Scenarios and tendering models John D Nelson Almada Workshop 12th - - PowerPoint PPT Presentation

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

• stable structure

NBC and municipals

• quality and quantity

barriers to entry through road service licencing

• government co-ordination
• high levels of financial support
• stable networks
• little consumer orientation
• little innovation
• low cost awareness
• little or no price competition
• decreasing patronage
• high wage rates
• regular renewal of fleets
• low innovation rates
• high level of subsidies
• high employment levels
• high cost operations
• high absenteeism amongst staff
• no quantitative market

entry barriers

• less stable structure with many new

entrants (short term) in many local bus networks

• fierce price & non-price

competition (short term)

• service/vehicle innovations
• increased consumer orientation
• less financial support
• some price & non-price

competition (long term)

• increased stability: fewer operators

& increased company size (l.t.)

• network fragmentation
• increased cost awareness
• reduced subsidies (long term)
• increased innovation rates
• less renewal of fleets
• decreased wage levels
• decreasing patronage
• lower operating costs
• falling number of employees
• better quality of service
• higher rate of change to services
• increased cost of efficiency
• increased bus-km
• perated

Before deregulation After deregulation Structure Conduct Performance

• unionised workforce
• quality restrictions through
• perator licences

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)

500 1000 1500 2000 2500 1985 1990 1995 2000 2005 2010 Year Patronage london

• ther met areas

rest of england scotland and wales

http://www.dft.gov.uk/pgr/statistics/datatablespublications/tsgb/

Millions

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 Management Contract Gross Cost Contract Net Cost Contract Risk Borne By Transport Authority Operator Transport Authority Operator Transport Authority Operator 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

Quality Partnerships in Great Britain

Quality Bus Partnership (QBPs)

• Voluntary partnership

► The Local Authority usually concentrates upon providing infrastructure to enhance the attractiveness of the bus product ► The Bus Operating Companies usually concentrate on providing an improved service with a high standard of vehicle, customer service and frequency ► Can be on a formal or informal basis

Quality Partnership Scheme (QPSs)

• Statutory partnership

► The Local Authority is legally responsible for providing and maintaining facilities to enhance the attractiveness of the bus product ► The Bus Operating Companies using the facilities are legally responsible for providing vehicles of the standard specified by the Local Authority ► The Local Authority can not impose service/frequency requirements on the Bus Companies

• Quality Contracts

► Area franchising

Tyneside Superoutes (A QBP)

Branding Superoutes

Contract 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.

Contract Management

• Key Performance Areas

Area Example Cost efficiency $/km Service quality and customer Satisfaction Service Quality Index Safety and Security Incidents/km Network efficiency/effectiveness Pax/km Environment CO2/pkm Social inclusion/Affordability/Welfare % publicT Accessibility Generalised cost/capita Compliance Contract fulfilment Revenue management/protection Fare loss/pax

Nelson and Merkert (2012) http://www.sciencedirect.com/science/article/pii/S0739885912000674

Conclusions

• 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.

• Regulation, tendering and contract management are

fundamental functions of a PTA

• A wide variety of experience can be found from across

Europe

• Whatever the regulatory regime the role of performance

management is crucial

Contact Details

Prof John Nelson

Centre for Transport Research University of Aberdeen, Scotland

► Tel: +44 1224 272354

j.d.nelson@abdn.ac.uk Dr Steve Wright s.d.wright@abdn.ac.uk