How and How Not To Contract For Better Transit Service

Posted on December 5, 2017 by Paul Lewis - Also by this author

A view from Slussen, an area in central Stockholm. Photo: Wikimedia Commons/Arild Vågen
A view from Slussen, an area in central Stockholm. Photo: Wikimedia Commons/Arild Vågen
After enjoying a long period of ridership growth and expansions of rail and bus networks, American transit has found itself in a mess. Transit ridership fell in all but two cities in 2016, local budgets are stagnant, and riders are demanding higher quality services. While there are some domestic examples of how agencies are innovating, agencies must begin looking beyond the border.

Similar to the U.S., Europe, and Australia typically use public authorities to plan, manage, and pay for transit services in urban areas. A key difference is that few of them actually operate and maintain the trains and buses in-house. Private companies operate nearly all agency services through a competitive process. The agencies hold them accountable by leveraging financial bonuses and penalties for exceeding or failing to meet agency standards.

A new report conducted by Transit Center and Eno Center for Transportation analyzes how contracting can be done successfully, and what agencies should avoid. Photo: TransitCenter
A new report conducted by Transit Center and Eno Center for Transportation analyzes how contracting can be done successfully, and what agencies should avoid. Photo: TransitCenter

In partnership with TransitCenter, Eno investigated the use of contractors in the transit industry in "A Bid for Better Transit: Improving Service with Contracted Operations." The report details six case studies in Europe and North America that examine when and how agencies engage with private contractors, how contracting can be done successfully, and what agencies should avoid.

The report found three lessons that agencies should keep in mind when contracting their service:

1. Government cannot contract out the public interest. Government is uniquely positioned to prioritize high-quality, affordable, equitable, sustainable, and safe transit access to its citizens. It’s no secret that transit is publicly subsidized around the world to meet these goals. But private companies must strive for profitability — a fundamentally different operating model. Keeping these distinct goals in mind, private contracting should be designed to expand, rather than constrain, government’s ability to advance the public interest. For example, European labor protections at the national level provide foundational ground rules for contracting and offer a strategic opportunity to facilitate more transformational change. Public goals for increasing ridership, improving service quality, assisting environmental sustainability, and enabling equity can be codified into a contract, making the profit motive meet the public sector goals.

2. Clear contracts can align contractors’ profit motive with agency goals. Public agencies that contract service must clearly articulate their goals and set specific performance standards for private contractors. London contracts each of its bus routes on a five-year term, and sets a target for reliability, using what it calls “excess wait time.” Contractors that exceed the target receive bonus payments. Thanks to these measureable goals and the financial incentives behind them, reliability of the bus network has improved dramatically over the past 15 years. In Stockholm, the public agency gives contractors broad flexibility to design routes and frequencies that maximize ridership. If contractors can exceed ridership goals, they receive bonuses. Since ridership became the primary financial incentive, it has grown by more than 20%.

3. Symbiotic agency-contractor relationships can improve operations and foster innovation. Agencies in Oslo regularly engage their contractors on strategic issues, not just operations, and these contractors bring valuable knowledge from the other cities. Stockholm presents one of the clearest cases of staffing changes intended to complement, rather than duplicate, contractor skills. Allowing contractors to focus on operations can enable agencies to focus more on policy and planning to benefit their riders, while contractors serve as the agency’s “eyes and ears” in daily operations.

Countless case studies show that when cost reduction is the goal, riders suffer.

As agencies in the U.S. search for options to improve their struggling services, contracting should be considered as an option. However, it cannot be exclusively a means to cut costs or undermine the workforce. Countless case studies show that when cost reduction is the goal, riders suffer. But when an agency focuses on service and broad public goals, competitive forces can bring new innovations to the table where agencies lack technological or financial capacity. For example, subsidized Uber-like service in certain areas rather than traditional buses. Or a new fleet of cleaner buses that also provide better information to customers.

Contracting out transit service is hard work requiring specialized skills, but  agencies that internalize and heed this report’s recommendations will gain powerful management strategies — and transit riders will be the key beneficiaries.

Paul Lewis is VP, Policy and Finance, at the Eno Center for Transportation. He has led policy projects related to federal policy, transportation planning, and transportation governance.

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