Reader mailbag: Bus contracting edition

A little while back, I'd suggested that the problem with Wellington's buses wasn't whether the operator was private or public, but rather the contracts under which they were operating. 

Shortly after, I received a helpful pointer in the reader mailbag, but have only now had a chance to hoist it up here.

Bus services in the main centres used to be run by municipalities – plus Railways Road Services in some areas. The industry was regulated: you couldn’t run in opposition to the licence holders even if you wanted to. When the government deregulated urban bus services, it also forced the municipalities to sell their fleets and to contract for the services they wanted, with the contracts awarded basically on price. 

The effect of the first contract round was to reduce costs by around 30%, which in most cases was translated into improved services. The contracting model adopted enabled operators to register services commercially, then the public transport authority would go out to tender for any additional services it wanted. Contracts were net, which meant that the operator provided the service and collected the revenue and was paid a fixed sum per month to cover the difference. If an operator missed a service or the service was unreliable, the operator suffered the loss in revenue. Since the operator kept the revenue, there was a strong incentive to try to attract passengers and indeed patronage grew significantly. Operators registered services commercially if they could as it gave them control of the service – contracted services might pay better, but when the contract ended you might lose the contract to someone else. 

But the bureaucrats didn’t like them at all. Particularly in Auckland where they were seen as inhibiting the introduction of connecting buses for the new rail services and making integrated ticketing difficult. So they persuaded the government to change the operating model to give the commercial services to the councils. The other thing the bureaucrats didn’t like was that under net contracts, the operators had profited from the increase in patronage that had accompanied privatisation. 

So the new public transport operating model (PTOM) changed to gross contracts, where all the revenue went to the transport authority and the operators were just paid a price per kilometre for running the buses. Under PTOM, the operator doesn’t have to worry about the passenger any more unless the contract contains penalties or incentives. Getting the penalties and incentives right is difficult. The buses that connect with the trains at Paraparaumu didn’t wait for trains that were running late as the bus operator would cop a late running penalty. And as you say, the penalty for failing to operate is insufficient to warrant the operator fixing the problem. 

To my mind the best solution is to revert to the original net contract model.