Area Contract (Gross Cost) / Legal and Regulatory Framework / Gross-Cost Area-Contract / Allocation of Risks and Responsibilities

General Contract Design
The gross-cost area-contract document
The main purpose of the gross-cost area-contract is to set down in writing the agreement reached between the transport authority and the bus operator as to their respective rights and obligations. It should be the primary reference that regulates their business relationship.

The gross-cost area-contract should be complete, unambiguous, and able to be understood without recourse to extraneous material. Because the duration of the gross-cost area-contract may extend over a period of years, the contract should also make reasonable provision for events that may occur over the course of its life, such as:

How the bus operator is to provide new or different bus services in a changing market.
How the parties will settle disputes.

Some cities implement their gross-cost area-contracts by way of legal instruments which, while not styled contracts, are nonetheless contracts for all intents and purposes. This is especially true of concession agreements and franchises.

The gross-cost area-contract as a standard–form contract
The gross-cost area-contract is usually the result of a competitive bidding process, whereby the transport authority selects the bus operator based on the best offer it receives for managing and operating the area and bus services specified in the tendering documents.

It will generally be one of many such contracts, assuming that the transport authority is tendering many areas and that different bus operators bid on different areas. The contract document itself will most often be a standard-form contract, containing set clauses, used repeatedly by the transport authority. It will have only slight additions or modifications to meet the specific requirements involved.

Therefore most terms and conditions remain similar from one contract to the next. Only the schedules attached to the contract’s main body will change significantly. A standard-form contract is useful in cutting down preparation costs. It also enables both the transport authority and the bus operator to become familiar with its terms and conditions and understand clearly how the contract is meant to work.

Additionally a standard-form contract provides consistency among all the contracts entered into by the transport authority with various bus operators.

A gross-cost area-contract should be divided into two parts:

Standard terms and conditions common to all gross-cost area-contracts as part of the main body of the contract.
Specific terms and conditions attached to the main body of the contract as schedules or annexes.

The contents of the gross-cost area-contract
The details of a gross-cost area-contract are not easy to simplify. But it’s not difficult to outline the core elements:

The area (object of the contract).
The bus services to be provided in that area and the equipment, facilities and personnel to be used in providing them.
Who pays whom for what.

The terms and conditions of a gross-cost area-contract will be specific to the area and bus services to which they relate. While terms and conditions need to be tailored to the exact requirements of the transport authority and the actual or anticipated ability of the bus operator to meet those requirements, a number of features will be common to all gross-cost area-contracts.

Common features of all gross-cost area-contracts

Defining the transport authority-bus operator relationship and the role each party plays.
The scope of the bus operator’s authority and control, if any, over such matters as service quality (including type of vehicles), timetables, fares, etc.
The process for monitoring and enforcing the contract.
Staffing and personnel issues.
The various payments under the contract.
The liability of the parties.
Settlement of disputes.
Contract duration.

How the exact terms and conditions of the gross-cost area-contract are arranged and presented can vary according to:

The individual needs of the situation.
The applicable laws and customs in force in a given country or municipality.
The existence of available precedents
The individual preference of the drafter.