Other Revenues
The other revenue sources in private contracts for bus operations are similar to those for a public monopoly. However, private operators may use their own source of funds to purchase buses and make infrastructure investments.

Using the financial model for vehicle purchases
In gross-cost route- and area-contracts, the private operator is normally responsible for providing and maintaining its bus fleet. The private operator recovers this cost through the authority’s periodic compensation as agreed in the contract plus the fare revenue.

In net-cost route- and area-contracts, the private operator assumes the risk that farebox revenues plus the agreed contract amount are sufficient for its income to cover operating and vehicle purchase costs.

During preparation of net-cost route- and area-contract tender documents, the financial model may assist the authority to determine whether farebox revenues alone are likely to be sufficient to attract bids, or whether the private operator should also collect other revenues. Most likely, the authority will allow the private operator to collect whatever revenues generated by bus system assets are legally available to the private operator to supplement farebox income.

One of the advantages of the net cost route and area contracts is to allow private operators to use their entrepreneurial creativity to benefit financially from bus operations. The authority has to match the entrepreneurial profit motive with its fiduciary responsibility to provide the highest quality bus service at the lowest possible cost to riders and taxpayers.

Capital revenues
In many net- and gross-cost route- and area-contracts, the private operator provides the buses. This may require investment for new vehicles unless the private operator can provide the quality of vehicle specified in the contract with the existing bus inventory. In some cases, the authority may provide financial support for vehicle purchases.

It may be necessary to allow the private operator to have access to authority capital funding sources or loan guarantees. This will depend on several factors:

• Contract quality of vehicle requirements (e.g., type of bus, loading factors, service frequency).
• Current fare levels and their ability to generate operating income to cover any debt service payments associated with private bus purchase loans
• Extent of government subsidies for current operations and the expected reduction in subsidies resulting from private operator efficiency gains.
• The extent of competition among potential private operators for the authority’s net-cost route- and area-contracts
• The ability of the authority to monitor private contracts, especially in regard to compliance with bus maintenance and safety contract specifications.

See also
Funding sources
Farebox revenue