Title

PERFORMANCE-BASED QUALITY CONTRACTS FOR THE BUS SECTOR: DELIVERING SOCIAL AND COMMERCIAL VALUE FOR MONEY

Document Type

Journal Article

Publication Date

2004

Subject Area

planning - service quality, economics - benefits, mode - bus

Keywords

Value for money, Sydney (Australia), Subsidies, Social costs, Social benefits, Service quality, Quality of service, Quality assurance, Private sector, Private enterprise, Performance, Passenger service quality, Motor bus transportation, Level of service, Intercity bus transportation, Incentives, Externalities, Contracts, Bus transportation, Bus transit operations

Abstract

In bus reform initiatives, it is important to establish a value for money (VM) regime to ensure that operators deliver the best possible services levels to the market, consistent with stakeholder needs and government objectives. A key underlying feature of VM is identifying the social benefit associated with each dollar of subsidy support from government. This paper reviews the elements of a VM regime within the setting of an incentive-based performance contract, and develops a formal framework for establishing optimum subsidy based on system-wide maximization of social surplus. The maximization of social surplus is subject to a number of constraints, including the commercial imperative of the operator, minimum service levels under community service obligations (CSO), and a fare and subsidy budget cap. An important feature of the performance-based contract (PBC) regime is a passenger trip-based incentive payment scheme linked to user and externality benefits that incorporates a subsidy per additional passenger trip above the patronage delivered under service and fare levels compliant with CSO. In this way, rewards to operators are revealed through the fare box, through increased consumer surplus and through reductions in negative externalities such as those associated with the use of the car. Data from private operators in the Sydney metropolitan area is used to illustrate the implementation of a PBC regime. PBCs can be designed to accommodate both the transition from an existing regime and post-transition growth strategies, and is flexible enough to be applicable under a large number of regulatory and operating regimes.

Comments

Transportation Research Part B Home Page: http://www.sciencedirect.com/science/journal/01912615