Contracting in urban public transport
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1 ing in urban public transport Presentation of the report written for the European Commission, DG-TREN Arne Beck, Co-Author Prague, 9 th October 2008 Agenda Scope and background of the study Range of contracting in Europe The new Regulation as a stimulus to award contracts effectively Recommendations on economically appropriate contract Conclusion 2 1
2 The report aimed at providing a comprehensive guide-book based on European best-practise Scope of the report Scope of the report was To provide a guide-book for public transport authorities (PTA's) in EU-member states on how of contracts could take place To provide a guide-book based on an analyse of best-practise experiences in EU-member states Background of the report 'Guidebook' was planned as 'appendix' to the regulation (EC) 1370/2007 Report is not official position of the European Commision (EC) and not their interpretative guideline The report was written by an international consortium ors: NEA (NL), inno-v (NL), KCW (D), RebelGroup (NL), TØI (N), SDG (GB), TIS.PT (P) Main report written by: Didier van de Velde, Arne Beck, Jan-Coen van Elburg, Kai-Henning Terschüren With further contributions of: Bård Norheim, Jan Werner, Christoph Schaaffkamp Download of report: 3 The study consists of two parts: analysis and guidebook Structure of the report Scope of Part I: Analysis of contracts Presentation and classification of existing contract examples, based upon European-wide collection of representative contracts (see appendix of study) Summary of contract practices and characteristics Overview of the main directions of change during last years Scope of Part II: Guidebook for contracting and Based upon Part I (European best-practise) Organised around chronological contracting steps Includes main economical and legal recommendations on market organisation and contract 4 2
3 Agenda Scope and background of the study Range of contracting in Europe The new Regulation as a stimulus to award contracts effectively Recommendations on economically appropriate contract Conclusion 5 We identified three types of mechanisms with eight main types of contracts Types of contracts in Europe Direct (In-house or self-production) Public service obligation contracts with public operators (e.g. Prague, CZ) Competitive tendering Competitively tendered route contracts with central planning of the services (e.g. Warsaw, PL) Competitively tendered authorisations for route contracts (e.g. Wittenberg, D) Competitively tendered network management contracts (e.g. Halmstad, S) Functional tendering of network contracts (e.g. Haarlem, NL) Private concessions including infrastructure (e.g. Parla/Madrid, E) Free market regimes Open entry regimes with additional quality partnerships (e.g. Leeds, GB) Supply of non-commercial routes by competitive tendering in addition to a deregulated market (Manchester, GB) 6 3
4 Agenda Scope and background of the study Range of contracting in Europe The new Regulation as a stimulus to award contracts effectively Recommendations on economically appropriate contract Conclusion 7 The Regulation 1370/2007 (EC) in public passenger transport serves as a stimulus for the optimization of contracts Key attributes of the 1370/2007 (EC) Purpose of the new Regulation: Determine how competent authorities may act in the field of public passenger transport to guarantee the provision of services of general interest Lay down the conditions under which competent authorities, when imposing or contracting for public service obligations, compensate operators for the costs incurred and/or grant exclusive rights in return for the discharge of public service obligations Scope and transition period: Applicable to the national and international operation of public passenger transport services by rail and other track-based modes and by road Transition period: December 3 rd 2009 until December 3 rd 2019 Introduction of the new Regulation induces need for change for public authorities, enabling them to optimise their contract relationships in PT while complying with the new framework 8 4
5 The 1370/2007 (EC) provides a wide legal definition for public service contracts Legal definition of a public service contract "One or more legally binding acts confirming the agreement between a competent authority and a public service operator to entrust to that public service operator the management and operation of services subject to public service obligations" "Depending on the law of the Member States, the contract may also consist of a decision adopted by the competent authority: taking the form of an individual legislative or regulatory act, or containing conditions under which the competent authority itself provides the services or entrusts the provision of such services to an internal operator." 9 Economically, contracts determine rights and liabilities of the contracting parties Economical definition of a contract defines Obligation fulfils Authority checks fulfilment of claims granting of Operator grants Compensation receives 10 5
6 s should correspond with and support the wanted market organisation Determining parameters for relationship Authority Operator Roles and tasks Market organisation Policy aims / Service design / Operations Ownership of infrastructure and of operator Private Municipal Public Service Planning and design of public transport services Functional Constructive Control of performances Incentives Monitoring Risk level for operator High risk level Low risk level 11 Decisions on roles and tasks are necessary on a strategic, tactical and operational level Levels of planning and control Level Key question Decision parameters Strategic Long term What do we want to achieve? General Goals Transport policy Market share Profitability / Public transport budget General description of the services Area Target groups Intermodality Tactical Medium term Which services can help to achieve these aims? Detailed service characteristics Fares Personnel skills Image & additional services Vehicles Routes Timetable Operational Short term How to produce these services? Sales Selling activities Information to the public Production Infrastructure mngt Vehicle rostering & maint. Pers. rostering & mngt 12 6
7 Defining the level of influence on planning and design of service determines regulative influence on the tactical level Operator leeway in design and planning Contribution of the operator to public transport services Service design Transport policy aims Service operations Service design Contribution of the authority to public transport services? Allocation of influence to be determined (regulative penetration) 13 Ownership of infrastructure and its management can be devided between contracting parties Infrastructure ownership Asset provision and ownership Authority Operator (private) Public management: Management and Operations Authority In-house operator In-house contract with public operator Delegated management: Provision contract: Operator (private) Operator makes use of public assets to deliver transport services Operator provides assets and operates services (DBOT, "concessions", etc.) Municipalities should keep ownership of infrastructures to avoid discriminating problems 14 7
8 The schedule consists of three stages and four main tasks for the authority (1 of 2) Awarding schedule Stages Termination of contract I stage I phase I period I Tasks of the authority Time Identification of aims drafting Monitoring Local circumstances stage II phase II period II 15 The schedule consists of three stages and four main tasks for the authority (2 of 2) Awarding schedule Stages Tasks of the authority stage drafting phase period Monitoring 16 8
9 Agenda Scope and background of the study Range of contracting in Europe The new Regulation as a stimulus to award contracts effectively Recommendations on economically sensible contract Conclusion 17 Clarity about what the authority expects from its public transport is necessary to realise it (1 of 2) Stages Tasks of the authority stage drafting phase period Monitoring 18 9
10 Clarity about what the authority expects from its public transport is necessary to realise it (2 of 2) Stages Tasks of the authority Step 1: Identify policy goals of the authority Identify general objectives at the strategic level Discuss transport policy without restrictions that may arise out of specific local constraints Select the "real goals" of the authority, even if they seem to be lofty at a first glance stage Step 2: Check local circumstances Analyse local circumstances Compare strategic aims with respect to specific local constraints Discuss possibilities to change local restrictions to reach the strategic objectives Adjust strategic aims where necessary Step 3: From policy goals towards service design Check clarity of strategic aims and local circumstances and discuss with relevant actors, when necessary Allocate responsibilities between authority and operator Select method to determine service characteristics Compare tactical means with strategic aims and local circumstances Discuss tactical means with relevant actors and amend when necessary drafting 19 Policy goals are the basis for service design within a public service contract (1 of 2) Steps of contract drafting Stages Tasks of the authority stage drafting phase period Monitoring 20 10
11 Policy goals are the basis for service design within a public service contract (2 of 2) Steps of contract drafting Stages Tasks of the authority stage Step 1: Step 2: Step 3: Step 4: drafting Become aware of risk Specify service requirements Plan and design standards Agree upon rights and duties Agree upon who initiates and who decides on what Agree upon control of performances Allocate risk between the contracting parties phase 21 We recommend to determine the allocation of planning and design of services tasks according to the capabilities of PT-actors Planning and design of services Contribution of the authority to design the public transport services Contribution of the operator to design the public transport services Level of freedom of the operator to design the services Functional Steering via functionally described goals E.g. 80 % of inhabitants with access to next bus stop within 400 m distance Intermediate Steering via minimum standards and supporting guidelines E.g. Operator is obliged to use route X via central station city center suburb y in 30 minutes frequency Constructive Steering via detailed design of services E.g. Operator must use route x with stop 1, 2,.etc., busses leaving at 6:03/6:33/7:03, etc
12 An adjustment clause for contracts is advisable and widely common in Europe Possibilities to adjust service design Period of establishing the contract (contract drafting/) Service design in operator's bid (functional) Service design in negotiation (intermediate) Service design by authority (constructive) Period of realising the contract (contract period) Service design by oper. during contract (within limits) Autonomous After check Service design by authority during contract Haarlem (NL) Grenland (N) Elmshorn (D) Lyon (F) Dijon (F) Sundsvall (S) Stockholm (S) Frankfurt (D) London (GB) 23 Performance control mechanisms must be in place to track fullfillment of obligations for which compensation was granted Possibilities to control performance Performance control via More or less self-sufficient incentives through contractual features, for example Net cost contracts or additional passenger incentives Passenger rights and transparency of quality figures (e.g. puncutallity on the internet) Monitoring (traditional control of services delivered), including Data gathering via mystery shoppers, operator reporting to authority, direct controlling Performance assessment by public authority or through third-party audits Compulsory operator statement on evidence of under-performance Credibility of incentives and sanctions is the basis for a successful contractual relationship 24 12
13 Three main types of contracts can be classified based on risk allocation between the parties Risk allocation and contracts Total level of risk borne by the operator low level of risk (0) high level of risk (+) Risk allocation for each contract type 1) Management contract Gross cost contract Net cost contract 1) s without incentives 25 The three main types of contract consist of further classifications with respect to risk and incentives Risk-classification of contracts Production risk borne by Authority Operator (private) Revenue risk borne by Authority Operator (private) Management (M) M with revenue incentives M with productivity incentives M with productivity and revenue incentives GC with shared production risk GC with rev. incentives and shared prod. risk NC with shared revenue and production risk NC with shared production risk Gross Cost (GC) GC with revenue incentives NC with shared revenue risk Net Cost (NC) To minimise risk costs operators should bear only as much risk as they are able to bear 26 13
14 When opting for competitive tendering authorities are facing three main steps steps Stages Tasks of the authority stage Draft public service contract phase Step 1: Identify quality level based on policy aims and draft the tender document Step 2: Publication of the invitation to tender Step 3: Selection and period Monitoring of contract and evaluation 27 Agenda Scope and background of the study Range of contracting in Europe The new Regulation as a possibility to award contracts effectively Recommendations on economically appropriate contract Conclusion 28 14
15 Economically sensible contract drafting is crucial for a successful contract period for both parties Conclusion A great variety of contracting practises exists in Europe From direct Via various forms of competitive tendering To free market regimes Introduction of the new Regulation is a significant stimulus for authorities to optimise their contract relationships in PT Determining market structure and contract parameters is an economical venture and should draw on economical and not merely legal expertise For an economically successful contract lawyer engagement should focus on legal assessment after economical design of market structure and contractual aspects, and not before 29 Arne Beck (former employee of KCW) Contact: BSL Management Consultants Berlin GmbH Viktoria-Luise-Platz 7 D Berlin T +49 (0) F +49 (0) arb@bsl-consulting.de
16 BACK-UP 31 When opting for direct to an in-house operator authorities are also facing three main steps steps Stages Tasks of the authority stage Draft public service contract phase Step 1: Identify quality level based on policy aims and draft public service contract Step 2: Identify restructuring potential/delta based on benchmarks and work out restructuring plan Step 3: Award contract according to new regulation period Monitoring of contract and evaluation Source: BSL Management Consultants 32 16
17 Management and control of the transport service and business development should be clearly separated Two-head problem for In-House operators and authorities Subsidy requirements (adjusted to inflation) Status quo Owner management Owner business requirements, e.g. profit expectations and scope of restructuring Focus on restructuring plan and continuous support of implementation (monitoring) Restructuring expenditures according to restructuring schedule ually fixed expenditures based on PSC (at or around market level) Year Public transport authority management Focus on qualified public service contract and continuous contract controlling (PTA-steering) Source: BSL Management Consultants 33 Management and control of the transport service and business development should be clearly separated Integration of Strategic Partners Subsidy requirements (adjusted to inflation) Status quo Owner management with integration of a strategic partner Owner business requirements, e.g., profit expectations and scope of restructuring If applicable, restructuring plan and continuous support of implementation (monitoring) Other owner requirements (excluding requirements for securing services of general interest), e.g., securing location, social security Restructuring expenditures (or profit) according to restructuring schedule ually fixed expenditures based on competitively tendered transport contract Year Optional integration of a strategic partner Public transport authority management Qualified public service contract and continuous contract controlling Source: BSL Management Consultants 34 17
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