Scenarios and tendering models John D Nelson Almada Workshop 12th March 2013
Structure of Presentation ● The EPTA context ● Regulation v Deregulation: GB experience ► Application of the Structure Conduct Performance Model ● Tendering and Contract models ● KPIs for monitoring contract performance ● Conclusion
The EPTA Feasibility Study Approach The primary objective for EPTA is to assist authorities in small / ● medium areas to design efficient Public Transport Authorities to meet the needs of society in the most cost effective manner. The EPTA approach is characterised by the following actions: ● 1. Identification of 7 pillars 2. Identification of existing practices 3. Knowledge exchange between partners 4. Aid to decision making process 5. Exploring potential transferability of results to aid other areas 6. Consistent evaluation of results across all sites The Feasibility Studies should address the functions contained in the ● EPTA Pillars and there should be an emphasis on demonstrating how the FS will help sites develop and improve their role as local PTAs.
EPTA 7 Pillars ● Each FS site will be working to the EPTA structure using the 7 pillar topics to focus their actions.
Regulation ● The powers of any PTA are governed by the legislation covering the modes and structure for the organisation ► Regulation should be performed in close co-operation with the Local Government to allow the fulfilment of guidelines given by policy-makers
Tendering / Awarding ● The objective of tendering is to establish that the tendering authority (often a PTA) can obtain the best value for money for providing the level of service that it wishes to operate. ● The Tendering / Awarding procedure is a crucial opportunity for a skilled PTA to establish criteria and grounds for fruitful co-operation with operators ● The 2 main Contract Models used in Europe are Gross Cost and Net Cost
Control ● Control of contract activity is one of the most delicate issues for a PTA as the cost of the operation itself can create a waste of resources without producing service improvements for citizens. ● It is important that the PTA can control and manage the contract for the full period of operation. The PTA should consider including rewards and penalties in the conditions of the contract.
Regulation v Deregulation Many countries are looking to cut the cost of providing transport ● services by encouraging deregulation ► on the road ► off the road: e.g. competitive tendering. Many PTAs have restructured to separate the operation and control ● functions. This allows the PTA to contract services without conflict of interest. In Europe some countries have deregulated or privatised their bus and ● train services. The public transport market structure and regulation is summarised at: http://www.arriva.co.uk/arriva/en/about_arriva/strategy/business- models/ In 1986 the UK deregulated its bus market to create a competitive ● framework and take the industry away from state ownership.
Case Study: 1985 Transport Act, Great Britain ● 1983 Conservatives re-elected: ► “Only complete de-regulation would allow free testing of innovation and secure and sustain cost savings” ● Route Service Licensing abolished from October 1986 (except London Transport) ● Public money could only be provided to sustain services that could not operate on routes or at times viably under free-market conditions ● More resources in to “quality” (to alleviate safety worries) ● Over-provision of services not considered likely ● Privatisation of National Bus Company (80K staff, 20K vehs at peak – largest bus company in the world) http://www.opsi.gov.uk/RevisedStatutes/Acts/ukpga/1985/cukpga_19850067_en_1
UK Intra-Urban Bus Market before and after 1985 Before deregulation - stable structure - little or no price competition - high level of subsidies NBC and municipals - government co-ordination - low innovation rates - high levels of financial support - regular renewal of fleets - quality and quantity - low cost awareness - high wage rates barriers to entry through - little consumer orientation - decreasing patronage road service licencing - little innovation - high cost operations - stable networks - high employment levels - unionised workforce - high absenteeism amongst staff Structure Conduct Performance - less stable structure with many new - fierce price & non-price - reduced subsidies (long term) entrants (short term) in many local bus competition (short term) - increased innovation rates networks - some price & non-price - less renewal of fleets competition (long term) - increased stability: fewer operators - decreased wage levels & increased company size (l.t.) - less financial support - decreasing patronage - quality restrictions through - increased cost awareness - lower operating costs operator licences - increased consumer orientation - falling number of employees - no quantitative market - service/vehicle innovations - better quality of service entry barriers - network fragmentation - increased cost of efficiency - increased bus-km operated - higher rate of change to services After deregulation Derived from: Dodgson and Topham (1988)
Consequences of Deregulation ● Reduction in passenger numbers ● Increase in vehicle-kilometres operated ● Significant reduction in operating costs ● Initial passenger uncertainty ● Initial minibus “revolution” ● No flourishing of small operators ● Industry more concentrated with emergence of big transport groups (FirstGroup, Stagecoach, Arriva, National Express, Go-Ahead)
Passenger Journeys for Local Bus Service by Area (Transport Statistics Great Britain, 2006) Millions 2500 2000 1500 london Patronage other met areas rest of england scotland and wales 1000 500 0 1985 1990 1995 2000 2005 2010 Year http://www.dft.gov.uk/pgr/statistics/datatablespublications/tsgb/ http://www.dft.gov.uk/statistics/series/buses/
Tendering ● The objective of tendering is to establish that the tendering authority (often a PTA) can obtain the best value for money for providing the level of service that it wishes to operate. ● The Tendering / Awarding procedure is a crucial point where a skilled PTA can establish criteria and grounds for fruitful co-operation with operators based on Quality, Efficacy and Efficiency. ● It is important that the tendering process is understood and agreed by all stakeholders. ● The 2 main Contract Models used in Europe are Gross Cost and Net Cost
Contract Models (UITP, 2011) Contract Models used in Europe ● Contract Gross Cost Contract Net Cost Contract Management Contract Risk Borne Transport Operator Transport Operator Transport Operator By Authority Authority Authority Industrial ✓ ✓ ✓ Risk (costs) Commercial ✓ ✓ ✓ Risk (revenues) Source: UITP - A Vision for Integrated Urban Mobility: Setting up your Transport Authority. http://www.uitp.org/publications/index2.cfm?id=7
Contract examples (PTEG, 2010) Superincentive contracting: the operator is granted a substantial level of ● service design freedom during the awarding procedure and during the contract, the minimum service requirements are specified by the Authority in a functional way (i.e. services to be produced are specified according to a set of accessibility norms that have to be realised for a specific population, area or town, rather than according to routing and timetable), the operator carries revenue risk and is stimulated to grow ridership by powerful financial incentives related to realised ridership, the contract does not include any fixed annual payment ► Dutch bus contracts Net-cost contracting: the operator is granted some service design ● freedom during the awarding procedure and during the contract, the minimum service requirements are specified by the Authority in a functional way, the operator carries revenue risk, the operator is granted a fixed annual contractual payment (‘subsidy’) and is incentivised by some additional financial incentives to improve its services to the passenger (customer satisfaction, ridership growth, etc.) ► Dutch bus and rail contracts; UK rail contracts
Contract examples (PTEG, 2010) ● Gross-cost contracting: the operator has no service design freedom, the Authority fully specifies the services to be provided (although the operator could suggest frequency increases), the operator does not carry any revenue risk but is stimulated by some financial incentives related to service quality criteria (e.g. punctuality) ► London bus market; Denmark and Sweden http://www.pteg.net/NR/rdonlyres/7760B2F2-E2C5-4372-88AA- E43378AB5431/0/PTtenderinginNL20100723small.pdf
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