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Route Contract (Gross Cost)
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Route Contract: Gross Costbus image
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
Vehicle types
Infrastructure requirements
Transitional aspects


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