Route Contract: Gross Cost
When an authority issues a contract for the operation of one specified route or a specified group of routes, it’s described as a route contract.
Normally these contracts are awarded on the basis of competitive tenders. During a transition period, however, negotiated contracts may be awarded on the basis of negotiation with an incumbent bus operator.
A gross-cost contract pays the operator a specified sum to provide a specified service for a specified period. All revenue collected is for the authority.
A route contract is appropriate if the authority wishes to:
- Have mandatory retendering after a certain number of years
- Determine the routes and daily schedules
- Be identified as the bus system provider
- Offer opportunities to smaller operators to participate
- Take full responsibility for service planning
- Wishes to avoid involvement in setting operators’ profit levels
A gross-cost contract is appropriate if the authority wishes to:
- Avoid on-street competition for passengers
- Establish a sustainable procedure to constantly test the market to achieve the lowest cost
- Avoid the need to apportion off bus revenues between operators
- Provide free or discounted interchange between all routes
- Avoid discrimination against concession fare passengers, and
- Collects a high percentage of revenue off-bus
The major disadvantages of a gross-cost route contract are:
- The operator has no direct incentive to ensure revenue collection
- The authority must ensure that all revenues are being collected and handed over, requiring constant vigilance and inspection
- Penalties must be in place both for passengers who do not have tickets and staff who fail to issue tickets
- The operator is not concerned with the efficient operation of the route
- As this option places the greatest demands on the authority it requires the highest staff numbers
- All service improvements are initiated by the authority which may result in a very conservative approach
System design for a gross cost route contract must take into account:
Legal aspects
Institutional requirements
Financial aspects
Fares
Vehicle types
Infrastructure requirements
Transitional aspects
