Value for Money in Procurement of Urban Bus Services -- Competitive Tendering versus Negotiated Contracts: Recent New Zealand Experience

Abstract

The new Public Transport Operating Model (PTOM) recently introduced by the New Zealand government for local public transport services involves a mix of competitively-tendered and negotiated bus contracts in the main metropolitan areas. Most features of the procurement procedures and almost all the contract terms and conditions are common to both types of contract. This has provided a rare opportunity internationally to compare the impacts of the alternative procurement methods on contract prices. The paper analyses the prices for the tendered and negotiated bus contracts in NZ’s two largest metropolitan areas, Auckland (50 contracts, c.1100 buses) and Wellington (16 contracts, c.400 buses). Key findings are that: (i) for the tendered contracts, significant cost reductions were achieved compared with previous tendering rounds, reflecting the considerable increase in the number of bidders per contract; and (ii) for the negotiated contracts, (gross) costs averaged about 10-15% higher (Auckland) and 30- 35% higher (Wellington) than the equivalent tendered costs. These cost disparities reflected the weak position of the regional councils in their contract negotiations with the operators, as a result of the councils not having recourse to tendering as a fallback negotiating position and coming under considerable time pressures to introduce the new services.