

Sergi Amadori, Tram Servizi Spa, Rimini

Lars Nordstrand, Head of Business Development, Stockholm Transport

Kenneth Burre, Contracts Manager, Stockholm Transport

Marta-Lena Schwaiger, Svenska Lokaltrafikföreningen (Swedish Public
Transport Association)

Ian Morton, Development Executive International, Arriva plc

Tony Depledge, Development Director, Arriva plc

Rory O'Connor, Railway Procurement Agency, Dublin

Mohamed Mezghani, Director (Programs and Studies), UITP

Cécile Sadoux, Manager (Programs and Studies Department), UITP

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Hilary J Howatt, Policy Development Manager, Strathclyde Passenger

Transport

Malcolm Reed, Director General, Strathclyde Passenger Transport

Herr Bernd Wewers, LVS Schleswig-Holstein Landesweite

Verkehrsservicegesellschaft mbH

Herr Uwe Brücher, Connex Regiobahn GmbH

Herr Bernd Siemer, Verkehrsverbund Ostwestfalen Lippe

Herr Gorka, Landesnahverkehrsgesellschaft Niedersachsen mbH

We are very grateful for the assistance provided by all the above
organisations, but the opinions presented are exclusively those of the
consultants.

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