Disruption Costs in Bus Contract Transitions

Abstract

This paper investigates the role of assessment criteria in assisting members of the competitive tendering evaluation committee to choose their preferred operator, be it the incumbent or a new operator. In a world where there are increasing numbers of jurisdictions moving to competitive tendering for their land based public transport, there is an increased incidence of a change in operator when the term of the contract comes to an end. In many jurisdictions, the anecdotal evidence on the disruption caused by this change in operator is growing. Is there a danger that Government decides to stay with a bad outcome because previous experience with transition was bad? Or conversely, might Government opt for a transition simply on the basis of the bid offer price without taking account of the transaction (especially disruption) costs involved for government, operator and the travelling public? We investigate this issue using a stated choice experiment in which members of evaluation committees are presented with a series of alternative operator bids that include, ex ante, a measure of the transition costs identified as a proportion of the lowest offer for the contract, and two proxy descriptors of operator reputation. The outcome of the experiment is modelled as a mixed logit choice model to identify the role that the transition costs play in influencing the preferences of evaluation committee members, providing evidence for the first time on the extent to which the often unreported role of such transition costs, perceived or real, appear to play in the minds of competitive tender evaluation.