Area Contract (Net Cost) / Legal Aspects

Legal Aspects
Under a net-cost contract the operator provides a specified service for a specified period and retains all revenue. The authority pays a subsidy to the operator if the bus services in an area are unprofitable. If the services are profitable, the authority pays the operator a royalty.

Tendering documents and the net-cost contract itself are the two most important legal instruments for reforming a bus system under a net-cost area-contract system.

Tendering
The success of a net-cost area-contract depends not only on getting the general contract design and individual provisions of the contract right, but also on devising an appropriate method for awarding the contract. competitive bidding is usually deemed the best option.

The net-cost area-contract
The main purpose of the net-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 core attributes of an area contract (net cost) 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.
Who pays for what.

Monitoring and enforcement
A net-cost area-contract should contain realistic and effective provisions for the monitoring and enforcement of its terms. Like many other provisions contained in the contract, the contents of the monitoring and enforcement clauses must balance various conflicting needs and interests.

Dispute resolution
A net-cost area-contract should also have provisions for resolving disputes. Negotiation, litigation and arbitration are the three primary ways to resolve disputes.

Duration
Most contracts specify that they will end at some predetermined date in the future (with or without the possibility of renewal) and that, in certain circumstances, they may end even earlier. In this respect a net-cost area-contract is no different than most contracts.