Area Contract (Net Cost) / Legal Aspects / Legal Instruments / Tendering Procedures / Tendering — Special Issues for Net-Cost Area-Contracts

Tendering — Special Issues for Net-Cost Area-Contracts
Key decisions for the transport authority
The net-cost area-contract is the outcome of a fairly long process. competitive bidding is an early step in the process, but not the earliest.

Before competitive bidding can take place, and even before the tendering documents can be prepared, the transport authority will have to make some key decisions about the bus services to be tendered, in particular with regard to:

Allocation of initiative — The transport authority must decide on the allocation of initiative between itself and the future bus operator. This defines who is responsible for making (or has the right to make) the main decisions about important matters such as the establishment of fares, levels of service and service quality. This carries many implications for the competitive bidding process, the contract and the basis for payment.
The basic tender unit — The transport authority needs to decide what is the minimum unit of bus services to be tendered and what will elicit sufficient acceptable bids. A tender by specific route is only one alternative among many.
The timing of the offer — The transport authority must also decide the timing of what is tendered. It can offer all bus services in a single competition or can decide to opt instead for a rolling program where about 20% to 30% of the overall urban bus transport network is tendered each year.

This means that there are opportunities for would-be bus operators to compete every year. It also allows the transport authority to take corrective action to prevent a single bus operator from gaining a monopoly over all the bus services that are being tendered.

The duration of the contract — The transport authority needs to decide the duration of the contract before beginning the competitive bidding process again.

Selection criteria for awarding the contract
The transport authority must determine, and inform all potential bidders about, the selection criteria for awarding the contract. This is not an easy exercise. Many possibilities exist. Two conceptually simple ones are:

The value for money approach — The primary criterion for the evaluation of each bid is the extent to which it offers value for money in the transport authority’s estimation. This means the transport authority will not limit itself to the service levels offered and to what the bus operator expects to be paid for providing the bus services. It will also consider relevant factors including, but not limited to:

The bidder’s capacity (both financial and operational) to meet efficiently and without interruption the needs of the transport authority and of the passengers (both existing and potential).
The extent to which the bidder proposes, or has the capacity to improve, the quality of the bus services.

The best price approach — The selection process is based solely on the sum that the bus operator expects to be paid to compensate him for the full cost of providing the bus services. The bidder asking for the least money wins. Although there may be factors that would disqualify such a bidder:

The bidder’s previous poor record, if any, as a bus operator.
The clear lack of a bidder’s capacity (both financial and operational) to meet efficiently and without interruption the needs of the transport authority and of the passengers (both existing and potential).
The unacceptable type and quality of the vehicles offered to provide the bus services.