Towards a simplified payment formula as a reference point for bus contract negotiation or assessment

Abstract

The burgeoning commitment to contracting the delivery of bus services through competitive tendering or negotiated performance-based contracts has been accompanied by as many contract payments schemes as there are contracts. With the accumulation of experiences throughout the world, we are now in a position to identify a few key features of the diverse suite of payment formulae, in order to propose a simplified payment formula that has the potential to capture the majority of ‘desirable’ characteristics from a social and a commercial perspective. This formula may then be the basis for a reference point in contract negotiation or assessment. Setting aside the myriad of caveats and variations of existing contracts, this paper reasonably assumes that there are substantive common elements which capture the majority of variations in total cost per bus kilometre and cost per passenger, and can be used to establish a starting position to implement a simplified contract. We illustrate how a simplified reference payment formula might be calibrated and applied to calculate gross cost per passenger which incorporates gross cost per bus km, per hour and per peak bus, as well as passengers per bus kilometre. The paper overall offers a way forward to move towards an objective way of assessing the costs of delivering bus services with a simplified payment formula in the contract.