Regulatory voids and contractual folly – the evolution of competitively tendered regional rail networks in Sweden

Abstract

The Covid-19 crisis highlighted the prevalence of contract disruptions in Sweden’s public bus transport sector and a couple of issues of more general importance. The first observation is that voids in regulatory structures give more or less leeway to open up misalignments between contract complexity and follow-up. The second observation is that contract design, in terms of complexity and completeness, has an impact on the possibilities of fulfilling a contract without major disruptions. The more complex a contract is, the more difficult it is to monitor. The third observation is that the complexity and completeness of contracts in public transport evolve over time. In this paper we take a closer look at these three issues in the evolution of contractual relations in the market for regional trains in Sweden, using case studies from the greater Stockholm region. In these rail networks, it is evident that both the process of competitive tendering and contract design have changed from the first tenders more than twenty years ago. Nearly all changes have been initiated by the regional authorities procuring the train services. For example, there have been changes in how train operating companies are remunerated, ownership and maintenance of rolling stock, the bidding process, contract length, and rules concerning employment of train drivers. The downside of the alterations has been a series of contract failures, resulting in cost increases, poor service quality and missed opportunities to improve the railway networks. This highlights the need to further investigate the role of regulation and regulators. If there is a regulatory void, it allows the contracting parties to enter into a contractual relation with an incomplete contract that may fail if something unforeseen happens. Stricter regulations can potentially improve the execution of contracts in such situations.