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Performance-based quality contracts in bus service provision


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  • Hensher, David A.
  • Stanley, John
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    Institutional reform of the bus sector is a topical discussion item in a number of countries at present. A specific focus is on ensuring a value for money (VM) regime to identify the benefits to society associated with each dollar of subsidy support from government. This paper promotes the position that a performance-based contracting (PBC) regime offers the best prospects of achieving a system-wide VM outcome. It proposes a reward system for bus operators that combines payment for delivering a minimum level of service (MSL), that meets government community service obligations, plus an incentive regime that rewards operators for patronage increases (above MSL patronage levels). The patronage incentive is based on expected user and external benefits deriving from service improvements and patronage increases. Cost benchmarking at relevant best practice levels is proposed as essential to ensure remuneration is based on efficient cost levels. The paper argues that a PBC approach is consistent with maximising social surplus from public transport provision across a geographic area, for any given budget constraint and regulatory imposed minimum service levels. The main alternative, competitive tendering (CT), is argued to be less attractive than PBCs in terms of securing the maximum social surplus to the community, given the total amount of subsidy support available, although CT is an appropriate non-compliance condition. This paper is a companion to Hensher and Houghton [Hensher, D.A., Houghton, E., Performance-based contracts for the bus sector: delivering social and commercial value for money, Trans. Res. B, in press] that details the economic framework and an application of PBCs.

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    Article provided by Elsevier in its journal Transportation Research Part A: Policy and Practice.

    Volume (Year): 37 (2003)
    Issue (Month): 6 (July)
    Pages: 519-538

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    Handle: RePEc:eee:transa:v:37:y:2003:i:6:p:519-538

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    Cited by:
    1. Stanley, John & van de Velde, Didier, 2008. "Risk and reward in public transport contracting," Research in Transportation Economics, Elsevier, vol. 22(1), pages 20-25, January.
    2. Astrid Cullmann & Mehdi Farsi & Massimo Filippini, 2009. "Unobserved Heterogeneity and International Benchmarking in Public Transport," Discussion Papers of DIW Berlin 960, DIW Berlin, German Institute for Economic Research.
    3. Tétreault, Paul R. & El-Geneidy, Ahmed M., 2010. "Estimating bus run times for new limited-stop service using archived AVL and APC data," Transportation Research Part A: Policy and Practice, Elsevier, vol. 44(6), pages 390-402, July.
    4. dell'Olio, Luigi & Ibeas, Angel & Cecin, Patricia, 2011. "The quality of service desired by public transport users," Transport Policy, Elsevier, vol. 18(1), pages 217-227, January.
    5. Tri Joewono & Hisashi Kubota, 2007. "User satisfaction with paratransit in competition with motorization in indonesia: anticipation of future implications," Transportation, Springer, vol. 34(3), pages 337-354, May.
    6. Henning, Theunis F.P. & Muruvan, Sugandree & Feng, Wanhua A. & Dunn, Roger C., 2011. "The development of a benchmarking tool for monitoring progress towards sustainable transportation in New Zealand," Transport Policy, Elsevier, vol. 18(2), pages 480-488, March.
    7. Hooper, Louise, 2008. "Paying for performance: Uncertainty, asymmetric information and the payment model," Research in Transportation Economics, Elsevier, vol. 22(1), pages 157-163, January.
    8. Agostino, Deborah & Steenhuisen, Bauke & Arnaboldi, Michela & de Bruijn, Hans, 2014. "PMS development in local public transport: Comparing Milan and Amsterdam," Transport Policy, Elsevier, vol. 33(C), pages 26-32.
    9. dell'Olio, Luigi & Ibeas, Angel & Cecín, Patricia, 2010. "Modelling user perception of bus transit quality," Transport Policy, Elsevier, vol. 17(6), pages 388-397, November.
    10. Clark, Derek J. & Jørgensen, Finn & Mathisen, Terje Andreas, 2011. "Relationships between fares, trip length and market competition," Transportation Research Part A: Policy and Practice, Elsevier, vol. 45(7), pages 611-624, August.
    11. Gordon, Cameron & Mulley, Corinne & Stevens, Nick & Daniels, Rhonda, 2013. "How optimal was the Sydney Metro contract?: Comparison with international best practice," Research in Transportation Economics, Elsevier, vol. 39(1), pages 239-246.
    12. Mokonyama, Mathetha & Venter, Christoffel, 2013. "Incorporation of customer satisfaction in public transport contracts – A preliminary analysis," Research in Transportation Economics, Elsevier, vol. 39(1), pages 58-66.
    13. Mathisen, Terje Andreas & Solvoll, Gisle, 2008. "Competitive tendering and structural changes: An example from the bus industry," Transport Policy, Elsevier, vol. 15(1), pages 1-11, January.
    14. Gordon, Cameron & Mulley, Corinne & Stevens, Nick & Daniels, Rhonda, 2013. "Public–private contracting and incentives for public transport: Can anything be learned from the Sydney Metro experience?," Transport Policy, Elsevier, vol. 27(C), pages 73-84.


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