Competitive Tendering for Bus Services: The Improved Adelaide Model

Abstract

In 1994 the Government of South Australia initiated a process to contract out scheduled bus services in metropolitan Adelaide. The services, which currently involve use of about 760 buses that carry 47 million passengers per year in a service area of 880 square kilometres, had been operated by a Government organisation. Services were contracted out primarily on an areas basis, with ten area and four route contracts. By 1996 two contracts had been awarded to a private operator and three to the Government operator following two rounds of competitive tendering. Remaining services were provided by the Government operator through negotiated contracts. A review of the bus contracting system was undertaken in 1998, and features of the system modified, including a reduction in the number of contracts to six area and one route contract. All seven contracts were subsequently competitively tendered and won by private operators: the new contracts commenced in April 2000. The refinements to the Adelaide M odel secured greater interest from industry and keener pricing, which resulted in substantial cost savings. In developing the revised model, particular attention was paid to supplier market considerations. This included the division of responsibilities for service planning between the tendering authority and operators, and incentive structures to align operator objectives with Government goals in relation to service level, service quality and patronage. A number of other aspects of the former model were also revised. The paper also summarises the impacts of the overall competitive tendering process on costs, services and patronage. It draws out lessons learned that may be applicable to other authorities contemplating competitive tendering of public transport services.