Area Contract (Net Cost) / Institutional Requirements

Institutional Requirements
The principal institutional requirement for implementing a net-cost area-contract is that there be two parties — a transport authority and a bus operator — able and willing to sign a legally binding agreement, and then to abide by its terms and conditions.

For the transport authority this means, in particular, that it must be one of the following:

A municipal government or a statutory public transport authority that has been granted a monopoly on the provision of bus services in the area (the object of the contract), with an additional right to confer the same monopoly onto a third party.
A government ministry, a statutory public transport authority or a municipal government that has been expressly granted the power to regulate or ensure the provision of bus services as it sees fit in the area (object of the contract) including the right to restrict that particular market to pre-approved bus operators of its choice.

Under a typical net-cost area-contract the functions of the transport authority are threefold and would require it to exercise the following administrative and legal capabilities:

It must have the expertise to conduct tenders by way of competitive bidding or be able to hire competent consultants to do so on its behalf, especially in cases where no previous bus contracts, of whatever variety, have been tendered.
It must be a legal person, with the power to enter into binding agreements and receive, hold and disburse funds on its own behalf.
It must have sufficient authority, trained staff and resources to monitor and enforce the terms and conditions of the net-cost area-contract.