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

Allocation of Risks and Responsibilities
A gross-cost area-contract defines the bus services to provided by the bus operator on a given pre-selected area.

The bus operator provides the vehicles to operate the bus services, some, or most, of the facilities for the bus services and the staff for the vehicles and facilities.

The planning responsibility for establishing fares, levels of service and service quality is retained by the transport authority.

The core attributes of a gross-cost area-contract are really three-fold:

The area (the 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.
Payments

The area
In a gross-cost area-contract the transport authority grants to the bus operator the exclusive right to provide bus services in a specified area (or two or more specified areas). The obligations of the parties here are mostly in relation to the right of the bus operator to operate in that area exclusive of all other bus operators.

The bus operator is to operate in that area, object of the contract, and no other area and not to deviate from it without a legitimate excuse. The bus authority is obliged to respect the exclusivity right it has granted to the bus operator (i.e. by not awarding the same area to a different bus operator) and to enforce that exclusivity right against other bus operators.

The area must be identified in the contract, or in a schedule or annex to the contract, with reference to:

Its geographical boundaries.
A detailed description of any route running through it that has been awarded to another bus operator.
A description of essential terminal points, stopping places within the area, if any.
Minimum total kilometers to be operated within the area.

The bus services
The categories and details specifying the bus services will depend on the exact allocation of responsibilities between the transport authority and the bus operator. When most of the planning responsibility is retained by the transport authority (i.e., the transport authority defines all the details of the services and the bus operator need only comply with these), the contract, through its various schedules and annexes, will have to address the following categories and details specifying bus services:

Equipment
Personnel
Scheduling
Fares
Obligatory insurance
Service quality
Who pays whom for what?

Equipment
Specific requirements found in the contract can include (beside the number of vehicles, obligations relating to the proper maintenance of the vehicles and vehicle-types):

Vehicle length and maneuverability
Speed and engine output performance
Minimum capacity — total or seated
Engine type or fuel type, fuel emissions and noise characteristics
Stowage/luggage facilities
Vehicle age — average or maximum
Vehicle technical condition
Internal and external lighting
Appearance (external identification marks, such as color)
Display of licenses, certificates etc.
Destination and route number displays
Visibility of steps, handrails and other internal support
Climate control, including air conditioning
Entrance/exit layouts, step heights
Low-floor area
Facilities for mobility of impaired persons, wheelchair lifts, parking and restraining points

Personnel
Specific requirements to be found in the contract can include:

Whether the bus is driver-only or requires a fare collector
Specific driver skills and accreditation
Uniform or livery requirements

Scheduling of bus services
Specific requirements to be found in the contract can include:

Detailed timetable
First and last trip times (as an alternative to a detailed timetable)
Service intervals by time of day (as an alternative to a detailed timetable)
Days when the services are, or are not to be, provided
Definition of timing points
Definition of interchange and timed transfer points
Days in which special services apply
Periods of increased or decreased services (holiday periods, school terms)
Vehicle type to be assigned by area, trip, time of day or section of area
Peak vehicle requirement
Level of standby vehicles as reserve or available on request

Fares
Specific requirements to be found in the contract can include (see the reform objectives section for more detailed information):

The applicable tariffs
Fare collection processes
A full listing of all the ticket types that are to be issued and/or accepted
A detailed description of how each ticket type is to be processed, including conditions of use, means of identification, and information to be collected
A full listing of all concessionary travel and discounted fares to be applied, what restrictions apply, and what information should be collected

Obligatory insurance coverage
Specific requirements to be found in the contract can include:

Minimum coverage for equipment and facilities
Coverage for workers’ compensation
Coverage relating to liability arising out of carrying passengers (i.e. injuries to passengers)
Coverage for third party liability (pedestrians, other vehicles)

Service quality
Specific service quality requirements are one of the most important aspects of any gross-cost area-contract. This is where the transport authority sets out its expectations for the quality of the bus services to be provided by the bus operator.

Most importantly, it identifies its main objectives in terms of service quality, it sets targets to achieve them, and it identifies performance trigger points for the paying bonuses or levying penalties.

Provisions to be found in the contract can include:

The objectives that the transport authority considers paramount, which are identified as such in the contract. Safety, reliability and punctuality are usually favored objectives.
The system used to grade those objectives, for example:
1. Ideal or premium service
2. Very good service
3. Designated level of service
4. Acceptable, but unlikely to attract any new customers
5. Undesirable, implement mitigating actions immediately
6. Unacceptable under any circumstances
The target values, which can include any or all of the following:
- the reference target value(s)
- the value(s) that trigger bonuses
- the values(s) that trigger penalties
- the value(s) that lead to early contract termination
- the value(s) that entitle the bus operator to ask for automatic renewal of the contract
Progressive improvements in the target values during the course of the contract’s life. This happens especially when a contract can be entered from a position of relatively low service quality, on the understanding that the bus operator will implement continuous improvement as he receives the benefit of secure and predetermined payments under the contract.
The monitoring and enforcement provisions.
How bonuses and penalties are calculated.

Compensation
The important question of who, between the transport authority and the bus operator, pays whom for what in a gross-cost area-contract is addressed in the payments section.