Contracting for buses

The Ministry of Transport is consulting on the Public Transport Operating Model.

Sounds boring as all heck, right?

You can submit on it via a survey, and boy are there some worrying questions in there. 

Let's step back a minute and consider the problem first. 

Wellington in particular screwed up its bus service. I have not seen the RFP or contracts that Regional Council put out for the bus service, but it's easy to diagnose the problem from the symptoms.

Here are the symptoms:

• Bus services that are frequently cancelled for want of drivers;
• Complaints about driver pay;
• Concerns about there not being enough drivers. 

Any doctor can tell you the most likely cause of those symptoms. 

If the contract for service imposes low penalties for missed services or poor standard of service, relative to what the bus company would have to pay in higher staff costs to avoid having missed services or poor standards of service, then the bus company will optimise by running a lean staffing model. 

Bus companies compete to provide the service. Given the terms of the contract, the one able to deliver the desired service, and desired here means "follow the terms of the contract and respond to the incentives it provides in ways that are utterly predictable to the person writing the RFP if the person writing the RFP isn't an idiot", will be the one doing so at lowest cost. 

This isn't a problem of greed, or of the bus company putting profits over people, or of the bus being privately run rather than publicly owned - it's none of that. And it isn't a problem either of choosing the lowest-cost bidder either. 

The problem the contracts had to have set very low penalties for missed services. Just think about it for a minute. If it were cheaper for the bus companies to hire on more staff so there'd always be someone ready to take on a shift if a driver came up sick, that's what they'd be doing, right? Because they care about their bottom line. If it's cheapest to eat the fines and pay less, that's what they'll do. If the fines were higher, they'd eat the higher staffing cost instead. 

Now an important consequence of that higher-fine model would be that the bus company would have to make more on the route - whether through higher fares or higher council subsidy for running the route. How do we know that? We know that because the cost to the bus company would go up. 

So my diagnosis is that council was contracting on the cheap, not wanting to wear the higher costs either in fares or in route subsidies required for levels of service consistent with community expectations, and then foists blame on the contracting model, on the bus company, or on neoliberalism. 

Given that diagnosis, the potential solutions offered up in the MoT work are a bit wanting. 

They're looking at going back to public sector ownership, living wage mandates and the like. 

It misses the point. 

A living wage mandate might be a nth-best solution to the problem in that the bus company would be able to hire as many staff as the company would want at that wage, but it wouldn't solve the problem of the bus company not wanting to roster staff in case of staff not showing up. It would make that problem worse, unless the fines for dropping a service went up. Why? Because the cost of keeping extra staff around in case relievers are needed would be higher. So you might have fewer no-shows, because staff would be more worried about having to shift to some other job that pays less well, but you'd have fewer relievers ready to deal with no-shows, and there will still be an optimisation on how many relievers to keep on in case of sickness days. 

And public sector ownership doesn't solve anything either if the underlying problem is Council not wanting to stump up enough for a reliable service. 

Then there's a bunch of other stuff in the document about making it mandatory to run electric buses, despite transport being in the ETS, and about whether Councils should own and provide the bus depots to facilitate electrification. 

If this thing follows the fashionable direction of travel, we're going to wind up higher cost public transport without the desired improvements in service.