Suggested citation: Marcucci, E., Valeri, E., Stathopoulos, A.

,
Gatta, V. (forthcoming) Local public transport, service quality and
tendering contracts in Venezia, E., (a cura di), Urban Sustainable
Mobilit, Franco Angeli, Milano.

LOCAL PUBLIC TRANSPORT:

SERVICE QUALITY AND TENDERING CONTRACTS
Eva Valeri1, Amanda Stathopoulos2,
Edoardo Marcucci3, Valerio Gatta4

1. Introduction
Public transport is of extreme relevance for ensuring a sustainable
modal distribution in urban areas across the globe (Hensher 2007). Local
Public Transport (LPT) policies generally promote collective sustainable
mobility in metropolitan areas encouraging travellers to give up mobility
with their private vehicle. In recent times much attention has been placed
on the quality of LPT services. A gradual loss of LPT market shares,
especially in urban centres, is due to its specific characteristics such as low
frequencies in certain areas/hours, lack of flexibility, privacy and
inconvenience. These LPT features reduce its capability to respond quickly
to the changing market needs. As a response to some of these deficiencies,
the last two decades have seen public transport industry involved in a
process of competitive regulation, economic deregulation and privatization.
Tendering contracts5 (TC) have emerged as the preferred policy tool. Their
1 University of Trieste, eva.valeri@phd.units.it.
2 University of Trieste, amandairini.blombergstathopoulos@phd.units.it.
3 University Roma Tre, emarcucci@uniroma3.it.
4 University Sapienza, valerio.gatta@uniroma1.it.
5 Competitive tendering refers to the awarding of an exclusive right to operate a route, or a
network of routes, to an operator (or possibly a consortium) following a competitive process
(ICLEI 2003).

aim was to achieve cost efficiency and cost effectiveness to identify the
mix of inputs used to produce a given level of output at the lowest cost6.
Service quality control in TCs is a way to ensure both cost savings as well
as a predetermined service quality level for consumers.
This paper highlights the importance of service quality control in the
LPT industry. In particular, we illustrate a method to measuring service
quality taking a consumers perspective into account. Finally, we study the
relevance of including service quality control systems into TCs.
The paper is organized as follows. We begin with a historical overview
of quality in the LPT sector, with attention to the role given to service
quality provision by legislators. After over viewing the evolution of quality,
we focus on different methods employed to measure service quality, in
particular the Stated Preference (SP) approach. Moreover, we point to the
importance of including contractual controls of the service quality levels in
TCs. In the third section we overview empirical studies analyzing service
quality using discrete choice models. A discussion section concludes.

2. Quality in local public transport

The first actions to introduce the notion of service quality coupled with
the idea of a citizens right to a certain level of service quality for local
public services emerge in the early 90. The British Citizens Charter along
with the Public Services Charter in France and the Public Administration
Charter in Spain are crucial documents addressing all public service
stakeholders (such as customers, citizen taxpayers, planning authorities,
employees and operators) to guarantee the quality and efficiency of these
services.
In particular, LPT was among the first areas where service quality
levels, including its monitoring and quantification, has been investigated.
The underlying idea was that by improving the service quality it would be
possible to attract more users to the LPT. A larger reliance on public modes
would contribute towards solving several problems such as congestion,
pollution, noise, etc., associated with private transport.
6 For further analysis of the competitive tendering effects on operating costs and subsidies
in public transport refer to Bekken et al. (2006), Alexanderssson et al. (1998), Johansen
(1999), Longva et al. (2005) and Wallis and Hensher (2005).

Given the waves of liberalization and deregulation processes and the

general increase in public expectations regarding quality, LPT operators
have felt a strong need to radically overhaul previous regulatory and
organizational frameworks. For many years these companies have operated
in a static environment independent from customer expectations and
needs. In recent times, a process of change has started. Many LPT operators
are increasingly active in emphasizing the importance of delivering highquality services to customers (Cunningham et al. 1995, Friman 2004, Ieda
et al. 2000). Furthermore, they seek to implement ways or/and tools to
assess and monitor the level of service quality provided to measure the
performance and effectiveness of transport service. This allows the
operators to improve the service quality offered along with the efficiency
and cost effectiveness.

2.1 European Commission initatives

The concept of service quality in public transport has received great
attention from the European Commission (EC). The Directorate General
DG VII of the Commission shows a strong interest in this issue, funding a
series of initiatives (IV and V Framework Program) aiming to implement
tools for the development and measurement of total quality of service
provided.
In the following we briefly point out the earliest and most significant
initiatives taken by the EC:
ISOTOPE (Improved Structure and Organization for Transport
Operations of Passengers in Europe): its focus was on analyzing LPT
organizational structures in European countries. It started 1996 and
finished in 1997;
QUATTRO (QUality Approach in Tendering urban public
TRansport Operations): it formalized useful information and
recommendations for TPL operators to improve quality through the
use of Benchmarking techniques. The project was active between
December 1996 and May 1998;
PILOT (Pilot Benchmarking Exercise): in 1998 it established the
benchmarking value and promoted its importance as a useful tool for
European public authorities and operators;

 EQUIP (Extending the Quality of Public Transport): it has prepared a

handbook to enable the self-assessment of the service quality level
within the transport passenger area in urban areas.
An experts team (CEN) was created to standardize procedures and to
implement efficiency and quality indicators in order to promote a
qualitative approach to LPT activities and to focus on consumers
preferences and needs.

2.2 National initiatives

There are numerous initiatives by LPT operators to pursue efficiency,
effectiveness and cost control of the service. However in many cases, these
were not automatically translated into qualitative improvements of the
system.
The European framework is fairly homogeneous. Overall, British and
Scandinavian countries have given more attention to quality control and its
inclusion in TCs. In particular, the Copenhagen Transport Authority is the
foremost example of a systematic use of customer surveys as a basis for
monetary incentives for LPT operators (Muren, 2000).

3. Service quality and measurement

In recent years, institution, companies and academia have gradually
focused their attention on service quality and the passengers customer
satisfaction. In particular, public transport, since long dominated by a
production-oriented approach, is tending towards a customer-oriented
approach. This change underlines and reiterates the importance of
analyzing and measuring service quality in view of the fact that an
improved service quality might attract more users. For this reason, the
development of service quality measurement techniques is necessary
especially for LPT service contracts.

3.1 Measuring service quality

In the literature many service quality aspects are studied. In this section
we focus on the methods to measure service quality. This aspect is very
complex due to the specific characteristics of LPT, such as intangibility,
heterogeneity and inseparability of production and consumption
(Parasuraman et al. 1985). The issue is even more complicated due to the
use of several measurement methods (subsequently identified).
First of all, one needs to discuss data collection methods. Customer
satisfaction surveys, usually implemented with a questionnaire, are the
most common tools to measure service quality and data are generally
gathered through different conceptual models, such as: the SERVQUAL
method (Parasuraman et al. 1988, Deveraj et al. 2002, Hartikainen et al.
2004, Lai 2006, Too, Earl 2009), the SERVPEF method (Cronin, Taylor
1992), the Normed Quality (Teas 1993) and the Zone of Tolerance
(Zeithaml et al. 1993). In particular, the SERVQUAL method is a multiitem scale for measuring service quality and to determine the relative
importance of the different dimensions influencing customers overall
quality perceptions on a seven-point Likert scale. The main idea is to
identify the gap between expectations and perceptions. It identifies the most
salient quality dimensions for each target market and compares itself to the
competition in terms of strengths and weakness regarding these particular
dimensions (Parasuraman et al. 1988).
Another way to obtain data for measuring service quality is based on
SP analysis that overcome some critical factors linked to the use of scales.
These include: psychometric problems, conceptual basis and difficulty in
translating evaluations into quantitative measures (Gatta, Marcucci 2007).
In particular, quality is linked to the utility achieved by the consumers. The
utility of each choice alternative is composed by a systematic and a random
component. The framework theory is the Random Utility Theory (RUT),
originally proposed by Thurstone (1927). Here, service quality dimensions
(attributes) are needed to diversify the hypothetical alternatives.
Furthermore, the data processing techniques should be discussed. There
are two main categories of techniques for determining the relative
importance of the attributes considered (Eboli, Mazzulla 2008):
i) multivariate statistical analysis: quadrant and gap analysis, scatter
graphs, factor analysis, cluster analysis, bivariate correlation, etc.

(Akan 1995, Berger 1993, Bhave 2002, Cuomo 2000, Hartikainen et

al. 2004, Hill 2000-2003, Kano et al. 1984, Zeithaml et al. 1986);
ii) model-based techniques: discrete choice models (Ben-Akiva, Lerman
1985, McFadden 1975-1981, Train 2003, Cascetta 2001, Cherchi
2003), regression and structural equation models (Bollen 1989,
Coelho 2003, Grnoldt, Martensen 2005).
In this paper we focus on the latter category. Particular attention is paid
to SP studies and to discrete choice models (Eboli, Mazzulla 2008, Gatta,
Marcucci 2007, Prioni, Hensher 2000, Hensher 2001, Hensher, Prioni
2002, Hensher et al. 2003). Multinomial or mixed logit models can be
employed to estimate attribute coefficients. A Service Quality Index (SQI)
is estimated by appropriately considering the impact different attribute
levels have on customers utility. This index shows a global customer
satisfaction on behalf of the users based on customers preferences (Gatta,
Marcucci 2007). The SQI is an aggregate indicator of the total output of
numerous service attributes as perceived by each passenger. For this
reason, attribute identification and selection are strategic and relevant steps
to which the maximum attention needs to be given. The SQI quantification
supports the economic regulator and LPT operators to benchmark service
effectiveness (Hensher, Prioni 2002).

3.2 Incorporating quality indices into tendering contracts

Having pointed out the importance of quality both in the LPT industry
and in TCs, the present section proposes ways in which quality and its
control could be insert in TCs. On this issue there is a substantial literature
(Muren 2000, Kennedy 1995, Alexandersson et al. 1998, Laffont, Tirole
1993, White, Tough 1995).
The definition and identification of a SQI would allow us to review the
competitive tenders structure to take into account improvements of service
quality (Hensher, Prioni 2002). Muren (2000) conclude that to control and
verify service quality, in particular for LPT, it is desirable to include it in
the TCs, as in Scandinavian countries and in London. Kennedy (1995) and
Alexandersson et al. (1998) find cost savings attributable to the
introduction of service quality specifications in the TCs both in London

bus system (-20%) and in Swedish local bus services (- 10%). Controlling
service quality levels in these contracts, in addition to improving the
service itself, could be a way to reduce costs by offering appropriate
incentives to LPT operators.
With reference to the method of inserting SQI into the tendering
process, Hensher and Prioni (2002) discuss ways that regulatory authorities
could utilize the SQI in the contract design phase to specify how much
service improvement they demand compared to current levels. In cases
where multiple LPT operators provide service in the same area, knowing
the SQI of each LPT operator, the regulatory authorities may require the
LPT operators to adjust their performances to the best SQI level achieved.
Alternatively, they can define a target level potentially reached by bidders
that may be also incentive compatible (Hensher, Prioni 2002). The authors
point out, moreover, that it is appropriate to consider predefined
improvements using the SQI + z7 formula like shown in Table 1.
Tab. 1: Including SQI targets in the contract design

Current Service Description: Attributes

Bus
Clean
Travel
Operator Reliability fare Enough
time etc.
25
2 minutes
2.1
60%
1
minutes...
late
26
1 minutes
2.4
78%
2
minutes...
late
21
1 minutes
2.0
80%
3
minutes...
late

SQI target after

2.5 5
Realised
yrs yrs
1.4

1.6

1.8

1.3
2.0

Source: Hensher, Prioni 2002, pag. 107

In Table 1, the SQI is composed by four attributes: reliability, bus fare

level, level of cleaning and travel time. Regulatory authorities can decide
not to vary these attributes or to allow operators to update them when
conditions are changed. In the second case the operators must always match
their performance against previous SQI targets.

The z value may be determined through negotiation between the institution and
the operators.

4. Empirical studies
Over the past years LPT service quality has become a widely studied
topic. A substantial portion of the literature has focused on measuring
quality via SP methods that reflect the importance of perceived service
quality from a users perspective. In this section hence we highlight this
kind of studies.
According to these studies, the notion of service quality may be defined
by a wide range of attributes. A first difficulty lies in describing some of
these, more abstract features. Indeed while travel time, frequency of
departure and fare are all easily defined this might not be the case for
information provision, reliability or driver attitude (Paulley et al. 2006).
An important contribution is offered by Prioni and Hensher (2000),
Hensher and Prioni (2002) and Hensher et al. (2003). These authors carried
out a pilot survey for the Institute of Transport Studies (ITS) in 1999 on
urban and suburban passenger transport investigating the role of trade-off
methods. Hensher and colleagues proposed an approach to quantify a SQI
for the Australian bus industry. Thirteen attributes, each with three levels,
were used. Estimating a Multinomial Logit (MNL) model these attributes
were all statistically significant, in particular service reliability, bus fare,
access time and travel time. The results of these papers enable the
identification of significant attributes, their weights and their contribution
to the SQI. Indeed they defined and quantified SQI level for each segment.
Moreover, Hensher and Prioni (2002) operationalized the SQI as a
regulatory tool specifying how this index may be included and monitored
in TCs (as shown in section 2.2). Estimating a MNL model, they provided
recommendations on how quality could be built into a possible future
government performance assessment regime, including calculating value
for money in commercial bus contracts. This would also give insights into
the effectiveness of service levels from a passengers viewpoint and
identify which service aspects are working best and which need more
improvement. Hensher and colleagues (2003) compared the service quality

levels within and between bus operator. They estimated a Nested Logit
(NL) model.
In Italy, Gatta and Marcucci (2007) conduct a SP survey (choice-based
conjoint analysis8) to study five different geographical areas in the Marche
region. They obtained a measure of service quality by defining a SQI both
for each area and overall. The estimates were achieved through both MNL
and NL. They considered 5 attributes (bus fare, delay, frequency, travel
time, availability) respectively with 5, 5, 3, 3 and 5 levels. As expected, bus
fare, delay and travel time were found to be sources of negative utility
while service frequency and service availability offered positive
contributions. In particular, service availability is the most important
attribute in explaining user satisfaction in each segment. In fact, increasing
the amount of time between service inception and service closure has the
greatest effect in improving the SQI. Recently Eboli and Mazzulla (2008)
implement a SP experiment to measure service quality of public transport
in Cosenza (Italy) for a specific category of users: students from the
University of Calabria. The authors conducted an empirical procedure to
simulate user choices. All attributes in the MNL model showed the correct
sign and were all statistically significant at the 95% level of significance. In
particular, with respect to the 9 attributes considered, the parameter of bus
fare and frequency had the highest values in the model. Improvements of
service quality could be quantified as a consequence of an improvement of
the service quality attributes. The utility of each alternative hence
represents an SQI of each bus package and the parameter values are the
attribute weights.

Conclusion
The present paper had two main purposes. Overall we highlighted the
relevance of measuring LPT service quality. After pointing to the attention
that the notion of quality has received, both at the European level and from
individual nations, we overlooked the different methods to measure service
8 Choice-based conjoint analysis is a decompositional SP method which involves the
administration to a individuals sample of a series of choice exercises. Each choice exercise
consists on multiple profiles that are combinations of attribute levels controlled by the
design of experiment administered.

quality. In particular, we stressed the need of specific and appropriate

methodologies for assessing the quality of services. Special attention was
paid to SP methods and discrete choice modelling as the basis for the
estimation of a SQI index. The second objective was to underline methods
to include service quality control systems into TCs. In the literature there
is general agreement defining the TCs such as the best tools to achieve
cost efficiency and cost effectiveness following deregulation and
liberalization processes. For this issue, especially Hensher and Prioni
(2002) and Muren (2000) provided valuable guidance.
Illustrations of empirical studies have supported the previous
statements. Particularly Hensher and Prioni (2002) have dealt both with the
SQI definition and its inclusion in TCs. They underline the relevance of
considering SQI in the design of TCs thus ensuring not only cost
efficiency but also service effectiveness for LPT operators.

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