Area Contract (Net Cost) / Legal Aspects / Legal and Regulatory Framework

Legal and Regulatory Framework
The regulatory framework that governs this system design is bound to differ from country to country, and even from one municipality to another. So it’s not possible in a general compilation, such as this toolkit, to review the regulatory framework governing a net-cost area-contract as it exists in any particular country or municipality. However, it’s possible to identify the following key regulatory elements common to most countries and municipalities.

Enabling laws
A state will enact a law to create a municipal government. Under the same or different law, the state will grant the municipal government the right to regulate urban bus transport within its territory. These same laws will often give the additional power to provide bus services , either in conjunction with others or on an exclusive basis.

For large cities the state may sometimes retain direct control over bus services, and exercise control through a ministry. It may also create by law a separate public transport authority to regulate or provide bus services in a specific urban territory that encompasses one or more municipalities. Often this statutory public transport authority will be responsible for regulating or providing urban transport services, not only by bus, but also by any combination of available means.

Unless it becomes necessary to differentiate between them, all these entities (the state, the separate public transport authority and the municipal government), will be referred to simply as the transport authority.

Net-cost area-contract
It’s often said that a contract serves, in effect, as the private law of the parties on whatever subject it covers. The net-cost area-contract, as a binding agreement between a transport authority and a bus operator is not only a constituent part of the regulatory framework governing this bus system option, but possibly its most important element.

Whether the transport authority can enter into a net-cost area-contract will depend on whether or not the state implicitly authorizes it to delegate some of its powers and functions as a bus services provider (if any) to a third party.

In most cases this will not be an issue. However, the transport authority may be expressly mandated by the state to provide all bus services within its area of jurisdiction directly. In this case, entering into a net-cost area-contract with a bus operator is obviously not something the transport authority is entitled to do.