Opinion Pieces: What is happening with bus contracting?

Opinion Pieces: since 2007, Prof. David Hensher has written an opinion column in the Australasian Bus and Coach magazine, where he monthly discusses a lot of different transport-related hot topics. In this section we are revisiting these columns.

August 2012

There is a new wind blowing in metropolitan Australia linked to a new suite of polices for public transport – particularly bus – contracting which have not taken advantage of the accumulated body of evidence globally on the best way to secure continuous performance improvement and value for taxpayers money.

Comments in the media from so called specialists in transport that competitive tendering is the way to go are uninformed in respect of gains achievable by simply placing private bus operators out to competitive tendering. We know after many years of experience throughout the world that serious cost gains to the funder will only occur when a public monopoly is put out to tender and this cost reduction is a once off windfall gain even if it is up to 30 percent. Subsequent rounds of competitive tendering have been shown to deliver little if any cost gains to the funders. Indeed, if the costs of disruption and tendering are taken into account, these exceed the benefits. Even in Australian this is the case – as shown in Adelaide.

In NSW, plans were being put in place to introduce negotiated performance based contracts with benchmarking in the contracts for the private bus operators but it seems that the well experienced public servants have retired or departed.In NSW I forecast that had the Government proceeded with negotiated performance based contracts with the effective benchmarking process which has been developed but never implemented (which would also have satisfied the Auditor General), a cost efficient outcome ($per km) would have occurred (in the sense of delivering lower costs per km than currently to a level which is likely to be what competitive tender will at best dver) and the contract would have provided all the right incentives to deliver continuous improvement through a trusting partnership.

Instead, the Government in NSW is proceeding with competitive tendering although only for metropolitan private operators but not the outer metropolitan operators. This is a strange set of beliefs that allows what can be good in contracting to be seriously affected by location.

Sadly I believe this industry in NSW is heading to cost escalation, will definitely suffer from loss of trust in the government and be wary of partnerships. The approach to contracting in NSW, with the tender documentation only being available to bidders, looks set to give no gain in cost efficiency but high risk of service decline.

Are the politicians and their public servants being the ‘new broom’ and wanting to be seen to be putting their stamp on the system in at least three States without treating the evidence more seriously? I hope I am proven wrong!

Food for thought