CITY BUS PRIVATE OPERATIONS - Sutp · implementation of city bus private operations. This trend has accelerated at a rapid pace following various initiatives by the Government of

PREPARED BY

MINISTRY OF URBAN DEVELOPMENT

SUPPORTED BY

CITY BUS PRIVATE OPERATIONS

GUIDELINES DOCUMENT

NOVEMBER 2016

Guidelines for participation by private operators in the provision of city bus transport services

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PREFACE

Urban transport is a vital component of urban infrastructure and a lifeline for cities. A well-planned and

developed transportation system is integral to economic and social activity and is a key factor in urban

economic growth. Bus transport plays an important role in supplementing the overall urban transport in a

city. Furthermore, the provision of bus service involves minimal installation cost, flexibility in operation

and lower fare structure vis-à-vis other transport modes.

In line with this, the NUTP (2006) recommended setting up high-capacity public transport systems through

the mechanism of Special Purpose Vehicles and promotion of private sector participation. A number of

urban local bodies thus have come forward for using the Public-Private Partnership (PPP) model in

implementation of city bus private operations. This trend has accelerated at a rapid pace following various

initiatives by the Government of India. However, lack of well-designed contractual and institutional

frameworks have led to these PPP initiatives experiencing difficulties impacting the revenues, cost and

service quality.

Ministry of Urban Development (MoUD), Government of India (GoI) appointed the consultant Deloitte

Touche Tohmatsu India Limited Liability Partnership (erstwhile Deloitte Touche Tohmatsu India Private

Limited) to review the current public contracting experience in India and five selected international cities,

and subsequently drafting guidelines and model contract for city bus private operations. In this context,

this document has been prepared as guidance for cities in preparing a comprehensive bus contract suitable

to the context and environment.


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ACKNOWLEDGEMENT

National Urban Transport Policy (NUTP) of the Government of India (GoI) has been framed with the

objective to work towards sustainable urban transport in Indian cities. MoUD, GoI is undertaking the GEF-

Sustainable Urban Transport Project (GEF-SUTP) with support of the Global Environment Facility (GEF),

World Bank and UNDP to create a platform for working together with State/local governments towards

implementation of NUTP.

The Project Management Unit (PMU), Project Management Consultant (PMC) and the Consultant express

their deep gratitude to MoUD for entrusting the responsibility for development of model contracts and

guidelines document for city bus private operations as part of the GEF-SUTP.

The Consultant is grateful to Secretary (MoUD) and Additional Secretary (MoUD) for providing direction

and guidance to the team time to time. The Consultant is also grateful to OSD (UT) & ex-officio Joint

Secretary, and Director (UT – 1), MoUD for their useful suggestions, guidance and inputs during the course

of development of the document.

The Consultant is grateful to Ms. Nupur Gupta (Task Team Leader, World Bank), Mr. I. C Sharma (PMU),

Mr. Sudesh Kumar (Project Leader, PMC) and the entire World Bank, PMU and PMC team for their

unstinted support and untiring efforts in painstakingly reviewing this guidelines document and providing

valuable suggestions and inputs during the course of development of the document.

The Consultant is also grateful to all the cities which participated in the workshops organised by MoUD as

a part of this project. Their valuable suggestions have contributed immensely in the development of the

document.

The Consultant also thank the three cities (Jalandhar, Kochi, and Mira Bhaindar) which were chosen for

preparing city specific contracts. Their reviews and suggestions were very critical and have led to refining

of the document from the given city’s perspective.


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EXECUTIVE SUMMARY

Urban transport is a vital lifeline which supports the growth of an economy. A well-planned and integrated

transportation system acts as an efficient and effective facilitator to the development of regional, economic

and social activity. City bus transport plays a significant role in Indian cities in providing passenger

transport services.

NUTP (2006) recommends setting up high-capacity public transport systems through the mechanism of

Special Purpose Vehicles and promotion of private sector participation in providing city bus services. In

line with this, a number of cities have come forward for using the PPP model in implementation of city bus

private operations. However, there does not exist any model contract for city bus private operations in

sharp contrast with other sector of infrastructure, e.g., airports, ports, highways, where model guidelines

and contract documents have been developed. In this context, this guidelines document has been developed

as guidance to cities in preparing a comprehensive bus contract suitable to the context and environment of

their city.

The document elaborates the strategic process that the city authority may follow to help them choose the

appropriate business model and contract type for city bus private operations based on a broad understanding

of existing business environment and desired outcomes.

The documents starts by discussing the process involved in assessing the external business and operating

environment and then preparing a business plan for city bus operations. The external evaluation focuses on

parameters such as existing travel modes, dependency on public transport, competitive scenario, potential

customers, etc. The preparation of business plan focuses on various activities involved in delivering bus

transport systems including risk assignment, network and service planning, revenue model and collection,

essential infrastructure, etc.

The document also evaluates the merits and demerits of different contract types while considering the

objectives of the city and existing situation. It provides a decision framework to facilitate an informed

decision for choosing a right contract for a city. Further, it also provides guidance on contractual structure

and parameters to help the city authorities develop a clear picture of the challenges associated with the

contract and assist them in managing specific contractual issues.

The document describes procurement guidelines and assists the user in selecting appropriate procurement

strategy. The procurement guidelines includes details on bid evaluation method, preparation of bid and

contract documents, and signing of the contract. An important aspect of a good contract is effective

performance monitoring. The guidelines document captures the process of setting performance indicators

and outlines the city authority’s responsibilities and obligations for performance monitoring.

The document also explores methods and models that may evolve in the future which have not been

included in the current contractual framework and could be incorporated into existing model contracts by

the city authorities as city bus private operations matures.

The document intends to act as a detailed guidance for cities to develop a strategic approach for choosing

the type and elements of the contract essential to deliver efficient public transport services. It is to be read

along with the four model contracts, namely, Gross Cost, Gross Cost Hybrid, Net Cost and Net Cost

Hybrid, for a comprehensive understanding its application and for achieving the maximum utility from it.


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TABLE OF CONTENTS

1. INTRODUCTION ........................................................................................................................ 11

1.1 BACKGROUND ..................................................................................................................................... 11 1.2 PURPOSE OF THE GUIDELINES DOCUMENT ......................................................................................... 12 1.3 OVERVIEW OF THE GUIDELINES DOCUMENT ...................................................................................... 12 1.4 STRUCTURE OF GUIDELINES DOCUMENT ............................................................................................ 13

2. ASSESSING THE BUSINESS ENVIRONMENT ......................................................................... 16

2.1 REVIEW OF CURRENT OPERATING ENVIRONMENT ............................................................................... 17 2.2 ANALYSIS OF FACTORS AFFECTING BUS TRANSPORT SERVICES .......................................................... 27 2.3 TRANSFORMING INFERENCES INTO IMPLEMENTABLE ACTIONS ........................................................... 28

3. PLANNING THE BUSINESS MODEL ........................................................................................ 29

3.1 STAGES OF PLANNING THE BUSINESS MODEL .................................................................................... 29 3.2 IMPLEMENTATION PLAN ..................................................................................................................... 35 3.3 NETWORK AND SERVICE PLANNING ................................................................................................... 35 3.4 OPTIONS FOR BUS OPERATOR ENGAGEMENT ..................................................................................... 39 3.5 REVENUE MODEL AND COLLECTION ................................................................................................... 40 3.6 MANAGING FINANCIAL PRESSURES AND FARE INCREASES ................................................................ 42 3.7 MONITORING AND CONTROL .............................................................................................................. 45 3.8 MARKETING AND BRANDING OF SERVICE .......................................................................................... 46 3.9 FINANCIAL MODEL ............................................................................................................................. 47 3.10 SUMMARY ........................................................................................................................................... 48

4. CHOOSING THE RIGHT CONTRACT ...................................................................................... 49

4.1 OVERVIEW OF CONTRACT OPTIONS .................................................................................................... 49 4.2 BUS OPERATION BY A PUBLICALLY-OWNED ENTERPRISE/STATE TRANSPORT UNDERTAKING (STU) 49 4.3 FULL PRIVATISATION OF BUS OPERATIONS ........................................................................................ 51 4.4 PPP CONTRACTS ................................................................................................................................. 51 4.5 SALIENT FEATURES OF A GROSS COST MODEL................................................................................... 55 4.6 SALIENT FEATURES OF A HYBRID GROSS COST MODEL ..................................................................... 57 4.7 SALIENT FEATURES OF A NET COST MODEL ....................................................................................... 60 4.8 SALIENT FEATURES OF HYBRID NCC ................................................................................................. 62 4.9 SELECTING THE ‘MOST SUITABLE’ CONTRACT TYPE FOR YOUR CITY ................................................ 63

5. DEVELOPING PPP CONTRACT PARAMETERS ..................................................................... 68

5.1 RISK IDENTIFICATION AND ALLOCATION ............................................................................................ 68 5.2 TRANSITION PLAN ............................................................................................................................... 71 5.3 CONTRACT INSTRUMENTS ................................................................................................................... 72 5.4 FLEET SELECTION AND PROCUREMENT .............................................................................................. 76 5.5 LENGTH OF CONTRACT ....................................................................................................................... 81 5.6 INFRASTRUCTURE FACILITIES ............................................................................................................. 85 5.7 CONTRACT TERMINATION & ARBITRATION ........................................................................................ 91

6. PROCUREMENT GUIDELINES ................................................................................................. 94

6.1 CHOOSING THE RIGHT PARTNER ......................................................................................................... 94 6.2 PROCUREMENT STRATEGY .................................................................................................................. 95 6.3 PREPARATION OF BIDDING AND CONTRACT DOCUMENT .................................................................... 98 6.4 PROCUREMENT MANAGEMENT ......................................................................................................... 103 6.5 SIGNING OF CONTRACT ..................................................................................................................... 105

7. POST AWARD CONTRACT MANAGEMENT ..........................................................................106

7.1 THE MONITORING FRAMEWORK ....................................................................................................... 106 7.2 MONITORING DURING THE COURSE OF OPERATIONS ......................................................................... 107


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8. IN LIEU OF A CONCLUSION ....................................................................................................110

ANNEXURE I - DRAFT STRUCTURE OF MODEL CONTRACTS .................................................113

ANNEXURE II – GUIDANCE NOTE ON USE OF MODEL CONTRACT ........................................128

ANNEXURE III - GUIDANCE NOTE ON USE OF REQUEST FOR PROPOSAL ...........................147

ANNEXURE IV - RESPONSIBILITY ALLOCATION MATRIX ......................................................152

ANNEXURE V – FLEET ....................................................................................................................155

ANNEXURE VI – INFRASTRUCTURE ............................................................................................165

ANNEXURE VII– OPERATIONS ......................................................................................................178

ANNEXURE VIII – REVENUE ..........................................................................................................186

ANNEXURE IX – PERMITS ..............................................................................................................193

ANNEXURE X – PLANNING & CONTRACTUAL ISSUES .............................................................197

ANNEXURE XI – SERVICE QUALITY PARAMETERS ..................................................................200

ANNEXURE XII – LIST OF INFRACTIONS AND PENALTIES ......................................................208

ANNEXURE XIII – FARE FIXATION, STRUCTURING AND REVISION ......................................221

ANNEXURE XIV – BLOCK COST ESTIMATES .............................................................................238


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TABLE OF EXHIBITS

EXHIBIT 1-1 KEY CHALLENGES FACED IN CITY BUS PRIVATE OPERATIONS .................................................................. 11

EXHIBIT 1-2 ACTIVITIES AND KEY DECISIONS IN BUSINESS MODEL PLANNING ............................................................ 13

EXHIBIT 2-1 FACTORS INFLUENCING BUSINESS ENVIRONMENT ................................................................................... 16

EXHIBIT 2-2 PROCESS OF ASSESSING THE BUS SERVICE ENVIRONMENT ....................................................................... 16

EXHIBIT 2-3 REVIEW PARAMETERS AND SOURCE OF DATA .......................................................................................... 17

EXHIBIT 2-4 PARAMETERS AND THEIR POSSIBLE EFFECT ............................................................................................. 18

EXHIBIT 2-5 ACTS / LAWS GOVERNING BUS TRANSPORT............................................................................................ 19

EXHIBIT 2-6 INSTITUTIONAL ENVIRONMENT AFFECTING BUS TRANSPORT ................................................................... 20

EXHIBIT 2-7 AGENCIES AND THEIR RESPONSIBILITIES ................................................................................................. 21

EXHIBIT 2-8 COMPARISON OF A TRADITIONAL REGULATORY APPROACH AND A MORE COMMERCIAL APPROACH TO

MANAGING BUS SERVICES ................................................................................................................................... 23

EXHIBIT 2-9 ASSIGNMENT OF RISK IN A SHARED RISK MODEL ..................................................................................... 25

EXHIBIT 2-10 SWOT ANALYSIS FOR REVIEW OF BUSINESS ENVIRONMENT ................................................................. 27

EXHIBIT 3-1 CONSIDERATIONS FOR GOAL SETTING ..................................................................................................... 30

EXHIBIT 3-2 SETTING GOALS FOR CITY BUS TRANSPORT ............................................................................................. 31

EXHIBIT 3-3 STAKEHOLDER CONSULTATIONS ............................................................................................................. 33

EXHIBIT 3-4 TYPE OF PERMITS AND THEIR MERITS/DEMERITS ..................................................................................... 36

EXHIBIT 3-5 ADVANTAGES OF A PPP CONTRACT ........................................................................................................ 39

EXHIBIT 3-6 REVENUE COLLECTION ........................................................................................................................... 40

EXHIBIT 3-7 THE FARE ESCALATION FORMULA IN HONG KONG ................................................................................. 43

EXHIBIT 3-8 FARE ADJUSTMENT FORMULA IN SINGAPORE ......................................................................................... 43

EXHIBIT 4-1 GUIDING PRINCIPLE AND OPTIONS FOR MODEL CONTRACTS .................................................................. 49

EXHIBIT 4-2 FEATURES OF GCC, NCC AND HYBRID CONTRACT ................................................................................. 54

EXHIBIT 4-3 FLOW OF FUNDS FROM ESCROW ACCOUNT ............................................................................................. 57

EXHIBIT 4-4 THE HYBRID CONTRACT MODEL USED IN ADELAIDE .............................................................................. 58

EXHIBIT 4-5 SAMPLE MONTHLY LOAD FACTOR AND BONUS PERCENT VALUES ............................................................ 60

EXHIBIT 4-6 CONTRACT DECISION FRAMEWORK PARAMETERS ................................................................................... 63

EXHIBIT 4-7 DECISION CRITERIA FOR CONTRACT SELECTION ..................................................................................... 65

EXHIBIT 5-1 ADDRESSING CONTRACT PARAMETERS ................................................................................................... 68

EXHIBIT 5-2 TYPES OF RISK IN CITY BUS OPERATIONS ............................................................................................... 68

EXHIBIT 5-3 DEGREES OF RISK .................................................................................................................................... 69

EXHIBIT 5-4 EVALUATING RISK .................................................................................................................................. 70

EXHIBIT 5-5 RISK ALLOCATION MATRIX .................................................................................................................... 71

EXHIBIT 5-6 REVENUE PROTECTION IN SANTIAGO, CHILE .......................................................................................... 72

EXHIBIT 5-7 FACTORS IN SELECTION OF FLEET ............................................................................................................ 76

EXHIBIT 5-8 FRANKFURT/M. (D): TENDERING OF BUS ROUTE BUNDLE CONTRACTS WITH ENVIRONMENTAL

INCENTIVES ......................................................................................................................................................... 77

EXHIBIT 5-9 DECISION FRAMEWORK FOR FLEET PROCUREMENT ................................................................................. 79

EXHIBIT 5-10 RESPONSIBILITY FOR FLEET PROCUREMENT .......................................................................................... 81

EXHIBIT 5-11 CHALLENGES FACED IN DECIDING CONTRACT DURATION ...................................................................... 82

EXHIBIT 5-12 CONTRACT LENGTH IN BOGOTA, COLOMBIA ........................................................................................ 82

EXHIBIT 5-13 PROS AND CONS OF SHORT DURATION CONTRACTS ............................................................................... 83

EXHIBIT 5-15 FACTORS AFFECTING NUMBER OF DEPOTS ............................................................................................. 85

EXHIBIT 5-16 PLANNING FOR BUS DEPOT FACILITIES ................................................................................................... 86

EXHIBIT 5-17 RESPONSIBILITY FOR CONSTRUCTION OF BUS DEPOTS ........................................................................... 86

EXHIBIT 5-18 DECISION FRAMEWORK FOR BUS STOPS ................................................................................................. 88

EXHIBIT 5-19 PLANNING FOR BUS STOPS ..................................................................................................................... 88

EXHIBIT 5-20 PLANNING FOR BUS TERMINALS ............................................................................................................ 90

EXHIBIT 5-21 EXAMPLE OF GULBARGA BUS TERMINAL ............................................................................................. 90

EXHIBIT 6-1 PROCESS FOR PROCUREMENT .................................................................................................................. 94

EXHIBIT 6-2 BID PROCESSES ....................................................................................................................................... 97

EXHIBIT 6-3 ADVANCE INFORMATION TO OPERATORS DURING THE BIDDING PROCESS ................................................ 99

EXHIBIT 6-4 EXPERIENCE WEIGHTS .......................................................................................................................... 101

EXHIBIT 6-5 MULTIPLYING FACTOR .......................................................................................................................... 101

EXHIBIT 6-6 BID PARAMETER BY TYPE OF CONTRACT ............................................................................................... 103

EXHIBIT 7-1 PERFORMANCE MONITORING, REPORTING & REVIEW FRAMEWORK .................................................... 106

EXHIBIT 7-2 MONITORING AND SUPERVISION LONDON (GB): FINANCIAL INCENTIVES IN A GROSS COST CONTRACT

.......................................................................................................................................................................... 108

EXHIBIT 7-3 ENFORCEMENT IN AMSTERDAM (NL): DIRECT AWARD WITH COMPETITIVE THREAT ............................ 109


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LIST OF ABBREVIATIONS

AFC Automated Fare Collection

AMC Annual Maintenance Contract

AMRUT Atal Mission for Rejuvenation and Urban Transformation

ATSC Adaptive Traffic Signal Control

BEST Brihanmumbai Electric Supply & Transport

BRTS Bus Rapid Transit system

CCTV Closed Circuit Television

CDP City Development Plan

CMP Comprehensive Mobility Plan

CNG Compressed Natural Gas

CPI Consumer Price Index

CPM Contractual Management Procedures Manual

CTTS Comprehensive Traffic and Transportation Studies

DIMTS Delhi Integrated Multi-Modal Transit System

DSCR Debt Service Coverage Ratio

EI Energy Index

EOI Expression of Interest

ETVM Electronic Ticketing Vending Machine

GCC Gross Cost Contract

GPS Global Positioning System

IETT Istanbul Electricity, Tramway and Tunnel Company

IPT Intermediate Public Transport

IRR Internal Rate of Return

IT Information Technology

ITS Intelligence Transport System


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JnNURM Jawaharlal Nehru National Urban Renewal Mission

JV Joint Venture

KPI Key performance Indicators

LED Light Emitting Diode

LF Load Factor

LOS Level of Service

LPG Liquefied Petroleum Gas

MKBA Mean kilometres operation between accidents

MKBF Mean kilometres travelled between bus failures

MRT Mass Rapid Transit

MSL Minimum Service level

MTRCL Mass Transit Railway Corporation Limited

NCC Net Cost Contract

NGO Non-governmental organisation

NMT Non-motorised transport

NOC No objection certificate

NPV Net Present Value

NUTP National Urban Transport Policy

O-D Origin - Destination

PIS Passenger Information System

PPP Public Private Partnership

PSO Public Service Obligation

PT Public Transport

PTA Public Transport Agency

PTO Public Transport Operators’

QCBS Quality cum Cost Based Selection


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RFP Request for Proposal

RFQ Request for Qualification

RTO Regional Transport Office

SPV Special Purpose Vehicle

STU State Transport Undertaking

SWOT Strength Weakness Opportunity Threat

TfL Transport for London

ULB Urban Local Body

WI Wage Index


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1. INTRODUCTION

1.1 BACKGROUND

Urban transport has been identified as a vital lifeline which supports the growth of an economy. A well-

planned and integrated transportation system acts as an efficient and effective facilitator to the development

of regional, economic and social activity. Transport services need to be efficient and affordable for

maximising their use, and at the same time, must generate sufficient revenues for their financial viability

to continue meeting the ever expanding demand for urban transport. This need for efficiency, affordability

and viability influences transit ownership, business processes, planning and investment patterns.

While State Transport Undertakings (STUs) have provided transportation services for several decades, the

focus of Urban Local Bodies (ULBs) on city bus transport started gaining prominence with the advent of

Jawaharlal Nehru National Urban Renewal Mission (JnNURM). JnNURM envisaged a number of reforms

at the city and state levels for achieving effective, efficient and sustainable development of urban

infrastructure including that of urban public transport (PT) system. One of such reforms for PT was

formation of Special Purpose Vehicles (SPVs) for the operation of city bus transport services in an efficient,

economic and sustainable manner. SPVs may seek active participation of the private sector in investments,

or management, of PT services.

However, experience also shows that private operators focus mainly on the maximisation of returns on

investment and fail to maintain or provide a desired level of service quality. There is also a deficiency in

public sector performance in efficient and effective transit network planning. Failures on both sides have

led to a persistent conflict between maximisation of profit and serving of public interest. The key issues in

city bus operations are highlighted below.

Exhibit 1-1 Key challenges faced in city bus private operations

To address these challenges, and improve city bus transport services, a number of cities are encouraging

private sector participation to gain access to stronger managerial capacity, new technology, and specialised

skills via Public Private Partnerships (PPPs). Although operational, PPPs have been experiencing

difficulties due to lack of well-designed contractual and institutional frameworks, impacting the revenues,

cost and service quality. Deficiencies in existing contracts include lack of clauses for conditions precedent,

inadequate identification and allocation of business risks, limited monitoring framework, ill-defined

payment and performance monitoring mechanisms, etc. Many of the contracts also lack sufficient

incentives to influence the behaviour, responsibility and obligations of contracting parties.

This guidelines document for development of model contractual framework outlines the process of

preparing a comprehensive bus contract suitable to the context and environment of the concerned authority.

The document examines various structures and alternatives for the participation of private bus operators;


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it also presents different forms and contents of a PPP contract and provides procurement and management

guidelines.

1.2 PURPOSE OF THE GUIDELINES DOCUMENT

The purpose of this document is to provide a strategy to develop a contract for bus operations for a city,

subject to the city's unique circumstances and requirements. Since each city is unique in its institutional

structure, existing infrastructure, stakeholder capacity, and finance availability, a generic contract model

would be inadequate for all cities. The document attempts to identify and classify these differences and

develop a strategic approach for choosing the type and elements of the contract essential to deliver efficient

public transport services. The document proposes four types of contracts, namely, Gross Cost, Gross Cost

Hybrid, Net Cost and Net Cost Hybrid, that may be customised for a particular city. The key features of

each of these contracts are described in Chapter 4, and the corresponding term sheets are provided in

Annexure I.

1.2.1 Use of the Guidelines Document

These guidelines are intended to be used by city authorities to help them choose the appropriate business

model and contract type for city bus private operations, based on a broad understanding of existing business

environment and desired outcomes.

The document examines various types of contracts possible and provides a clear understanding of the pros

and cons associated with each type of contracting modality. Further, the document also explores the role

of PPP contracts in the business landscape.

The document should be updated periodically with experience gained during the implementation of

existing or new city bus projects and new developments.

1.2.2 Limitations of the Guidelines Document

The guidelines document spells out a strategic process that the city authority may follow to develop a

suitable contract and does not include detailed technical and financial parameters apart from contract

related parameters. It highlights the activities to be undertaken for efficient delivery of bus transport

services but does not capture details regarding operationalising the sub-tasks. The document does not

intend to provide detailed engineering or operational recommendations, nor does it present detailed design-

level advice. City authorities are advised to engage a transaction advisor considering the scale of the

project.

1.3 OVERVIEW OF THE GUIDELINES DOCUMENT

Cities may encourage participation of private operators to improve service performance and wider public

objectives. While the contract structure mainly drives the operator engagement, contract success is driven

primarily by its business model. A business model with distorted incentives, or one that promotes negative

behaviour, can never be effective in delivering the intended results. This document helps city authorities

avoid these mistakes and assists them to develop efficient business models relevant to the situation at hand.


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Exhibit 1-2 Activities and key decisions in business model planning

The exhibit above illustrates the business model elements and key decisions. The business model needs to

be cognitive of the business environment affecting bus transport system, city conditions, expectations of

various stakeholders, and financial sustainability while providing legal protection to the bus operators. The

business model should also delineate the roles and responsibilities of the parties involved in regards to

infrastructure, fleet ownership and investments, risks, planning, monitoring and control, etc.

1.4 STRUCTURE OF GUIDELINES DOCUMENT

The document is structured as follows:

Chapter 2 discusses the assessment of the external business and operating environment. A city’s

geographic layout, demographics, travel demand and travel characteristics affect its bus service design.

Similarly, the policy and regulatory scenario, nature of competition between service providers, and the

service quality and segmentation, determine the functional financial models. Also, to develop services

suitable to that market, assessment and understanding of the business environment in the city is required.

The evaluation focuses on parameters like existing travel modes, dependency on public transport,

competitive scenario, potential customers, etc.

Chapter 3 describes the preparation of the business plan; it assesses factors like bus transport services,

the partnerships, essential infrastructure, fleet ownership, risk assignment, planning, and control, etc.

Chapter 4 assists in selecting the appropriate contract. It evaluates the merits and demerits of different

contract type while considering the objectives of the city and the situation at hand. The chapter also focuses

on the relationship between the relevant city authority and the private bus operator, depending on the

contract category and issues like asset ownership and procurement, risk management, payment

mechanisms and control and monitoring methods.


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Chapter 5 discusses and evaluates contract parameters. The chapter focuses on the contractual structure

and parameters to help the city authorities develop a clear picture of the challenges associated with the

contract. The chapter also offers practical guidelines to manage the contract specific issues and assists in

further developing various contract components.

Chapter 6 describes procurement guidelines and assists the user in selecting the appropriate procurement

strategy. The chapter also provides details regarding procurement strategies like one-stage or two-stage

bidding and describes aspects related to bid evaluation method, preparation of bid and contract documents,

and signing of the contract.

Chapter 7 focuses on monitoring during the post-award phase. The chapter captures the process of setting

performance indicators in the contract and outlines the city authority’s responsibilities and obligations, as

well as specific performance criteria to be complied with during the operation of the service.

Chapter 8 explores methods and models that may evolve in the future but have not been included in the

current contractual framework.

Annexure I captures the draft structure of the four model contracts. It outlines the main terms and

conditions of the agreement between the authority and the operator.

Annexure II aims at establishing a link between the guidelines document and the model contracts. It

includes a description of the process to be followed by city managers to customise the model contract to

city-specific contract.

Annexure III includes a description of main chapters captured within the Request for Proposal, and,

describes the components that are more important from the perspective of the city manager.

Annexure IV defines the responsibility for different aspects of city bus operations for the four model

contract types.

Annexure V outlines the responsibility for fleet planning between the authority and the operator. It also

identifies activities essential for the fleet planning process and the requirement assessment process. The

possible options for fleet ownership, investment, operation and maintenance, along with the preferred

options, are also highlighted in the Annexure.

Annexure VI delineates the responsibility for infrastructure planning between the authority and the

operator. It highlights the activities required during the infrastructure planning process and the requirement

assessment process. The Annexure also captures the options for asset ownership, investment, operation and

maintenance, and the preferred option.

Annexure VII demarcates the responsibility for bus operations between the authority and the operator. It

also identifies various activities and actions essential for bus operations.

Annexure VIII outlines the responsibility for revenue activities between the authority and the operator. It

also captures the key activities involved in the revenue collection.

Annexure IX delineates the responsibility for permits between the authority and the operator.

Annexure X defines the responsibility for planning and contractual issues between the authority and the

operator.

Annexure XI details the Service Quality Parameters along with proposed weightage of parameters and

the potential data sources for performance parameters.

Annexure XII provides the List of Infractions and Penalties, including their categories, applicable

damages, and the time require to resolve the infraction, applicable in the contract.


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Annexure XIII provides practical guidance on fare fixation and the basis for revision of fare in a Net Cost

Contract.

Annexure XIV provides practical guidance on potential cost heads and presents block cost estimates for

the same under different contract types.


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2. ASSESSING THE BUSINESS ENVIRONMENT

Urban transport, and in particular bus transport, is a complex subject, and cannot be viewed in isolation

from the environment in which it operates. Although there are some broad commonalities in bus operations

across Indian cities, each city is unique in its institutional structure, existing infrastructure, stakeholder

capacity, and finance availability. These particular circumstances have an influence on the business

environment of the city and do not permit the use of a single contract type across all cities. A city authority

needs to undertake detailed groundwork before developing the business model and finalising on the type

of contract to be adopted for its bus operations.

Each city needs to follow a defined process for assessing the business environment within which its bus

services operate. The factors that influence the business and operating environment of a bus in a city are

shown in Exhibit 2-1.

Post the analysis of these factors, the city also need to develop an implementable action plan as defined in

the following sections.

Exhibit 2-1 Factors influencing business environment

Review of current operating

environment

Analysis of factors affecting bus

transport services

Transforming inferences into implementable

actions

Exhibit 2-2 Process of assessing the bus service environment


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2.1 REVIEW OF CURRENT OPERATING ENVIRONMENT

The first step in mapping the current operating environment would be to collect the data on the basis of

points captured in Exhibit 2-3. Most of these data elements, for example, geographical and demographic

profile may be collected through secondary data,1,2 however, some points might require sample surveys.

Exhibit 2-3 Review parameters and source of data

Parameters Source of Data

Geographical layout of the city

Size of city

Length of road network

Type of roads (motorised v/s non-motorised, arterial v/s

feeder)

Census of India

Urban Local Body

National Highways Authority of

India

State Highways Authority

Public Works Department

City Development Authority

Demographic profile

Population of the city

Spatial distribution of population

Occupational distribution

Income distribution

Age structure of the population

Census of India

City Master Plan

City Development Plan

Comprehensive Mobility Plan

Urban Local Bodies

Policy & Regulatory Framework

Laws/Acts/Policies at national level affecting bus

transport

Laws/Acts/Policies at state level pertaining to bus

transport

City level policies affecting bus transport

Various central and state level

legislations

Institutional Structure:

Key authorities, whose purview could impact bus operation,

include:

Public Works Department

Transport Department

Development Authorities

Pollution Control Board

Key officials of various entities

1 Comprehensive Mobility Plan Preparation Toolkit - Institute of Urban Transport India

2 Urban Bus Toolkit - World Bank


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Parameters Source of Data

Municipal Government

Traffic Police

Existing Transit System

Alternative modes of transport

Areas not connected by the existing system

Reasons for passengers not choosing bus transport

Existing Bus Infrastructure in the city (depots, terminals,

bus shelters)


Urban Local Bodies

Transport Authority


Operational Plans and strategies affecting bus transport,

including:

Comprehensive Mobility Plan


City Master Plan/ Zonal Development Plan

Comprehensive Traffic and Transportation Studies


SPV (if any)

Department of Transport

Department of Urban

Development

Operators and Trust Environment:

Current bus operators in the city (STUs or private

operators)

Financial strength of these operators

Relationship between the city government and existing

operators

Transport Authority

Non-government stakeholders

2.1.1 Geographic and Demographic Profile of the City

The geographic layout of the city, citizens’ demographic profile and their travel pattern will have an

indirect influence on the design of the bus transport system. These parameters assist in estimating the

demand for public transport and reveal the ‘affordability’ of public transport for the public. Surveys like

stated preference survey may be used to assess passengers’ travel patterns and their dependency on public

transport. The demographic profile of the potential user of the bus service on factors like income level and

affordability should also be assessed. The relevant data and their possible effect are summarised in Exhibit

2-4. The prime objective of this analysis is to ensure the envisaged services cater to the needs of the

transport users.

Exhibit 2-4 Parameters and their possible effect

Parameter Possible Effect

Spatial distribution of

population

Concentrated areas induce higher ridership and hence need a higher

frequency of services, compared to sparsely populated areas. Spatial

spread of the cities implies more demand for longer distance trips, which

calls for greater investments in infrastructure and vehicles.


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Income distribution

The income bracket of passengers will affect the market condition.

Premium services that exploit the willingness to pay for higher quality

are options that may be considered.

Occupational distribution

The occupational status of the passengers will decide the amenities and

other features required in the bus transport system, for example,

business users might require features like Wi-Fi and enabled ITS

services. On the other hand, student travellers might require subsidised

travel, and the impact of subsidy on operators’ revenue needs to be

considered. The service frequency may also need to be tailored for

periods of peak and off-peak demand.

Age structure of population The passengers’ age bracket would help in planning the routes, type of

service and infrastructure.

Available road network Route planning would have to consider the availability of roads of

suitable dimension for bus operation.

2.1.2 Policy and Regulatory Environment

The bus transport in India is currently governed by various Central, State and Municipal laws, policies, and

guidelines as shown in Exhibit 2-5. City authorities must study these legislations in detail and analyse their

effect on city bus operations.

The Motor Vehicles Act is one of the most important

central-level acts directly affecting bus transport. The Road

Transport Corporation Act, 1950, for example, specifies

that it shall be the general duty of a road transport

corporation to exercise its powers as progressively to

provide or secure or promote the provision of an efficient,

adequate, economical and properly coordinated system of

road transport services in the State or any part of the State

for which it is established.

Municipal laws which lay down the structure and powers

of the local municipal governments are also present in

almost all states.

The regulatory environment in a city/state impacts the

development of the bus system and requires a detailed

study by the city authority to understand the impact of

policies and regulations on system design. For example,

the policy in Haryana excludes private players from

participating in the delivery of city bus operations, while

Delhi policies prohibit operations of diesel buses.

Exhibit 2-5 Acts / Laws Governing

Bus Transport


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Apart from laws, acts and policies, different schemes launched by the Government of India can also impact

on the contracts of bus operations in cities. An example of the same, is captured below:

Jawaharlal Nehru National Urban Renewal Mission (JnNURM) is a large-scale city-modernisation

scheme launched by the Government of India under the Ministry of Urban Development. JnNURM

provided funding for urban renewal including funding for bus transport. Before JnNURM, most STUs

owned and operated an ageing fleet without considering the PPP models. Post JnNURM, several city-

specific Special Purpose Vehicles (SPVs) were formed and an increasing number of cities have adopted

PPP models.

Atal Mission for Rejuvenation and Urban Transformation (AMRUT) is a new scheme by the

Government of India, which supersedes JnNURM. This scheme is available for 500 cities with a population

of over 1 lakh and provides funding for projects envisaged to improve service coverage of urban transport.

2.1.3 Institutional assessment

2.1.3.1 Institutional Structures

Exhibit 2-6 captures various agencies associated with urban transport in India at Central, State, and

Municipal level. These agencies perform functions like land acquisition, route planning, etc., that are

essential for public transport. However, their intertwined roles often lead to lapses in major functional roles

and create a very complex institutional framework for bus transport.

Exhibit 2-6 Institutional environment affecting bus transport

City authorities need to consider the roles of these bodies and their impact on bus transport services. For

example, the provision of permits by the transport authorities varies from state to state. In Kerala, permits

are allotted on the basis of area, while in Madhya Pradesh, they are allotted on the basis of routes. These

specific city characteristics change the dynamics of the contracts between authorities and bus operators.

Exhibit 2-7 captures a broad list of agencies along with their functions, affecting the operation of bus

transport in India.

Motor Vehicles Act is a Central Law, which:

Mandates registration of all motor vehicles Provides for licensing of drivers Stipulates that no public service vehicle can operate without a ‘permit’ Empowers the state governments to control road transport Creates an institutional mechanism to regulate road transport Makes provisions for payment of compensation to accident victims and Regulates the working conditions of drivers (along with the Motor Transport Workers Act)

Motor Vehicles Act is a Central Law which:

Mandates registration of all motor vehicles Provides for licensing of drivers Stipulates that no public service vehicle can operate without a ‘permit’ Empowers the state governments to control road transport Creates an institutional mechanism to regulate road transport Makes provisions for payment of compensation to accident victims Regulates the working conditions of drivers (along with the Motor Transport Workers Act)


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Exhibit 2-7 Agencies and their responsibilities

List of Agencies Role and possible impact on bus transport

Ministry of Urban

Development

The Ministry of Urban Development is responsible for overall urban planning

and development, including that of urban transport. The Ministry may require

cities to comply with certain terms and conditions to avail funding under its

schemes. For example, the Ministry guidelines specify the preparation of a

Comprehensive Mobility Plan, City Development Plan, and Unified

Metropolitan Transport Authority for every city (with a population above 1

million) that wants to avail funding. The Ministry also lays down guidelines on

bus specifications that need to be adhered by the cities.

Ministry of Road

Transport &

Highways

The Ministry of Road Transport & Highways undertakes transport research and

formulates and administers policies for road transport and highways. These

policies have a direct impact on bus operations. For example, the Road

Transport and Safety Bill affects the bus specifications, vehicle registration and

driver licensing.

Ministry of

Environment &

Forests

The Ministry of Environment & Forests specifies emission norms for motor

vehicles and administers the Environment Protection Act. It also specifies the

noise pollution norms for commercial vehicles and provides no-objection

certificates for urban transport projects coming under forest areas in the city.

Ministry of Finance

The Ministry of Finance approves funding for various centrally sponsored

schemes. Understanding of these schemes may help the planners provision the

financing mechanism accordingly.

State’s Urban

Development

Department

The urban development department of the state is responsible for the overall

urban development of the state including urban transport development. The

policy and plans prepared by the department may have an impact on the overall

bus transport system.

Department of

Transport (State

level)

The transport department of the state issues drivers’ licenses and vehicle

permits, conducts vehicle inspection and fixes the motor vehicle tax rates. The

department also issues route permits, and determines the fare fixation and

revision mechanism.

Public Works

Department

The State Public Works Department constructs and maintains major roads. The

Department can provide data on the road network in a city, the width and length

of roads, and road categories. This information would help in deciding the bus

dimensions best suited for the city.

Traffic Police

The State Traffic Police enforces traffic laws and manages and regulates traffic

in the city. No-objection certificates are required to be obtained from the

Traffic Police Department at the time of renewal of permits for commercial

vehicles.


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List of Agencies Role and possible impact on bus transport

State Transport

Undertaking

The state transport agencies are responsible for the operation of buses in the

state (both intercity and intra-city) either on their own or through private

operators.

Town and Country

Planning

Department

The Town and Country Planning Department of the state prepares various

spatial development plans at state, and local level and the city bus services need

to be aligned with these plans. For example, the bus connectivity to proposed

commercial, residential, or industrial hub needs to be ensured.

Urban Local Bodies

In some cities, the urban bodies are responsible for overall management and

planning of bus transport and are key stakeholders in special purpose vehicles

set-up for city bus operations.

City Development

Authority

City development authorities conduct land use planning and regulate planned

growth of the city, with transport forming an important part of such planning.

They also oversee maintenance and construction of bus depots and bus stops.

Bus transport should be planned in line with the proposed land use plan

formulated by the development authorities at the city level.

2.1.3.2 The Role and Capacity of the City Authority

City authorities need to define the nature of business model and develop the same, regardless of the type

of contract adopted. However, the tactical role of the city authority will differ depending on the type of

business model adopted. For city authorities to be an effective partner in a PPP, it is necessary to evaluate

their current role in bus operations and their capacity to contribute to planning and oversight effectively.

The following steps help in determining the same:

a. Identification of the role of the authority providing bus services

The city authority needs to evaluate the

role of the entity which presently provides

city bus services. The authority could be a

city-level SPV, a city transport authority or

a state transport authority. These

authorities could either be providing bus

services on their own or through

engagement of private operators. The

engagement of private operators would be

possible only if there are no mandates

restricting private participation.

b. Assessing the strength and capacity of the authority

The capacity and willingness of the authority to take responsibility for the planning, monitoring and control

of the bus network will partially determine the type of contract selected. In this context, there is a need to

assess the following aspects:

Financial soundness of the authority

Risk appetite and funding support

A number of Indian cities have formed SPVs to

manage city bus transport service, leading to a thrust

in provision of city bus services through PPP mode.

Key SPVs in Indian cities are listed below:

Indore: Atal Indore City Transport Services Limited

Ahmedabad: Ahmedabad Janmarg Limited

Bhopal: Bhopal City Link Ltd.

Delhi: Delhi Integrated Multi-Modal Transit System

Surat: Surat City Bus

https://en.wikipedia.org/wiki/Delhi_Integrated_Multi-Modal_Transit_System_(DIMTS)_Ltd.


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Technical competence to operate bus services on its own

Capacity to monitor operator performance

Desired level of control over city bus services

c. Enhancement of the management role of the authority

City authorities have historically played the role of regulators and not managers, and often lack expertise

in the management of transport networks. While a typical historical regulatory model has government

playing the role of regulator and private entity playing the role of provider, it lacks institutions that play

the role of manager. Filling this management deficit through authorities delegated with this task is the key

role of the city in the envisaged model. Actions to enhance and improve the function of the city in managing

transport would include:

Reasserting its role in the business of public transport to strengthen its control over the outcomes

Taking a more managerial and less regulatory role, and handling the responsibility for customer

service delivery

Developing a sustainable business approach to guide its planning

Assigning risks to where they can be best managed

Taking a commercial approach to subsidy, using it to produce positive outcomes and not to

support operational losses

Another important aspect in enhancing the role of the city authority is ensuring a dedicated entity for bus

service provision. A successful PPP contract requires a dedicated involvement from both the parties, i.e.,

the private operator and the public authority. If the city does not currently have a dedicated authority for

city bus operations, it could plan the creation of a separate cell within the authority that currently manages

city bus operations.

Exhibit 2-8 Comparison of a traditional regulatory approach and a more commercial approach to

managing bus services

Source: Deloitte Project Team

The agency to operate as an efficient commercial entity should be a corporate and autonomous entity which

is free from the constraints of political interference. Where the SPV manages the entire bus network, it is

preferable to be government–owned to retain public control; however, under certain conditions (such as

the presence of a strong public transport authority) a private concessionaire could be used; should the city

doubt public sector capacity.


Page | 24

The envisaged SPV, or the City Authority, should be profit-focused3, independent, transparent in

discharging its duties, able to hire staff based on merit, dismiss staff for poor performance, able to borrow

funds, sue and be sued. It is equally important for the body to have qualified personnel with necessary skill

sets and long-term job commitment.

The next step would be to determine the risks that the SPV, or the city authority, is able and willing to

manage on its own, and the risks that it aims to offload to the private operator.

d. Risk assignment between the players

The assignment of risk is a key determinant of the success or failure of bus systems. It is linked closely to

the strength and capacity of the city authority, and their willingness to manage risks under their control.

The key rule in this area is to assign the risk to the party that can best manage it. For example, if the bus

operators are assigned risks they cannot manage, they would either fail or would adopt means that would

maximise revenues at the cost of service quality.

In recent times, India has seen operators predominantly bidding for bus service contracts only if they can

avoid revenue risk, leaving the city authority shouldering this predominant risk. While cities can manage

certain factors impacting revenue risk, they may not be able to handle it adequately. Mechanisms as these

only transfer the risk and don’t manage or mitigate it.

The solution lies in either of the following approaches:

1) Sharing the risk between the hierarchy of players

2) Working out mechanisms to ensure that the operator is better able to manage the risks assigned to

it so that it is not averse to assuming those risk

The following exhibit shows the main types of risks that are at play in the provision of city bus services,

and their allocation between the parties:

3 The term ‘profit-focused’ does not necessarily imply a profit maximisation ethos - rather a financial performance-measure so that

loss-making subsidies can be avoided. The underlying incentives then are to win the market, satisfy customers and grow revenue, while ensuring efficiency in operations.

Type of risk Assignment of risk

Political risk: Any disruption in

operation of a project due to political

decisions

Political risk is best managed at the level of the transport

authority responsible for strategic policy direction. This

authority provides oversight, coordination and manages cross-

jurisdictional issues and sets the strategic policy and planning

for public transport.

Revenue risk: The business risk which

affects the overall profitability or

viability of services or the level of

public subsidy need to support services

Revenue risk could be managed at the level of the bus agency

operating public transport network or at the private operator

level, depending on the type of contract adopted. In many

cases, the city authorities are unwilling or unable to take the

revenue (demand) risk of the bus network owing to the spread

of geographical area, or lack of data to understand the

dynamics of passenger demand. In some cases, cities simply

make a political decision to devolve the revenue risk to the

private sector.


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Exhibit 2-9 Assignment of risk in a shared risk model

2.1.4 City Level Plans

There are several existing city level plans affecting the subject of bus transport in India, for example, the

Comprehensive Mobility Plan, the City Development Plan and the Land Use Master Plan. These plans

define the limits of the road network and future expansion if any. The authorities need to understand these

plans and their possible effects on city bus transport.

Comprehensive Mobility Plan (CMP): A CMP presents a long-term vision of desirable mobility patterns

(people and goods) for a city. It provides strategy and policy measures needed to achieve this vision. The

typical CMP planning horizon is for 20 years, but CMPs also cover actions to be taken within 5 to 10 years.

A city’s CMP needs to be taken into account before planning for bus operations. The CMP provides

information on spatial and temporal demand patterns, which could aid the authority in planning routes and

schedules for bus services.

City Development Plan (CDP): The CDP proposes planning goals of various urban development sectors,

including urban transport, although it rarely adopts a transport modelling approach and provides limited

input on a clear strategy for long-term urban transport development and the ‘mobility’ concept. A CDP

also provides valuable information regarding the existing and future development of the urban area. The

details of the city development plan are available with the city development authorities.

City Master Plan / Zonal Development Plans: A Master Plan (or Development Plan) is a statutory

document for guiding and regulating urban development. It is prepared by urban development authorities

/ State Government for each metropolitan area, city and town. For example, in Delhi, it is prepared by the

Delhi Development Authority. It defines the future area for urbanisation and addresses planning issues for

various sectors. The transport sector plan contains development measures such as road network (arterials,

collectors, and distributors, etc.), parking facilities and mass rapid transit systems. The Zonal Development

Plans specify locations and extents of land use proposed in the zone for public buildings, other public works

Operational risk: The risk taken by

operators that are related to the

difference between the expected costs

and observed costs after performance

realisation and their ability to meet

availability and performance standards

as contracted

Operation risk is best managed by the operators contracted to

provide services. Various mechanisms in the contract

arrangements ensure the provision of quality service.


Page | 26

and utilities, roads, housing, recreations, industry, business, markets, etc. The land use plan may assist the

city authority in route planning taking into account the location of major industrial/business hubs and

markets.

Comprehensive Traffic and Transportation Studies (CTTS): The CTTS is a transport sector study,

focusing mainly on vehicle flows. Some cities have conducted a CTTS by examining traffic and transport

issues and recommending improvement measures. Some of these measures include strengthening roads

and flyovers, Mass Rapid Transit (MRT) systems, etc.

The bus operations in a city will need to comply with all the operational plans of the city. The city authority

should identify all the relevant plans and assess the specific requirements of each plan. It should then

structure the bus operations contracts accordingly.

2.1.5 Competitive Environment / Existing Transit System

A fundamental objective of transport planning in any city should be to integrate the transport system in a

holistic fashion and avoid overlap within and across modes that lead to wasteful competition. The

understanding of city operating plans from the previous section helps in evaluating the existing transit

system. To further assess the competitive environment of the city for public transport, following steps are

suggested:

1. Assessment of Transport Modes

2. City Requirement: Bus Transport

2.1.5.1 Assessment of Transport Modes

Each city should assess the existing modes of transport and alternative competitive transport modes for the

bus in cost efficiency, user preferences, and routes connectivity, etc.

2.1.5.2 City Requirement: Bus Transport

After mapping the different modes of transport in the city, the city needs to understand the requirement of

the passengers and role of the bus transport. A city which has an established and well-connected metro rail

might need bus connections from the metro stations to commercial hubs/tourist destinations. On the other

hand, a city without metro rail, but having a multitude of transport services along its arterial routes (e.g.

shared autos, rickshaws, etc.) may need to introduce a bus service along its main roads. The city may also

choose to retain competing modes along a particular route to optimise capacity distribution across modes.

For example, the city might decide to retain many overlapping bus routes to cater for shorter, more

localised, trips on the corridor so that the capacity of the Metro rail is used mainly by those making longer

trips. Summarising, bus transport can play the role of the trunk services providing the majority of urban

transport or feeder services providing transport to alternative modes of transport or supplement existing

modes of transport. This understanding of the requirement of bus transport will help the city to decide on

the next step.

2.1.6 Understanding the Incumbent Operators & Trust Environment

Every city planning to adopt private bus services will need to work with existing players and understand

the legal setup. For example, an operator may have been given an exclusive route license that may not be

cancelled during the term of the license; launching a new scheme in this circumstance would require

negotiating with this operator for early cancellation of license.

The approach would largely depend on following factors:

Whether the present operators are public operators (STUs) or private operators;

Level of regulation;


Page | 27

Whether they are profitable or struggling financially and;

Future prospects of the operators

The standard of trust between the existing operators and the city authority is also a factor that may impact

negotiations for bus reform.

The city also needs to determine if it aims to include existing operators in new contracts or plans to replace

them with new operators. While retaining the existing operator ensures continuity, new players might bring

new skills and price competitiveness.

The factors that need consideration are:

Incumbency issues that may require resettlement or compensation;

Political, and social implications;

Attitude and profitability of existing players, and factors that can induce changes;

Cartels, or associations, that may require negotiations.

Once the potential group of operators is identified, their capacity needs to be assessed to determine the

suitable contract type. It is also imperative to assess the funding capacity, training requirements, and

partnerships structures in the decision.

Usually, with inexperienced operators, a more prescriptive contract will be needed to provide clear, defined

and unambiguous service to enable tighter control. The risk on the operator should be low in such a

scenario. However, experienced operators may be allocated greater risk, and contracts may be more flexible

and innovative to develop efficiencies, generate passenger growth to increase returns and contribute to

business development.

2.2 ANALYSIS OF FACTORS AFFECTING BUS TRANSPORT SERVICES

A SWOT (Strength-Weakness-Opportunity-Threat) analysis on the collected information and findings, as

illustrated below, provides a robust methodology for analysis. The following is an indicative list of

strengths, weaknesses, opportunities and threats that would drive the strategy for the city authority and this

list varies from city to city.

Exhibit 2-10 SWOT Analysis for review of business environment

Strengths Weaknesses

Strong political leadership

Competent bus operators

Demonstrated need for improved public

transport provision

High level of public awareness

Inadequate infrastructure

Inadequate finances

Weak institutional capacity

Manpower constraints

Opportunities Threats

Central funding support

Favourable policy environment

City’s environmental action plan that places

prominence on use of bus transport

Vested interests possibly driven by

commercial or political advantage

Trust deficit between industry and authorities

Reluctance to change


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2.3 TRANSFORMING INFERENCES INTO IMPLEMENTABLE ACTIONS

Above analysis may provide a fairly comprehensive snapshot of the problems, issues, and conditions that

need to be considered in the planning process. The exercise will also enable the city authorities to be in a

better position to identify factors and actions essential to overcome existing shortcoming of transportation

services. This would represent the broad framework within which the city could develop the business and

contract structure. The review of various internal factors specific to bus transport system of the city which

will be further described in the next chapter will enable the cities to finalise this framework.


Page | 29

3. PLANNING THE BUSINESS MODEL

The next step is planning the business model within which city bus operations will function. While the

focus is often solely on the type of bus contract to use, the real issues are found in the planning of the

business model which highlights the alternatives for providing effective and efficient passenger bus

transport services suitable to the city.

This chapter describes the internal factors that relate to the various activities involved in delivering bus

transport systems in cities.

These include:

Stages of planning

The role and capacity of the city authority

Risk assignments between players

Network and service planning

Options for engaging bus operators

Planning bus operations

Revenue model and collection

Payment mechanisms

3.1 STAGES OF PLANNING THE BUSINESS MODEL

A prerequisite to planning the business model is an understanding of the baseline conditions and defining

what the city wishes to achieve. A clear process for developing the business model includes the following

steps:

i. The strategic plan & goal setting

ii. Assessment of existing conditions

iii. Stakeholder consultations

iv. Construction of the business plan and supporting structures

3.1.1 The Strategic Plan & Goal Setting

It is crucial that the city is clear, at the very outset, on its bus transport objectives before embarking upon

the reorganisation of bus transport. Each city must chalk out a clear road map (a strategic plan) for an

improved, efficient and financially sustainable bus transport system. Also, the operational, institutional and

financial factors operating in the bus transport system need to be evaluated and assessed. This will guide

the inherent features and design of the business model and the eventual contractual relationships that

facilitate a well-performing transport system.

This involves developing a strategic plan which includes a vision statement to define a clear roadmap with

detailed goals set according to various time frames.


Page | 30

This process would need to start with an ‘objectives-based’

discussion to help the city to:

Identify possibilities and determine needs of

passengers

Assess the broad options and refine them based on

assessment of viability, and also consider

innovations

Identify suitable solutions and technology, which

will address the goals in the best manner or fulfil

the highest number of objectives (in some cases

new technology makes possible what was

previously unattainable)

Develop foundational agreements between stakeholders and consolidate them to a

common direction and purpose.

At the basic level of mobility goals, the city needs to analyse basic community transport needs, viz., options

for balancing of car traffic and public transport, the scope for introducing efficient transport options such

as Bus Rapid Transit System (BRTS) and bus networks and where applicable, and improving connectivity

to rail. A prime goal would be to design public transport to be as convenient (or more convenient) than

private car travel, as this would create an incentive toward greater public transport use.

The goals so identified should be specified quantitatively to be achieved in a given time frame.

Exhibit 3-2 shows an outline of probable goals for city bus transport.

Exhibit 3-1 Considerations for goal setting

Source: Deloitte Project Team


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Exhibit 3-2 Setting goals for city bus transport

Source: Deloitte Projects Team

3.1.2 Assessment of Existing Conditions

This step pertains to understanding the existing scenario of a city’s bus transport system in regard to the

following aspects:

1. Operational Assessment – this would include an ‘as-is assessment’ to determine the present

condition of city bus services, specifically operational features such as:

Routes currently planned for bus operations


Page | 32

Average number of passengers carried per peak hour and per day

Typical earnings per day

Bus-km operated by operator (if available) or fleet numbers

Maximum peak hour capacity/load

Average peak/off-peak hour load

Missed trips

Average number of buses under repair per day

This information would help to identify the service bottlenecks existing in the city where passenger

demand exceeds capacity.

Fleet Inventory – this would include an assessment of the present condition of the fleet

inventory and ownership, involving:

Fleet sizes per operator

Fleet age (as per year of manufacture)

Fuel type

Bus capacity (sitting as well as standing)

Actual buses in service compared to total fleet size

Passenger Facilities – this would include a review and analysis of the infrastructure related to

terminals, customer service centres, existing bus stops with and without shelters, and any other

passenger facility in the city bus system. Each facility should be assessed as to whether or not

it can handle existing passenger loads adequately, offers sun/weather protection, provides

sufficient lighting, is accessible for persons with disabilities, provides customer information,

has secure cycle parking, is in a good state of repair.

Depot Inventory - the following information may be ascertained for each depot to capture its

inventory and maintenance capability:

Name and location/ land area/ fleet capacity and ownership of bus depots

Adequacy of overnight parking capacity

Availability or adequacy of workshop repair and bus cleaning (washing) facilities

/capacity

Bus towing capacity available

Fuel supply on-site or off-site

2. Institutional Assessment: The current governance structure needs to be understood and analysed

for aspects such as the decision-making process, the division of responsibilities between the bus

transport undertaking, the Municipal Corporation(s), Traffic Police, Transport Department and

various other stakeholders responsible for city bus transport functions. Moreover, the structure and

role of the SPV (if one exists) needs to be assessed to understand its responsibilities, management

role, organisational structure and delegations and the technical capability within the organisation.

This would require an assessment of quantitative and qualitative aspects of the workforce, mapped

against the overall objective of the organisation. There is also need to identify current redundancies

and the workload pattern in the staffing structure. Dependency on outside agencies, tasks

outsourced, private operators’ manpower and capacity could also be investigated.


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3. Financial Assessment - The financial health of most bus transport undertakings in India is not in

good shape primarily because fare-setting is influenced more by social and political considerations

rather than the cost of operations. Hence, a key aspect of financial assessment is to understand the

financial difficulties and failings, including financing capacity, timeliness of payments, cost

recovery, budget processes, and ratios of fare revenue vs. non-fare revenue, etc. Furthermore, the

capacity of the undertaking to manage future bus contracts must be assessed to determine whether

alternatives need to be considered. It is equally important to evaluate the sponsoring agencies that

provide the funding on their capacity, consistency and timeliness in providing committed finance,

as well as potential policy changes which could threaten financial support for the scheme.

3.1.3 Stakeholder consultations during planning process

It is valuable to engage stakeholders from the outset of the planning process, to develop ownership and

inclusion. Furthermore, stakeholder consultations will help city authorities understand ground realities and

gain insight and recommendations for deciding on bus transport operation in the city.

A collaborative and participatory planning approach requires a preliminary identification of key

stakeholders who can provide valuable input into the definition of options to improve bus services.

Stakeholders in this context are people, bodies or agencies who are either directly or indirectly affected by

bus transport and any proposed changes in its planning. Direct stakeholders are those who have an apparent

role in planning, organisation, operation, regulation and support of bus services. These may be citizens,

communities or any other entity that use city bus services, or are impacted by it. Indirect stakeholders, on

the other hand, comprise of those individuals or bodies whose interests may be affected by reforming bus

transport. These may include non-governmental organisations, citizen representative groups, etc. The first

step to invoking stakeholder response is to identify who the stakeholders are, as shown in Exhibit 3-3.

Exhibit 3-3 Stakeholder consultations

(Source: Deloitte Projects Team)

Although there are clear benefits of stakeholder consultation, all the stakeholders need not be involved in

every decision-making process or every phase of the process. Some functions are particularly suited to a

participatory approach, like the location of a bus stop, bus routes, fare, and concession values while other

functions such as policy related issues, maintaining reliable and efficient transport services require

approaching stakeholders who are directly involved in running the city bus operations.


Page | 34

One key stakeholder in this is private operators. They are usually in a better position to gauge the ground

situation as they are directly in touch with the users and are aware of the impediments faced in the actual

delivery of bus services. Involvement of private operators in this stage also eliminates the situation of a no-

show by bidders during contract tendering or resistance in performance post contract award.

3.1.4 Construction of the Business Plan4,56

During this stage, the operational, institutional and financial elements are constructed to develop the

business plan and its supporting frameworks.

1. Operational Strategy

The operational strategy is fundamentally set within the service operating plan which outlines the actual

operations of the services, in terms of demand/capacity, bus route definition, levels of service (frequency

and service periods) total kilometres, staffing levels and cost of operation. On this basis, the business case

is developed; namely fare policy, cost recovery is forecast, and consequently the viability of the operation

is demonstrated.

2. Institutional strategy

The business plan will have created a scenario that will define what institutional structures are best suited

to managing it, namely the contract type and the necessary institutional oversight. The document outlines

in Chapter 5 the various factors at play and options available as well as indicates some recommendations.

3. Financial strategy

The financial strategy which includes cost and revenue aspects, as well as capital investments, underpins

the business case and institutional structures. The financial strategy would cover the sources of funding for

city bus operations and the avenues of fund utilisation. Budgeting the revenue and expenditure sources will

enable the city authority to plan its finances efficiently and accordingly decide on the activities to be

performed in-house and those to be outsourced.

The main sources of funding for bus operations are fare box collections, non-transport commercial

activities, and budgetary allocations. Income generated from fare box collection, or user charges, is often

based on social and political considerations and seldom covers the cost of the service provided, which is

reflected from the following examples:

User charges insufficient to meet the transport finance

In France, the contribution from users covers only 25% of the operating costs of the public

transport systems.

In Istanbul, the coverage rate for the bus system operated by the firm IETT is 64%. This falls to

only 41% when amortisation and provisions for equipment replacement are included.

In Ho Chi Minh City, public subsidies cover around 45% of the transport system’s operating costs

In Tshwane, public minibuses/taxis (32% of motorised travel) do not receive any operating

subsidies.

City authorities need to develop a financial plan which clearly specifies the strategy for funding its bus

operations. Since fare box revenues are invariably insufficient to cover bus operation costs, non-fare box

revenue such as revenue from advertisements, congestion charges, and innovative taxes (such as employer

tax and green tax) should be exploited. Grants and loans from international financial institutions and public-

4 Comprehensive Mobility Plan Preparation Toolkit - Institute of Urban Transport India

5 Guidelines for Bus Service Improvement: Policy and Options – ADB

6 Urban Bus Specification - JNNURM


Page | 35

private partnerships could also be used for supplementing the massive funding requirement for city bus

operations. The financial strategy formed by the city authority would determine the operating surplus or

shortfall as well as mechanisms to close the gaps in the case of the latter. The strategy will estimate potential

cost savings from outsourcing of activities such as bus operations, bus maintenance, and station

maintenance.

3.2 IMPLEMENTATION PLAN

Following the formulation of the operational, institutional and financial strategy, an implementation action

plan needs to be prepared. Anticipating implementation challenges that one might face during

implementation is imperative.

Guiding Principles for Preparing Implementation Plan

The following key principles need to be considered while developing implementation plan:

Needs flexibility of modification / change across the implementation process. This is primarily due to

unanticipated changes and delay in implementation. Under such circumstances, assumptions might

change and hence implementation plan might also change.

Needs to indicate the level of infrastructure required, broad time frame and the structure of

implementing team e.g. various teams responsible for different initiatives would be clearly set out.

Needs to clearly specify skill sets required to drive the initiatives laid out in business model. In certain

cases, where skills are not available within the organisation, they would be outsourced. Based on an

assessment of competencies available within the organisation, implementation plan would specify

whether external help is needed to manage implementation.

Time Horizon Implementation Plan

Short Term Focus on efficient utilisation of existing infrastructure

Plan services keeping in mind existing constraints

Medium Term Upgrade of existing infrastructure

Upgrade of existing institutional structure

Long Term Creation of new infrastructure considering future requirements

Increase institutional capacity

3.3 NETWORK AND SERVICE PLANNING

Network and service plan is a major component of the business model. This includes planning of routes

considering present and future projected travel patterns, type of permits to be procured, integration of bus

services with other transport modes and setting service standards against which performance can be

monitored.

Annexure IX outlines who bears the responsibility for network and service planning.

3.3.1 Route Planning

The city authority needs to undertake route planning for their bus operations in a scientific way to remove

overlapping routes and inter-modal competition. The main aim of route planning is resource optimisation

by providing seamless connectivity to the maximum population of the city with available resources.


Page | 36

Route planning requires detailed study of existing public transport routes, their demand and supply

parameters, type of modes available, and demand for the same, and performance of the system. Route plan

from Comprehensive Mobility Plan can be utilised if it is available.

Before the introduction of a new bus service along routes or revision of routes, the level of ridership should

be assessed as it is a critical component of the transportation system. Two steps are important in this regard:

1. Evaluating current ridership: Based on detailed and up-to-date data, measure and evaluate the

ridership level of all routes in the transportation network, including identification of roads and

corridors with higher levels of vehicle and transit traffic. The level of ridership should be judged

along with the level of road capacity to identify those corridors with the greatest potential for

upgrading and expanding bus services.

2. Forecasting potential ridership and travel demand: Estimate and project the level of ridership

due to the introduction of new or improved bus services. Such projections are also based on

population and employment growth projections.

Numerous assessment methods and tools7,8,9,10 can be used to assess whether demand exists for improved

bus services or additional transit services along selected corridors. There is a need to review the prevailing

bus transport infrastructure and traffic movement pattern. In particular, surveys are useful to gauge the

general public’s interest in and support for an additional bus service, as well as to evaluate the potential

willingness of residents and riders to pay for this type of service. Different types of surveys can be

employed: household travel surveys, customer satisfaction surveys of transit services, traffic volume count

survey, etc.

3.3.2 Permits

The Motor Vehicles Act stipulates that no public service vehicle can operate without a ‘permit’. The city

authority has to obtain these permits, clearly stating type of permits the authority plans for its bus

operations.

The options include area permit, route permit or a combination of area and route permits. The process of

obtaining operation permits from the Regional Transport Office also needs to be specified. Merits and

demerits of various types of permits based on the contract in operation / proposed are provided in the

Exhibit 3-4.

Annexure IX outlines the responsibility matrix for getting permits under different contract types.

Exhibit 3-4 Type of permits and their merits/demerits

Type of Permit Merits/ Demerits

Route Permits/ Route

Cluster Permits

When the city authority assumes revenue risk:

Eliminates on-road competition which leads to dangerous/unsafe

behaviours such as over speeding

The authority has the means to re-deploy buses according to demand

across different routes

7 Refer: Urban Bus Toolkit - World Bank

8 Bus Rapid Transit Planning Guide – ITDP

9 The Demand for Public Transport: A Practical Guide – TRL

10 UITP Tender Structure: For the tendering of buses and related services


Page | 37

Type of Permit Merits/ Demerits

Makes it easier vary route without resistance from operators concerned

with profitability.

When the private operator assumes revenue risk:

Difficulties with competing operators on common route sections

Causes on-route competition for passengers which often results in

negative behaviours

Makes negotiation for varying fleet deployment and service levels

difficult

Makes it difficult to carry out route changes

Area Permit

When the private operator assumes revenue risk:

Eliminates competition on routes but may still be present with line-of-

route connections to major destinations outside of the contact area. Can

an operator pick-up along this line of route or not? (reciprocal rights are

possible)

Operator has freedom to plan routes in a given area

Could lead to undesirable monopolistic behaviour of a single operator in

due course

Could be difficult to find a single operator for large cities, however,

smaller more manageable contract areas may allow comparison of

performance between operators

Combination of area

and route permit

May allow the possibility of overlaying NCC trunk routes over contract

areas routes to provide major O-D connectivity

May introduce the worst features of both contract types

3.3.3 Multi-Modal Integration

Multi-modal integration refers to the operation of public transit modes as one seamless entity to improve

service efficiency and service coverage area.

Guiding Principles for Integration of Transport Modes

The following key aspects need to be covered while developing integration plan:

Institutional Integration: Create organisational framework for joint planning and operation of

transit services. This would include tariff associations, transit federations or mergers, etc.

Operational Integration: Optimised allocation of transit resources and coordination of services.

This would include rationalisation of redundant services, matching modes to service requirements,

coordinated public information system, unification of fare structure, etc.

Physical Integration: Provision of jointly used facilities at intermediate points or terminals with

interchange facilities. This would include intermodal terminals, transit shelters, etc.


Page | 38

3.3.4 Setting Service Standards

City authorities need to clearly define the service quality standards for the provision of city bus service.

City authorities can refer to published guidelines for more details11,12,13,14. The service quality standards

would include aspects such as:

Accessibility: Accessibility is defined as easy access to the services (i.e. access to the bus stop). It

involves designing services so that a large percentage of the population is within the benchmark

range of 400m from a bus stop;

Adequacy: The public transport system should be sufficient to serve the travel needs of the city

population (including growth projections), both spatially and temporally. Ratio of capacity

provided to travel demand is an indicator of adequacy of public transport services;

Affordability: The public transport services need to be priced reasonably to be within affordability

levels for large segments of travellers and serve the social objective. However, a very low fare

level may result in poor quality services. Hence, innovative fare mechanisms must be used to assist

financial viability;

Regularity: Measured in terms of service frequency and reduction in waiting times.

Punctuality and waiting time: Bus trips should be punctual in the departure from their designated

origins and arrival at respective destinations. Set benchmarks of timely running will expose

failures. GPS tracking can provide operational data in real time for management to address any

late running issues;

Reliability: Compliance to schedules in terms of service timeliness, avoidance of missed trips, and

gaps in service;

Safety: Safety is a large concern for bus travellers. This should be a measurable benchmark in

terms of accidents per 100,000 km, and be cognitive of the seriousness of accidents;

Scheduled waiting time: Preparedness to wait for services to arrive tends to be relative to the total

journey distance. Planners need to understand customer perspectives and reduce service headways

where possible, as patronage will tend to decline commensurate with increasing wait times.

User Satisfaction: The authority needs to make available appropriate communication channels to

retrieve comments and feedback so that complaints can be assessed and necessary remedial actions

can be taken.

Comfort and convenience: To compete with private travel modes, bus service must provide a

similar level of comfort. Reduced overcrowding, provision of temperature control are measures

which provide passenger comfort

Where possible, the authority needs to set out the above service quality parameters in quantifiable terms,

without creating onerous compliance issues. Benchmarking of these parameters is useful as a comparison

measure with other operators or to measure improvement.

11 Guidelines for Bus Service Improvement: Policy and Options – ADB

12 Measuring PT Performance – Sustainable Urban Transport Technical Document #9

13 Randall, E., Condry, B., Trompet, M. (2006), International Bus System Benchmarking: Performance Measurement Development, Challenges, and Lessons Learned, Proceedings of the 86th Transportation Research Board Annual Meeting, January 2007, Washington

14 SLBs for Urban Transport – MoUD, Government of India


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Annexure XI details the quality parameters on which performance of the bus services should be evaluated,

monitored and controlled.

3.4 OPTIONS FOR BUS OPERATOR ENGAGEMENT

3.4.1 Background and context

Since independence, the public road transport sector has been dominated by state transport undertakings

(STU) whose priority is intercity transport rather than city bus operations as they are considered to be loss

making. Under these circumstances, the rapid economic progress and urbanisation have placed even more

pressure on these underequipped city bus operations which have not been able to keep pace with the rapid

increase in demand. This vacuum is being filled by fragmented and poorly regulated private sector

operations.

The advent of centrally sponsored schemes such as JnNURM which aim for effective, efficient urban public

transport systems coupled with focus from international multilateral donors has brought attention back to

city bus operations. As a result, many Indian cities have started using PPP models to establish city bus

operations.

The various options for bus operator engagement range from a public monopoly where the public sector

owns and operates services to the other end of the spectrum of a fully privatised operation. In between is a

range of partnership options (PPP) ranging from payment by kilometre Gross Cost Contracts (GCC) with

a hybrid option (payments adjusted to passenger variables) and Net Cost Contracts, either completely

revenue dependent or with financial support for non-commercial services.

However, PPP contract models need to be designed in such a way that risk is assigned to parties suitable

to manage it. Thus the solution is to develop a business model that manages risk, is efficient and profitable,

and this business model should be embodied in the contract agreements.

3.4.2 The role of a PPP Contract

A common perception is that PPP contracts have the best chance of developing a business that is profitable

for the operator, while at the same time fulfilling social objectives. In essence, this is because there is an

element of risk sharing and partnership within such arrangements.

A PPP recognises that each party has specific skills or advantage in managing specific tasks. By allowing

each party to specialise in their respective tasks, better performance is achieved, and risks are often better

managed. A PPP contract provides the relational framework between both parties. Importantly, a key

advantage of PPP is that both parties work to achieve agreed objectives for mutual advantage. Exhibit 3-5

shows the benefits to various stakeholders of PPP arrangements.

Exhibit 3-5 Advantages of a PPP contract

Public Authority Private Company Consumers

Ability to leverage private

sector efficiencies (and

investment) and know-how into

government operations

Ability to utilise innovative

approach and know-how to

earn profits

Can assign some operation

environment risks to

Better quality services

combining public and private

expertise


Page | 40

government (e.g. traffic

management)

Risk and responsibility sharing so each party carries the risks it

can best manage

Private sector profit motive and

innovation may reduce public

expenditures to support bus

operations.

Opportunity to develop a

profitable business

Apart from PPPs, public monopoly and fully privatised options are also discussed in Chapter 4, weighing

their advantages and disadvantages. The detailed contract options discussed in Chapter 4 will help define

reasons why cities may opt for a PPP contract option.

3.5 REVENUE MODEL AND COLLECTION

Revenue collection has a major impact on the viability of the business model and plays a significant role

in the successful operation of bus operations.

This section covers the sources, channels and responsibilities of revenue collection as shown in Exhibit

3-6.

Exhibit 3-6 Revenue Collection

3.5.1 Sources of revenue for bus operations

3.5.1.1 Fare box revenue

Fare box revenue (i.e. the revenue collected from passengers) is the major source of revenue for the bus

system. The importance of managing this function well cannot be overstated for these key reasons:

1. The failure to capture all the revenue due to pilfering is a common frustration of bus operators, and

often the cause of marginal returns. Safeguarding revenue is a prime requisite to a sound business

model.

2. Fare collection is an important interface between the system and its passengers, and therefore needs

to be as smooth and streamlined as it can be. The perception of a good travel experience is often

embedded in a respectful and convenient fare collection system.

3. The fare policy is what gives the passengers ‘value’; be it equity (appropriate payment according

to distance for example) or consideration for loyalty (where the system can discount for volume

Re

ven

ue

co

llect

ion

p

oin

t On-board

Off-board

Both on-board and off-board

Re

ven

ue

co

llect

ion

m

ed

ia Physical tickets -preprinted or issued on -site using ETVMs, etc

Electronic

Smart cart,

Tokens,

Enti

ty c

olle

ctin

g re

ven

ue Authority: - in- house

- out sourcing

Operator - himself

- Authority as above

depending upon type of operational contracts in all cases.


Page | 41

travellers). Where passengers perceive value, this will, in turn, create more ridership which returns

value to the system.

4. Fares policy also plays a role in inducing a modal shift, particularly from private vehicles to public

transport and synthesising between public transport modes.

3.5.1.2 Non-fare box Revenue

Non-fare box revenue includes non-ticket sales and may include revenue from advertisement, commercial

development, cross subsidy, property rental, etc. Non-fare box revenue sources can play a role in improving

the viability of public transport operations.

3.5.1.3 Subsidy or additional incentives

Subsidies may either be loss-compensating or act as an incentive to generate the provision of additional

services. Examples of such payments are compensations of fare rebates for specific target groups,

compensations of fuel duties in specific areas, etc. By these means, the authority may also achieve some

redistribution of wealth between different groups of the population. Such interventions influence the action

of operators on the free market without foreclosing competitive threat and autonomous innovation which

are the principles of such a design.

3.5.2 Fare Box Revenue collection methodology

Depending upon the infrastructure and cost-effectiveness of various systems, the authority may choose one

or a combination of the following systems.

On-board – user of system pays for travel fare on-board the bus. The conductor collects fare and

issues ticket to the user. This is the most common form of revenue collection mode.

Off-board – in this system, the passenger pays fare before boarding the bus. There may or may

not be a ticket verification system on-board. This system is common in developed countries. It

requires adequate infrastructure for ticket dispersion, collection of money and ticket verification

system on the buses.

Fare box revenue may be collected in multiple ways with manual and electronic ticket vending machine

being the most common. Standards, design and specifications need to be developed by the authority for all

cases. The medium of the tickets may be paper, tokens, smart cards, etc.

3.5.3 The entity collecting revenue

Based on the revenue risk allocation, the authority or the operator may collect fare box revenue. The

decision of who collects the fare box revenue is important when designing contracts.

Hong Kong’s Rail plus Property Development Model

The Mass Transit Railway Corporation Limited (MTRCL) is the agency in charge of

operating and constructing the mass rail transit system in Hong Kong. Employing rail plus

property development (R+P) business model, the company partners with private property

developers to develop commercial, office and residential projects on and around rail stations

and depots. As of 2011, MTRCL has executed projects around 29 of the 82 stations,

providing close to 79,000 housing units and 1.7 million square metres of office and

commercial space. Profit after tax from the property development accounted for 30% of the

overall profit for the company in 2011.


Page | 42

The city authority may collect fare box revenue on its own, or may outsource to a third party. In

both cases, either the authority or revenue collection agency procures, owns and maintains

equipment for collection of revenue. When outsourced, the fare collection contracts need to be for

periods in line with the serviceable life of the equipment.

The private operator usually collects fare box revenue when it assumes the revenue risk. In this

case, the equipment is owned and maintained by the operator.

Regardless of who manages the function or takes responsibility, the contract must specify clearly who shall

be responsible for waybill data generation, reporting, compilation, analysis, etc. In addition, fares and

ticketing integration with other modes of transport / other operators across the network need to be

facilitated.

Annexure VIII details the responsibilities of different parties for revenue collection under different

contract types.

Note that more recently, new technologies like mobile phone applications create an opportunity for a

payment system provider15 to manage the entire ticketing system using cloud-based technology. A key

feature is that it allows bus operators to be paid per passenger, with full data provided on individual bus

ridership, the location of boarding and alighting, and allowing bus tracking. This has the advantage of

applying central control to fare collection, operate a fully fare-integrated network, safeguard revenue, and

still pay operators per passenger when the operator takes the revenue risk.

3.6 MANAGING FINANCIAL PRESSURES AND FARE INCREASES

3.6.1 Managing Operating Losses

When the city authority assumes the revenue risk, the fare level is separate from the cost of operation, and

a number of options are available if costs increase and the system enters a loss-making phase, such as:

Improve marketing, understand customer needs and conduct a program to improve patronage;

Enact restrictions on competing modes (increase parking charges, reduce parking availability and

position the bus service as a more efficient alternative);

Look for efficiency improvements and cost savings but be careful not to reduce the level of service

(as such action may be counterproductive). Examine items such as unit costs, work practices, bus

speed, etc.

Reduce the level of service, especially in low-demand periods (but this may also reduce passenger

demand);

Increase fares or secure subsidy support.

3.6.2 Tariff fixing, structuring and revision

Within Net Cost Contracts, where the operator is revenue dependent, there needs to be a mechanism to

index fares to meet changes in operating costs (assuming other tactical responses are not available).

Including these formulas in the contract gives the operator confidence that the risk of increased costs can

be met in a structured way. Such a fare index uses a weighting system that apportions the unit cost increases

to the fare reflecting actual cost impact.

Within an NCC, the authority needs to clearly define triggers or time markers for tariff revision. Inputs to

fare revision could include CPI, fuel price changes, wage rate variations, etc., and these offer an objective

and quantitative system to inform the calculation. Delays in approving tariff revision is a risk faced by the

15 One such provider is Boloro Global USA.


Page | 43

operator and contracts should include a clause the protect operators in case such an event, by appropriate

compensation for losses suffered.

City authorities are suggested to go through World Bank's Toolkit on Fare Collection Systems for Urban

Passenger Transport particularly the practice on fare structures for a more detailed treatise on the subject.

Exhibit 3-7, Exhibit 3-8 shows fare adjustment/escalation formula in Hong Kong and Singapore

respectively. Both examples show the need to have an elaborate, transparent fare revision mechanism

which is published to avoid ambiguity during fare revisions.

Annexure XIII elaborates on the fare fixation, structuring and revision in case the operator bears the

revenue risk.

Exhibit 3-7 The Fare Escalation Formula in Hong Kong16

Hong Kong had maintained its ‘formula’ (maximum profit based on 15 or 16% of assets employed) for

almost 20 years before it was superseded by a ‘basket of factors’:

“In determining the scale of fares, the government takes into account changes in operating costs and

revenue since the last increase, forecasts of future costs, revenue and return, and the need to provide the

operator with a reasonable rate of return. The value of average net fixed assets is used as the basis for

measuring the operator’s rate of return and reference is made to the rates of return in the previous ten

years. Public acceptability and affordability are also taken into account, (and) reference is made to

changes in the composite consumer price index”.

The ‘basket’ approach gives no weightings to the factors and does not preclude the consideration of

other factors. Some of the factors are highly qualitative and the basket approach’ leaves political

discretion largely unfettered. The political input is provided by the appointed Transport Advisory

Committee which considers fare increase applications from the bus operators and makes a

recommendation to the highest administrative authority in Hong Kong, the Chief Executive in Council,

as to whether an increase should be granted and the amount of that increase. In the context of Hong

Kong, however, the bus operators are confident that, in the current political and economic climate, which

is generally ‘pro-business’, their profits are unlikely to be compromised.

Exhibit 3-8 Fare Adjustment Formula in Singapore17

To better reflect Public Transport Operators’ (PTO) cost changes, the Public Transport Council

introduced Energy Index component to track energy costs and a core Consumer Price Index which

excludes costs of accommodation and private transport.

The revised fare formula is as follows:

Fare Adjustment = Price Index – Productivity Extraction

where, Price Index = 0.4 cCPI + 0.4 WI + 0.2 EI

cCPI is the change in core Consumer Price Index.

WI is the change in Wage Index. This refers to the Average Monthly Earnings (Annual National

Average), adjusted to account for any changes in the employer’s CPF contribution.

EI is the change in Energy Index. This refers to a composite of cost changes in electricity and

diesel.

16 http://www.legco.gov.hk/yr00-01/english/panels/tp/papers/a100e03.pdf

17 https://www.ptc.gov.sg/regulation/annualFareReviewProcess.htm


Page | 44

and, Productivity Extraction = 0.5% (valid from 2013 to 2017)

The productivity extraction factor is aimed for PTOs to share part of their productivity gains with

passengers.

3.6.3 Other tariff / revenue related factors

Mechanisms need also be developed by the authority, to deal with some socially relevant issues, such as

1) providing concessions to special needs groups such as students, persons with disabilities, etc. and 2)

Operation of non-profitable routes that operate as a public service obligation.

Such subsidised trips and tariff concessions need to be mentioned upfront in the contract along with an

objective mechanism to deal with them. The authority needs to periodically gauge the ongoing situation

and requirements, the financial performance, costs to provide services and payment to operators to provide

these services.

The authority needs to make budget provisions for maintaining such support; however, the authority also

needs to be aware of the possibility where operators manage revenue collection, revenue from loss-making

services may be hidden by them in order to increase compensation. A contract condition should specify

integrity of the fare collection system before a compensation agreement is entered into.

3.6.4 Fare Policy as a price mechanism to develop the market

The traditional government regulated fare scale is incapable of exploiting revenue opportunities in the

market, especially ‘willingness to pay’. Fares are usually set at levels the poor can afford, and

consequently, systems are starved of funds, providing a service that only the poor will use. Modern

transport system needs to be more innovative in designing fare policy to attract customers, offer them value,

building customer loyalty and at the same time developing value for the service provider. This is common

commercial practice in a retail setting, and can also be applied to bus services. Where a fare policy can

exploit willingness to pay, it will allow the cross-subsidising special needs users such as students or the

poor.

Pricing policy must move beyond the mind set of ‘affordability for the poor’ and instead focus on funding

options that will deliver on service quality objectives and sustainability.

To do this, the operator should manage a fare policy which will need to include a number of considerations,

including the affordability issue.

Using fare policy as a price mechanism to develop revenue and passenger growth, offering

incentives and discounts to volume users, and loyalty benefits.

Affordability is relative and needs to be understood in context, and it is necessary to understand

the customer. Social fares set for the poor results in ‘cash-starved’ and poorly performing

systems.

Being able to exploit ‘willingness to pay’ for value added services allowing cross-subsidy to

special needs /disadvantaged groups.

Electronic ticketing provides the technology to easily manage a more complex fare policy, user-

subsidies (and compensation amounts) and distance-based fares.

To avoid operator being able to exploit a captive market, the city authority can set an ‘average fare level’

allowing operators the freedom to adjust fares and within this framework of control, manage price

mechanisms to influence demand and maximise revenue.


Page | 45

3.7 MONITORING AND CONTROL

Identification and benchmarking of performance parameters of any PT system along with monitoring and

control are essential to facilitate delivery of services as per agreed performance. An objective assessment

of system performance based on such parameters will guide both incentives and penalty for variations in

benchmarked performance. Objective and continual collection of operational and performance data in

various forms is one of the essential requirements for this purpose.

For continual data-based monitoring and control of PT services, it is essential to set up a control centre

duly equipped with necessary plant and equipment, ITS / IT infrastructure, applicable software, etc.,

manned by qualified, experienced and motivated staff, managed by the agency (the network manager).

However, where such an agency does not exist, relatively simple technology is available for an operator to

set up their facility.

In the case of a city-wide control centre with multiple bus operators, the provision of land, building, utilities

and other non-movable infrastructure along with its ownership and investments should be the responsibility

of the authority.

3.7.1 Performance monitoring18

In order to monitor performance of operators, quantifiable and qualitative parameters need to be identified

and defined mainly for the following amongst others:

Service quality – accessibility, adequacy, affordability, efficiency, reliability, regularly, safety,

etc.

Physical – productivity of rolling stock, capacity utilisation, fuel efficiency, mean time

between failures of aggregates, etc.

Financial – costs and revenue per passenger km, per passenger, per bus km, per bus daily;

Benchmarking – performance parameters based on past performance and or with respect to

peer PT agencies,

Monitoring – delivery of performance with respect to benchmarked levels, assessment of

deviations if any

Defaults, and their treatment – setting out punitive actions for quantifiable defaults –

discretionary defaults cause disputes and need to be avoided.

Data acquisition compilation, analysis evaluation, report generation, monitoring and control –

as explained in an earlier paragraph.

In all types of contracts, identification and defining of service quality parameters, their benchmarking,

monitoring and control are essentially done by the authority. In contracting systems where revenue risk is

with authority, it is easy to monitor and implement the above – where the authority can enforce

requirements using the payment mechanism as leverage. However, it is not the case in PPP contracts where

revenue risk is with the operator where there is no leverage to do so. The authority thus needs to consider

such issues while making a choice of the type of contract.

3.7.2 Infrastructure for control and monitoring

Intelligent Transportation Systems (ITS)19 comprise a set of sub-systems and equipment fitted on buses

and in the control room, to monitor performance of operations. They provide real-time operating data and

18 Refer: Guidelines for Bus Service Improvement: Policy and Options - ADB

19 Refer: Toolkit on Intelligent Transport Systems for Urban Transport - The World Bank


Page | 46

real-time communication across the various parts of the system. This information can be used for

monitoring and management of the bus contracts. While the city-wide ITS system managed by the control

rooms is owned by the authority, on-board subsystems are owned by bus owners and are compatible with

overall system.

In addition, a third party may be responsible for design, procurement, operations and maintenance of

system particularly that in the control room.

3.7.3 Bus fleet maintenance management

For the business model, there needs to be a system to ensure proper maintenance and servicing plan for the

bus fleet. It is incumbent on the authority to establish systems whereby it can monitor and audit fleet

maintenance and repair, especially if problems on service reliability become evident.

The elements of a vehicle maintenance program include:

Daily inspection routine carried out by drivers at the commencement of a shift with a reporting

and documentation system in place and a reporting trail

Servicing and scheduled maintenance program for the entire bus fleet

Regular safety inspections/compliance with regulations

Complete recording system of all bus service and maintenance

Internal (self-audit) procedure

Various fleet management activities and under whose responsibility they fall, are shown in Annexure V.

3.8 MARKETING AND BRANDING OF SERVICE

Developing an overarching marketing and branding strategy is essential to ensure a successful

implementation of an improved provision of bus transit services in the city. The importance of outreach of

any public transport services cannot be overstated. The challenge is to develop a customised

communications strategy for city bus services including customised messaging for audience, selection of

media tools, etc. The communication strategy development will provide input for this marketing campaign.

Branding: Branding techniques are a way of identifying the bus service characteristics in the minds of the

public. It is primarily intended to create awareness of service offering, and help communicate distinct

features of the bus service to encourage greater use of the system. The following are some branding

techniques which the city authority may use:

A logo is a visual image or icon that communicates the distinct nature of a specific bus

service. A logo usually uses distinct colours and can be combined with the brand names,

either under the form of an ideogram or a logotype.

Brand names can take the form of a word or a short sentence that helps distinguish the bus

service from other regular transit services operating in the same city.

The use of distinguished and designated colour schemes on infrastructure and fleet helps

differentiate and set apart the bus service by providing visual references for passengers.

Market Reach: The primary purpose of a market analysis is to have a general picture of the customers

and develop a better understanding of key factors that influence people’s decisions in terms of modal

choice. More specifically, market research tools are intended to reveal the:

Current users of bus service

Potential users of bus service


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Barriers faced by non-users

Need for service improvements

Expectations from a bus service

Market research tools mostly include:

1. Surveys (both attitude and usage surveys): Telephone surveys, web surveys, mail surveys, onsite

(either on-board or at a bus stop/station) surveys

2. Focus groups discussions

In a PPP model, while the responsibility for the branding of urban PT system is with authority, the

marketing of services may be allocated to the agency that will benefit directly from the marketing efforts.

Where operators are directly dependent on patronage and revenues, failure in marketing by the

authority/agency may affect their revenues. The authority could include clauses in the contract to indemnify

themselves, but it would be better to ensure that this eventuality did not occur in the first place.

3.9 FINANCIAL MODEL

The financial Model is an important part of the overall business model. It is utilised to evaluate the project

viability and attractiveness, assess the requirement of financing for the project including subsidy or

viability gap funding and summarise the financial information of the project.

A typical structure and information flows in a financial model is shown in the exhibit below.

The key steps/methodology to be followed for preparation of financial model are described below briefly.

Input for financial model:

The inputs to the financial model would include the following

Estimated capital costs and operating and maintenance costs and a depreciation schedule for

physical assets

Revenue options and the associated forecast revenue stream. This will include fare box revenue

and non-fare box revenue identified

Forecast demand

Debt and repayment schedule

Sensitivity ranges on assumptions


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Output of financial model:

The outputs of the financial model would include the following

Projected Financial Statement such as cash flow, income statement and balance sheet

Expected returns from the project in Net Present Value (NPV), Debt Service Coverage Ratio

(DSCR) and Internal Rate of Return (IRR)

Assessment of subsidy or viability gap funding requirements where there is a viability gap between

revenue requirement and potential revenue

Sensitivity analysis:

Sensitivity analysis shows the extent to which the viability of a project is influenced by variations in major

quantifiable variables. The long-term commercial viability of a project would be critical in ensuring private

operator’s interest in that project. In case, project returns are found to be less than a benchmark; the

authority can consider additional subsidy or Viability Gap Funding to make the project attractive.

The authority is advised to follow the Toolkit on Finance and Financial Analysis20 published by Ministry

of Urban Development and the PPP Toolkit for Improving PPP Decision-Making Processes21, in particular,

the Financial Viability Indicator Model22 for more detail on financial modelling.

3.10 SUMMARY

The next chapters discuss the four model contracts along with the contract parameters and procurement

guidelines. However, before cities move on to contract selection they are advised to have completed the

following:

1. Business Environment Assessment as detailed in Chapter 2

2. Preparation of Business Plan as detailed in Section 3.1.4

3. Network and Service Planning as detailed in Section 3.3

4. Financial Model as detailed in Section 3.9

The completion of these 4 actions provides the cities with the context behind city bus operations, and the

business model under which city bus operations shall operate giving them an understanding which decides

their next steps. The cities in the next chapter shall have to decide on whether a PPP option is best for them

and within PPP option which type of contract is best suited for them.

20 http://www.sutpindia.com/skin/pdf/Toolkits/Finance%20and%20Financial%20Assessment%20Toolkit.pdf

21 http://toolkit.pppinindia.com

22 http://toolkit.pppinindia.com/xls/urban-transport/PPP-Financial-model-tool-urban-transport.zip


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4. CHOOSING THE RIGHT CONTRACT

This section outlines the various contract options, including the PPP contract models. The operations of a

public monopoly as well as full privatisation are also discussed to cover the possibilities comprehensively.

Four PPP contract options are discussed, outlining their distinct features, suitability to a specific context

and situation and their advantages and disadvantages. Particularly, the role of the authority and prevalent

risks are discussed, along with the suitability of the contract to the characteristics of the operators.

4.1 OVERVIEW OF CONTRACT OPTIONS

This document evaluates four types of PPP contracts across the spectrum of contracts, with a public

monopoly operator owning and operating services at one end, and a fully privatized bus operation at the

other end. Exploring the entire spectrum is influenced by suggestions received during industry

consultations regarding continued viability of fully public and fully private options. Evaluating these two

options will also help identify the rationale behind cities that opt for a PPP contract option.

We evaluate these two non-PPP options first and then evaluate the four PPP options in the subsequent

sections. Exhibit 4-1 illustrates the full range of options for engaging bus operators.

Exhibit 4-1 Guiding Principle and Options for Model Contracts

4.2 BUS OPERATION BY A PUBLICALLY-OWNED ENTERPRISE/STATE TRANSPORT UNDERTAKING

(STU)

It is argued, especially in the face of poorly performing private bus operations, that the city/state should

operate the public bus services. The logic has merits, the public sector is more likely to have the interests

of society at heart, and can theoretically operate at lower costs than the private sector. However, state

operations have typically failed despite many state-operated businesses having employees that are highly

competent technically.


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Many factors have attributed to these failures, some of the key ones being:

Lack of a clear objective: State bus operations often suffer from the dilemma of blurred objectives.

On the one hand, they are expected to be profitable or have a reduced need for subsidies while at

the same time provide services at reduced rates (regulated low fares).

Political directives and considerations often interfere with good business practice, including high

staffing levels and generous staff entitlements, inefficient work practices and an inability to

eliminate poorly performing services.

Reliance on subsidy: Excessive reliance on subsidy has a two-pronged effect; firstly it creates a

lack of focus on passenger demand and customer service as authorities are subsidy (not revenue)

dependent. There is little focus on service efficiency or winning passengers, and the result is a

‘supply-oriented’ rather than of a demand-oriented service. Secondly, financial pressures often

result in cost-cutting and service level reduction which leads to declining passenger numbers and

consequently, dwindling revenue.

All of the abovementioned factors lead to a subsidy based non-commercial approach towards the business.

Unfortunately, businesses cannot continue to rely indefinitely on subsidies, and after a particular point, the

city may cut back subsidies to cover losses, especially when public budgets are strained due to competing

demands for funds.

Privatisation, defined as transferring state-run operations to the private sector, is often hailed as the obvious

solution but comes with a unique set of challenges. The success of privatisation lies in a number of inherent

factors like focus on revenue building, a real understanding of costs and subsidies, developing profit

incentives that drives efficiency and a merit-based recruitment.

These issues make it essential to evaluate options that may equip STUs to be competitive in providing bus

services. The options would include strengthening the STU or transferring their operations to a state-owned

special purpose vehicle (SPV) company that is a commercially-oriented government-owned entity

established to operate bus services.

4.2.1.1 Strengthening STUs

The key to fixing the STU issues lies in their reorganisation as a commercial operation. The process begins

with establishing a clear objective on the aims of the organization, and reduced political involvement in its

functioning. The loss-compensating subsidy should be phased out to ensure that the organisation is

customer centric and generates revenue. This may require not just an increase in fares to cover costs, but

also the introduction of a more innovative fare policy that exploits ‘willingness to pay’. It is imperative for

the management to be more accountable for revenue and less reliant on subsidy support. It is also essential

to review the operation costs and adopt measures like higher bus speeds or rationalise stops, to decrease

the same. The organisation also needs to review human resources related factors like high wage costs and

pension benefits, and the inability to dismiss poorly performing staff that adversely affects the performance

of the STU.

Eventually, the success of the exercise depends on the capability of STU to adopt these fundamental and

structural reforms. If these reforms are not possible, the only option for the STU might be to convert them

to a government owned commercial enterprise.

4.2.1.2 Reorganising an STU to a government-owned commercial SPV

Some Indian cities have explored option to develop commercial SPVs i.e. a business-like government–

owned company to operate bus services. This is a logical step in ensuring that the management becomes

commercially-oriented, is accountable for performance, and ensures a greater focus on customer service

and satisfaction.


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4.2.1.3 An alternative role for the public sector in network management

It may be argued that the essential role of the public sector may not necessarily be to operate the buses but

to plan and monitor the bus network. In this model, the ‘public bus operator’ manages the business, and

not the operations, of public transport i.e. planning services, collecting revenue, being responsible for

customer service, etc., and the operation and maintenance of the buses are contracted to the private sector.

Separating these roles creates a Principal and Client relationship where there is clear accountability for

service provision. This model has been adopted by many Public Transport Authorities (PTAs) in many

cities around the world; some of the prominent examples include Transport for London (London), Public

Transport Council (Singapore), and Massachusetts Bay Transportation Authority (Boston).

4.3 FULL PRIVATISATION OF BUS OPERATIONS

Another operational model for bus operations, though miles away from state-owned bus services, is the

full privatisation of city bus services, where the private sector, and not the state, carries the responsibility

for transport outcomes. Under this scenario, market forces are left to dictate the balance between supply

and demand.

During the 1980-90s, neo-liberal policy experts argued that state-run bus operations be privatised on the

assumption that private operators were more efficient, could adapt better to the market, and would require

less subsidy (or none at all). The UK was among early adopters of this model, and the experiment

demonstrated a reduction in subsidies for utilities like power and water. While the UK model was based

on conviction of market efficiencies and was successful in eliminating costly subsidies, the downsides like

loss of consumer base, indicated a downturn in service delivery levels, and it took years for the industry to

address these issues successfully.

The possibilities and downsides of full privatisation

While the UK experience had issues owing to its uniqueness, it was also impacted by factors like abolishing

authority role in service planning and depot privatisation, which distorted fair competition. The UK

experience of reduction in bus passengers coinciding with privatisation suggests that the blanket adoption

of privatisation model might not always yield successful results. Similar experience were observed

worldwide by subsidy-burdened state operators that adopted privatisation as a ‘silver bullet’.

It may be argued that privatisation did not yield better outcomes mainly for two reasons. Firstly, the risks

that the state companies could not manage were transferred to private operators who themselves could not

manage these risks and ultimately started a ‘race to the bottom’ in quality standards fuelled by cost cutting.

Secondly, although regulators yielded control over the level of service and quality to the operators they

still retained control over fares and left the operators to sort out the economics.

Eventually, global enthusiasm for privatisation was tempered by the fact that the profit motive of the private

operators was often in conflict with public service objectives, leading to a trend toward PPP arrangements

to strike a better balance in control and efficiency, and the essential sharing of risk.

4.4 PPP CONTRACTS23

4.4.1 Overview of PPP Contracts

A Public Private Partnership is typically a medium to long-term arrangement between the public and

private sectors whereby services that are typically the responsibility of the public sector are transferred to

the private sector.

23 Also known as “Controlled Competition”, “Competition for the Market”, both requiring public tendering for bus transport concessions


Page | 52

The PPP contract is a detailed framework under which a private company can perform the services, and

maintain and carry out investment for a given term. The roles and responsibilities of each party and their

rights and obligations are explicitly outlined in the contract. A PPP contract also defines the partnership

relationship. While all contracts define relationship at a tactical level, PPP contracts need specifically

defined strategic framework where:

There is alignment of expectations and objectives between the parties;

A clear alignment exists among strategic, tactical and operational aspects;

Reasonable flexibility is given to respond to the dynamic context of public transport and

to understand the environment and capabilities of the parties.

PPP contracts will vary according to the situation and context, the strength and capacity of the parties, and

the trust relationship between operators and the authority. The contracts range from a Gross Cost Model,

where the entire revenue risk is with the authorities, to a Net Cost Model, where the operator takes the

responsibility of managing the revenue risk. The contracts also include hybrid models, which act more like

a ‘partnership’ and are relational in terms of risk sharing and partnering toward a common objective.

It is important that the process of developing the contract is open and clear, and achieves buy-in from all

sides. It is also valuable to learn from the past and other cities’ experiences.

4.4.2 The benefits of PPP Contracts

There are two aspects of a PPP contract that make it valuable and useful in the management of city bus

services: 1) the inherent ‘contractual’ basis of the agreement and 2) the aspect of ‘partnership’.

The contractual basis ensures:

The roles of the parties; their rights and obligations; and procedures are well-defined and

clearly stated and are part of written, agreed upon and enforceable terms and conditions of the

contract;

The contract is the control mechanism which places the authority in the ‘driving seat’ to

achieve its intended outcomes;

Remuneration to operators is (in part) performance based;

Performance is easier to enforce (under contract) utilising payment mechanisms and a

sanction/penalty regime;

Contracts allow the removal or discipline of poorly performing operators.

The partnership aspect ensures:

Shared risk – assigning of risk to where it can be best-managed;

Contracts are financially viable for both parties;

Aiming for a win-win outcome.


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4.4.3 The Role of the authority24 in the PPP Contract

In any PPP-type contract, the public authority will need to participate to a greater extent in the management

of the system network; beyond its traditional role of ‘regulator’. The SPVs in Indian cities are a typical

example of the same, where these entities engage by:

Asserting a business management approach to public transport, and strengthening control

over outcomes;

Being ultimately responsible for customer service delivery;

Concerning themselves with sustainability and risk management;

Taking a more commercial approach to subsidies, using it to produce positive outcomes

and not to merely support operational losses.

In situations where SPVs take a more commercial approach to public transport, instead of the traditional

‘social service’ mind set of an STU, the SPV adopts an approach that is more aligned to the private sector

approach.

4.4.4 Evaluation of the PPP Contract Options

Within the realm of PPP contracts, four distinct categories are identified as follows:

1. Gross Cost Contract (GCC)

In the GCC, the authority takes a major role in managing the network, by contracting the operators

and paying them to provide a set level of services under set quality standards. Under this type of

contract, the authority carries the revenue risk, plans overall services, manages the contract for

Level of Service (LOS) and quality, and is ultimately responsible for customer service.

This contract is suitable if the authority (having access to finance) wishes to take a dominant role,

control service planning, and assume the revenue risk or the routes are likely to be unviable. A city

with low ridership routes, where the revenue risk would seem unmanageable to the operator, is

suitable for adopting a Gross Cost Model.

This contract sets overall Minimum Service Levels (MSL)/Key Performance Indicators (KPIs) and

requires close monitoring by the authority. By its inherent nature, this contract grants a greater

control to the authority.

2. Hybrid Gross Cost Contract

Under a hybrid contract (a variant of the GCC), the agency still carries prime responsibility for

passenger service outcomes and sets explicit service obligations (MSL), but incentivises the

operator through additional payment for ridership growth.

This contract is a more suitable contract for cities that require the ownership of GCC and with an

intention to share the revenue risk. The model incentivises the operator to ensure it meets the

service levels, and innovate to increase ridership. The authority sets overall MSL/Quality KPIs and

needs to monitor as closely as in the GCC model.

3. Net Cost Contract (NCC)

In the NCC, the authority performs a more regulatory role, and the operator carries the revenue

risk. Service planning is mostly done by the operator, although an MSL and Quality KPIs are set

24 It is to be noted that the terms Government, State, City and ‘Authority’ are interchangeable in this document describing the public

sector entity or its various embodiments responsible for administration or management of bus services. The terms Bus Operator and

Contractor used in the description of PPP's are also interchangeable.


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as conditions for awarding the NCC. The authority has lesser control mechanisms which typically

results in a loss of control as the party that carries revenue risk has the upper hand. However,

control can be improved if there is an incentive for the operator to comply with the authority’s

wishes. For example, if an operator is profitable, it will increase the authority’s chances of

influencing a better level of service (LOS), whereas if the operator struggles financially, then its

economic survival takes precedence over any request to improve service levels.

The operator will cross-subsidise non-profitable routes with profitable ones. This type of contract

is suitable where there are willing and capable operators. However, there is a risk of the contract

weakening the authority’s control and leading to undesirable outcomes.

4. Hybrid Net Cost Contract

In Hybrid Net Cost Contract (a variant of the Net Cost Contract), the authority supports non-

commercial routes where service on the routes needs to be provided as a public service obligation

(PSO).

This contract type is suitable for more skilled, willing and experienced operators who are capable

of undertaking service planning and managing almost all the revenue risk, and where the authority

does not have the skill for business management. It can be used in a city where the revenue risk,

to be undertaken on certain routes, is unmanageable for a single party. The authority sets overall

MSL/Quality KPIs and needs to monitor outcomes. But, by its inherent nature, the level of control

by the authority is less.

Exhibit 4-2 briefly outlines the features of the Gross Cost, Net Cost and Hybrid Contract types. The

discussions on the individual contracts are detailed in the following sections.

Exhibit 4-2 Features of GCC, NCC and hybrid contract

Parameter GCC Hybrid GCC NCC Hybrid NCC

Suitability

Authority has

maximum control

Authority has

more control

and intends that

operator shares

some revenue

risk

Operators have

more control

Higher revenue

risk for operator

Limited

competition on the

routes

Operators have more

control, but less than

NCC

Revenue risk for

operator lower than

NCC

Limited competition

on the routes

Revenue risk

Authority Shared:

Base cost by

authority

Ridership

increase by

operators

Operator Operator, subsidy by

authority on un-

viable routes

Degree of

operator’s

incentive to

Low High High High


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Parameter GCC Hybrid GCC NCC Hybrid NCC

increase

ridership

Fixed payment

irrespective of

ridership

Bonus on

increase in

ridership

Revenue directly

linked to ridership

Revenue directly

linked to ridership

Monitoring and

penalty regime

Requires strong

and consistent

monitoring with

penalty for

service below

benchmark

performance

Higher level of

monitoring than

GCC because of

greater

economic

incentive for

performance

Less monitoring.

Only service

quality parameters

monitored

Level of monitoring

is higher than NCC.

In addition to

service level

parameters,

monitoring of

movement of bus on

un-viable routes

Access to

finance

(Bankability of

project)

High

Guaranteed

income reduces

credit risk

High

Part of income

assured;

decreases risk

Low

Revenue risk borne

by operator.

Increases credit

risk especially if no

track record or

demand is

uncertain.

Low

Reduces revenue

risk as non-

commercial routes

are supported.

Improves credit-

worthiness, but still

lower than GCC

Developing a public transport system in most of the countries is a loss-making venture, so authorities

should be prepared to provide some form of subsidy to the operators to ensure that project is sustainable.

Access to finance is an important parameter, but it should not be the sole criterion for selection of a business

model. Hence, extreme caution must be adopted while considering access to finance as one of the key

reasons for selection of business model.

4.5 SALIENT FEATURES OF A GROSS COST MODEL

4.5.1 Suitability to contractor and level of contract detail in a GCC

Gross Cost Contracts may be used in any situation where the authority wishes to enforce strict quality

outputs. It is also a suitable model for low demand routes or services operating in non-peak hours, where

services may not be commercially viable for the operator.

The contract specifies minimum service levels (MSL) and quality service standards. The monitoring and

enforcement are easier but is reliant on the ability of the authority to monitor the entire service. Thus, the

model’s monitoring is easier on a trunk line than an expansive city area.

A GCC prescribes in detail the service requirements with regard to the standard of quality and service

delivery as well as operational, management and performance monitoring procedures. The level of detail

in the contract should be sufficient to ensure the operator is informed of all requirements and the authority

has a reference for applying penalties in case of performance failure.

However, the contractual demands placed on the operator need to be objective and realistic, and penalty

by the authority must be applied fairly and equitably. City authorities should develop a contract

management procedures manual to provide explicit and clear guidance in the management of the contract.


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The payment of the operator is dependent on the kilometres plied and not on the number of passengers

carried. In situations where revenue is overly dependent on the number of passengers transported, the

operators often compromise on safety in the pursuit of passengers and revenue, causing irregular and illegal

behaviours and safety concerns. By delinking the payments from passenger revenue, GCC can reduce

competition.

The service specifications within the contract must be variable and must allow the authority to adjust

services according to demand requirements. However, under reduced demand, the operator may be

burdened with an excess fleet and suffer financial disadvantage.

4.5.2 Roles, responsibilities and risk assignment in a GCC

In a GCC, the authority manages the ‘businesses of public transport’ while the operator manages the

‘business of bus operation’. Service planning, efficiency, business development and marketing are all in

the domain of the authority’s responsibility. The authority not only takes the revenue risk but is also in a

position to manage the revenue risk by being able to adjust services to demand, marketing the system,

implementing parallel traffic treatments/restrictions, managing central fare collection and fare integration,

etc. In cases where the authority also controls the service planning of the network, it has the flexibility to

assign and reassign the buses across the network and adjust LOS according to demand.

The risk assigned to the operator is the operational risk; including responsibility for service frequency (no

missed trips) and compliance with quality and safety standards (bus quality, cleanliness, driver behaviour,

safety, etc.).

4.5.3 The monitoring capacity of the authority

GCC requires (and demands) the authority to undertake close monitoring of daily performance. The

authority will need the requisite resources and the technology to carry out this task.

4.5.4 Operator input into service development

Under a GCC, the operator is not expected to contribute to service development, since it has no incentive

to be more efficient by reducing kilometres of operations (as it is the basis for payment) and it most likely

wants to increase kilometres for additional benefit. However, a good operator with an eye on the long-term

partnership opportunities could provide useful advice that is more likely to be attuned to local demand. It

may be worthwhile for authorities to develop such a constructive relationship with the operator.

4.5.5 Payment mechanisms and performance incentives of a GCC

In a GCC, the authority collects the revenue and takes revenue (demand) risk, and therefore controls the

levers of supply, price, and service quality and system performance. By taking this business control and

the risk, it has a strong hand in ensuring quality, assisted by the contract to enforce service delivery. The

authority must have the resources and ability to monitor services closely.

While there is a good incentive to maintain service frequency, operators carry no demand or revenue risk,

so they have little incentive to cater to demand, as their revenue is unaffected by demand-propelling efforts.

The limitation of a GCC is that operators can comply with the fleet, capacity and kilometre targets as set

out in the operational plan, and still offer poor service. This increases the authority’s reliance on the penalty

regime to ensure quality standards are maintained. Complementing the kilometre payment system with a

bonus for passengers carried would motivate operators to improve customer service. Penalty regimes

typically include a financial penalty for service failures and a demerit point system to identify chronic

performance failures and a habitually poor performing operator. Subsequent months of poor performance

could justify a review of the contract with eventual termination if the problems are ongoing.


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A typical payment mechanism useful especially for Gross Cost Contracts is an Escrow Account that can

be used to manage inflows and outflows of cash specifically for revenue receipts and disbursements along

set payment guidelines. The account can also hold a balance of contingency funds to smooth out peaks

and troughs and guarantee timely payments. For example, a contingency of an amount equal to one month’s

fee payable to the private operator may be the mandate. The provisions of the escrow account are further

detailed through an escrow account agreement between the authority and the private operator. This

agreement forms part of the main contract.

The main benefit of using an escrow account for payments from the authority to the operator is that it gives

an assurance to both the parties that neither would default on its obligations. The operator would not receive

its payment till the time it delivers on the agreed provision of service, which is an assurance for the

authority. At the same time, the operator is assured of payment once the agreed services are delivered as

specified in the contract since the amount has already been debited from the authority’s account.

4.5.6 Access to finance under GCC

Payment by kilometre under a GCC ranks well in terms of risk and access to finance. Typically a GCC

specifies and assures annual kilometres over the contract period, so an operator does not suffer losses with

a reduction in demand. The authorities often extend the contract when the operators have not achieved the

kilometre quota.

4.6 SALIENT FEATURES OF A HYBRID GROSS COST MODEL

4.6.1 Suitability to contractor and level of contract detail in Hybrid GCC

Contracts can also be a ‘partnering agreement’ between the authority and the private operator. A Hybrid

GCC suits situations where the operators are more skilled and experienced in the business of bus service.

The operators are consequently given the opportunity and incentives to be innovative and responsive in the

provision of services while meeting minimum service standards. This contract can be utilised in cities with

a high potential to increase the ridership.

A Hybrid GCC gives the operators an incentive for maintaining and increasing the ridership (but with MSL

applied), similar to the bus service contracts of Adelaide Australia.

The level of responsibility for service innovation given to operators under this type of contract depends

entirely on the skill, capacity and motivation of the operator. The incentive mechanisms in the contract

should be aligned with the objectives of the authority (such as reducing costs and building patronage);

however, service change proposals still need to be approved by the authority.

The Adelaide experience illustrated some operators were proactively applying their expertise in catering

to passenger demand and improving service levels; however, despite the incentive to exploit this provision

for additional income, others simply managed costs to ensure they remained sustainable.

Exhibit 4-3 Flow of funds from Escrow Account

2. Provision of agreed services

1. Transfer of funds 3. Transfer of funds

AUTHORITY

ESCROW ACCOUNT

PRIVATE

OPERATOR


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Exhibit 4-4 The Hybrid Contract Model used in Adelaide

The contracts were area-based giving operators’ exclusive rights within their service area and were

awarded through a competitive bidding process. Conditions were also established to provide for bus

services that crossed contract boundaries. No commercial deregulated services were allowed. The

term of the contract was an initial five years and would allow for contract renewal by negotiation for

a further five years in cases of satisfactory performance. The operator commenced with the network

and services as specified by the transport authority and prepared an annual service plan in which it

could propose amendments to the network, routes or service levels. Any proposed changes need to be

approved by the transport authority.

Changes would typically be within the allocated contracted kilometres; however, growth would

require additional funding. In light of the Government's primary objectives for the passenger transport

reforms to "encourage innovation and achieve service improvements, particularly improved

frequencies, better night and weekend services and more equitable access to services", it was

concluded that operators should be in the best position to determine service requirements (having

regard to costs) at the local, tactical level and that operators, therefore, should be given the primary

role in detailed service planning within minimum service guidelines.

The salient features of the contract adopted were as follows:

a. a set of prescribed minimum service standards, both metropolitan-wide and specific to each

contract area (generally based on previous levels of service);

b. tender bids were required to be based on at least these minimum service standards, with

additional points being awarded in tender evaluation for bids offering service enhancements;

c. the contracted operator had the primary responsibility for developing proposals for service

enhancements and variations;

d. the fleet deployment plan was prepared by the transport authority. The operators had the

provision to submit a proposal, to amend the fleet deployment plan in accordance with their

tactical measures to improve services. However, proposals for these changes were subject

to approval by the authority; and it was expected that contractors would finance service

innovation from savings and additional revenue from increasing ridership.

Generally speaking, a Hybrid GCC will need to ensure the following aspects:

Clear objectives established by the city for service outcomes about the city objectives on

passenger demand. These objectives could include passenger growth, service coverage and

access, level of service, etc.; the objectives should be embodied in the contract.

A reward mechanism should be included. Performance incentives should be mindful of

the skill and capacity of operators to propose service adjustments.

A performance measure predominantly based on outcomes like passenger growth and

satisfaction. However, it is equally important to monitor reliability and safety aspects like

missed trips and accident records.

A suitable payment mechanism and incentive structure. For example, the payment

mechanism should be able to quantify passenger growth relative to kilometres since

operators have no incentive to reduce wasted kilometres if they are paid on a kilometre

basis.


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Offering a level of protection from on-road competition especially when the operator takes

a greater revenue risk.

Under such a contract, the operator should be assured of covering costs, but must improve its returns

through service innovation.

4.6.2 Roles, responsibilities and risk assignment in a Hybrid GCC

In the hybrid GCC, the authority maintains control over MSL and KPI's to control customer service levels.

It devolves some service planning to operators under the incentive to develop business, build revenue and

maintain quality standards. The penalty system and service quality evaluation are same as the GCC, and

the authority retains the same monitoring responsibility.

However, incentivising the operator for performance and increasing the ridership, does not mean assigning

the entire revenue risk to the operator. Any risks assigned to the operator must be attentive of the operator’s

ability to manage it. For example, traffic congestion or roadwork which can affect the cost of service

delivery and service timeliness or ancillary factors such as motor vehicle policy or illegal competition that

can affect patronage or revenues, are factors that are beyond the control of the operator.

In a hybrid GCC, the authority still collects revenue even in cases of on-bus fare collection25, and the

operator is paid for services in line with the predetermined payment mechanism.

4.6.3 The management capacity of the authority in a hybrid GCC

A Hybrid GCC design requires the same management capacity as the authority exercises in a pure GCC.

Mechanisms to determine actual ridership increase then needs to be in place to maintain the integrity of the

bonus payments to the operator.

4.6.4 Operator’s input into service development

Hybrid GCC designs allow and incentivise operators to develop efficiencies. Developing passenger growth

and managing costs is the key to their profitability, and thus gives them incentives to improve service

levels, reduce wasted kilometres, and other customer service improvements, etc.

As the operator shares the revenue risk (indirectly), it has a reason to improve and self-monitor

performance, however, the authority still has to enforce service obligations by ensuring minimum service

levels (MSL) are adhered to, and also respond to failures under KPIs and passenger complaints.

4.6.5 Payment mechanisms and performance incentives in Hybrid GCC

Hybrid GCC designs require the same performance incentives as GCC. However, the additional payments

made for ridership increase will act as an economic incentive in addition to penalties applied for poor

performance under the GCC model.

The authority may decide the component of the O&M Fee it intends to share with the operator for an

increase in ridership. The corresponding values of Bonus Percent26 shall be used for calculation of Bonus

O&M Fee. For instance, if the variable component is 40% of the O&M fee, and the Monthly Load Factor

on Route 1 on XYZ bus is 51%, then Bonus Payment payable shall be (40% of Per km O&M Fee x 50%).

The following table presents sample monthly load factors and bonus percent values.

25 Modern ticketing technology allows better control over revenue by managing central fare collection. In cases where the operator

collects fares ‘on-bus’ the revenue is banked to the account of the authority. .

26 The authority may change the Monthly Load Factor and Bonus Percent values, as per its needs


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Exhibit 4-5 Sample monthly load factor and bonus percent values

Monthly Load Factor Bonus Percent

<40% Nil

40% to 50% 20%

51% to 60% 50%

61% to 70% 80%

>70% 100%

A further performance incentive could be the adoption of good performance as a credential in subsequent

rounds of tenders. These future opportunities might incentivise contracts to perform well even towards the

end of their contract terms.

4.6.6 Access to finance under Hybrid GCC

As the hybrid contract has a strong element of assured income, it ranks well in terms of risk and access to

finance. However, if the cities undertaking reform has insufficient data on assured demand and future

growth, it may be reasonable for the contract to shield operators from undue revenue risk.

4.7 SALIENT FEATURES OF A NET COST MODEL

Under the Net Cost Contract, the city assigns to an operator, the permission to carry out business through

designated routes or service areas generally with a level of exclusivity and protection from competition, in

return for a monthly fee or payment of a grant, as the case may be. The operator retains the fare box revenue

collected from the passengers and has the economic incentive to increase the ridership in the buses. The

operator also needs to cross-subsidise non-profitable routes from their profitable sectors. The model has

been adopted in Singapore, Barcelona, Budapest, and Amsterdam27 .

The operators in India on NCC type arrangements hold the permits for defined areas/routes and under

government fare regulations. However, in India, the major impediment to this type of operation is that the

operator provides services within the framework of a regulated fare scale established by the city, and rarely

revised due to socio-political factors. This situation causes hardship to the operator and makes the model

unsustainable from the operator’s perspective. Consequently, operators reduce the service levels and leave

the government powerless to exercise any authority over the situation. As a result, these operations have

been progressively modified in various ways either by retendering of contracts or by negotiating with

incumbent operators with the government taking patronage risk in return for high standards of service

delivery.

In this guidance document, we offer an NCC as an option where the authority wishes to be less involved,

and rely more on the private sector to deliver services under an entrepreneurial model despite evidence

regarding the model’s downsides and its failure in achieving public objectives.

Under the NCC model, the operator conducts service planning but has to comply with conditions set by

the authority such as MSL, Quality, Fleet Deployment Plan, age of vehicles, and fare rules.

Typical features of a Net Cost Contract include:

27 van de Velde, D., Beck, A., Elburg, J.-C. van, & Terschuren, K.-H. (2008). Contracting in urban public transport.


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Some level of exclusivity (reduces competition) to establish a viable business.

In return, the operators agree to abide by certain conditions (LOS / fare control/ quality/

fleet deployment plan)

Operators have maximum incentive to conduct service planning.

Quality/ performance not as easy to enforce, but strict penalty system exists in the contract

Tends to be more successful where operators are profitable but conflicts arise when risks

such as revenue risk are high

Operators have captive market and poorly performing operators are removed using the

penalty system

In the Net Cost model, the operators secure the right to establish their own business to operate public bus

services and will cover investment costs, working capital costs, and carry the entire revenue risks. The

government regulates quality standards, public well-being issues, and competition.

The major risk associated with NCC are identified as follows:

Traffic congestion: Traffic congestion could lead to inefficient operation and thereby, increase

the cost of operation. While city authorities have the ability to control traffic, the model does

not offer them any incentive for the same. However, bus operators suffer severe cost impacts

when buses are stuck in traffic. As a general rule, if a bus operator cannot reach 20 km/hour

they will be losing money, and shall either require a subsidy, or an increase in fares to

compensate for the loss of efficiency.

Fare Policy: On the revenue side, a static and regulated fare set by the government may not be

sufficient to cover operating and investment cost, especially if costs increase due to traffic

inefficiency. Fare levels are often set to affordability levels, based on an ‘affordable for the

poor’ mind set, thus starving the system of funds to ensure quality travel.

Revenue Protection: The inability of operators to control fare collection and protect revenue

is also a major risk issue for them

Competition in the market: Other modes of transport, especially informal modes of transport,

pose immense competition to the operators plying on routes and erode operators’ revenue.

Because of this, the operator tries to cut costs and the service quality goes down. It may also

lead to safety issues with operators competing with each other for a limited set of passengers.

Based on the above, it follows that an NCC would be feasible if the city could work more closely with

operators in a practical way to make the business model work, particularly assisting in managing risk. The

NCC could be structured in such a way that the city gives certain concessions and guarantees to reduce

operator risk. This would include:

1. Enabling an operating environment that guarantees commercial operating speeds (as is the case

with BRTS)

2. Allowing operators to manage essential control levers such as service levels

3. Reviewing passenger fares at regular intervals

4. Linking fare revision with the quality of service offered by the operator would greatly assist the

viability of an NCC and promote the authority’s objective. Improved technology such as e-

ticketing may also assist in ensuring better protection of the revenue, improved monitoring and a

high level of data collection for efficient service planning.


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This would create a situation where the city authority can ensure sustainable operations under an NCC

without taking the revenue risk.

4.7.1 Suitability to contractor and level of contract detail in an NCC

A Net Cost Contract requires an entrepreneurial operator willing and capable of taking the revenue risk but

would expect to be rewarded with an additional risk premium. While such Net Cost Contracts are presently

unpopular in India due to operators perceiving unmanageable risk, operators may reconsider if they see a

prospect where risks can be managed.

4.7.2 Operator input into service development in an NCC

As the operator takes full revenue risk, it assumes extensive responsibility for service enhancement, and

has the incentive to operate efficiently. Although the fleet deployment plan may be set by the authority, the

operator can submit a plan that is more demand responsive. Where services are non-commercial e.g. late

night services, there needs to be an accommodation by offering compensation either in form or more

profitable services. These options fall under the purview of Hybrid NCC option and have been addressed

in subsequent sections.

4.7.3 Access to finance under an NCC

Compared to the other contract options, the NCC has the greatest difficulty in accessing finance unless the

operator has a sound track record and the business is known to the lender. The key issue behind lenders’

hesitance is the uncertainty associated with passenger demand and subsequent revenue projections.

Accessing finance is easier for projects in cities that have detailed information regarding demand patterns

or have a stable demand pattern.

4.7.4 Control and Monitoring of an NCC

Due to the very nature of an NCC, monitoring by the authority can become difficult, especially when

services are spread across expansive city areas. Inspections of the services provided can become difficult

if the authority doesn’t have the personnel for inspections or for supervision of third party inspectors.

A realistic approach would be to monitor passenger service outcomes through passenger feedback via

complaints, suggestions, etc. Any evident safety issues should also be quickly investigated and remedied.

4.8 SALIENT FEATURES OF HYBRID NCC

Hybrid NCC is essentially the same as an NCC except that the authority may provide financial support by

undertaking the revenue risk for certain non-commercial and unprofitable routes, on which the authorities

require buses. The financial support is a financial supplement in addition to fare box revenue retained by

the operator. Typical examples of the model include routes in newly developing areas where patronage is

limited and where car ownership needs to be discouraged. Another example could also include maintaining

general service frequency in non-peak periods as a social service.

A Hybrid NCC may be viewed as a strategy to make NCC more attractive to operators and reduce operator

risk while limiting the authority’s exposure to the full revenue risk.

4.8.1 The management capacity of the authority

A Hybrid NCC requires a higher level of involvement by the authority (as against NCC model) in service

planning as the model involves financial support on selected non-commercial routes. The model also has

an indirect benefit of creating conditions that facilitate closer partnership between the authority and the

operator, and fosters greater understanding towards joint effort in service delivery. These benefits are in

contrast to a pure NCC where there is often controversy around the authority making the rules leaving the

operator to manage the risks.


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4.8.2 Operator input into service development

In routes where the operator takes full revenue risk, it will take full responsibility for service enhancement,

and has the incentive to operate efficiently. Although the fleet deployment plan may be set by the authority,

the operator can submit a plan that is more demand responsive.

For routes where services are non-commercial e.g. late night services, the city authority is providing

compensation and thus the operator has limited incentive to increase efficiency by reducing the kilometres

of operations since it is the basis for payment.

4.8.3 Access to finance

The Hybrid NCC reduces the difficulty in accessing finance, as there is some government support for loss-

making routes. However, revenue risk for the majority of the network still exists, and any uncertainty in

passenger demand estimates may affect the finance proposal. Consequently, the access to finance is greater

than NCC but less than GCC and Hybrid GCC.

4.9 SELECTING THE ‘MOST SUITABLE’ CONTRACT TYPE FOR YOUR CITY

After the city has decided to adopt PPP in city bus operation, and based on the understanding of the various

PPP models, the next step is to decide which model is most suitable for the city. The decision framework

provided subsequently is an attempt to quantify qualitative parameters to facilitate an informed decision

for choosing a right contract for a city.

However, it is imperative to note the framework should be adopted as guidance, and not as a prescription.

It is equally important to involve UMTA or the larger permit issuing authority, apart from the contracting

authority, to undertake an unbiased assessment based on the framework.

The various parameters for such an assessment may be broadly classified into three headings: Service Plan

identifying the role of contracting authority vis-à-vis the operators, Financial Capacity that deal with

financing arrangements of contracting agencies for operations, and Institutional Capacity that capture the

ability of contracting authority to manage the contract.

Exhibit 4-6 Contract decision framework parameters

Parameter Definition

Load factor on routes This parameter takes into account the average load factor cumulatively

on all the routes.

Overlap of routes

This parameter pertains to the presence of multiple bus operators in a

city, often leading to deployment of multiple operators on a route or

overlapping of multiple routes.

Authority's control over

service and network plan

The contracting authority’s ability to make changes to the service and

network plan varies with the type of contract.

Integration of different

modes

There may be multiple modes of transport in a city. Integration among

these modes of transport and coordination among the various agencies

responsible for respective mode is important to provide seamless public

transport to users.

Competing Modes Competing modes refer to the presence of multiple modes such as

metros, BRTS, intermediate public transport (IPTs), etc. Higher


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Each of the above parameters may be rated Low, Medium or High based on their relative importance in

contract selection and accordingly assigned a weight.

Rating Weights Score

Low 4% 1

Medium 10% 2

High 18% 3

Each parameter is further scored on a three-point scale (1-3) based on the assessment for that parameter.

For the purpose of illustration, a score of 1 signifies a “Low”, a score of 3 signifies a “High”, and a score

of 2 signifies a “Medium”. For some questions, the answer maybe “Yes” or “No”. For such parameters,

the value will be 0 if the response is “No” and 3 if the response is “Yes”.

number of competing modes lead to a higher score since competition

leads to less load factor on buses. However, as IPTs are prevalent in

every city in India, the minimum score will be one (1).

Fund Allocation for the

entire term of contract

It is important to demonstrate the allocation of funds by the contracting

authority to undertake city bus private operation for the entire term of

the contract, which covers initial financing as well as financing during

the operational period. If the envisaged funds are to be provided by a

government entity other than the contracting authority, approval from

such entity shall also be obtained prior to initiating the bidding.

Provision of dedicated

funding

To provide an additional level of comfort to the operators and their

lenders, it is preferable to provide for dedicated funding arrangements

such as Urban Transport Fund or any other alternative mechanisms to

undertake the project.

Credit Rating

Credit Ratings assess the financial health including debt repayment

ability, ability to recover the cost of services and track record of service

delivery among other things.

This should cover the contracting authority, municipal body or any

other government entity responsible for financing city bus operations,

either in full or part. A higher rated agency is better able to cover its

liabilities.

Creation of SPV Incorporation of SPV that is fully functional to undertake public bus

transport in the city.

Adequacy of Staff for Bus

Transport

Adequate staffing of the contracting authority to undertake the project

for tasks such as contract management, monitoring the project,

technical staff to verify physical conditions at depot, etc. A well-staffed

contracting authority shall have employees for control room functions,

monitoring functions and project administration functions.


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Exhibit 4-7 Decision Criteria for Contract Selection

Parameters Description Score Weightage

(%)

Max.

Score

Parameter

Max.

Score

A Service Plan Key questions to answer

before assigning ratings

1 Average load factor What is the average load

factor cumulatively on all

the routes?

18 3 54

Average load

factor below 30%

3

Average load

factor between

30% and 60%

2

Average load

factor more than

60%

1

2 Overlap of routes Are there significant

overlap of routes?

10 3 30

More than 20% 3

Between 10% and

20%

2

Less than 10% 1

No overlap 0

3 Authority's control

over network and

service plan

Should the authority have

more control over

frequency, headway,

selection and modification

of routes? If yes, rate 3 or

else 0

4 3 12

4 Integration of

different modes

Is there a need to achieve

seamless integration

between different modes

(metro, BRTS, water

transport, trains etc.)? If yes,

rate 3 or else 0.

4 3 12

5 Competing Modes Is there significant

competition from other

modes? If only one mode

then give 1 score, two

modes then give 2 score and

three or more modes then

give 3 score.

10 3 30

Metro/Mono rail

IPTs

Any other

B Financial Capacity

1 Fund Allocation for

Project

Has the authority budgeted

money for the entire

duration of the contract? If

yes, rate 3 or else 0.

10 3 30

2 Provision of dedicated

funding

Is there any provision for

funding for the project

18 3 54


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created such as Urban

Transport Fund and/or is

there a resolution from the

Urban Local Body/State

Govt. for funding? If yes,

rate 3 or else 0.

3 Credit Rating What is the credit rating of

the authorities financing the

project?

4 3 12

BBB and above 3

Between B and

BBB

2

Less than B 1

No rating 0

C Institutional Capacity

1 Creation of SPV Is there a SPV created for

this project? If yes rate 3,

else score 0.

4 3 12

2 Adequacy of Staff for

Bus Transport

Are there bus transport

staffs dedicated to

administer and monitor the

project? If yes, rate high or

else low

18 3 54

More than 10

employees

3

Between 5 and 10

employees

2

Between 2 and 5

employees

1

Less than 2

employees

0

Max. Score 300

Exhibit 4-8 Contract Selection Score

Certain factors have inflection points beyond which Gross Cost Contract is more suitable than Net Cost

Contract. A load factor less than 40% is generally not feasible under NCC, and a load factor beyond 60%

is generally feasible under NCC. Similarly, an overlap of routes beyond 25% may incite significant “on

the street” competition thus making NCC not feasible. A significant presence of competing modes running

parallel to city bus is also not conducive for NCC. The total score for all the parameters is used to select a

contract among Net Cost Contract and Gross Cost Contract.

Total Score Contract Type

Equal and Above 210 Gross Cost Contract

Between 150 and 210 Selection depends on inflection points

Below 150 Net Cost Contract


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After selecting a contract between Gross Cost and Net Cost Contract, another decision needs to be taken.

The decision is whether to use the standard contract or its hybrid. The choice between Gross Cost and

Gross Cost Hybrid is driven by the authority’s need to have significant ridership growth and innovation

from the operator in service delivery. This need makes Gross Cost Hybrid a more suitable option. The

choice between Net Cost and Net Cost Hybrid is driven by the presence of more than 20% routes with less

than 30% load factor in off-peak hours and less than 60% load factor in peak hours. Standard Net Cost is

generally unviable on these routes so having Net Cost Hybrid is better in these cases.

Once the ‘right’ contract has been identified, cities shall refer to Annexure II to modify and customise the

Model Contract to a city-specific contract.


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5. DEVELOPING PPP CONTRACT PARAMETERS

Once the city has selected a PPP contract type most appropriate for its needs, various other conditions and

parameters need to be decided. The major ones as highlighted in the diagram below are discussed in this

section.

Exhibit 5-1 Addressing Contract Parameters

5.1 RISK IDENTIFICATION AND ALLOCATION

The main tasks in managing and mitigating risks are:

1) To identify them and assess their likely impact (consequence).

2) To conduct an assessment of likelihood (how likely is the occurrence of such an event)

An indicative list of risk in city bus operations is given in Exhibit 5-2.

Exhibit 5-2 Types of Risk in City Bus Operations28

Risk Explanation Consequence

Commissioning Risk Risk that the authority or the operator, or both,

might not receive all approvals needed to provide

the services

Additional Costs

Delayed Service

Revenue Risk Risk which affects the overall profitability or

viability of services, or the level of public subsidy

required to support services

Losses

Reduced revenue

28 Adapted from ADB Toolkit for PPP in Urban Bus Transport


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Procurement Risk Risk that the buses are not delivered on time or as

per specification

Delayed Service

Financial Risk Risk that the project isn’t able to raise debt or

achieve financial closure

Additional Funding

Costs

Delayed Service

Operating Risk Risk that adversely affects the day-to-day

operations

Reduced revenue

Losses

Additional Costs

Performance Risk Risk that the operator is not able to meet

availability and performance standards

Reduced revenue

Losses

Force Majeure Risk Risk that unanticipated acts delay the project or

destroy the assets of the project

Additional Costs

Reduced Revenue

Losses

Change in Law Risk Risk that legal framework of the project will be

affected

Additional Costs

Cost of compliance

with new regulations

Risk assessment can follow set processes that relate to consequence and likelihood as shown in Exhibit 5-3

below, adapted from the Australian Standard, where the risk level increases when a higher consequence

aligns with greater likelihood.

Exhibit 5-3 Degrees of Risk

AS 4360:1999 Qualitative measure of CONSEQUENCE

LEVEL DESCRIPTOR DESCRIPTION

1 Insignificant Little negative impact on system operation or image

2 Minor Affects reliability and convenience of passengers and system

reputation

3 Moderate A compromise on service quality and system credibility

4 Major Major event requiring urgent attention, threatens system integrity

5 Catastrophic Affects total system with massive financial or political impact, or

future of operations


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AS 4360:1999 Qualitative measure of LIKELIHOOD

LEVEL DESCRIPTOR DESCRIPTION

A Almost certain Expected to occur

B Likely Will probably occur during normal circumstances

C Possible Could occur under certain circumstance

D Unlikely Would not be expected to occur under most circumstances

E Rare Could occur under unusual circumstances

Source: Australian Standard AS 4360:1999

Exhibit 5-4 Evaluating Risk

Exhibit 5-4 shows the rating for risk (low to extreme) where there is a progression of greater likelihood

and greater consequence. The numbers inside the boxes indicate individual risks plotted according to the

descriptors of likelihood and severity (please note that this is only an indicative sample). For example,

items which are evaluated to be in A4, A5, B5 are categorised as extreme risks so the focus of contract

design should to mitigate the risks; if that is not possible then the option to discontinue PPP option may be

considered. Revenue risk could be categorised into B4 if there is a high likelihood of a new competing

mode being operational during the contract period reducing the revenue potential for the bus services. The

contract could then include a non-compete clause whereby the authority agrees not to grant permits to the

competing mode or to compensate the operator if there is an adverse impact on revenue because of the

competing mode.

The risks identified also needs to be classified into retained risks (with the authority), transferable risks

(transferable to the operator), and shared risks (shared by both parties). This identification will ultimately

guide the risk allocation which has been briefly covered in Section 2.1.3.2. The risk allocation would then

drive the risk management strategy within the contract, and ensure that each risk is addressed in terms of

contingency measures, management and mitigation responsibility, and can even include provisions to

ensure that both parties agree to work together to resolve such an event if it should occur.

An indicative risk allocation matrix is provided in Exhibit 5-5.


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Exhibit 5-5 Risk Allocation Matrix

Risk Risk Allocation

Authority Operator

Commissioning Risk

Revenue Risk

Procurement Risk

Financial Risk

Operating Risk

Performance Risk

Force Majeure Risk

Change in Law Risk

5.2 TRANSITION PLAN

A transition plan is required to be in place to deal with a situation when the contract’s term is completed,

or it is terminated prematurely. In bus contracts, transition plans can be quite complex, specifying the

process to contract commencement.

The decision to incorporate existing directly affected road-based public transport operators in the new

undertaking can help in a smoother transition. This aspect is not considered in bus contracts and comes

under the city authority’s purview. Another consideration in the transition plan is to ensure continuity of

employment. The new entrant could be obliged to employ existing staff at a similar remuneration level.

Also, a transition period during which changes in work practices and staff are permitted only following

approval from the authority could be considered.

The transition plan typically:

includes details of separate mechanisms for dealing with ordinary exit (completion of contract

term) and emergency exit (termination of contract), the provisions relating to emergency exit being

prepared on the assumption that the operator may be unable to provide the full level of assistance

required by the provisions relating to ordinary exit;

includes details of the management structure to be employed during both transfer and termination

of the services for an ordinary exit and an emergency exit;

includes a detailed description of both the transfer and cessation processes, including timetable

applicable for both ordinary or emergency exit;

demonstrates how the bus services will transfer to the successive operator or the authority,

including details of the processes, documentation, systems migration, data transfer, and security;

sets out procedures to deal with requests made by the authority or a successive operator for

information relating to any employees, agents, consultants or contractors of the operator or any

sub-contractor;


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provides a timetable and identifies critical issues for providing the transition.

The authority may ask the operator to submit a Transition Management Plan within a period of 6-8 months

from the commencement of services. The Transition Management Plan shall also include Transition

Services which shall be accorded by the operator in Transition Assistance Period which shall be for a period

after the Termination or Expiry Date of the contract.

5.3 CONTRACT INSTRUMENTS

5.3.1 Payment mechanisms

The payment mechanism in the contract acts as a primary motivator of operator behaviour. For example in

Gross Cost Contracts, payment by kilometres provides no incentive for the operator to cater to demand,

while in Net Cost Contracts the motivation to maximise revenue can lead to aggressive and competitive

behaviour.

If the payment mechanism is misaligned with public service objectives, either the performance will suffer

or the system will fail. The payment mechanism options for each type of contract are discussed in more

detail in the sections detailing the contract types.

User Charges: In an NCC, the private operator is completely dependent on the revenue that it collects

from fares. User charges are often subject to fare controls by the government, and the operator is also

obliged to provide discounts or fare exemptions to special groups. The bankability of the project is affected

if revenues collected by the operator are insufficient to cover operation and investments costs. The

theoretical problem is that the social factors that determine tariff levels bear no relationship to the cost of

operation.

Exhibit 5-6 Revenue Protection in Santiago, Chile

Availability Payment (for the supply of service): Under this payment mechanism, the authority pays the

operator for providing a prescribed level of service (‘availability’ - mostly as a per km value) as defined in

the contract. It separates revenue collection from the cost of operation with authority retaining revenue

risk. Availability payments alone do not provide incentives for the private operator to stimulate service

usage and provide service quality. However, since service availability is largely under the operator’s

control, availability payments do provide strong incentives to comply with availability targets. This

methodology is often used when the authority wishes to control unmanageable risk for the operator while

having its input into levels of service provided.

Usage Payments: It is possible for the authority to pay a ‘per passenger’ fee directly to the operator (or

supplement a discounted fare), where passenger numbers are insufficient to cover costs and increasing

fares is undesirable. Under this method, the operator takes no actual revenue risk but may be incentivised

to increase ridership.

Quality performance payments: These systems complement other payment schemes by providing

incentives to the private operator for meeting quality standards specified in the contract. The quality

performance targets should be measurable and observable at a low cost to avoid any dispute or controversy.

The payment system is according to the number of passengers carried. However, the payment was semi-

guaranteed to reduce operators’ risk. If actual demand differed from reference figure, the operators only

received a drop (or increase) in their income representing 10% of the demand change. A 10% drop in

user charges would only impact operator’s revenue by 1%.


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A system of robust deductions for service underperformance and bonuses for performance above the target

level is crucial to ensure that the private operator complies with quality performance targets.29

The theoretical basis for Quality Performance Payments is that higher service levels are willingly provided

only if revenue compensates for the additional costs required for providing quality. As service quality is

not something that can be specified contractually in all dimensions, an economic mechanism built into the

payment system to incentivise the operator to provide efficient and high-quality service is useful. Quality

aspects could include aspects like timeliness of service and avoidance of missed trips, customer satisfaction

indices, low accident rates, etc. London Transport extensively uses these payment mechanisms.

Third Party and Secondary revenues: The private operator may be granted the permission to collect

secondary revenues from third parties by making available a part of bus transport facility to them, whenever

such permission does not adversely hamper the provision of bus service. An example is leasing space for

advertisements on buses, depots, terminals, or bus stops.

5.3.2 Control and monitoring

It is imperative to put an efficient performance monitoring system in place to uphold the incentive

structures underlying output specifications and risk allocations. Performance targets should be designed so

they can be monitored effectively at the least cost. Benchmarking emerges as an effective tool to compare

the operator’s service provision with standards set by other bus transport providers. The authority may also

delegate or outsource the task of monitoring to an external organisation, with the payment to that

organisation being linked to the failures reported and verified. Self-monitoring by the authority may be

possible by administering random audit checks on the operator.

5.3.3 Penalty regime and sanctions for poor performance

While economic incentives promote better performance, financial penalties and payment deductions deter

service failures. Damages and performance security is used if the private operator terminates the contract

or fails to commence service. These contract safeguards may incentivise the operator to invest and perform

as per the ‘agreed upon’ standards. Sanctions may be especially useful when the authority is in a weak

bargaining position once the contract has started, because of the need to deliver bus services. The amount

of damages or penalties should be specified in the bidding documents so that the operators can price the

risk of incurring such charges. In such cases, the city authority may impose penalties according to the list

of infractions. The parties should decide on the penalty for each level of non-compliance or service failure.

It is important that the level of penalty is commensurate with the severity of the event. Penalties can be

deducted from the next scheduled payment to the operator or demanded from the operator as the case

maybe.

A detailed list of infractions and applicable penalties has been provided in Annexure XII. These are only

indicative, and the authority may modify as it deems fit.

5.3.3.1 Capacity to monitor

The effectiveness of a penalty system relies primarily on the ability and capacity of the authority to carry

out sufficient monitoring and fair administration of these sanctions. This capacity requires explicit clauses

in the contract and sanctions that are commensurate with the severity of the event.

5.3.3.2 Application of penalties

Penalties are generally applied for service failures, i.e., not complying with specifications, such as missed

trips, contravening a set rule or procedure; or for not maintaining quality standards. It serves to give

operators an economic incentive to comply. In a well-designed regime, penalties make unscrupulous

29 Good Governance in Public-Private Partnerships: A Resource Guide for Practitioners (2009). The World Bank


Page | 74

behaviour prohibitive for an operator. When operators have no economic incentive for customer service

(for example, by being paid for the supply of kilometres), the contract will need to rely more heavily on

sanctions and rewards to enforce performance and quality.

There are several aspects of a penalty regime that need attention, including the following:

1. The exact service obligations need to be well-defined: While some service obligations are

straightforward (e.g. trip frequencies) others might be vague, such as customer service behaviour.

2. Penalties are an efficient tool only where there is a capacity to monitor: While payment systems

have built-in incentives, the penalty regime relies on monitoring and enforcement which is often

costly and difficult to manage. Intelligent Transport Systems (ITS) such as vehicle tracking can

help but require a strong and effective authority that can continuously monitor and enforce the

contract. Penalties must be enforceable, practical and realistic. Draconian penalties that place

excessive burdens on the operator; or contract termination conditions that the authority will find

difficult to enforce are unrealistic and impractical as a tool to improve performance.

It is evident that contracts must apply the correct balance of built-in incentives in the payment mechanism

and appropriate penalties to strike the correct balance for managing the contract.

5.3.4 Adjustments for variation in operations

It is important that mechanisms for handling variation in operational conditions or parameters are provided

within contracts.

In an NCC, the authority may require the operator to add new buses to increase the fleet if overloading

occurs. At the same time, the authority may want to change the fleet deployment plan or add new routes to

manage demand.

In a GCC, the contract needs to contain certain conditions that enable proper actions to address variances

in demand. These would include:

Flexibility to assign vehicles across the network

Where the network is managed by a single authority, the bus contracts should allow the authority to assign

vehicles across the routes to optimise capacity.

Adjusting fleet size to meet travel demand

Since overall passenger traffic can vary throughout the period of the contract, there need to be mechanisms

within the contract to adjust services and fleet strength accordingly. For this to be managed, there needs to

be a proper formula and process to vary fleet size with a mechanism to reimburse the operator for the

additional investment, and in cases of a declining fleet requirement, to protect the operator by supporting

financial commitments they may have incurred in relation to the fleet. The contract needs to include a

rational method for fleet expansion in the contract. For example, one can define a maximum load factor

(LF) above which operators will have to increase fleet size proportionately. For illustration, if moving

average LF calculated over the previous quarter goes beyond 10% of the defined maximum limit for peak

hour LF of 100% or day-long LF of 85%, operators may be asked to increase the fleet size or supply

capacity in proportion to increased LF. The authority needs to make suitable provisions for dealing with

such requirements.

Network expansion

A situation may arise where new routes emerge due to spatial growth in the city. In such cases, enabling

provision needs to be made and flexibility rendered in assigning buses to new or modified routes to

accommodate this eventuality. Extending or altering existing routes of an operator may be an option with


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commensurate cost adjustments. However, if a new route emerges, the authority needs to decide whether

to add it to an existing contract or tender the additional route as a new contract.

Competition in the market affecting contract viability

While the contracted operator may have a level of exclusivity for a route or an area, there may be an

increase in intermediate public transport (IPT) modes, such as autos and rickshaws that compete for

passengers. Although city authorities cannot limit market competition contractually, they can, however,

take steps to abolish illegally operating IPTs.

5.3.5 Contract flexibility

While the contract design should be flexible, the flexibility should be limited to change in scope.

Anticipated changes such as varying demand may be managed within the contract mechanisms. In the case

of unanticipated changes, a change protocol may be included that spells the process through which any

contractual change is initiated, reviewed and approved. Contract flexibility is easier to manage if there is a

good sense of partnership between the authority and the operator(s), and respect for mutual objectives and

benefits.

5.3.6 Contract terms for safety assurance

Safety is an important element in the delivery of a contract and is a key aspect of the performance

monitoring framework. The contract must set conditions and specifications to ensure that safety is an

integral part of the system through proposed safety procedures, guidelines, specifications, programs and

reporting systems. It is assumed that the safety element is provided for in national or state guidelines on

fleet specifications (Automotive Industry Standards 052). Work practices (particularly driving practice)

and fleet specifications feature highly in the aspect of safe practice and conditions. The passenger safety is

also an important aspect of service quality and is crucial for winning passengers to the use the system.

Harassment, assault and pickpocketing are all safety issues that the system must be able to monitor.

5.3.7 Conditions Precedent

The conditions precedents are the items and obligations the respective parties must fulfil prior to the

contract coming into effect. These typically have a material impact on the effectiveness of the contract and

could include necessary permissions, availability of facilities, necessary preparation, etc. The contract must

include penalties if condition precedents are not met. For example some of the conditions precedents could

be:

1) For the authority:

Hand over bus depot facilities/relevant permissions within [XXX] days of the signing of

the contract

2) For the Private operator

Sign the agreement within [XXX] days of acceptance of the letter of award

Submit a performance guarantee equivalent to Rs [XXX] in the form of a bank guarantee

Certify that all representations and warranties are true and correct

Deliver the initial lot of buses according to the bus delivery schedule

If either party is unable to fulfil the conditions precedent, there is a provision to extend the period to fulfil

conditions precedent. But the party failing to achieve conditions precedent is liable to a penalty. Further, if

the party is not able to fulfil the conditions precedent even within the extended period, the other party has

the right to terminate the contract.


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5.3.8 Dispute resolution mechanism

In tightly constructed contracts, dispute resolution processes are usually specified in detail. In more loosely

constructed concession contracts, dispute resolution is vague and much will depend on a good working

relationship between the parties. It is valuable in all types of contracts to specify how disputes will be

handled and a methodology outlined so that disagreements can be aired and resolved. Similarly, a

mechanism for resolution of the grievances raised by any stakeholder of PT system (including passengers)

should be developed. A timeline for resolution of grievance must be agreed upon.

5.4 FLEET SELECTION AND PROCUREMENT

5.4.1 Fleet specifications and bus type

The decisions on the type of fleet selected and the party responsible for procurement are major issues in

the bus contract. These decisions will depend on the type of contract adopted, as well as the operating

environment.

Generally, when the private operator takes the greater operational risks, they would want a greater input

into fleet decisions and retain investment and ownership responsibilities. However, it is within the realm

of the authority’s mandate to specify characteristics and specifications of the fleet to meet public service

objectives and ensure efficiency in the city bus fleet.

For general information about fleet selection, PPIAF/World Bank Urban Bus Toolkit and technical

specifications of buses issued by Ministry of Urban Development, Government of India30 may be referred

to.

Annexure V outlines the demarcation of responsibilities pertaining to bus fleet.

Factors that influence fleet selection would include:

1. Type of buses (ordinary/semi deluxe/deluxe/super deluxe/low floor/semi low floor/high floor)

suitable to service design and passenger expectations (air-conditioning, seat-layout etc.)

2. Capacity of buses (micro/mini/standard/double decker/articulated) to operate efficiently in

managing the demand and service requirements. When a large number of passengers need to be

carried, the most efficient and economic vehicle is the largest one. For medium to low passenger

volumes, smaller size vehicles may be more suitable to maintain a higher frequency of service and

bus occupancy.

30 Recommendatory Urban Bus Specifications – II issued in April 2013

Availability of fleet

Manufacturer support

O&M cost considerations

Efficiency related to service design

Service life

Road characteristics

Financial capability

Fleet image

Selection of fleet

Passenger and Safety Features

Exhibit 5-7 Factors in selection of fleet


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3. Emission compliance to meet applicable emission rules specified by Central Pollution Control

Board.

4. Design characteristics such as length and size of buses, seating layouts and door dimensions to

suit operating conditions and service types such as kerb side operation or median BRTS, and within

the Code of Practice for bus body design and approvals (Automotive Industry Standards 052).

5. Technical and engineering specifications such as engine propulsion (e.g. CNG, LPG, diesel,

etc.), emission compliance, transmission type, suspension, ITS, and bus internal arrangements, etc.

Supply issues, availability, and manufacturers’ support are also important considerations.

6. Fleet renewal policies including bus life limitations, bus scrapping norms and programs to support

new fleet acquisition.

7. Fleet size per operator: Generally, an operator should have a fleet size that is large enough to be

economically viable (providing some economy of scale), suitable to its investment capacity (if the

operator is buying buses) and in context of the facilities it manages to park and maintain the fleet.

However, there are further implications on fleet selection and procurement; such as the cost of operation,

reliability/reputation, the cost of repair and maintenance, manufacturers’ after sales support, etc. While

the authority should have the mandate to draft general specifications for the fleet, the details of specification

should be sufficiently broad enough to allow operators to bring their on-ground experience into the play

and manage issues that affect their operations.

5.4.2 Compliance with Environmental Standards

Acquisition of new buses also provides an opportunity to introduce cleaner and more efficient vehicles. In

addition to complying with the governing legislation, the contract must define its minimum environmental/

emission thresholds or standards. Generally, the following must be considered in assessing the

environmental quality of the system:

Emission levels;

Fuel quality, type and propulsion system;

Levels of interior and exterior noise;

Ventilation and temperature standards.

Exhibit 5-8 Frankfurt/M. (D): Tendering of bus route bundle contracts with environmental incentives

TraffiQ, the organising authority responsible for local public transport services within the city of

Frankfurt, tendered a 6-year Gross Cost Contract with environmental incentives for a sub-network (3.3

million timetable-km/year) in 2006. One main policy aim within the tendering procedures was the

reduction of air pollution by demanding high anti-pollution standards to fulfil the European anti-

pollution regime. The operator of this bundle now uses vehicles already fulfilling the EEV-standards for

gas emission.

While the authority may stipulate overall emissions standards, it is unwise to outright mandate fuel type,

as this has a large impact on operating risk. Before specifying a fuel choice, a careful analysis is required,

as this decision can have long lasting impact on system viability and service quality. Sometimes, cheaper

alternatives are costlier over the long term, and even the environmental benefit claims may not hold true.

For example, Jakarta’s TransJakarta system found that buses using CNG31 could not complete a full daily

31 Natural gas is a mixture of hydrocarbons, mainly methane (CH4) stored on-board the vehicle in a compressed state (CNG) using

high pressure cylinders.


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shift without service interruption to refuel. Moreover, the scarce and distant commercial fuelling stations

negatively impacted the system efficiency. As a result, additional fleets were required to meet service

requirements.

Diesel engines have been traditionally used for bus systems as it is a robust technology and is becoming

more technically sophisticated to meet clean emission standards. Modern Euro 4 or 5 diesel engines require

low sulphur fuel (less than 50ppm sulphur content32) and can be regarded as ‘clean’ technology, equal to a

CNG engine. However, diesel fuels are a non-renewable resource, (as is CNG) and will become

increasingly expensive. The risk of energy price and security in the future is a major consideration for any

transport system.

CNG is widely promoted as a ‘green fuel’ but its environmental credentials are being questioned, due to

the issue of methane leakage, leading a World Resource Institute report33 to claim that “where there is

more than 1% leakage – no matter how efficient the vehicle is at the tail end - natural gas is more polluting

than diesel.”

Furthermore, CNG has a number of limitations, such as:

Although accepted as clean burning, CNG engines use spark ignition engines and require more

maintenance to keep engines performing at high efficiency. California Air Resource Board,

researching diesel and CNG buses ‘in-service’ concluded that while CNG was marginally better

in most cases, results varied according to the type of service the bus operated34 and CNG

delivered a less consistent result.

CNG emissions also rely on fuel quality. While diesel fuels are highly processed, the content

of Natural Gas may vary depending on source giving varying emission results35.

Technical considerations must be taken into account36, such as limited on-bus storage capacity requiring

additional fuelling breaks, risk of gas explosions (Jakarta, Brisbane) and higher cost of fuel dispensing

equipment. Inefficiency also includes extra vehicle weight to carry large CNG cylinders, requiring added

vehicle strength and consequently resulting in a heavier vehicle. CNG also has a lower fuel efficiency as

it contains less energy than an equivalent amount of diesel (15 - 20% less). While CNG has a price

advantage (per litre), it is offset by higher initial bus cost and a much higher cost of CNG refilling stations.

Another technology alternative that is becoming increasingly popular is hybrid technology engine. Hybrid-

electric vehicles (HEVs) combine the benefits of gasoline engines and electric motors and can be

configured to obtain different objectives, such as improved fuel economy, increased power, or additional

auxiliary power for electronic devices and power tools. Hybrids use conventional fuel and a battery driven

motor which captures energy otherwise lost during braking and decelerating. For example, the Volvo 7900

Hybrid series of hybrid bus model saves up to 37% of fuel cost and claims to lower exhaust emissions by

40 – 50 %. Tata Hybrid Star buses (CNG-electric hybrid buses) offer a substantial improvement in fuel

32 http://www.shell.com.sg/home/content/sgp/products_services/on_the_road/fuels/shell_diesel/faq/

33 Bradbury, J., Obeiter, M., Draucker, L. Stevens, A., Wang, W. (2013) Clearing the Air. Reducing Upstream Greenhouse Gas Emissions from U.S. Natural Gas Systems . World Resources Institute. Source: http://www.wri.org/publication/clearing-air. Accessed: 30/11/2013

34 Holmén, B., Ayala, A., Kado, N., Okamoto, R. (2001) ARB’s Study of Emissions from “Late-model” Diesel and CNG Heavy-duty Transit Buses: Preliminary Nanoparticle Measurement Result. Source: California Air Research Board: Source: http://www.arb.ca.gov/research/veh-emissions/cng-diesel/eth-zurich-2001-ayala1.pdf Accessed 30/11/2013. Accessed 30/11/2013

35 Wong. W.L. (2005) Compressed Natural Gas as an Alternative Fuel in Diesel Engines. (Research Paper) Source: http://www.cleanairnet.org/infopool/1411/propertyvalue-17753.html. Accessed 30/11/2013

36 When CNG buses were introduced in Brisbane Australia, the lack of gas fitting technicians presented an unexpected problem as well as the heavy gas tanks roof mounted on a low floor bus caused excessive body roll.

http://www.wri.org/profile/james-bradbury

http://www.wri.org/profile/michael-obeiter

http://www.wri.org/profile/laura-draucker

http://www.wri.org/profile/amanda-stevens

http://www.wri.org/publication/clearing-air

http://www.arb.ca.gov/research/veh-emissions/cng-diesel/eth-zurich-2001-ayala1.pdf%20Accessed%2030/11/2013


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economy compared to conventional buses. Currently in India, Delhi Integrated Multi-Modal Transit

System (DIMTS) and Mumbai BEST use diesel-hybrid electric buses.

This discussion is not to advocate one fuel choice over another, but to highlight the fact that fuel choice

has wide-ranging impacts on the operation of a contract and the bus service. This discussion also

emphasises the need for some flexibility in the choice of propulsion and consulting with the operator in

making this choice. However, overall parameters for emissions can be set by the authority without

mandating a particular fuel option.

Other environmental issues include:

Noise levels: Acceptable noise levels must be specified within the bus procurement specifications.

Excessively loud vehicles are a health hazard and a detriment to the image of the public transport service.

Steps must be taken to phase out older buses and encourage noise dampening devices on buses.

Other waste products: Bus operations will generate a variety of liquid and solid waste. Waste oil, other

lubricants and solvents should be recycled or disposed of in an approved manner. Liquid waste that is not

properly treated can endanger water supplies. Solid waste such as worn out tyres should also be disposed

in a safe manner. Concession operators must follow waste-disposal procedures stipulated in the

agreements. In some cases, depots may also have an infrastructure to facilitate recycling and proper

disposal of waste.

It should be noted that the improved business model in a bus contract should allow the purchase of a new

fleet, and this in itself is the best mandate for improving the clean credentials of the fleet. A sound business

model that can afford new buses is a powerful instrument to remove old polluting buses.

5.4.3 Responsibility for fleet procurement

A number of practical issues affect the decision of who procures the fleet, as illustrated below.

Exhibit 5-9 Decision framework for fleet procurement

1) Purchase and ownership by the authority

The authority is often in a better position to buy the fleet. The authority may avail government funds to

buy buses or may have the financial capacity to buy the fleet. Also, it may prefer to own the buses and

depots to ensure that it is not captive to the contractor. Specific risk issues such as insurance and operators’

obligations need to be assessed.

The concern of operator not maintaining buses might be an overstated risk. The vehicles must meet the

performance standards specified in the contract thus the operator has an incentive to maintain the bus. Poor

maintenance results in breakdowns, poor bus condition and service unreliability affecting the operator’s

earning potential both in Net Cost Contract and Gross Cost Contract.

FLEET MAINTENANCE

AFTER SALES SERVICE

TYPE OF CONTRACTUAL STRUCTURE

FINANCIAL CAPACITY AND/OR GRANTS

DECISION ON

WHO

SHOULD

PROCURE

FLEET

Procurement of fleet

TIME CONSTRAINTS


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A major issue in authority owning the bus is in after sales service. The bus manufacturer or supplier's

primary customer is the authority causing the supplier to ignore the operator’s needs during after sales

service, and not rectify service issues that arise. The solution lies in the formation of a tripartite contract

with bus suppliers to place contractual obligations on them for after-sales support.

In a BRTS system, there is a definite construction time and anticipated start date. In this situation, it may

be worthwhile for the authority to order the fleet to allow for the necessary ‘lead time’ for supply, especially

if contract negotiations with operators could cause delay. As buses are delivered in around 10-12 months

from the date of order, the authority may procure and finance the buses and later transfer ownership (and

financial obligations) to contracted operator to reduce the lead time.

PROS:

Lower investment risk so the private operators can focus only on operations and

maintenance of the project.

More bidders will participate in the bidding process which allows the authority a wider

choice of operators.

Easier to terminate a failing private operator if it does not own the fleet.

Avoids delays in fleet delivery when aligning with system inauguration deadlines.

CONS:

The authority will have to bear the entire capital cost on its own or through loan or grant.

The authority may lack skill in specifying the fleet.

Lack of after sales support for operators.

Authority needs to set and monitor maintenance obligations.

Ownership/operations issues have insurance implications – may cause a delay in

responding to claims.

CONSIDERATIONS:

The authority, where possible, should consult the operators when developing fleet

specifications.

2) Purchase and ownership by private operator

In many cases, the city authority prefers fleet acquisition by the operator and save themselves from the

financial burden and procurement processes. The bus operators are often assumed to be in best position to

make fleet decisions as the operation and maintenance of the fleet is their responsibility. There is a strong

case supporting this view, although the authority is still able to stipulate fleet specifications as they relate

to passenger service and quality.

In a Gross Cost Contract, it is feasible for either the authority or the operator to buy the fleet; however, the

advantage for the authority to be the fleet owner is that it is not captive to the operator, and can more easily

terminate a poorly performing operator.

In a Net Cost Contract, it is unusual for the authority to own the fleet, but the authority may offer some

financial incentives to assist operators to invest in the fleet. A common incentive is the ‘interest subsidy’

that compensates operators for the cost of finance. One-off payments for fleet purchases tend to be

unsuccessful as operators often arrange for the fleet cost to be inflated to exploit the subsidy, and do not

operate for long as they struggle with operational losses.


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PROS:

The authority carries no financial burden for the fleet.

Bus operators can select their preferred type, model and specifications (generally under

broad specifications set by the authority) and have a stake in the fleet (more care).

Generally faster procurement by the operator.

Able to hold bus manufacturers directly accountable for after-sales support.

CONS:

Limits contract bidding to operators with sufficient financial capacity.

Authority is captive to the operators in case of severe contract conflict or termination.

CONSIDERATION:

Fleet ownership by any party is less of an issue if a good contract relationship exists.

Exhibit 5-10 Responsibility for fleet procurement

By the city authority By the operator

Authority is in a financially stronger better

position than the operator

Authority can avail government funded

schemes (funding from operator if needed)

GCC: Preferably, procurement by authority

so that it is not captive to the operator

Operator is in a financially stronger position

than the authority

NCC: Preferably, procurement by operator so

that it maintains the buses properly (with

financial assistance by authority if needed)

3) Authority owns buses and investment is shared by private operator

In a number of Indian cities, a more peculiar bus procurement model has evolved due to the JnNURM

scheme. In the JnNURM scheme, the central government provided a grant up to 50% of bus procurement

cost. The state government provided 20%, while the city provided the balance 30% amount. Some cities

have transferred this 30% cost to the private operator. Typically the scheme allows operators to raise

finance using the bus as security up to 30% of the value of the bus.

The validity of such a scheme is entirely reliant on whether operators find it attractive, as they are financing

30% of the fleet that they do not own, as the authority has the ownership by having majority investment in

the fleet. However, in the larger picture of a business opportunity, operators may find this preferable to

bearing the entire cost of the fleet on their own (and the cost of the bus share is reimbursed in earnings).

5.5 LENGTH OF CONTRACT

During the review of bus contracts both in India and internationally, it was evident that contract length

varied greatly, being based on a range of uncertain factors and often on what policymakers considered the

norm.

Life of the bus fleet is a predominant factor under an assumption that the operator would buy a new fleet

at contract commencement and would not need to replace vehicles during the contract term. It is advisable

to ensure that authority should decide upon the length of the contract most suitable to its objectives and

requirements, though the choice may be determined by local circumstances, such as availability of bidders,

costs, and favourable investment horizon. The issues are highlighted in Exhibit 5-11.


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5.5.1 Deciding on long term vs. short term contracts

In deciding the length of the contract, the city authority needs to weigh factors such as competitiveness and

cost effectiveness, balanced against practical issues such as service continuity, disruption, and operator’s

behaviour driven by contract conditions.

The ideal duration of a contract is indeterminate but needs to consider a period that is long enough for the

operator to cover investment costs and make a fair return, and also to provide service consistency in the

bus operations. Changing an operator too often or unnecessarily (i.e. without gaining clear benefits) can be

disruptive and incur unnecessary costs. However, at the same time, too long a contract can make the

contractor lethargic in performance. Where contracts are shorter, operators may not see a value or may be

unwilling to invest for long term gains, especially if they contribute to service planning. The contract in

Bogota, Colombia aims to balance this by having contract length linked to vehicle mileage. A higher

mileage every year leads to a shorter contract while smaller mileage allows for longer contracts giving the

private operator time to recoup its investment.

Exhibit 5-12 Contract Length in Bogota, Colombia

Continuity of employment is also a factor that needs attention when contracts often change. The new

entrant could be obliged to employ existing staff at a similar remuneration level. Also, a transition period

during which changes in work practices and staff are permitted only following approval from the

authority could be required.

A disadvantage of long-term contracts is that over time, conditions can change to such an extent that the

initial contract may become outdated and less relevant to changing circumstances.

Use of a Mid-Point Review

A good way to balance short term and long term considerations is by creating a mid-point at which key

contract elements such as subsidy support, fare levels, obligations, etc., are re-negotiated. Alternatively,

the contract can be made for a medium term with a renewal or extension for good performance. Key

The term of contract for Transmilenio in Bogota (Colombia) depends on the time the operator takes to

recoup its investment. The regular operation period of the contract is between the start of regular

operation as determined by Transmilenio S.A. and the time at which average mileage of fleet usage

reaches 850,000 kilometres.

Level of disruption vs

benefits

Short term

objectives

Mid-point review Long term

investment horizon

Long term

commitment

Opportunity for

fleet upgrade

Level of bidder

interest

Exhibit 5-11 Challenges faced in deciding contract duration


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elements of the contract may, however, be renegotiated. This practice provides a mix of the benefits of

longevity and adaptability.

Impact of asset life on contract length

A traditional approach for the length of the contract term is to align it with the asset life of the vehicle. This

approach may be useful when a large fleet is purchased for a set purpose (such as BRTS), and contract

renewal is scheduled to occur at the same time when the fleet expires. But for many operations, fleets are

changeable, and buses are added to the fleet over time, leading to no common fleet expiration date, and

thus negating the need to tie the contract term to bus life. Bus life is also indeterminate in that some buses

are expected to last seven years, while a well-maintained and higher quality fleet could last ten years or

more. These situations present difficulty in developing efficient contracts when they are based on fleet life.

Additionally, when a contract changes hands, rules need to be established in the contract to manage the

changeover fleet. The existing operator may dispose fleet over a certain age, and a new operator may be

obliged to purchase the fleet below a certain age threshold.

Impact of infrastructure investment on contract length

The ownership of a depot is also an important factor impacting contract length. If an operator provides a

depot facility and incurs substantial investment, it will expect a contract term worthy of such an investment.

The contract termination in such a case needs to be clearly defined, along with the conditions for an

incoming operator. It needs to be specified in the contract whether the incumbent would be forced to sell

the depot to the city authority or incoming operator. Additionally, the contracts need to capture the depot

selling price, if applicable. The contract should be well defined in this respect, leaving no space for

ambiguity if such a situation should arise.

Exhibit 5-13 Pros and cons of short duration contracts

Pros Cons

Shorter contracts provide an opportunity to

test market prices frequently, to inject new

blood and renew the fleet and technology

Short contracts are costly, disruptive, as

operators change often, and may not deliver

the anticipated benefits

Short term contracts are less attractive from

operators’ perspective and may result in few

bidders

Private operators remain motivated to

maintain high standards of performance and

maintain the fleet at the end period of the

contract

The attitude of contractors to building the

business may deteriorate if they do not see

themselves secure as long-term operators

Increases competition and the authority may

re-tender the project frequently to get the

best price

The value for money or lifecycle cost may not

meet the expectations of the authority. Price

benefits may be marginal and not worth the

disruption

Short contract is not suited where an operator

is required to invest in infrastructure


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5.5.2 Considerations for a short term contract (<5yrs)

Short term contracts have an extremely limited scope and few benefits unless they are used in special

circumstance as an interim service provision, with longer term prospects (or that sufficient rewards are

available for a short term operator). A short duration contract could be up to five years, which may be less

than the life of the fleet, but in this case, the fleet investment is better managed by the authority. Short

duration contacts are also useful if the authority intends to test the model with a pilot project to test demand

response and evaluate contract performance or the authority owns a fleet that is part-way through its

working life and seeks an operator for the balance period. Based on the response and feedback, the authority

may decide to extend the contract duration.

5.5.3 Considerations for a medium – long term contract (5-10+ years)

Medium term contracts suffer from same issues as the short term contracts, though the benefits increase

with the extension of time periods. Any requirement for an operator to invest in large infrastructure (depots,

terminals or stations) will require a longer contract to align with life-cycle costs.

Longer terms are more likely to align with asset life (fleet). Furthermore, operators may operate buses for

longer, thus, necessitating good maintenance and monitoring of fleet condition. It also allows fleet renewal

during the contract and the freedom for the operator to introduce a fleet upgrade without necessarily being

bound by the contract term.

Longer duration contracts make it worthwhile for private operators to invest in the fleet. If the contract

expires before the end of fleet life, the fleet can be sold at the market price though this may be a challenge

if the buses are designed for specific purpose like BRTS. In this case, the new operator would be obliged

to take over the vehicle, paying the market price or a pre-agreed rate.

Long term contracts may elicit interest from more bidders as they offer continued business and longer

investment horizons.

Exhibit 5-14 Length of contract depending on contract type

Investment making Party/

Type of Contract GCC NCC

Operator

Short term: there should be a

provision of transferring

ownership to the authority at the

end of contract.

Long term contract or period

should be equivalent to asset

life (if defined)

Authority

Short term contract with a

provision for extension based on

performance

Long term contract or period

should be equivalent to asset

life (if defined)

5.5.4 Methodology for contract extension

Each method listed below seeks to ensure that the capital and maintenance investment will be appropriate

and that service quality will be consistent throughout and between concessions.

Automatic renewal: In some agreements, the concession period is extended automatically

if a concessionaire’s performance has been acceptable. This ensures that the company has

an appropriate investment horizon and re-tendering costs for both parties are eliminated.


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Existing concessionaire negotiates a roll-over: This allows the authority to maintain

continuity of service and force a concessionaire to be efficient. It avoids the re-tendering

process, which may be costly, though the authority should be aware that renegotiation is

resource intensive. Also, the absence of competition removes the concessionaire’s

incentive to reveal its true valuation of the concession.

Existing concessionaire is bought out: The conditions for such a transfer are specified in

the agreement, for example, a government pays a concessionaire for the un-depreciated

assets at the end of a concession.

Re-bidding: If incumbents are unsuccessful, they receive the value of their bids from the

successful bidder’s offer. The government receives the portion of the successful bid which

is not paid to the incumbent. The government, therefore, does not have to buy the

concessionaire out and the market sets the value of the concession.

5.6 INFRASTRUCTURE FACILITIES

Successful bus operations and contract viability are mostly reliant on key infrastructure facilities and bus

priority infrastructure like part-time or full-time bus lanes, stations, bus stops, bus terminals, passenger

information systems, bus depots with maintenance bays and overnight parking facilities, and bus terminals.

These facilities not only impact passengers’ comfort and the perception of public transport but also result

in tangible benefits regarding increased bus speed and reliability.

The following sections discuss each of these components and who should be responsible for their

construction, operations and maintenance. Although some alternative scenarios have been discussed, it is

advisable that responsibility for planning, designing and construction of bus infrastructure should remain

with authority.

Annexure VI outlines the responsibility allocation for infrastructure planning.

5.6.1 Bus depot facilities

All bus contracts require the facilities of a bus depot to manage the

functions of parking, fleet repair and scheduled maintenance, fuelling,

washing and cleaning administration, and management of operations,

etc. The depot houses administrative workshops, and control centre

facilities and equipment.

Planning of bus depots and their locations is closely linked to travel

demand and fleet assignments around the route network. A suitable

depot location is one that minimises ‘dead mileage’ to the start and end

of routes and is sized appropriately. However, a fundamental problem

with availability of depots is the cost of land. This forces the depots to

be often located at city outskirts owing to cheaper land and proximity

to bus initiation and termination points. Cities with traffic congestion,

or dead mileage, may consider a number of small sub-depots that

handle parking and driver sign on/off functions. In this model, main

depots centrally manage core functions of repair and maintenance. In some cases, multiple operators may

need to share a depot which may require an independent depot management facility. However, it is

preferable to have enough depots so that each operator controls its maintenance and parking facilities. Most

private operators, if they own the buses, like to have control over their depot so that they can take

responsibility for the security, maintenance, and repair of their buses.

Number of

depots

Size

Number of operators

Travel demand

Facilities

Exhibit 5-15 Factors affecting

number of depots


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The size of the depot depends on the amount of vehicle parking needed and the number of vehicles likely

to need repairs. Once location, size and number of depots are decided, various activities including

acquisition of land, preparation of depot layouts, building designs, construction, provisioning of utilities,

and commissioning follow besides planning for tools, fixtures, plant and equipment - type, quantities,

specifications in each case and their acquisition.

The entire value chain of the bus depot planning and requirement assessment is shown in Exhibit 5-16.

Establishing bus depots involves land acquisition, requires high capital investment and has a life span much

longer than that of movable assets like buses, so it is advisable that ownership of bus depots remains with

authority. This is especially valid for Gross Cost Contracts, where the authority may change the operator

at regular intervals. Leasing the depot to the operator will ensure that the authority is not captive to the

operator who holds strategic depot sites. It also makes it easier for the authority to dismiss a failing operator

and terminate the contract.

Exhibit 5-16 Planning for bus depot facilities

In the case of a concession where the contract term could be much longer (even to the point of a quasi-

permanent concession), it is feasible for the private operator to own the bus depot. While it may require a

huge amount of investment by the private operator, the investment horizon is sufficient and allows the

operator to be in control of its situation. Nevertheless, given that the authority may have access to good

depot locations and available sites, there is nothing to prevent the operator to lease a city-owned depot site.

Maintenance of depots, its utilities etc. may either be undertaken by authority or by the operator depending

upon the decisions by the authority. If authority hands over the depot to a private operator (PO) for

operations and maintenance, the operator may be required to undertake repair and maintenance of depot

under a suitable agreement - detailing out duties, rights and obligations of both parties. In the case of

multiple operators, it may be preferable to utilise services of a third party to manage the bus depot to avoid

conflict between multiple operators particularly in sharing of resources.

Though the title of land and ownership of depots remain with authority, liability towards taxes, insurance

for depot property, legal implications and compensation for accidents, etc. at the site should be clearly

defined by the authority. This definition is especially important, particularly when depot is handed over to

a private operator. Further, as legal cases may get settled long after completion of a contract with a private

Construction of Bus Depots

Authority: If GCC, as authority should not be captive to operator Operator: if the authority is not financially capable, in NCC (with assistance from

authority, only if contract length is long)

Exhibit 5-17 Responsibility for construction of bus depots


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operator, suitable mechanisms must be incorporated in contracts to protect the authority against all

liabilities arising out of finalisation of legal proceedings.

While the authority may specify requirements for plant and equipment, the actual acquisition, ownership,

investment, etc. may depend on the type of equipment, its serviceable life, and the operational arrangement,

i.e., in-house by the authority and or by the private operator. While major, heavy duty, costly and long life

equipment may be owned and acquired by the authority, movable plant and equipment like hand tools,

fixtures, gauges, measuring instruments, small and low life equipment may be procured, owned and

maintained by the private operator. Equipment acquired by the authority may be handed over to the private

operator for operation, maintenance and returned to the authority in a predefined state on completion of the

contract term.

5.6.2 Use of Intelligent Transport System (ITS) for contract management

ITS helps authorities and operators control and monitor the system to improve services and the reliability

and efficiency of operations. Through data analysis, authorities can provide better information to

passengers, improve resource allocation and make informed decisions on service issues. ITS includes a

variety of elements with applications in navigation and vehicle tracking, collection of operational data,

traffic management, parking, surveillance, etc. The following components are particularly applicable to

bus service operations.

Automatic Vehicle Location system (AVL): Automatic Vehicle Location enables the Control Centre

(managed by the authority or the operator) to know the location of the bus, detect route deviations and

schedule adherence. This technology allows the Control Centre to construct a real-time view of the status

of all buses as well as log the trips on the system to inform the payment system if operations are on a ‘pay

by km’ basis. For bus operators, ITS systems that monitor driver behaviour are increasingly available and

help identify bus maintenance costs that are due to irresponsible and poor driving techniques.

Adaptive Traffic Signal Control (ATSC): Adaptive Traffic Signal Control enables dynamic management

of traffic signal timing. The system could be used to allow buses to receive priority at traffic signals when

running behind schedule, reducing the number of stops at intersections, as well as the amount of delay

experienced at traffic signals.

Passenger Information System (PIS): Passenger Information Systems provides static and dynamic

information about the bus transport system. AVL provides information about location of the buses which

is used to monitor their progress against the timetable which is passed on to the passengers as estimated

arrival times at specific locations, via variable message signs, mobile phones (SMS), the Internet and

mobile applications.

Automatic Fare Collection (AFC) systems are the key to streamlining the passenger interface of fare

collection and ticketing and also serve the critical purpose of capturing all the revenue. The system offers

a distinct advantage over other aspects of managing a contract primarily due to its ability to capture wide

array of operations.

A further benefit of AFC is the ability to capture passenger travel data which allows planners to identify

over and under-capacity services, and the nature of travel (also by time period) by the passenger. For

example, a high demand trip pattern that involves a bus transfer may be deserving a direct service.

Similarly, a high incidence of travel from point A to point B may warrant an express service.

Planning and scheduling software is highly useful particularly if a city is focussed on cost optimisation

and cost control in its transport system. A high capacity planning and scheduling software is a critical tool

for optimising items like dead mileage, driver indexes, bus indexes, and fleet optimisation. While such

software is useful to manage the vast amount of data generated, this is also possible through obtaining the


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right AFC data in an appropriate format. They may be useful for highly advanced operations where good

data is available, and a system-wide route rationalisation is taking place.

5.6.3 Bus stops

From an operator’s viewpoint, bus stops are an important element in the contract because the revenue is

directly affected by the provision or the lack of bus shelters. Bus stops are also the first point of passenger

interface with the public transport system and are the key to accessibility and ridership. Customer

experience is provided through shelters, waiting facilities and travel information, etc. Bus stops that are

equipped with passenger information systems – PIS (next bus arrival time, etc.) reduce the uncertainty of

waiting and improve the perception of reliability.

While bus stops have long been neglected, there is now an increased interest in developing these facilities,

driven by an increased demand for quality bus services requiring better passenger facilities, and also

monetisation of the bus stops for advertisement revenue. While cities have different models of ownership

and maintenance of bus stops, these are usually owned and maintained by ULBs either themselves or

through a private operator (usually an advertising agency).

Exhibit 5-18 Decision framework for bus stops

5.6.3.1 Planning of bus stops

Since bus stops involve land acquisition and they may be used by multiple operators, planning, investing

and ownership of bus stops should at all times remain with authority. The maintenance and commercial

leasing of advertising space can, however, be outsourced. Sometimes, a commercial PPP venture allows

the private sector to build and exploit the commercial opportunities for a set period. As the title of land and

ownership of bus stands is with authority, liability towards taxes, insurance for asset, etc. would also be

with authority.

Exhibit 5-19 Planning for bus stops

Condition of bus stations

Length of contract

(payback)

Bus Stops

Investment required

Existing contractual obligations

Number of private bus operators

DECISION ON

DIVISION OF

ROLES &

RESPONSIBILITIES

Capacity & Role of

Authority


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The authority should plan the locations of the bus stops, based on detailed route assessment and other social

and political considerations. Exhibit 5-19 outlines the process for the same.

5.6.3.2 Construction and maintenance of bus stops

For construction and maintenance of bus stops, the following three options are available:

1) By the authority or a third party: In this case, the authority finances, constructs and maintains

the bus stops either on its own or appoints a third party. Since the contract is with the authority,

the third party operator may also be made responsible for PIS on bus stops. In this type of option,

the third party operator usually generates revenue through advertisement, in some cases even

shares revenue with authority, and this does not lead to any financial burden on the authority. This

option is ideal for cities where multiple private operators are involved in city bus private operations

as these facilities are shared. Such a third party operator would need to be managed under a strict

and enforceable contract; otherwise, it will simply collect revenues without proper maintenance

and care for the public facility.

2) The private contractor/operator: In this case, the bus operator also finances and maintains the

bus stops. The operator will have an inherent incentive to maintain these facilities as it affects their

ridership. The problem is that the operator may not have the power to police or enforce activities

on public land, for example where hawkers or traders disrupt or encroach on the facility.

Such a proposition will also need the close cooperation of the authority to facilitate the construction

process (permissions, relocation of utilities, relocation of existing structures, etc.). This proposition

also poses a risk for the operators as they may be constrained in carrying out the responsibility

while being contractually bound. The operator should also have the freedom to sub-contract the

construction, maintenance or advertising functions if required. The operator would retain ultimate

responsibility for the performance of this activity.

As mentioned in the section on length of contract, the commitment to building infrastructure

requires a longer contract to ensure sufficient payback period for the operator. However, this issue

takes on less importance if the operator can receive advertising revenue as it reduces the payback

period. Similarly, if multiple operators use the same route, an independent advertising revenue

stream to the operator who owns the bus stops will recompense them despite sharing the utility

with other operators.

3) Shared by authority and private operator: A variation is where the city authority constructs the

bus station jointly financed with the private operator who maintains the bus stops. The main

advantage is that the private operator shares the cost, reducing the chances that the authority delays

building the facilities. Another advantage over the sole private sector managing this is that it

reduces the risk the operator faces in installing facilities in public spaces (permissions/utilities etc.)

Conditions precedent clauses of the contracts should also address risk of delays impacting negatively on

the respective parties.

5.6.4 Bus terminals

A ‘terminal’ refers to large bus stops that are major points of interchange/ transfer between different bus

routes - such as trunk, feeder and intercity routes - or different modes of transport. Bus routes often begin

or end at terminals. They are larger than other bus stops in a system, and may also provide auxiliary services

to passengers such as food, ticketing, transfer facilities, and so on.

The location and size of bus terminals are determined on the basis of route network structure and function

especially if multi-modal functions are needed, and are usually at places where a number of routes and

modes converge or intersect. Terminals do, however, generally have a negative effect on traffic conditions


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in the surrounding areas due to a number of bus movements in and out of the terminal. This negative effect

is often an especially important consideration for terminals located in central city areas. In such situations,

it may be better to make transfer facilities available at bus stops where multiple services connect, and these

transfer points are clearly indicated for passengers’ convenience.

Terminal size and requirement of facilities are worked out on the basis of demand, bus dwell times and

passenger amenities required. In urban bus operations, while one or more private operators may use

terminals, ownership of terminal and investment in its infrastructure is usually under the authority.

Operation and maintenance of terminal and its facilities including commercial exploitation may be

undertaken by the authority in-house or outsourced to private operator under a separate PPP project.

Exhibit 5-20 Planning for bus terminals

5.6.5 Turnkey Option

The turnkey option is bus operator taking complete responsibility of the overall project including design

and construction of all infrastructure facilities as well as city bus operations. Such a proposition will need

close cooperation with the authority to facilitate the construction process. The turnkey option would require

Infrastructure planning in a bus terminal at Gulbarga

In the Gulbarga transport network, a local transport hub was identified where 80% of passenger

trips originated or terminated, and 18% of passengers utilised the hub as a transfer point. It was

decided to upgrade the hub to a Supermarket Station, with the aim of integrating the terminal

facility with the existing urban setting, to accommodate the rise in demand. The following

infrastructure planning principles were established:

1. Terminal capacity was increased from accommodating 9 buses per hour to 30 buses per

hour, with a peak hour use of 2300 passengers. The new design incorporated two lanes

for parking and an overtaking lane at each platform.

2. To ensure passenger safety, the platform waiting area width and width of walking

pathways were increased.

3. The new design utilised traffic-calming measures to demarcate and create legible

spaces at pedestrian crossings.

4. It was observed that passengers preferred direct access to platforms, ticketing facilities,

transfers and convenient retail facilities. Non-passengers preferred access to a range of

peripheral activities such as retail, commercial, catering facilities, public spaces and

visitor information. These observations were incorporated into the planning design and

a commercial component was introduced in the terminal for better compatibility with

different types of users.

5. An attempt was made to integrate multiple modes such as auto-rickshaws, park-n-ride,

etc.

Exhibit 5-21 Example of Gulbarga Bus Terminal


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a much longer contract to ensure sufficient payback period for the operator. Typical contract length for

such an option is 20/25 years.

The main advantage of this option is that authority needs less coordination among the various contractors

for building assets required for city bus operations. The operator has flexibility in building assets aligned

with requirements of city bus operations without over provisioning. This leads to efficiency and cost

minimisation.

5.7 CONTRACT TERMINATION & ARBITRATION

Arbitration37

This section governs the situation where there are irreconcilable differences between the parties. Although

the dispute resolution clause in the contract prescribes the methods available to resolve disputes, if the

parties are not able to amicably resolve the claims on their own, then either party may opt for arbitration.

In case of arbitration, the clause prescribes the accepted procedures for appointment of an arbitrator and

the procedure of arbitration. It also mentions the courts of applicable jurisdiction where the dispute can be

filed. In many cases, the arbiter(s) are a mixture of local authority staff and representatives of the operators,

and this is the best and most cost-effective way to deal with a dispute.

The clauses in the contract specify the appointment of the arbitrator, place of arbitration, the procedure,

and enforcement of award, fee to be paid to arbitrator, and performance during arbitration.

Termination

During the implementation of the contract, a

situation may arise when it becomes necessary

for the parties to the contract to terminate the

contract. The termination of contract may arise

due to force majeure, due to default or at the

convenience of the authority.

The contract clause should define the specific

conditions on fulfilment of which the above termination situations will be initiated. The clause will also

list the consequences for the contracting parties once the contract is terminated.

One very important component of the termination of contract is the rights and obligations of the parties at

termination. The obligation of the private operator on termination is usually to hand over the project back

to the authority in a specified condition.

Guiding Principles for Early Contract Termination Clauses38

The following key principles need to be considered while developing early contract termination clauses

Reasons which trigger an early contract termination, and compensation each party is entitled to, should

be clear

For authority’s default,

o the contract should specify the events of default that allows the operator to call for contract

termination

37 For arbitration, the Arbitration and Conciliation Act, 1996 is followed

38 Yescombe, E. R. (2007). Public-Private Partnerships (1st ed.). Elsevier Ltd.

Sample Contract Termination Clauses

1. Termination for Private Operator’s Default

2. Termination for Authority’s Default

3. Termination Payment

a. Private Operator’s Default

b. Authority’s Default

Sample Contract Termination Clauses

4. Termination for Private Operator’s Default

5. Termination for Authority’s Default

6. Termination Payment

a. Private Operator’s Default

b. Authority’s Default


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o the authority should compensate the operator in such a way that latter bears no financial

consequences from the breach

For operator’s default,

o the contract should specify the events of default that allows the authority to call for contract

termination

o any performance guarantees by the operator should be forfeited and costs incurred by

authority due to termination should be recovered from the operator

If both default, compensation provision for assets built by the operator should be clear and the options

available are fair value approach, book value approach and debt due approach

Fair Value Approach: In this approach, compensation is driven by the fair value of the assets as assessed

by the independent evaluator at the point of termination

Book Value Approach: In this approach, compensation is driven by the book value of the assets at the point

of termination

Debt Due Approach: In this approach, compensation is expressed as a percentage of senior debt outstanding

at the point of termination

Depending upon the project structure (usually the capital expenditure), the termination payment will vary.

Some sample termination payment clauses in the event of termination by the authority are:

Liquidation of performance guarantee submitted by the private operator;

Payment by authority equivalent to the debt due by the private operator.

Some sample termination payment clauses in the event of termination by the private operator are:

Return the performance guarantee to the private operator;

In addition to the payment of debt due, market expected return on the project

Payment equivalent to the market value, book value, or fair residual value of the fleet

A transition plan during which the current operator continues to fulfil the services until a new operator is

signed, in order to ensure continuity, also needs to be considered.


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Financial Implication of Termination

When buses have been procured by the operator, upon termination typically the buses are

transferred to the authority with payment being made to the operator. The authority needs to be

cognizant of the payment to be done in such cases.

Sample Calculation for the financial implication

Number of buses = 100 buses

Type and cost of bus = Low Floor Standard Size non AC diesel estimated cost INR 50 lakh

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8

Depreciation 12.5% 25% 37.5% 50% 62.5% 75% 87.5% 100%

Termination Outlay

for assets (in

Crores)

43.75 37.5 31.25 25 18.75 12.5 6.25 0

The authority may also have to return the performance security if it’s a case of authority’s default

which increases the liability of the authority.

Performance Security = 10% of (Cost of Bus + 20% for other capital expenses)

= 0.1 * (50 * 100 + .2 * 50 * 100)

= 6 crores


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6. PROCUREMENT GUIDELINES

The objective of this chapter is to discuss the approach to procurement and various procurement

methodologies for contracts. This process has been shown in Exhibit 6-1.

Exhibit 6-1 Process for Procurement

6.1 CHOOSING THE RIGHT PARTNER

It is often beneficial to choose the end point - partnering arrangement and the partnering arrangement that

the contract achieves, at the inception of procurement planning.

The previous sections have constantly raised the issue of the partnership element of the PPP, on the basis

that the workings of a trusting partnership are far more effective than what can be achieved through the

tools available under contract enforcement. The real purpose of a contract is to define the relationship

between parties, set the tone of the partnership, and be a fall-back position when things go wrong.

The nature and quality of the relationship and trust between the parties is an increasingly discussed topic

in contract development. Procurement cannot rely on price factors alone, despite prices being a key

criterion in competitive tenders. In competitive bidding, there is always a danger of the ‘too-low’ a price

being unsustainable. Also, a bus operator who has no control over market costs of buses, fuel, finance, and

can only reduce the wages to save costs, besides efficient operation. This may translate in the lowest bidder

underpaying staff and attracting low skilled workers, a condition that is not a good prospect for a quality

bus system.

This situation introduces the concept of including Partnership Criterion in contract procurement;

Partnership Criterion is a methodology for defining the type of partnership relationship in the contract and

can be used as part of the procurement process, and as an element of the contractual offer. While it is not

a partnership in the legal sense of a business, it is a partnership in the general sense of a close and mutual

working relationship between parties in a shared endeavour.

‘Partnership’ has been a concept in use for over two decades and was initially used as a form of alternative

dispute resolution (by dispute prevention). Partnership is a process for building, maintaining and evaluating

relationships, and may be used with a wide range of formal structures such as joint ventures, PPP, design-

and-construct contracts, or any other form of arrangement. It is most effective if introduced early in the

relationship – even as early as the procurement stage.

The Partnership Criterion

A major challenge in defining partnership is introducing the concept into procurement procedures and

inserting it as an element of the contractual offer. This may be achieved by using a structured evidence

framework, where profiles of the bidding organisations as potential partners are developed from

Designing Bid Process Strategy

Preparation of Bid Documents & Concession

AgreementsBid Process Management

Selection of Preferred Bidder & Signing for

Concession Agreements


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information gathered during the bid process. The profiles can then be used in procurement decision making,

and in the ongoing contractual processes to embed, evaluate and continuously improve the partnership

relationship. Some partnership attributes may also be developed as the evaluation criterion in the bid

evaluations.

This methodology creates a common language of partnership at the outset of a contractual relationship,

embeds the expectation of the desired form of interaction on both sides, and creates an effective platform

for the parties to reflect on, evaluate and improve their relationship over time.

6.2 PROCUREMENT STRATEGY

The procurement strategies include the following four options:

Competitive bidding

Competitive negotiations

Negotiated contracts

Unsolicited proposals

6.2.1 Competitive bidding

Usually, public sector authorities prefer some form of competitive bidding when procuring any private

sector service. Additionally, most international lending and donor institutions require the use of

competitive bidding procedures as a condition for any loan or technical assistance granted. Competition is

expected to provide transparency to the process and provide a mechanism for selecting the best-value

proposal based on predetermined criteria. The competitive bidding process can either be one stage (Request

for Proposal - RFP) or two stages (Request for Qualifying – RFQ+RFP). The latter allows short listing

which is more efficient.

For competitive bidding, the bids may be open to international, national or limited bidding. Depending

upon the scale and complexity of the project, the authority may select either international or national

bidding. Limited bidding is by direct invitation without open advertisement. This method is preferred if

there are very few bidders for the product or service in the market.

In the Indian context, competitive bidding is the most preferred procurement strategy.

6.2.2 Competitive negotiations

Competitive negotiations entail inviting a small group of bidders to a structured negotiation. The bidders

are aware of the presence of other bidders and there is pressure to obtain the best price. This arrangement

is quicker and less expensive than full competitive process and may yield good prices. However, the

selection of bidders to be invited could potentially be non-transparent and may not yield the best bidder

pool. There is also a greater risk of corruption in the process.

6.2.3 Negotiated contract

Negotiated Contract refers to contracts that are awarded on the basis of direct negotiations with the

contractor, without following the competitive bidding process. In certain situations, the method offers

distinct advantages over process discussed in the preceding sections. For example, Competitive Bidding

offers no methodology to manage losers, and this could be a problem in contracts where the contract

displaces incumbent operators. Authorities in such situation often opt for a negotiated contract with

affected parties who are removed from routes that fall under the new contract. In some cases where BRTS

is introduced, operators may be allowed to continue but may not be able to compete, eventually leading to

ceased operations.


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Under a negotiated contract, affected and displaced operators can be offered new business opportunities

under the following guidelines:

To negotiate contracts based on known costs (more transparent) where the authority proposes the

operational plan;

As an inclusive process that engages existing operators as key stakeholders willing to respond to

commercial opportunities and more secure business arrangements;

To emphasise on transitioning to new business and employment opportunities without wielding a

‘stick’ of regulation or offering compensation since the expectation of compensation can distort the

negotiation process. The ‘compensation’ offered is the opportunity to take up new business and/or

employment opportunities;

Government may seek to encourage the bus line committees to assist in facilitating the transition

process, to help unify operator representation;

A clear understanding of the operator’s business model, the contract conditions and expectations on

the government side will assist in convincing the operators of their future viability. A level of trust

building is likely to be required. Experience has shown that a good trust-building initiative is when

key decision-makers at government level engage with operators’ representatives;

6.2.4 Unsolicited proposal

Unsolicited proposal is a self-initiated process where the private operator approaches the public agency

with a proposal to execute a project. The project idea is initiated and developed by the private operator and

the project development cost is passed on to the initiator. Entering into a sole-source process can save the

authority time and money and may alert the authority to an unrealized opportunity for PPP. However, sole

sourcing can encourage corruption through lack of transparency and the cost benefits to competitive

bidding are lost. Furthermore, the authority have to be confident of their negotiation skills and information

sources to ensure best value from the deal.

A variation of the process involves putting the project to bid, after the initial proposal from the initiator is

approved, typically under a system of ‘bonus’, ‘Swiss challenge’, or ‘best and final offer’39.

1) Bonus system

Chile and Korea use a system to promote unsolicited proposals that awards a bonus in the tendering

procedure to the original project proponent. This bonus can take many forms, but the most common bonus

involves additional theoretical value applied to the original proponent’s technical or financial offer for

bidding purposes only.

2) Swiss challenge system

The Swiss challenge system — most common in the Philippines and also used in Guam, India, Italy, and

Taiwan, is similar to the bonus system in using competitive tendering to determine the project developer.

But instead of a predetermined advantage, this system gives the original proponent the right to counter-

match any better offers.

3) Best and final offer system

In the best and final offer system, the key element is multiple rounds of tendering, in which the original

proponent is given the advantage of automatically participating in the final round.

39 Source: PPAIF, World Bank


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6.2.5 Deciding between one-stage and two-stage bidding process40

A single-stage process comprises of only a Request for Proposal (RFP). An RFP document is issued to

interested bidders inviting them to participate in the bid process. The RFP is the formal bid document

issued by the authority and includes the project details and draft concession agreement. A single-stage

process is appropriate for projects when the scope of the project is well defined, and there is a well-known

and relatively small group of private entities that are likely to bid.

A two-stage process has distinct ‘Request for Qualification’ and ‘Request for Proposal’ stages to short-list

bidders and to seek their financial quotes. This process is appropriate when the project scope is not clear

and discussions are required to finalise the service options, and the number of bidders is large. The Ministry

of Finance, Government of India has mandated the adoption of a two-stage bidding process for central

sector PPP projects.

The RFP may be preceded by an Expression of Interest (EOI) or a Request for Qualification (RFQ) or

sometimes both. The choice of whether to include EOI and/ or RFQ depends on how much uncertainty

there is about the project definition and about the bidders that are likely to be interested and qualified.

An EOI is used to identify firms that are interested in bidding and that are available to bid for a project. It

is a ‘market sounding’ exercise that can be used by the authority to test the level of interest and availability

of potential private operators and to identify a preliminary list of firms who will be sent RFQs or RFPs.

Typically, no evaluation is carried out on an EOI as it just lists all the interested firms who may

subsequently be contacted for RFQs or RFPs.

An RFQ is used to narrow down the list of qualified firms that will be invited to bid. Unlike an EOI, the

RFQ submissions are evaluated, and some firms are eliminated on the basis of pre-determined qualifying

criteria. The aim is to reduce the number of potential bidders to include only the technically and financially

qualified bidders possessing the requisite skill set for implementation of the project. The result of the RFQ

40 PPP Toolkit, Ministry of Finance, Government of India

Exhibit 6-2 Bid Processes


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stage is a shortlisting of bidders. These potential bidders are then invited to submit their proposals for the

project at the RFP stage.

An RFP invites technical and financial proposals from interested entities (in case it follows an EOI) or

qualified entities (in case it follows an RFQ) or from the market in general (in case of a single stage

process).

The two steps in the procurement process may be merged, and still retain the essence of two-stage bidding

process, as the scope, type of bidders and criterion are clear beforehand. In this model, only RFP is issued

to the bidders. The bidders are required to submit two envelopes i.e. one for technical and financial

capacity, and the other for financial bid. The financial bid for only those bidders who meet the minimum

technical and financial criteria is opened. The bidder quoting the minimum or maximum fees, as the case

may be, will be the selected bidder.

A defined scope and limited number of bidders has led single stage bidding to be preferred for city bus

operations.

6.2.6 Type of bid evaluation

Quality Based Selection: This method of bid evaluation is often seen in projects where technical inputs

required are important, and highly specialised. The budget of the project is usually fixed or negotiated on

unit costs. In such cases, the evaluation of bids is done based on technical soundness of the bid. The bidder

getting the highest technical score will be the preferred bidder. This evaluation method would fit well with

a partnership criterion.

Quality cum cost based selection (QCBS): This method of bid evaluation scores the technical capacity,

skill and experience of the bidder (sometimes called the ‘beauty contest’). Usually, a minimum technical

score is required for the bid to be considered for financial bid evaluation. The bidder quoting the minimum

financial bid is awarded 100 marks, and the score of the remaining bidders is proportionately reduced, in

ascending order of financial bid. Weights are assigned to both the technical and financial score. The bidder

scoring the highest combined score is selected as the preferred bidder. In India, this is the most preferred

mode of selection of bidder for PPP projects.

Least cost method: This method involves selecting the bidder that quotes the least cost. The method is

useful for projects which are standardised in nature and require limited technical input. The projects fit for

such type of bid evaluation usually include outsourcing contracts. A modified version of least cost method

strategy may also be followed in which, the bidder is required to furnish his bid in two/three envelopes i.e.

one to showcase technical and financial capability, and the other for financial bid. The financial bid of only

those bidders who meet the technical and financial criterion shall be considered.

The Least Cost Method and the Quality cum cost based selection have a danger of bidders, and especially

the less experienced bidders, offering prices that are ‘too low’ to be viable. It is useful for the authority to

test these prices against known benchmarks and question the bidders, if necessary. In the case of no

satisfactory explanation, the matter may be forwarded to a panel for evaluation that may choose to either

accept or reject the bid.

In India, QCBS and least cost method are the most common evaluation strategies followed across sectors.

For city bus private operations, two/three envelope least cost method is the most common evaluation

strategy.

6.3 PREPARATION OF BIDDING AND CONTRACT DOCUMENT

The final implementation structure will be translated into a legally enforceable document, the PPP

agreement. This document must be drafted before the start of procurement, as prospective bidders will need


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to know the terms and conditions of their contracts. The agreement would make bidders aware of their

roles, as well as all the risks and obligations involved in the transactions.

A typical contract would contain the following:

Recitals,

Definitions and Interpretations,

Period of the contract,

Rights of The Contracting Parties,

Obligations of The Contracting Parties,

Contract Considerations,

Payment Mechanism,

Performance Management,

Defaults and their Consequences,

Dispute Resolution,

Termination of the Contract, And Effects of Termination (Terminal Payment

Arrangements and other Issues Related to the Termination).

Exhibit 6-3 Advance information to operators during the bidding process

6.3.1 Bidding and contract documents

Prequalification Process – RFQ stage

Preparation of RFQ Documents: The RFQ is a document for pre-qualification of the interested bidders

with the objective of narrowing down the field to select bidders capable of implementing the proposed

project. Minimum qualifying technical experience could include: experience in similar projects (in its sole

capacity or as a consortium), technical skills, and operating experience that best help judge suitability for

undertaking the project. Similarly, minimum qualifying financial parameters help judge the ability of the

bidder to raise the required finances.

The indicative contents of an RFQ are given below:

Disclaimer

Terms and conditions of the request for qualification

Outline of the request

Brief statement of intent of the Transport Authority in issuing the request

Detailed information about the project (description, background, performance parameters,

financing structure, risk allocation, etc.)

Description of the procurement process, along with the evaluation criteria

Bath and North East Somerset and South Gloucestershire were both praised by local bus operators for

the amount of information they provide with their tenders and the timescales they work with. They offer

the current operator the opportunity to comment on forthcoming tenders several months in advance,

including adopting the approach of stating how much funding is available and then inviting proposals

from operators. This approach has worked very well and allowed operators to offer innovative solutions

that make the most of the existing commercial network.

Bath and North East Somerset and South Gloucestershire were both praised by local bus operators for the amount

of information they provide with their tenders and the timescales they work to. They offer the current operator the

opportunity to comment on forthcoming tenders several months in advance including adopting the approach of

stating how much funding is available and then inviting proposals from operators. This approach has worked very

well and allowed operators to offer innovative solutions that make the most of the existing commercial network


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Instructions to respondents

Information required from bidders, along with the prescribed format for its submission

Description of the evaluation process

Bid Process – RFP stage

The RFP is the second stage of the two-stage bidding process. The RFP is issued and responses prepared

as per the provisions of the RFP, and “Bids”, shall be invited from the pre-qualified bidders. The Bids shall

consist of two parts: Technical Proposal providing certain compliance related documents and other details

as prescribed in the RFP and a Financial Proposal containing its price/commercial quote for the Bid

Parameter. The Bid Parameter shall be a single parameter and shall be the only quantitative parameter

based on which the preferred bidder would be selected. While a single quantitative Bid Parameter is

recommended, in particular circumstances, qualitative aspects may also be included in the Bid Parameter,

provided the same can be objectively scored and methodology for such scoring is provided in the RFP. The

Bid Parameter can also be in the form of, among others, grant required, annuity required, user charges,

revenue share, upfront System Management Fee, annual System Management Fee, term of Project

Agreement, etc. depending on the project structure.

The RFP shall also have provision for Bid Security and a Performance Guarantee to be sought from the

Bidders at the time of submission of the Bid and before signing of the Project Agreement, respectively.

The amounts of such guarantees may vary based on the level of the project outlay.

Financial proposals shall be opened only after evaluation of technical proposals and only for those bidders

who comply with the requirements of the technical proposal and achieve the minimum score specified in

the RFP, if applicable.

The Draft Agreement, which is the project contract shall necessarily form a part of the RFP document. It

shall clearly spell out the rights and obligations of the concerned authority, the Government (if applicable),

and of the private entity involved. The Draft Agreement shall also capture other aspects such as:

Term of Project Agreement, if any;

Performance specifications;

Monitoring mechanisms;

Penalties and Incentives associated with various obligations of the entities;

Mechanism for dealing with risks due to Force Majeure, Termination, Change in Law,

Change in Scope, etc.;

Procedures relating to Dispute Resolution, claims, information sharing & reporting; with

associated timelines; and

Process for handing over of the assets, if any, and if such handover is part of the PPP

structure.

Thus, the objective of the RFP stage is to:

Specify all the provisions of the Draft Agreement;

Set out clearly the evaluation criteria, terms and submission requirements for the

evaluation process; and

Invite proposals with specific technical and financial details that enable the selection of

the “Preferred Bidder”.


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In this stage, all pre-qualified bidders, to whom the RFP has been issued, shall be given an opportunity to

ask queries and seek clarifications. The same shall also be discussed in a pre-bid meeting. In case of more

complex projects, more than one pre-bid meeting can be organised.

6.3.2 Criteria for qualification

The criterion for qualification has two parts – technical and financial.

Technical criteria

The authority should define relevant experience in the bidding documents. The criterion has to be stringent

enough to ensure that only serious bidders qualify, at the same time it should not be so high such that very

few bidders qualify. Usually, relevant experience is a good qualifier especially having performed similar

services previously, or with a skill set that clearly qualifies their involvement; for example previous

experience in logistics and customers service, could be a relevant qualification.

It is also important to consider the experience of the previous 3-5 years, and not just the immediately

preceding year as the bidder may not have sufficient experience if the project started only last year.

The bidder shall, over the past 3-5 financial years preceding the Bid Due Date, have:

a. Experience of operating Buses,

b. Experience of operating Trucks, and/or

c. Experience of operating Taxis

An experience weight may be granted to each of the categories, as shown in Exhibit 6-4:

Exhibit 6-4 Experience Weights

Category Experience Weight

Buses 1.00

Trucks 0.40

Taxis 0.80

Higher weightage is granted to buses (both contract and stage carriage) as compared to trucks.

Suitable conversion shall be made based on size of the vehicle in terms of the details set out in Exhibit 6-5:

Exhibit 6-5 Multiplying Factor

Category Passenger Capacity Multiplying Factor

Buses < 22 passengers 1.50

23 – 34 passengers 2.00

35 and above 3.00

Trucks 3.00

Taxis 1.00


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Experience Score for a given category = Number of vehicles x Experience Weight x Multiplying Factor x

Number of months of operations in the last five years/60= XX

Sample calculation is provided in the table below.

Category Passenger

Capacity, if

applicable

No. of

vehicles

(a)

Multiplying

Factor (b)

Experience

Weight (c)

Number of

months of

operation

(d)

Total

(Experience

Score)

(a*b*c*d/60)

Buses 42 40 3.0 1.0 40 80

Buses 20 15 1.5 1.0 12 4.5

Truck 60 3.0 0.4 56 67.2

Taxis 50 1.0 0.8 24 16

Total Experience Score 167.7

Total Experience Score for each Bidder shall be calculated based on submissions made by the Bidder. Such

Total Experience Score shall be compared with the Minimum Experience Score. The Minimum Experience

Score is the score calculated for Experience Score considering 50% of the number of buses to be Operated

and Maintained by the operator. For example, if 100 buses are to be Operated and Maintained by the

operator, then the Minimum Experience Score shall be 50*3*1*60/60 = 150. The Bidder shall be deemed

to meet the Technical Capacity, when the Total Experience Score is greater than the Minimum Experience

Score.

Financial criterion

After verifying the technical credentials of the bidder, the financial credentials are checked. The bidder

should have sufficient capability to undertake the financial burden of the project. Usually, it is checked on

the basis of average annual turnover and net worth. Authority should consider both turnover from relevant

experience and other services, but higher weightage should be given to turnover from relevant experience.

As in the case of technical criterion, in this case also the criterion is defined as a percentage of total project

cost. The average annual turnover of the previous 3 to 5 years and net worth of the immediate preceding

year are considered (net worth of the years prior to the preceding years is not relevant).

For demonstrating financial capacity and experience, the bidder shall have:

i. Minimum Net Worth of [insert in rupees (in words)]41 at the close of the preceding financial year

ii. Minimum Average Annual Turnover equivalent to [insert in rupees (in words)]42 in the previous

3-5 years

Only for those bidders meeting both technical and financial criteria should the financial bid be opened.

41 This amount should be [15-25%] (fifteen to twenty five per cent) of the Estimated Project Cost of the project for which bids are

being invited 15

42 This amount should be equivalent to 25% of the Estimated Project Cost


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6.3.3 Bid parameters

For each type of contract, the bid parameters may vary as shown in Exhibit 6-6.

*This is for illustration; the variable percent may vary from city to city

The details are as follows:

Fee payable per kilometre to the private operator (GCC) – In this type of model, the private

operator is paid the quoted amount per km by the authority over a set period. The authority

usually specifies the minimum number of kilometres the private operator has to ply as part of

MSL. The bidding parameter is ‘cost per km’. Dead mileage should be specified as included

or excluded.

System Management Fee paid to the authority/Grant payable to operator (NCC) – The

private operator agrees to pay to the authority, a fixed amount or share a part of the revenue it

collects (system management fee), or the operator demands a grant from the authority. This

method is most suitable where there is considerable and assured demand or where the operator

is fully protected from competition, else in case of shortfall the operator may demand a grant.

The bidding parameter is usually a fixed amount.

Revenue is linked to ridership (Hybrid GCC) – The authority supplements fixed payments

with bonus payments linked to ridership increase. This payment mechanism will require the

necessary technology to collect ridership data. As these ridership payments are supplementary,

it avoids negative competition for passengers. The bidding parameter could be the fixed

portion costs (km-based) and the variable fee per passenger for additional ridership over base

figures. This method requires base revenue to be set, and good data on ridership growth.

Supplementary payments for certain non-commercial routes (Hybrid NCC) - Where a

non-commercial route is within an operator’s contract area, and the authority wishes to

subsidise its operation, the fee would be fixed and stated in the RFP. The fee per km shall be

calculated based on total cost of operation less the amount of cost recovery through revenue

collected. As in NCC, the bidding parameter in this case shall be system management fee or a

grant.

Refer to Annexure III to customise and modify the model RFP to a city-specific RFP.

6.4 PROCUREMENT MANAGEMENT

Once the bidding and contract documents have been drafted, the authority would commence the

procurement process (as discussed earlier).

The following sections describe the procurement process based on the two-stage procurement process

(request for qualification [RFQ]–request for proposal [RFP]) that is extensively followed. The authority

GCC

Fee per kilometre, to be paid by the authority

Hybrid GCC

Fee per kilometre, to be paid by the authority

NCC

Monthly System Management Fee payable to the authority or grant payable to Operator

Hybrid NCC

Monthly System Management Fee Payable to the authority/Grant payable to Operator

Exhibit 6-6 Bid Parameter by type of contract


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can, however, select another process that fits the unique characteristics of the project. If the authority selects

the one stage procurement process, then RFP follows immediately after the pre-bid activities.

6.4.1 Pre-bid activities

The first pre-bid activity pertains to reinforcing the links between the feasibility and procurement stages of

the project. The following will be reviewed and analysed:

Project Scope, Definition, and Objective;

Timelines, strategies, processes, deliverables in the procurement plan;

Project type and structure, and sources of funds;

Mechanism of payments to and from the authority;

Risk matrix updated after the PPP; and

Third-Party Contracts

The subsequent pre-bid activities relate to the major decisions to be made in the procurement process:

Defining the bidding period (when bidders must prepare and submit their bids). According

to the size of the bid, the allowed time of preparation will affect the quality of the bid;

Disclosing all relevant information to bidders including those related to the assets of the

bus transport undertaking, including their condition and maintenance schedules, in the

RFP;

Engaging in pre-bid meetings to discuss queries and ensure bidders and the authority are

aligned in their expectations;

Dealing with labour issues in the RFP; staff information pertinent to the project, such as

the displacement of existing staff, must be communicated to bidders along with the

implications;

Providing enough time for compliance with regulatory requirements.

6.4.2 Request for qualification (RFQ)

The process includes:

Press notification & issuance of RFQ: This includes marketing the project to the industry. The prepared

RFQ is issued along with a notification.

Pre-bid meeting and responses: Bidders may wish to seek clarifications on the RFQ. All clarifications

have to be responded to, with changes made in the contract document accordingly, and revisions shared

with the bidders.

Evaluation of responses: The bidders’ responses to the RFQ are evaluated according to the evaluation

and selection criteria in the RFQ. The evaluation criterion considers the technical and financial capability

of the bidder, their understanding of the project, and their skills and experience to deliver the project.

Bidders that meet the RFQ criteria are notified by the authority and invited to bid. The notification indicates

the terms and conditions for obtaining the RFP, and the document date and cost.

6.4.3 Request for proposal

Issuance of RFP: The RFP document is issued to the pre-qualified bidders. Bids from only such pre-

qualified bidders will be accepted.


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Pre-bid meeting and responses: Bidders may wish to seek clarifications on the RFP and draft contract

document. All clarifications have to be responded to, with changes made in the contract document

accordingly, and revisions shared with the bidders.

Evaluation of responses: The evaluation of bids is an extremely important stage in the PPP project life

cycle. The bids received are assessed based on the specific compliance and selection criteria, as specified

in the RFP issued. Assistance of external advisers/ consultants may be sought by the concerned authority

for evaluation of bids. Opening of technical and financial proposals should be done in separate meetings

in which those bidders must be invited, whose technical or financial proposal is going to be opened.

6.5 SIGNING OF CONTRACT

After evaluation of the bids and selection of the Preferred Bidder, the authority may issue a “Letter of

Award” to the Preferred Bidder. The letter shall specify the formalities to be completed, if any, by the

Preferred Bidder before signing the contract. The Preferred Bidder shall accept the Letter of Award by

issuing a Letter of Acceptance within the specified time limit, subsequent to which the Preferred Bidder

shall be declared as the Successful Bidder. The draft contract provided at the RFP stage shall be finalised

and signed between the Successful Bidder or a company constituted by the Successful Bidder (as the private

entity), as per the provisions of the RFP, and the authority.

There shall be no modifications in the draft contract at this stage, except changes which have been agreed

prior to bid submission date, with all bidders, and except some administrative changes for finalisation of

the contract.


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7. POST AWARD CONTRACT MANAGEMENT

This chapter discusses the various processes in post award contract management, including developing a

sound monitoring framework to ensure smooth functioning of the project during its lifecycle.

7.1 THE MONITORING FRAMEWORK

After developing a sound understanding of the functioning of a performance monitoring process, a

framework for implementing the same needs to be developed. This framework should be comprehensive

and should take care of all issues that might arise in the project lifecycle and with due provision for review

and update at any point of time.

Development of an ideal framework should consist of the following steps:

Step I: Collection & analysis of information needed

Step II: Analysing existing processes and tools for project quality measurement throughout the project

lifecycle

Step III: Setting the output requirements based on the terms agreed in the Concession Agreement

Steps I-III are carried out during the development of the contract.

Step IV: Designing the performance review mechanism against the output requirements including the KPIs

Step V: Reviewing the performance monitoring mechanism and updating the same

Steps IV-V are carried out during the monitoring period.

Exhibit 7-1 Performance Monitoring, Reporting & Review Framework

Step I: Collection & analysis of information

The authority needs to determine all parameters on which the private operator will be evaluated for the

quality of the project. Both qualitative and quantitative data are included. The authority may need to also

consider:

Which data sources are present and can be used for performance monitoring;

What other data sources need to be obtained;

In what form is information available or to be specified.

Step II: Evaluate existing processes and tools


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The authority should decide what level of monitoring is most efficient considering the cost and availability

of resources. While the ITS generated data is generally the most effective way to collect quantifiable data,

there is no replacement for physical inspection, to experience and draw conclusions on the qualitative

aspects of the system.

Step III: Set the output requirements, design KPIs

In the context of managing a contract to deliver service quality, the main KPI aspects are:

Follow route assignment and operating schedule as set by the contract specifications;

Failure to perform a service, or each incident where a service is cancelled, and the Control

Centre is not advised;

Comply with operating rules and service specifications;

Meeting vehicle standards of cleanliness and condition;

Following set procedures;

Meet reporting requirements;

Safe operation and driver performance.

Step IV: Design the performance monitoring mechanism

ITS and the agreed reporting structure should provide all the necessary data to enable sufficient monitoring.

However, it is essential to ensure that the primary task of the operator is not to furnish the data for the

authority, but to operate the business. ITS and computer data should make this reporting relatively easy,

but should not be used as a substitute for physical inspections to evaluate qualitative aspects of customer

service.

Regular meetings of all concerned officials must be conducted at agreed intervals to discuss any

performance related issues. These meetings must also include representatives from the side of the private

operator as well as any other related parties, to discuss the situation with them and seek their opinion.

Step V: Review & update the performance monitoring system

Regular evaluation of the monitoring procedures, as well as the level of monitoring, will assist the authority

to assess its effectiveness.

7.2 MONITORING DURING THE COURSE OF OPERATIONS

The monitoring and control function will vary according to the type of contract. In a GCC, this control is

more stringent. In an NCC, outcomes are monitored and the authority would respond to service issues that

arise.


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Exhibit 7-2 Monitoring and supervision London (GB): Financial incentives in a Gross Cost

Contract

7.2.1 Daily service monitoring

The daily monitoring will invariably require a Control Centre which, with the aid of ITS, can be abreast

with the daily service performance. This Control Centre may also be involved in service planning, both the

strategic service plan (setting overall parameters) and may also govern the daily scheduled service. Other

daily monitoring tasks will include monitoring and managing shift start up (all scheduled buses arrive for

service), AFC functions (managing faults and breakdowns), responding to and managing emergency,

accident or incident procedures, handling lost property and responding to complaints and service failures.

The Control Centre will have in place standard operating procedures to cover all areas such as:

Control procedures

Vehicle breakdown response

Emergency or accident response

Malfunctions and technical support for support systems

Safety and security protocols and response procedures

Reporting procedures

Quality inspection procedures

Inspection and audit of contract items

Disciplinary procedures

7.2.2 Contract Management Procedures

For contract management, the authority will have to develop a comprehensive and agreed set of procedures

and processes under which it will administer the control and management of the bus operator contract. It

could be named as Contract Management Procedures Manual (CPM). It would aim to provide explicit and

clear guidance to reduce the amount of ‘ad hoc’, and arbitrary decisions that need to be made with

individual operators and to build confidence in the regulatory process.

Monitoring for Gross Cost Contract for buses is done by TfL as follows:

The “Quality Incentive” contract payments are based on a monitoring regime that primarily

measures the reliability of the buses. The contract dedicates an entire detailed section to

reliability. It states for example at which location and what frequency monitoring will take place.

In addition, customer satisfaction surveys are carried out, measuring waiting time & riding,

driving standard, cleanliness, information at bus stops, etc.

Other monitoring mechanisms include: Mystery travellers, driving standards reporting, accident

& incident reporting and environmental reporting.

Operator league tables are published for reliability and excess wait time. Other quality indicators

are reported at network level only.

Presently, monitoring is undertaken manually with a hand held device. However, TfL is in the

process of introducing GPS in the future. This tracking system would have additional benefits,

such as passenger information.


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This manual would address control and monitoring issues not contained in the contract, and may be

changed and adapted as new situations arise. It would be valuable to consult operators in these changes, so

that there is a consensus on the fairness of such procedures.

The content of the manual could include:

Guidelines for ethical and ‘good’ practice

Responsibility of operators (items not detailed in the contract) rights and obligations

Penalties for not meeting obligations

Rights and obligations of the authority

Reporting obligations of both parties

Driver conduct and sanctions

Enforcement protocols and procedures

Right of reply and redress for penalties challenged by the operator

Management of incidents

Management of safety standards

Dispute resolution procedures

Updating procedures for CPM.

Exhibit 7-3 Enforcement in Amsterdam (NL): Direct award with competitive threat

The authority awarded a Net Cost Contract for the management of the urban public transport

network of Amsterdam directly to the municipal operator. The contract was awarded for the

period 2006-2011 in direct award with a threat of a competitive tendering procedure if the

existing municipal operator was not able to deliver a bid under market conformity. Monitoring

controls operation of the agreed number of timetable hours per route, punctuality, the number

of realised planned connections, occupancy rate, and passenger satisfaction. A bonus/penalty

system is also in place.

The authority awarded a net-cost contract for the management of the urban public transport network of Amsterdam

directly to the municipal operator. The contract was awarded for the period 2006-2011 in direct award with a threat

of a competitive tendering procedure if the existing municipal operator was not able to deliver a bid under market

conformity. Monitoring controls the operation of the agreed number of timetable hours per route, punctuality, the

number of realised planned connections, the occupancy rate and passenger satisfaction. A bonus/penalty system

is also in place.


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8. IN LIEU OF A CONCLUSION

The advent of the private operator in effecting delivery of city bus services in India for public transport is

very recent and it would not befit to conclude the guidance document with crystallised recommendations

or directions. The guidance document does, however, provide the user with necessary insight into the type

of the long-term contract that would suit a city best and appropriate the risks equitably, with an adequate

mechanism for monitoring delivery of service. International experiences in city bus operations offer a rich

and varied source of instructive lessons for India’s cities. Cities across the globe have had a variety of

starting options; while some began with a loosely regulated system (Santiago and Quito), some had already

formalised operations (operator franchises Curitiba) and some were specially designed to engage private

operators in public transport, replacing public bus systems (London and Adelaide). From such beginnings,

these cities have generally evolved on similar patterns of private and public involvement in city bus

services.

The global trend also presents a milieu of dominant informal, and unorganised private sector followed by

an increasing degree of public involvement and eventually culminating in a structured system of private

sector participation in well-defined concession contracts. Even in concession contracts, variations exist in

contractual parameters depending upon the context and environment in a specific city. For example,

contract durations have ranged from five years to fifteen years; the roles of authority and operators have

witnessed various variations. Adelaide showcased partnership approach, where the authority engaged with

operators before initiating the bid process. While the provision of bus depots has remained with the

authority in a majority of the cities, some cities have also explored private ownership of bus depots. Each

of the alternatives for the provision of bus services came with its own advantages and limitations as well,

but the underlining endeavour was to deliver bus services at the lowest cost and meet or surpass expected

quality level. One key lesson from these diverse set of experience is that in order to be able to assert control,

the authority needs to accept such risks which the operators cannot be expected to manage.

The model contracts are best appreciated along with perusal of the guidelines document which recommends

practices aimed at accelerating adoption of public-private partnership in city bus operations. These

documents have been prepared against the backdrop of state of the art review of the practice of public

transport delivery from city bus private operators. Practices of 10 Indian and 5 international cities were

studied and findings were discussed with different stakeholders including senior officials from government

departments, state agencies and municipal corporations from various states & union territories, bus

manufacturers, city bus operators and various urban transport consultants.

In Indian context, city bus private operations are yet in a nascent stage and will evolve and mature as both

authorities and operators gain experience. Individual cities themselves are at varied starting points of their

journeys towards full exploitation of private participation in city bus operations. While some cities are

dominated by informal private operators or even have informal private operators operating in tandem with

public operators, other cities have had experience in formalised private operators’ participation. As the

sector evolves, certain practices which may seem impracticable now would become viable options and

win-win strategies for both, the authority and private operator.

For example, a common perception in Indian experience is that inadequate planning before commencing

private city bus operations have resulted in complications that led to eventual failure of contracts. To avoid

this pitfall, the guidelines document has recommended that cities first assess the prevalent business

environment and then prepare the business model for bus operations before considering contracting out

bus operations. As cities adopt this practice, city bus operations would provide the operators and the

authorities a better understanding towards making services sustainable and customer friendly.


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Some other methods and models that could evolve in future, but haven’t been included as model contracts

at present are touched upon briefly in following paragraphs. These practices could be incorporated into the

existing model contracts by the authorities as and when cities mature in the delivery of urban bus transport

through private participation over long-term contracts; the adoption could be through discussion with

potential bidders, or with the help city-specific transaction advisor to be appointed separately.

1. Depot Sharing

The model contracts have been prepared assuming one operator shall be the sole user of one depot facilities

since the prevailing business environment and trust deficit between competing operators prevent sharing

of a common depot. Authorities, as well as private operators, have also expressed reservations about

sharing depots, and accordingly, sole depots have been recommended.

However, post experience of one or two model contracts, some cities, may find the option of sharing depots

feasible as the requirement for buses increases and additional land for depots becomes challenging. This

option of multiple operators working together has been successful in several cities (Adelaide, Curitiba) and

a partnership approach could reasonably be expected to evolve in Indian cities as well. Alternatively,

multiple operators could also share depots managed by third parties.

2. Depot provided by operator

Establishing bus depots involves acquisition of land, high capital investment and a depot has a lifespan

much longer than that of the rolling stock. Public authorities are generally better equipped for providing

depot facilities; they control planning permissions and often have available land or land resumption powers.

In this context, the model contracts provide for the ownership of bus depots to remain with the authority.

As PPP in this sector matures, operators in India may develop capacity and risk appetite to also provide

depots. Cities could then consider the option of depots being provided by operators; also that they are not

captive to an operator holding any strategic depot site.

Cities may then also consider leasing depots constructed by operators, with leasing periods long enough

for this model to become viable.

3. Step-In Rights

The provision of step-in rights for the authority to manage situations where an operator is unable to

continue service has not been recommended in the model contracts, assuming that authorities currently do

not have the capacity to run services on their own. However, cities may build capability for running services

on their own and may want to have the ability to step-in to maintain continuity if an operator fails to meet

standards partially or wholly.

Step-in rights for lenders could also be explored by the cities to facilitate financing options. The model

contracts have provided for provision of asset transfer value in case of termination, irrespective of whose

responsibility it is in event of default. However, cities may consider including the provision for the lenders

to step-in and provide a substitute operator.

4. Longer bus life

The service life of buses currently being utilised in India for city bus operations is generally around eight

years (around 750,000 kilometres) and is lower than in European systems that expect buses to perform

beyond ten years (at least 1,000,000 kilometres). In future, bus transport systems with performance similar

to or exceeding those of European systems could be introduced, making it possible to have necessitating

longer contract terms and stricter performance standards.

Further, with increased operational experience, cities may opt for optimised maintenance processes that

would result in increasing the service life of buses. Such changes could result in cities specifying higher


Page | 112

performance standards throughout the contract period. Another change is the possibility of extension of

contract terms as buses are still available for full service at the end of current proposed contract length of

eight years.

5. Fare collection by operators

The provision of fare collection by the operator is provided in NCC as it is assuming that the operator takes

the revenue risk. With developments in newer fare collection methods and technologies like contactless

smart fare collection, smartphone payment, etc., the operator doesn’t have to bear additional costs for

revenue collection and protection. In such situations, cities may explore fare collection by the operators

even if they are not assuming revenue risk. For example, in the London bus system, Oyster card is used

with card readers on-board the bus for revenue collection. The card readers are connected directly to the

central server, thus, there is no involvement of a conductor for revenue collection.

6. Technological Advances

The model contracts have an implicit assumption that buses will utilise fossil fuel. However, with rapid

technological advances, electric drivetrains could emerge as a mainstream technology. There is also

possibility of automated public transport system, on the likes of automated driving that is being pursued

actively in passenger car space. These developments could introduce significant changes in operating costs

and might drive modifications in the fare structuring, fare escalation formulae, and other operational

parameters.

The model contracts have considered probable changes in technology in the near future such as the

introduction of integrated fare, smart ticketing, etc. In line with this, roles and responsibilities of the

authority and the operator have been delineated. However, other practices which have not been foreseen at

present may also require suitable modifications in the contract.

City authorities are thus encouraged to create such fora where alternate practices / models get discussed

and evaluated for adoption based on city environment. City authority can also take help of Transaction

Advisors in developing and evaluating alternative options suitable for the city and customise relevant

clauses of the model contract accordingly.

It is important to note here that any major change carries a high implementation risk. It would be better to

opt for a process that is gradual and leaves room for correcting any error. This would require flexibility in

contracts in the event of changed circumstances or unanticipated outcomes. Each city must take stock of

the local situation, its strengths and weaknesses, threats and opportunities to assess its course of action and

methodology for modifying any contractual provisions in this evolving scenario.


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ANNEXURE I - DRAFT STRUCTURE OF MODEL CONTRACTS

COMMON ELEMENTS ACROSS FOUR MODEL CONTRACTS

Item

Scope of the project

Provide bus services under an area or a route contract, as specified by authority

[Procure a lot of buses as per specifications defined in the contract]43

Provide a driver for each bus, as per the bus procurement schedule

Operate and maintain the bus services according to the performance and quality standards specified

Maintain bus depot (for bus maintenance and repair)

Supply and maintain adequate consumables as required for regular upkeep of fleet

Establish a control room to respond to any vehicle breakdown or accident

Maintain a detailed daily log of the performance of each bus

Redress customer complaints and issues, in accordance with the provisions of the contract

Maintain LED display system on buses

Procure clearances for the operations of the project, as required

Ensure assured fleet availability as per the fleet deployment plan

Submit to authority, monthly reports in formats as provided in the contract

Information list to be

prepared by the authority/

Preparatory work to be

done by the authority

Comprehensive mobility plan for the area/township: current scenario of urban transport, expected growth in traffic,

recommendations

Technical specifications of buses

Performance and quality standards for the services to be provided

Design of the route system where applicable, or the demarcation of major areas for area contracts

Format of roadworthiness and fitness certificates (certificates attesting to the operable condition of the buses) to be

submitted, quality and performance standard checks on buses

Formats of documents to be submitted at the end of each month

Conditions precedent

Private operator

Sign the contract within specified number of days after acceptance of letter of award

Execute depot license agreement

43 Delete: If procurement of buses is done by the authority


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Item

Execute the tripartite escrow agreement with authority and bank

Furnish performance security

Facilitate in procuring water supply and electricity connection

Procure all operator clearances that may be required for the project

Appoint duly licensed and trained drivers, and other staff members as required

Provide and install any necessary movable infrastructure such as equipment and machinery in bus depot. Such

equipment and machinery generally having life span equivalent to the project duration and/ or where the cost of each

such consumable, equipment and/ or machinery is less than Rs. ---- Lakhs

[Install ITS and other tracking system in lot of buses handed over by the authority]44

Authority

[Handover a lot of buses to the private operator]45

[Ensure activities related to road worthiness such as registration of buses, bus permit, payment of taxes etc., are

completed before handover of buses to the operator]46

Handover depot for parking, maintenance, and regular upkeep of the buses

Execute depot license agreement

Execute the tripartite escrow agreement with operator and bank

Roles and responsibilities

of the private operator

Furnish performance security to the authority

[Procure lot of buses as per specifications defined in the contract]47

[Procure bus license from RTO, registration of buses, payment of taxes etc.]48

Operate and maintain buses and depot facilities at its own cost

Ensure the LED system (on buses) is in working condition

Allow access to buses to all members of public

Ensure that buses pick and drop at designated stops

44 If buses are handed over by authority

45 If procurement of buses is done by authority

46 If procurement of buses is done by authority

47 If procurement of buses is done by the private operator

48 If buses procured by operator


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Item

Make arrangement at its own cost to tow-away dysfunctional buses without causing disruption of traffic and provide

stand-by buses to ferry stranded passengers within a period of 2 hours

Maintain a control room to monitor movement of buses and respond in an event of emergency

Provide adequate number of drivers and helpers

Provide training to drivers and technicians on regular basis

Maintain cleanliness on buses

Maintain adequate level of inventory for repair and maintenance of buses

With prior approval of authority, construct and maintain temporary structures within depot premise

Allow authority to undertake inspections as and when it deems fit

Procure, install and monitor communication devices on the buses to allow authority to monitor the bus operation, as

well as any other devices deemed necessary for the smooth operation of the system

Shall not tamper with such communication system/ITS and/or cameras installed

Comply with all Laws

Be liable for claims made and compensation awarded by Court of Law

Ensure safety of buses and depots against theft and vandalism

May collect revenue from advertisements inside and outside the buses and bus depot

Pay penalties as imposed by authority

Be joint holder of the escrow account along with the authority and bank

Arrange the capital funds and financing for the day-to-day operation of the bus services

Address consumer complaints forwarded by authority

Designate and appoint suitable officers to run the day-to-day activities of the transport system

Maintain harmony and good industrial relations with the authority

Pay the Employees State Insurance Corporation and Provident Fund contributions for the employees of the private

enterprise

Maintain the confidentiality of the contract

Bear the cost of premium, for each of the buses in the fleet, but the premium payment will be given to the authority

The operator shall have obligations to assist in and abide by directions/queries by statutory government bodies such as

traffic police, CVC, CAG etc. with regard to the project


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Item


of the authority

[Procure buses and handover to the private operator to carry out operations as per bus procurement schedule]49

[Procure bus license from RTO, registration of buses, payment of taxes etc.]50

[Arrange for a comprehensive insurance policy, in the capacity of co-insurer along with the operator, for each of the

buses in the fleet. The authority will use the proceeds received from operator to take insurance]51

Issue fitness certificate on buses procured by the private operator, to carry out operations

Handover and permit the operator to make use of the project facilities to carry out its roles and responsibilities,

The bus depot or any other site identified for parking should have adequate parking facilities for buses

Grant all approvals, permissions, and authorisations, to be accorded by the authority on its own without consulting

the third party, that the private operator requires to complete the services satisfactorily

Regulate and oversee the management, planning, and control activities of the authority with respect to the routes

Appoint project officer and/or independent engineer to monitor functioning of the operator, maintain record of

consumer complaints and forward to private operator, and maintain records

Conduct regular inspections of buses, from time to time

Levy penalties on private operator on account of non-performance

Monitoring mechanism

Private operator

Maintain project facilities in an orderly manner as per minimum service standards

Report any breach in service quality to the authority with explanation

Authority

In the event of breach of minimum service quality standards, notify the private operator, who shall be liable to pay

penalty

In the event of the same breach in service quality of a serious nature (such as safety) occurring more than three times,

declare an event of default

Safety provisions The private operator should prudently follow, nationally accepted safety practices generally and reasonably expected of a

skilled and experienced private operator.

Performance standards • Utilisation of rolling stock

49 If buses procured by authority




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Item

o Fleet utilisation: No. of buses deployed for operation in time *100 / no. of buses in fleet (92-96%)

o Roadworthiness Fleet: No. of roadworthy buses*100/No. of buses in fleet (92-96%)

• Regularity of service

o Trip efficiency: number of trips/number of trips scheduled (>98%)

o Kilometre efficiency: number of kilometres operated/number of kilometres scheduled (>98%)

Punctuality of operations: number of trips on time/total number of trips (>98%); No. of trips on time at destination /

Total no. of trips(>98%) operated

Reliability of buses (per 10,000 km):1/ (number of breakdowns× 10,000/total kilometres operated) (>95%)

Safety of operations (per 100,000 km): 1/ (number of accidents× 10,000/total kilometres operated) (>99%)

Cleanliness of buses (per 1,000 trips): 1/ (number of buses reported dirty× 1,000/total number of trips operated) (>95%)

User satisfaction (per 1,000 trips): 1/ (number of complaints × 1,000/ total number of trips operated) (>98%)

Deficiencies or defaults in service: total penalties levied × 1,000/total trips operated (XXX)

Defaults and deficiencies

Bus-related defaults and deficiencies

o Damage to bus components like tyres, seats, rails, saloon lights, indicator lights, wiper system, wiper blades,

holds

o Damaged headlight/ front/ back brake light/ side marker light

o Unclean bus

o Loosely hanging bumpers

o Modification of colour /design paintwork

o Defective/damaged wheelchair ramp (if any)

o Missing/loosely hanging seatbelts

o Damages floor/step/hatches or hatch covers.

o Visible dents that are more than 5 mm in depth and 200 sq. Mm in area.

o Damaged, broken, loosely fitted, incomplete or missing passenger seats

o Defective operation of entry /exit doors, emergency exit doors/ hammer for breaking the glass

o Defective and or inoperative PIS partly or fully

o Installation of any type of decoration or non-functional items inside or outside the vehicle, not originally

installed in bus.

o Application of opaque films / paints etc. on side, front or back windows / glasses

o Excessive emission of visible smoke / abnormal noise of high intensity


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Item

o Non availability of specified fire extinguishers, lack of charge of same, expiry date due or no specification of

expiry date

Bus driver–related defaults and deficiencies

o Reckless driving

o Improper uniform

o Running of red lights and signals

o Failure to carry on-board personal identification and / or vehicle registration book / any other vehicle identity

o Failure to carry first aid kit

o Refusal to provide information to authorised staff / passengers

o Park bus dangerously / at away from earmarked space in depot

o Disobedience to lawful instructions / orders of designated authorities

o Drunk while on-duty

o Irresponsible behaviour causing an accident

o Invasion of zebra crossings

o Carrying companions in driver work area

o Bus running out of fuel

o Delayed reporting of bus breakdowns / incidents en-route (reaction time < 30 minutes)

o Verbal or physical misbehaviour with passenger

o Failure to follow or acknowledge instructions of authorised staff

o Non submission of defect / route incidents reports etc. on completion of work shift but before leaving depot

premises

o Not carrying complaint book and or not presenting complaint book to passengers when demanded

Bus operator–related defaults and deficiencies

o Not following/ changing route

o Operating un-authorised hours or services/ routes.

o Parking in places other than those established by authority

o Not stopping at earmarked station en-route as scheduled

o Stopping at a station and/or place not earmarked for route service and or in a manner to cause obstruction to

other traffic.

o Picking or setting down passengers at points other than the scheduled bus stops.


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Item

o Delaying operation without cause

o Abandoning and/or alighting from vehicle without cause and or without informing Authority

o Stopping on / ahead of Zebra Crossing

o Not submitting roadworthiness certificate

o Not permitting transport authorities access to project facilities

o Damage to fixed infrastructure like roads and bus stops

Management information System (MIS) and ITS related infractions

o Delayed / incomplete / erroneous submission / non-submission of any / all of the prescribed MIS reports

o Applicable operations related reports e.g. vehicle productivity data - vehicle wise, route and trip wise; Data about

incidents / accidents / fatalities en-route along with cause-wise details

o Revenue data, way bill data, pox boarding- alighting details; concessional travel data, cost details

o Ticketing machines quantum in use, functioning, / serviceable / under repair and maintenance data

o PIS systems – serviceable / under break down repairs

o ITS equipment on–board and their serviceability status – daily bus wise and consolidated

o Bus fleet maintenance related data as per details and formats prescribed by the authority from time to time - a few

requirements are Fuel, oil and lubricants consumption data, Break down related data, Accidents related data ,Pollution

under control certification details, Noise checking data related to average life of aggregates

Any other violation of rules prescribed by the authority

Events of default – private

operator

Non-compliance with performance standards

Non-adherence with safety norms

Using the project facilities other than the permitted activities

Refusal of ply buses as per fleet deployment plan

Generating revenue from the project facilities, other than payment by the authority

Material breach of contract

Insolvency of the private operator

Non-replenishment of performance security

Failure to pay utility bills


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Item

[Delay by more than 30 days in procurement of lot of buses]52

Events of default –

authority

• Non-transfer of project facilities required for maintenance and parking of buses to the operator despite satisfactory

completion of all conditions precedent

• [Delay in procurement of lot of buses]53

Consequences of default

• In the event of default, either party will issue notice to the other party and indicate a suitable time period, but not less

than 15 days, to cure the defect.

• Failure to Cure the defect may lead to termination of the contract

In case of private operator default

• The performance security will be encashed

• The authority will also make good from the private operator any costs, expenses, or losses it may have incurred because

of breach or failure on the part of the private operator

• Clear all dues pending to the private operator

In case of authority default

• The authority will release the performance security

Qualification criterion

Technical criterion

• Experience of operating Buses,

• Experience of operating Trucks, and/or

• Experience of operating Taxis

An experience weight may be granted on each of the categories, as shown in the exhibit below:

Experience weights


Buses 1.00

Trucks 0.40

Taxis 0.80

Higher weightage is granted to buses (both contract and stage carriage) then weightage to trucks and buses.

Suitable conversion shall be made based on size of the vehicle in terms of the details set out in exhibit below:

52 If procured by operator

53 If procured by authority


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Item

PCU Factor54

Type PCU Factor

Bus 3.00

Mini/Midi Bus 1.50

RTV 1.50

Taxi 1.00

Truck 3.00

Experience Score for a given category = Number of vehicles x Experience Weight x PCU Factor x Number of months of

operations in the last five years/12= XX PCU Years

Score for each category shall be added to arrive at the Total Experience Score. If the Total Experience Score is more than the

minimum Experience Score only then the bid shall meet the technical criterion.

Financial criteria

• Minimum Net Worth of [insert in rupees (in words)]55 at the close of the preceding financial year

• Minimum Average Annual Turnover equivalent to [insert in rupees (in words)]56 in the immediately preceding last 3-

5 years

Handover of assets

On termination of the contract, the private operator will hand over to the authority the project facilities which were

handed over to it, in good working condition, subject to wear and tear.

[Handover buses to authority at the end of the concession contract, in good working condition]57

Three months prior to the end of the contract, joint inspection by authority and Operator shall be undertaken and any

defects should be rectified

54 RFQP for cluster no. 2, 3, 4, and 5: Operation of Private Stage Carriage Services

55 This amount should be 15% (fifteen per cent) of the Estimated Project Cost of the project for which bids are being invited

56 This amount may be equivalent to 25% of the Estimated Project Cost

57 If buses were procured by the authority


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MODEL CONTRACT I – GROSS COST CONTRACT SPECIFIC ELEMENTS

Item Model I – GCC

Roles and

responsibilities of the

private operator

Provide additional bus trips, as mutually agreed, on occasions, after getting written instructions from the authority

Timely submit invoice to authority as per prescribed format on monthly basis

Roles and

responsibilities of the

authority

Collect all revenues (from fares and passes) accruing from the project and deposit them in an escrow account

Timely make payment of O&M fee to the private operator

In writing, ask the operator to provide additional buses

Provide conductors in each bus to collect ticket fare

If the operator is not able to complete the route due to some en-route incident such as demonstrations, then it will

not be considered as a default on operator’s part

Terms of payment Receive the payment (per km) with tax deducted at source and any other taxes that are applicable from the authority

Private operator shall provide a detailed breakdown of the amount payable per km.

The payment will be subject to review depending upon the provisions in the contract.

Detailed breakdown of

payment terms

A detailed breakdown of the amount payable per km must be provided in terms of the following:

Staff labour costs per kilometre

Fuel, oil, and lubricant costs per kilometre

Tyre costs per kilometre

Repair and maintenance costs per kilometre

Depreciation and interest amount per kilometre

Taxes, fees, and insurance per kilometre

Other amount per kilometre (including equity rate of return for the operator)


authority

• More than a month’s delay in depositing the payment due to the private operator

Consequences of

default

In Case of Authority Default

Clear all dues pending to the private operator


Page | 123

Item Model I – GCC

Bidding parameter The fixed fee of Rs XXX per kilometre, to be paid by the authority. The private operator quoting the lowest fee will be

selected as the successful bidder


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MODEL CONTRACT II – HYBRID GROSS COST CONTRACT SPECIFIC ELEMENTS

Item Model II – Hybrid GCC


of the private operator

Provide additional bus trips, as mutually agreed, on occasions, after getting written instructions from the authority

Timely submit invoice to authority as per prescribed format on monthly basis


of the authority

Collect all revenues (from fares and passes) accruing from the project and deposit them in an escrow account

Timely make payment of O&M fee to the private operator

In writing, ask the operator to provide additional buses

Provide conductors in each bus to collect ticket fare

If the operator is not able to complete the route due to some en-route incident such as demonstrations, then it will not be

considered as a default on operator’s part

Terms of payment

Receive the payment (per km and bonus payment based on ridership growth) with tax deducted at source and any other

taxes that are applicable from the authority

Private operator shall provide a detailed breakdown of the amount payable per km.

The payment will be subject to review depending upon the provisions in the contract.

Detailed breakdown of

payment terms

A detailed breakdown of the amount payable per km must be provided in terms of the following:

Staff labour costs per kilometre

Fuel, oil, and lubricant costs per kilometre

Tyre costs per kilometre

Repair and maintenance costs per kilometre

Depreciation and interest amount per kilometre

Taxes, fees, and insurance per kilometre

Other amount per kilometre (including equity rate of return for the operator)


authority

• More than a month’s delay in depositing the payment due to the private operator

Consequences of default

In Case of Authority Default

Clear all dues pending to the private operator


Page | 125

Item Model II – Hybrid GCC

Bidding parameter The fixed fee of Rs XXX per kilometre, to be paid by the authority. The private operator quoting the lowest fee will be selected

as the successful bidder


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MODEL CONTRACT III – NET COST CONTRACT SPECIFIC ELEMENTS

Item Model III – NCC

Scope of the project Collect fare-box revenue from passengers travelled

Roles and

responsibilities of

the private operator

Collection of fare box revenue

Roles and

responsibilities of

the authority

If the operator is asked to change route by a competent authority due to some en-route incident such as

demonstrations, then the operator will be compensated by the authority for that route.

Monitoring

mechanism

Private operator

Share MIS reports and any other data generated through ITS with authority

Terms of payment Private operator shall retain fare box revenue

Timely payment of route authorisation fee to the authority


private operator

More than a month’s delay in depositing the payment due to the authority

Bidding parameter The System Management Fee payable to the authority or receive grant from authority. The private operator quoting the

highest fee/lowest grant will be selected as the successful bidder.


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MODEL CONTRACT IV – HYBRID NET COST CONTRACT SPECIFIC ELEMENTS

Item Model IV –Hybrid NCC

Scope of the project Collect fare-box revenue from passengers travelled on all routes. In addition, on select routes, receive per Km O&M Fee. (The

O&M will be fixed by the authority)

Information list to

be prepared by the

authority/

Preparatory work to

be done by the

authority

Prepare a list of routes, and separately mention the routes on which bonus payment is applicable.

Roles and

responsibilities of

the private operator

Collect fare box revenue on all routes, and per Km O&M fee on Class II routes.

Roles and

responsibilities of

the authority

For Class II routes, pay the operator per km O&M fee

If the operator is asked to change route by a competent authority due to some en-route incident such as demonstrations, then

the operator will be compensated by the authority for that route.

Monitoring

mechanism

Private operator

Share MIS reports and any other data generated through ITS with authority

Terms of payment Private operator shall retain fare box revenue from all routes, and receive per km O&M fee on selected routes

Timely payment of System Management Fee to the authority or grant to the operator


private operator

More than a month’s delay in depositing the payment due to the authority

Bidding parameter The System Management Fee payable to the authority or receive grant from authority. The private operator quoting the highest

fee/lowest grant will be selected as the successful bidder.


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ANNEXURE II – GUIDANCE NOTE ON USE OF MODEL CONTRACT

Introduction

The model contract is a template contract for use in public procurement for city bus operations. The purpose

of this annexure is to serve as a link between the guidelines document and model contracts. It describes the

process to be followed by city managers to customise the model contract to city-specific contract. This

annexure assumes that city managers are familiar with the procurement process.

As detailed out in this guidelines document, the process starts with assessing the business environment. In

this stage, the external environment for providing public transport including profile of the city, competition,

review of planning transport system and planning documents, and review of policy, regulatory, and

institutional framework. The assessment of business environment has been discussed in detail in Chapter

2 of this guidelines document.

After assessing the business environment in the city, the next step is to plan the business model. This

involves network and service planning, setting service standards, planning infrastructure requirement,

revenue collection, monitoring and control, dispute resolution, and marketing and branding for the project.

The assessment of business environment has been discussed in detail in Chapter 3.

Now comes the stage to determine which Contract suits the city. Deciding the ‘right’ Contract is one of the

most critical aspects. Various types of contract types have been discussed in Chapter 4. On the basis of a

scoring-based decision framework provided in the chapter, the Contracting Authority shall select a contract

type suitable for the city.

Once the contract type is selected, contract parameters need to be finalised. These contract parameters

include procurement of fleet, contract duration, etc. The guidelines for selection of contract parameters

have been discussed in detail in Chapter 5. After selecting the contract parameters, the city managers need

to customise the model contract document to a city-specific contract. The exhibit below represents this

process.

Contract Timeline

In order to provide a broad overview of activities from issuance of Letter of Award to the operator to return

of the Performance Security after expiry of the Contract, the major milestones dates or stages or periods in

the Project have been represented on a timeline. The exhibit below provides this Project timeline.

Finalisation of contract document

Selection of contract

parameters

Choosing the right contract

Planning the business

model

Assess the business

environment


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Contract Description

The contract is divided into six parts namely Preliminary, Operations, Financial Covenants, Force Majeure

and Termination, Other Provisions, and Schedules. The parts are further subdivided into 33 Articles and

18 Schedules. This note provides the purpose of each Article, brief description of various clauses in each

Article and changes to be made by the authority to make it specific to their city. However, cities should

use their judgment while making specific changes in the model contract document.

Recitals

The Recitals contains variable elements including:

▪ The date of Contract;

▪ Details of the Contract parties;

▪ Area of jurisdiction of the authority

▪ Description of tender documents;

▪ Performance Security

Date

The date of execution of the Contract should be inserted here.

Parties

The parties to the Contract must be accurately set out here. The full legal name of both the Contracting

Authority and the Private operator should be inserted here.

Area of Jurisdiction of the authority

The area of the jurisdiction in terms of city and state should be inserted here.

Description of tender documents

The description of tender documents particularly the Request for Proposal and Submission should be

clearly identified by title, date and any reference number.

Performance Security

The Performance Security amount and details of the bank guarantee should be inserted here.


Page | 130

Exhibit II-1 Coverage of Model Contract

Preliminary

Article 1 Definitions & Interpretations

Article 2 Performance Security

Article 3 Scope of Work

Article 4 Grant of Contract

Article 5 Conditions Precedent

Article 6 Obligations of the operator

Article 7 Obligations of the authority

Article 8 Representations and Warranties

Article 9 Disclaimer

Operations

Article 10 Buses

Article 11 Bus Depot

Article 12 Entry of Respective Lot of Buses into Commercial Service

Article 13 Operations

Article 14 Maintenance

Article 15 Monitoring of Operation and Maintenance

Financial Covenants

Article 16 Payment to the operator

Article 17 Escrow Account

Article 18 Insurance

Article 19 Accounts and Audit

Force Majeure and Termination

Article 20 Force Majeure

Article 21 Change of Scope


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Article 22 Termination

Article 23 Divestment/Handback on Termination

Article 24 Defect Liability after Termination/Expiry

Other Provisions

Article 25 Assignment and Charges

Article 26 Change in Law

Article 27 Liability and Indemnity

Article 28 Rights and Title over the Project Facility

Article 29 Dispute Resolution

Article 30 Disclosure

Article 31 Redressal of Public Grievances

Article 32 Miscellaneous

Article 33 Definitions

1. Definitions & Interpretations

a. Intent

This article specifies what constitutes defined terms and the general principles that will apply

while interpreting this Contract.

b. Brief Description

Words and expressions beginning with capital letters and listed in Article 33 constitute defined

terms. This article also describes the principles which shall be used while interpreting the

Contract and how any ambiguities and discrepancies in the Contract shall be dealt with.

c. Changes to be made

This article shall not need any changes.

2. Performance Security

a. Intent

The Performance Security is provided to mitigate the risk of the operator failing to perform its

obligation under the Contract. This article specifies the details of Performance Security

including amount, duration of the security, and the conditions under which it shall be

appropriated and released.



Page | 132

Performance Security has to be maintained by the operator, valid and in full force and effect

at all times during the Contract Period to guarantee the performance of its obligations as per

the Contract. The Performance Security guarantee shall be furnished by the operator to the

authority in the format specified in Schedule IV at least 3 days before the signing of the

Contract.

This Article also covers the details on the conditions under which Performance Security may

be appropriated. The amount of the performance security is calculated as 5% to 10% of the

estimated project cost which includes the capital cost as per General Financial Rules 2005 Rule

158 issued by Ministry of Finance, Government of India. In a situation in which buses are

procured by authority the Performance Security amount shall be higher in comparison to a

situation in which buses are procured by operator.


The amount of the Performance Security as per Schedule IV – Performance Security.

3. Scope of Work

a. Intent

The Operator’s primary responsibility is to provide bus services. However, this shall require

the operator to also perform activities which support this endeavour and this Article specifies

the work that the operator agrees to undertake in this Contract.


The Scope of Work of the operator shall mean and include the activities outlined in this Article

and Schedule I.

The authority shall prepare Schedule VIII – Fleet Procurement Schedule and Schedule IX –

Fleet Deployment Plan before this Article can be customised.

The Fleet Procurement Schedule provides the number of Buses and dates on which the

respective Lot of Bus will be procured and put into service. These dates have been linked with

the Effective Date (fulfilment of Conditions Precedent).

The Fleet Deployment Plan shall be prepared as per the format given in Schedule IX using the

methodology described in Section 3.4 in the guidelines document. The Fleet Deployment Plan

provides a detailed route-wise plan including the number of buses per route, and the frequency

and headway time periods.


If procurement of buses is done by the authority then sub-clause (c) to be deleted from

Schedule I – Scope of Project.

4. Grant of Contract

a. Intent

This Article specifies the provisions under which this Contract shall be awarded. The start and

end date of the Contract (Contract Period) and the start and end date of commercial operation

(Operation Period) has also be defined.


The details on what the operator is consenting to fulfil under this Contract and details on the

Contract Period including when the Contract shall come into effect are covered in this Article.


Page | 133


The length of Operation Period shall be added following the guidance provided in Section 5.5

in the guidelines document.

5. Conditions Precedent

a. Intent

This Article specifies the conditions that both Authority and Operator need to fulfil before the

Contract becomes effective. Such conditions are collectively termed as “Conditions

Precedent”.


A list of conditions along with the time period has been mentioned in the Article. Some major

ones are described as below:

i. Depot License Agreement – this agreement guides both the parties on how the depot

facility has to be used throughout the Contract Period. The Depot License Agreement

has been provided in Schedule V. The authority shall also determine the annual rental

amount the operator shall pay to the authority. This rental amount shall be a nominal

amount such that it does not create undue financial burden on the operator.

ii. Further, in Schedule VI, a list of equipment to be installed, operated and maintained

either by authority or Operator at the bus depot has been provided. Most common and

important equipment has been listed in the Schedule, though, the authority may modify

this list as per its needs.

iii. Authority and Operator shall sign an agreement with the Escrow Bank. The format of

the agreement is provided in Schedule XII. All cash inflows and outflows pertaining

to the project are to be carried through this Account.

The number of days within which these conditions need to be fulfilled is recommended to

be between 45 and 60 days. The selected bidder needs to incorporate an SPV before the

signing the contract so this time period needs to be given to the successful bidder. The

damages payable for delay or non-fulfilment of conditions precedent is also provided in

this Article.


i. The number of days from the Execution date within which the conditions need to be

fulfilled.

ii. The number of days between progress reports on fulfilment of conditions precedent.

iii. The damages payable per bus for each day’s delay in fulfilment of conditions

precedent.

6. Obligations of the operator

a. Intent

This Article details out the obligations that the operator has to fulfil as part of this Contract

throughout the Contract Period.


The Article is divided into multiple parts. The first part discusses the obligations related to the

operator’s Scope of Work, then those related to the all the Agreements under and including


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this Contract, and the remaining parts cover obligations relating to change in ownership

structure of the operator, and employment of staff.

The major obligations of the operator are:

i. Operation and Maintenance (O&M): This clause describes the O&M obligations of

the operator specifically pertaining to buses, bus depot, annual maintenance contract,

compliance with warranty terms, record and reporting requirement, repair and

replacement, inspection, and co-operating with the authority or a Third Party

appointed by the authority and allow it to discharge its respective obligations

ii. Project agreement: The clause details the obligations pertaining to all other

agreements as part of the Contract

iii. Change in Ownership: This clause describes Operator’s obligations pertaining to

Change of Ownership of the operator during the Contract Period

iv. Employment of staff: This clause describes the obligations pertaining to appointing

drivers and other staff by the operator. It also includes the minimum qualification of

staff. The minimum experience for drivers is considered 3 years as that gives the

drivers sufficient experience to operate the buses in a safe and efficient manner while

adhering to a schedule.


i. Clause 6.1.1 (a), (b), (z), (aa) requires change depending on whether the operator or

the authority is procuring buses.

ii. The duration each bus halts to pick up and allow passenger(s) to get off/board the bus

at the nominated Bus Stops. The duration called dwell time is recommended to be 20

seconds. Dwell time is proportional to the boarding and/or alighting volumes and the

amount of time required to serve each passenger. 20 seconds assumes 2 door channels,

9 passengers at the busiest door in each bus, 2 second passenger service time and 2

second for door opening and closing. The times are as per Transit Capacity and Quality

of Service Manual 2nd Edition.

iii. Clause 6.1.1 (n) requires change depending on whether the authority is sharing

advertisement revenue with the operator.

iv. Clause 6.1.5 (d), (e) requires change depending on whether the operator or the

authority is procuring buses.

v. The stipulated time period for notifying defects in any bus component or equipment.

The recommended time is 1 day.

vi. Clause 6.1.6 (a), (b) requires change depending on whether the operator or the

authority is procuring buses.

7. Obligations of the authority

a. Intent

Though the operator has to undertake the project, but there are many obligations that the

authority has to undertake for effective implementation of the Project. This Article specifies

the obligations of the authority with regard to this Contract.



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The obligations in addition to the terms and conditions of this contract and rights of the

authority is detailed out here. The major obligations of the authority are

i. The authority shall construct, equip, operate and maintain the Control Centre at the

Bus Depot. The Control Centre is equipped with ITS to monitor the performance of

the operator. On the basis of data analysis of the data generated by the ITS, the

authority will impose penalty on Operator and make performance payment.

ii. Regulate and oversee the management, planning and control activities with respect to

the network and service plans.


i. Clause 7.1.1, 7.1.2, 7.1.17, 7.1.19 needs to be changed depending on whether the

operator or the authority is procuring buses.

ii. In Clause 7.1.17, name of the city has to be added.

8. Representations and Warranties

a. Intent

A warranty is a representation by one party in respect of certain facts. Breach of a warranty

gives rise to a right to recover damages but does not entitle the injured party to repudiate the

Contract. This article specifies the assurances that one party gives to another party.


The assurances provided by the operator to the authority and those by the authority to the

operator is given here. The major representations from both parties are

i. It has full power and authority to execute and perform its obligations under this

Contract

ii. It has the financial standing and capacity to undertake the Project

iii. It has no prior actions, suits, or proceedings pending whose outcome may result in the

default or breach of this Contract


i. The name of the city and the State to be added in Clause 8.1 (e).

ii. If the operator is not a consortium, make changes in Clause 8.1 (g), (k), (q),

iii. If the operator is a consortium, then names of all Consortium Members be mentioned

in Clause 8.1 (l), (m), (q).

9. Disclaimer

a. Intent

This article specifies the statements which are intended to limit the liabilities of the authority.


The major statements which limit the liabilities of the authority are

i. The Operator acknowledges that it has made a complete and careful examination of

the risk and hazards that are likely to arise in the course of performance of its

obligations and shall have no claim against the authority in this regard,


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ii. All risks relating to the Contract shall be borne by the operator unless otherwise

provided in the Contract.


This article shall not need any change.

10. Buses

a. Intent

This article specifies the details for buses to be used under the Contract. This includes

standards and specifications of the buses, who will make investment in the buses, how

procurement or handover will occur, damages for delay in either procurement or handover,

what is required for readiness for the commencement of bus services, and, damages due to an

accident.


The major details of the buses included here are

i. The Buses of pre-defined standards and specifications shall be put into Bus Service.

The detailed standards and specifications have been specified in Schedule VII.

Schedule VII – Bus Specifications shall be prepared before this article can be

customised. The Bus Specifications shall follow from Ministry of Urban Development

Urban Bus Specifications.

ii. The owner of Buses shall achieve Readiness for Commencement of Bus Service. The

Readiness for Commencement of Bus Service means the activities that need to be

undertaken to ensure Buses are roadworthy. These activities include joint inspection

of Buses, procuring certification of registration, fitness, insurance, etc.


i. In Clause 10.2 replace the word “Operator” with the word “Authority” if bus is being

procured by the authority.

ii. Clauses 10.3 and 10.5 are applicable only if procurement of Bus is being done by the

operator. Otherwise replace it with words “Intentionally left blank”

iii. Clause 10.4 and 10.6 are applicable only if procurement of Bus is being done by the

authority. Otherwise replace it with words “Intentionally left blank”

iv. If Clause 10.5 is applicable the amount of damages payable for each day of delay in

procurement of buses. This is recommended to be around Rs. 1000 per day of delay

for each Bus.

v. If Clause 10.6 is applicable the amount of damages payable for each day of delay in

hand over of buses. This is recommended to be around Rs 1000 per day of delay for

each Bus.

vi. In Clause 10.7, delete sub clauses identified in the footnote if procurement is done by

the authority.

vii. In Clause 10.7.6, the amount of damages payable for each day of delay in attaining

Readiness for the Commencement of Bus Service. This is recommended to be around

Rs. 1000 per day of delay for each Bus.

viii. In Clause 10.8.3, delete part of the clause if Bus is being procured by the operator.


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11. Bus Depot

a. Intent

The intent of this Article is to detail the usage of the Bus Depot throughout the Contract Period.

It details about the ownership, how handover is to occur, what equipment and facilities are to

be made available, etc.


The major details of the Bus Depot provided here are:

i. Details of the hand over process

ii. Equipment and facilities to be made available by the authority at Bus Depot and those

to be arranged by the operator.

iii. Obligations of the operator for security and safety at the Bus Depot

iv. Details on hand back process including what equipment the operator is allowed to take

away


The number of days within which Authority shall address any deficiencies in equipment and

facilities at the Bus Depot.

12. Entry of Respective Lot of Buses into Commercial Service

a. Intent

Before buses can enter into commercial service, several actions need to be taken by both the

operator and the authority. These actions which ensure roadworthiness of the bus include

inspecting buses, obtaining insurances, etc.

This article specifies the actions required by both parties before buses can come into

commercial operation. Furthermore, the damages payable in case of delay from either party is

also specified.


The major actions to be fulfilled are:

i. Activities that ensure roadworthiness of buses is completed

ii. Obtain and maintain all Applicable Permits in accordance with the Applicable Law

and as specified in Schedule III. Applicable Permits are necessary to initiate the

project. They should be procured by the operator in accordance with Schedule III.

iii. Ensure that all requisite insurances under Applicable Law in accordance with Article

18 has been procured.


i. In Clause 12.1.1, delete sub-clause as applicable if procurement is by the operator

ii. In Clause 12.1.2 a, delete sub-clause if procurement is by the authority.

iii. In Clause 12.2.1, the extension allowed for obtaining COD and damages payable for

each day of delay.

13. Operations

a. Intent


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For providing bus service, the responsibility for various aspects such as fare determination,

fare collection, route setting etc. should be clear. This article details these various aspects of

operations of the bus services.


The various aspects covered are

i. Obligations and Responsibilities of the operator while operating the buses

ii. Responsibility allocation in determining routes, frequency and schedules and in the

Fleet Deployment Plan

iii. Responsibility allocation for passenger fare determination and passenger fare

collection

iv. Procedures to be followed in the event of incident en-route

v. Permissible advertisement and the revenue sharing arrangement. There is no

straightforward answer to whether Authority shall contract advertising through an

outside agency. However, experience has demonstrated that most Authorities engage

an outside agency as they receive a guaranteed minimum or anywhere from 50 to 60

percent of ad sale revenue, without having to get into another line of work.

vi. Details on the training provided to staff employed by the operator including content,

duration and location of training


Clause 13.11 is applicable only if advertisement revenue is shared with the operator.

14. Maintenance

a. Intent

For reliable bus operations, the buses as well bus depot have to be regularly maintained. This

Article specifies the responsibilities of both parties for maintenance of buses and bus depot.


The various aspects covered are:

i. Activities which are respective responsibility of the operator and the authority as part

of the maintenance of buses

ii. Activities to be undertaken by the operator for maintenance of bus depots

iii. O&M schedule that the operator has to follow

iv. Damages payable for breach of maintenance obligations

v. Process of reimbursement in case of damages due to vandalism



15. Monitoring of Operation and Maintenance

a. Intent

The Operator has to maintain a minimum performance standard in the delivery of bus

operations. This Article specifies the details on how monitoring of operation and maintenance

is to take place.


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i. Real-time data (captured through ITS) and monthly status reports to be submitted by

the operator to the authority

ii. Circumstances that warrant submission of reports of unusual occurrence

iii. Parameters considered for inspection and evaluation of performance of the operator

iv. Remedial measures for any deficiencies found



16. Payment to the operator

a. Intent

This Article specifies the payment to be made to the operator as per this Contract.


The various aspects covered for Gross Cost and Gross Cost Hybrid Contract are:

i. O&M Fee payable to the operator including what constitutes bus kilometres, basis for

payment, schedule for payment and formula for revision of O&M Fee

ii. Formula for service quality evaluation and schedule for the same

iii. Penalty payable for delay in payment of O&M Fee

iv. Conditions under which penalties are levied on the operator

The various aspects covered for Net Cost Contract are

i. Details on the System Management Fee that the operator shall pay or Grant that the

authority shall give

ii. Responsibility for deciding Passenger Fare and schedule for fare revision including its

formula

iii. Formula for service quality evaluation and schedule for the same

iv. Conditions under which penalties are levied on the operator

The various aspects covered for Net Cost Hybrid Contract are

i. Details on the System Management Fee that the operator shall pay or Grant that the

authority shall give

ii. Responsibility for deciding Passenger Fare and schedule for fare revision including its

formula

iii. Monthly bonus payment for routes classified as Class II routes in the Contract

iv. Formula for service quality evaluation and schedule for the same

v. Conditions under which penalties are levied on the operator


i. In Gross Cost and Gross Cost Hybrid Contract, the number of days within which

payment shall be made from the receipt of the invoice.


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ii. In Gross Cost and Gross Cost Hybrid Contract, % share for wage rate and fuel rate in

the PKOMF revision formula. In Net Cost and Net Cost Hybrid Contract, % share for

wage rate and fuel rate in the Passenger Fare revision formula.

iii. The number of years the Operation Period can be extended and the requisite service

quality.

iv. In Net Cost and Net Cost Hybrid Contract, either of Clause 16.1 or Clause 16.2 shall

be applicable if Operator pays System Management Fee or receives Grant. For both

cases, the amount received or paid shall be added.

v. The weightage of each parameter in service quality evaluation shall be modified as per

the specific requirements of the city.

17. Escrow Account

a. Intent

An Escrow Account is used to manage inflows and outflows of cash specifically for revenue

receipts and disbursements along set payment guidelines. This is done so that both parties have

assurance that neither would default on its obligations. This article specifies the details on the

Escrow Account to be opened for the Contract.



i. Opening of Escrow Account and the minimum amount to be maintained in this

account. An amount equivalent to 2 months O&M Fee shall be maintained in the

Account as the payment cycle to the operator in full is of 2 months.

ii. Deposits to be made in the Escrow Account

iii. Withdrawals to be made from the Escrow Account during Contract Period and on

Contract termination


i. The number of days from the Execution Date within which the Escrow Account shall

be opened.

ii. The minimum amount to be maintained in the Escrow Account (measured in the

number of months). The number of months should be minimum 2 months as the

operator realises the full revenue only towards the end of 2nd month for services

rendered.

iii. Clause 17.2.1 (c), 17.3 (e), 17.4 (e) shall be deleted if Buses are procured by the

operator.

iv. Clause 17.2.1 (f) shall be deleted if advertisement revenue is not shared with the

operator.

18. Insurance

a. Intent

This article specifies the insurance to be taken by the authority as well as the operator. The

Contract requires all insurances required by Motor Vehicles Act, 1988 to be maintained and

documentation on that to be provided to the authority in a timely manner.



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i. Insurances to be taken include but are not limited to third party insurance cover,

standard fire and perils policy for any loss and damages to the Buses, Bus Depot and

Parking Space, and workmen’s compensation insurance

ii. Timeline for insurances to be taken by the operator and furnish proof to the authority

iii. Process of claiming insurance and application of insurance proceeds


i. In Clause 18.1, the word “Authority” shall be replaced by “Operator” if Bus is being

procured by the operator.

ii. Clause 18.4 shall be deleted if Bus is being procured by the operator.

19. Accounts and Audit

a. Intent

This Article details the accounting requirements for the operator including when audited

accounts are to be provided to the authority.


The Operator shall maintain accounts in accordance with standard accounting practices and

statutory requirements under Indian Law and shall provide audited copies of such accounts

within 90 days from the date of close of each Financial Year. 90 days is a reasonable time for

the operator to close its books of account and audit them.


This article shall not need any change.

20. Force Majeure

a. Intent

Force Majeure are circumstances beyond the control of both the operator and the authority.

This article specifies what constitutes Force Majeure and what shall be the consequences of

Force Majeure Event.



i. Acts or events that shall be considered Force Majeure situation including classification

of those into Non-Political Events and Political Events

ii. Responsibility of reporting Force Majeure Event

iii. Effect a Force Majeure event has on the Contract including cost allocation for costs

arising out of a Force Majeure

iv. Conditions for Contract termination following Force Majeure and the payment to be

made in such a situation

v. Conditions under which affected party is excused from performance of obligations on

account of Force Majeure


Clause 20.8.1 (b) shall be applicable only if procurement of buses is by the operator.


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21. Change of Scope

a. Intent

The operating conditions envisioned for the Contract may change during the Contract. This

might require both parties to consider amending the Contract. This article specifies what

constitutes change of scope and procedure for initiating change of scope both by the authority

and the operator.



i. Events that shall result in Change of Scope

ii. The details on who may initiate change of scope and limits on scope change

iii. The procedure for change of scope initiation either by the authority or the operator

iv. The responsibility for payment in case of Change of Scope

v. Payment to be made in case of Change of Scope.


In Clause 21.6.1, the word “Operator” shall be replaced by “Authority” if the Buses are

procured by the authority.

22. Termination

a. Intent

The Contract envisions both parties to fulfil their obligations. However, if there is wilful

disregard of these obligations, the Contract should have provisions which allows for

termination of the Contract. This article specifies what constitutes Operator Event of Default,

Authority Event of Default, and the termination payment for these events of default.



i. The events which shall lead to Operator Event of Default and Authority Event of

Default

ii. Termination Payment under both Operator and Authority Event of Default

iii. Additional Payments for Assets defined as Asset Transfer Value if Buses are procured

by the operator

iv. Rights and obligations of Authority upon Termination of Contract

v. Rights and obligations which shall survive termination of Contract


i. Clause 22.3.1 a, 22.3.1 c, 22.3.2 b, 22.3.2 d shall be applicable only if Buses are

procured by the operator.

ii. Clause 22.3.3 shall require change if Buses are procured by the authority.

23. Divestment/Hand back on Termination

a. Intent


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Bus Operations should go on smoothly regardless of the operator providing it. A plan to ensure

orderly transition from the operator to the authority and/or any successor Operator should be

present. This article details the obligations of the operator during the Transition Phase and the

handover of assets upon termination of Contract.



i. The obligations of the operator during the Transition Phase so as to ensure orderly

transition from the operator to the authority and/or any successor Operator

ii. The assets which are to be handed over to the authority upon Termination and the

procedure for this


i. Clause 23.2.3 shall require change if Buses are procured by the operator.

ii. Clause 23.2.8 shall be applicable only if Buses procured by the operator.

24. Defect Liability After Termination/Expiry

a. Intent

This article specifies the duration after Contract termination till which the operator has an

obligation to repair or rectify defects or deficiencies observed in the Buses.


The Operator shall have an obligation to repair or rectify at its own cost all defects and

deficiencies observed in the Buses for a period of 45 days after Termination Date/Expiry Date.


This article shall require no change.

25. Assignment and Charges

a. Intent

The Contract is not a saleable commodity. Assignments are possible only if there is written

permission from the authority. This article thus specifies the rights and duties that can be

transferred to a third party by both the authority and the operator.



i. The restrictions on assignment and charges and permitted assignment and charges

ii. Conditions under which assignment can be done by the authority


Clause 25.1.3 (a) shall require change if Buses are procured by the operator.

26. Change in Law

a. Intent

The Operator is obliged under the Contract to comply with all applicable legislation. The cost

of complying with legislation which is current or foreseen at the time of Contract is the

responsibility of the operator. However, the operator may not be capable of including in the

price specific costs arising from changes in law which are not foreseeable at the time of


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entering into the Contract. This article specifies what constitutes change in law and what is not

included in it.



i. Events which shall be considered change in law and which shall not be considered

ii. Process for modification of Contract if such change has a material adverse effect



27. Liability and Indemnity

a. Intent

This article specifies the instances under which the operator and/or the authority shall be

indemnified against suits, proceedings, actions, demands and claims from third parties for any

loss, damage, cost and expense arising out of breach of the Contract.



i. General indemnities against all liabilities or losses incurred

ii. Specific instances where the operator indemnifies the authority

iii. Process if there is any notice or contest of claims

iv. Rights available to Indemnified Party to defend against any claims

v. Limits to indemnities specified



28. Rights and Title over the Project Facility

a. Intent

This article specifies the rights the operator and the authority have over the Project Facilities.



i. Rights of the operator and that of the authority over the Project Facilities

ii. Restriction on Operator from sub-letting any Project Facility



29. Dispute Resolution

a. Intent

This article confirms a willingness by the parties to engage in dispute resolution amicably and

specifies the procedure for dispute resolution under this Contract.



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i. Basic process in case of any dispute

ii. Specifics on the process of conciliation, arbitration and adjudication



30. Disclosure

a. Intent

The Operator is required to allow access to the authority documents and records relating to the

bus operations especially those relating to safety of the Buses. This article mentions the

specified documents that the operator has to make available for inspection.


The Operator shall make available for inspection “Specified Documents” which shall include

copies of this Contract and data relating to safety of the Buses.



31. Redressal of Public Grievances

a. Intent

This article describes the procedure of recording and resolving public grievances related to bus

operations.



i. Process of recording public grievances which shall include maintaining public

relations office with a complaints register open to public access

ii. Process of redressal of complaints which shall include inspecting complaint register

every day and taking prompt action for redressal of each complaint


1. This article shall require no change.

32. Miscellaneous

a. Intent

This Article discusses various legal, commercial and technical aspects of the Contract.


The major aspects covered are

i. Obligations which shall survive Termination of Contract

ii. The laws which shall govern the Contract and place for jurisdiction of Contract

iii. Details on communications given by both parties including the language to be used in

notices given by one Party to other Party



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i. The name of the city shall be added in Clause 32.1.

ii. The name of the authorised officer shall be added in Clause 32.14


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ANNEXURE III - GUIDANCE NOTE ON USE OF REQUEST FOR PROPOSAL

OBJECTIVE

A Request for Proposal (RFP) is issued at a stage in procurement process, where an invitation is presented

to the potential bidders, to submit a proposal for city bus private operations. The RFP process brings

structure to the procurement decision and is meant to allow the risks and benefits to be identified clearly

upfront, so that the bidders can factor in the same while responding to the invitation.

The RFP is aimed towards selecting the most competent bidder with the economically advantageous price.

STRUCTURE OF THE RFP

This RFP document for the “Selection of Operator for City Bus Private Operation” for Authority comprises

of the following:

a. Instructions on the Bid process for the purpose of responding to this RFP. This broadly covers

i. General Instructions for Bidding process

ii. Bid evaluation process including parameters for Technical and Financial Evaluation to

facilitate Authority to determine bidder’s suitability as the operator

iii. Financial Bid and Other Formats

b. Functional and Technical Requirements of the Project. The contents of the document broadly cover

the following areas:

i. About the project and its objectives

ii. Scope of work for the operator

iii. Functional and Technical Requirements

DATASHEET

The bidders shall be provided with the Data Sheet comprising of important factual data on the tender.

The information required herein are:

i. Name of the authority

ii. Date, time and venue of the Pre-Bid Conference

iii. Contact Details for requesting clarifications

iv. Bid Security Amount: The objective of submission of Bid Security Amount is to establish the

earnestness of the bidder so that it does not withdraw, impair or modify the offer within the validity

of the bid. This amount has been set at 1% of the Estimated Project Cost as per Model RFP issued

by the Planning Commission.

v. Selection Criteria: The criteria shall be “Per Kilometre O&M Fee (PKOMF)” for Gross Cost and

Gross Cost Hybrid Contract and “System Management Fee (SMF)”/”Grant” for Net Cost and Net

Cost Hybrid Contracts. The project will be awarded to the Bidder quoting lowest PKOMF for

Gross Cost and Gross Cost Hybrid Contracts. In case of Net Cost and Net Cost Hybrid Contracts,

the project will be awarded to the bidder quoting the highest SMF and in the event no bidder offers

SMF, then to the Bidder seeking lowest Grant.

vi. Date and Time for last day of submission for Proposal


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INTRODUCTION

This section provides details on the background of the project, brief description of the bidding process and

the schedule of bidding process.

Background

The project background provides the following project details.

i. Background and need of services to be provided

ii. Project particulars including the estimated project cost, and duration of contract. The duration of

contract has been discussed in detail in section 5.5 of the guidelines document. The estimated

project cost shall be the capital cost of the project.

iii. The scope of work envisioned for the operator

Brief Description of Bidding Process

The Bidding Process envisioned is a single-stage three envelopes process. The procurement process has

been discussed in detail in section 6.2.5 of the guidelines document. The three envelopes process include

the following.

i. Test for Responsiveness: This includes a set of minimum documents that the Bidder shall submit

to express willingness to bid for the project. If the Bidder fails to submit any of these documents

then the Bid is rejected at this stage itself, without evaluating the Technical Bid.

ii. Technical Bid: This shall determine whether each Bid meets the Technical Capacity and Financial

Capacity for the Project. The Technical and Financial Capacity is discussed in Eligibility Criterion

section below.

iii. Financial Bid: The Bidder shall quote the Financial Bid as discussed in the section above. On the

basis of which a Bidder shall be selected.

Schedule of Bidding Process

This section details the schedule of the Bidding Process. The schedule includes:

i. Last Date for receiving queries: D(Date of issue of RFP) + 25 days

ii. Date of Pre-Bid Conference: D + 30 days

iii. Bid Due Date: D + 45 days

iv. Opening Dates: Within 15 days from the Bid Due Date

v. Letter of Award

INSTRUCTION TO BIDDERS

General

The general instructions including the scope of the bid, the eligibility of bidders, etc. are detailed in this

section. The Scope of the Bid provides details on who is eligible to bid .i.e. single entity or a group of

entities (Consortium) including the maximum number of members in a consortium.

The Scope also clarifies that the bidder shall submit only a single bid for the project and if applying

individually or as a member of consortium shall not be entitled to submit another bid.


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Documents

The documents which constitutes the bidding documents is detailed in this section. This includes RFP

along with all Appendices, Draft Contracts and Schedules. Any clarifications and interpretations that

maybe issued by the authority in due course of the bidding process will also be deemed part of the RFP.

Preparation and submission of bid

The format, signing, sealing and marking along with language is detailed in this section. The Bid Due Date

and procedure for modification/withdrawal of bids is also detailed in this section.

BID CONTENTS, ELIGIBILITY CRITERIA AND EVALUATION

Contents of the Bid

The bidders shall submit their bid in 3 separate envelopes put together in one single outer envelope:

i. Envelope 1: Test of Responsiveness

a. Power of Attorney

b. Bid Security

c. Details of Vehicle Permits

d. Jt. Bidding Agreement in case of Consortium

ii. Envelope 2: Technical Bid

a. Technical Capacity of the Bidder

b. Financial Capacity of the Bidder

iii. Envelope 3: Financial Bid

Eligibility Criteria

Technical Capacity: The Technical Capacity criteria demonstrates the technical capacity and experience

of the bidder. Experience in performing similar services as well as skill set gained from experience in

logistics and customer service is considered. The criterion has been discussed in detail in section 6.3.2 of

the guidelines document. The criteria considers the following:

a. Experience of operating buses: Similar service

b. Experience of operating trucks: Experience in providing logistics services, and scheduling,

operations and maintenance of fleet

c. Experience of operating taxis: Experience in customer interface, and scheduling of fleet

However, all experiences are not considered equally important. Higher weight is granted to buses. The

weightages for trucks and taxis are kept such that the product of weight and Passenger Car Unit (PCU)

factor is less than the same product for buses.


Buses 1.00

Trucks 0.40

Taxis 0.80

Passenger Car Unit (PCU) Factor is utilised to convert all experiences to a single unit.


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Type PCU Factor

Bus 3.00

Mini/Midi Bus 1.50

RTV 1.50

Taxi 1.00

Truck 3.00

Experience Score for a given category = Number of vehicles x Experience Weight x PCU Factor x

Number of months of operations in the last three years/12

The Experience Score calculated for each bidder shall be compared with the Minimum Experience Score.

For calculating the Minimum Experience Score, the number of buses shall be 50% of the buses to be

Operated and Maintained by the operator over a period of three years. For example, if 100 buses are to be

Operated and Maintained by the operator, then the Minimum Experience Score shall be 450 (50 * 1 * 3 *

36/12) Years.

Financial Capacity: The Financial Capacity criteria demonstrates the financial capacity and experience

of the bidder. This intention of putting this criterion is to ensure that the Bidder has a minimum size and

experience to deliver the project. The criteria considers:

a. Net Worth at the close of the preceding financial year: The Net Worth should be 15% of the

Estimated Project Cost. This qualification ensures that the bidders have sufficient financial strength

to raise the equity and debt necessary for undertaking the project.

b. Average Annual Turnover in the immediately preceding last 3 years: The average Annual

Turnover should be equivalent to the 25% of the Estimated Project Cost. This factor is an indication

of Bidder’s cash flows and financial health

2. The minimum percentages have been decided keeping in mind that the Bidder may be involved in

multiple projects at the same time.

In case of Consortium, the Consortium members on whose strength Bidder shall be selected should hold

at least 26% of the equity in the project SPV. This would ensure that members with small equity holdings

are not included for the sole purpose of achieving qualification. In other words, only the experience and

net worth of consortium members with a substantial stake is to be counted as they alone can be expected

to implement the project successfully and bear the project risks. Qualifying a consortium on the strength

of a member who has a small equity holding can lead to unintended outcomes and jeopardise the assurance

of success that is offered by a member who has a substantial stake.

Evaluation

The evaluation shall follow the procedure described below

i. Step 1 – Responsiveness of Bid

Envelope 1: Test of Responsiveness shall be opened for evaluation and the authority shall

determine whether each bid is responsive to the requirements of the RFP.

ii. Step 2 – Evaluation of Technical and Financial Capacity


Page | 151

Envelope 2: Technical Bid shall be opened for evaluation for bidders who qualify in Step 1 and

the authority shall determine whether the Bidder has met the Minimum Experience Score and

meets the Financial Capacity requirements.

iii. Step 3 – Evaluation of Financial Bid

Envelope 3: Financial Bid shall be opened only for Bidders who qualify in Step 2. The evaluation

criteria here is as below.

3. Contract Type 4. Selected Bidder

5. Net Cost Contract 6. Highest “System Management Fee”. If no bidder quotes SMF then

lowest “Grant”

7. Net Cost Hybrid Contract 8. Highest “System Management Fee”. If no bidder quotes SMF then

lowest “Grant”

9. Gross Cost Contract 10. Lowest “Per Kilometre O&M Fee”

11. Gross Cost Hybrid Contract 12. Lowest ‘Per Kilometre O&M Fee”

The Bidder selected as per the exhibit above will be issued a Letter of Award


Page | 152

ANNEXURE IV - RESPONSIBILITY ALLOCATION MATRIX

This Responsibility Allocation Matrix should be taken as a guidance rather than a prescription.

Sr. No. Parameter Gross Cost Gross Cost Hybrid Net Cost Net Cost Hybrid

1. Planning

a. Route planning Authority

b. Infrastructure planning Authority

c. Passenger fare Authority

2. Buses

a. Procurement of Bus Either – Authority or Operator

b. Ownership Party procuring the Buses

c. Operations and Maintenance Operator

3. Revenue risk Authority Shared between

Authority &

Operator

Operator Operator

4. Infrastructure

a. Bus Stops

i. Land acquisition Authority


Page | 153

ii. Construction58 Authority

iii. Procurement of plant and equipment Equipment which has life greater than the contract duration and/or cost more than a certain

amount, to be procured and installed by authority. Remaining plant and equipment is to

be procured by the operator.

iv. Ownership, and operations and maintenance59 Authority

b. Bus Depot



iii. Ownership, and operations and maintenance Operator

c. Bus Terminal



iii. Ownership, and operations and maintenance62 Authority

5. Monitoring and control

58 Authority on its own, or a third party appointed by it






Page | 154

a. Control centre

i. Civil construction Authority

ii. Equipping Party by authority & Operator

iii. Ownership and Operations and maintenance Party procuring the equipment

b. On-board ITS equipment

i. Procurement and ownership Operator

ii. . Operations and maintenance Operator


Page | 155

ANNEXURE V – FLEET

Responsibility Allocation for Fleet Planning

Legend:

Ao - Authority (outsourcing)

PO- Private operator for bus operation

Pr – Private agency for revenue collection

Pi- Private agency for ITS / IT

Authority – Activities essentially by authority

‘A’ – Authority for information / ensuring compliance / activity by choice

Yellow highlighting – to be decided

Sr.

nr Activities Sub activities / Sub-components

Responsibility

Options

Authority (A)

/ Ao

Private

operator (P)

Authority &

private

operator

1.

Buses Planning bus fleet requirement - quantitative - category and capacity wise A / Ao

Setting Policy for serviceable life of buses, scrapping and disposal A / Ao

Setting up depreciation policy and depreciation fund A / Ao

Setting standards and specification of buses A / Ao


Page | 156

Acquisition of buses – RFP, bid process management, ordering A / Ao PO A & PO

Inspection, approval and receipt A / Ao PO A & PO

Ownership and Investment in buses A PO A & PO

2.

Bus operations Service planning, setting trip schedules and headways – route wise

and service category-wise

Manpower planning – drivers

Arranging revenue collection

Financial Planning

A / Ao

Preparation of bus and driver schedules PO

Deployment of buses with drivers on routes PO

Tracking bus operation en route A PO

Checking bus operations en route for service quality, commuter complaints,

presentation of buses

A / Ao PO A & PO

Deployment of replacement buses for buses failing on road PO

Recovery of broken down buses to depot PO

Arranging for repair of buses at site PO

Attending to commuter complaints, incidents en-route, etc. A PO

Attending to accidents, organising removal of damaged vehicle, medical aid

to accident victims, preparing accident reports, etc.

A PO


Page | 157

3.

Bus fleet

maintenance

management

Planning for fleet repair and maintenance requirement - Laying down bus

maintenance standards and specifications;

A PO A & PO

Laying down policy about process for scrapping of buses and bus aggregates,

disposal of Scrapped buses, aggregates, etc.

A PO A & PO

Acquiring / developing periodic and preventive, condition based maintenance

schedules - their contents and periodicity; Identification and Segregation of

all repair and maintenance activities for bus fleets on the basis of complexities

involved, nature of plant/equipment and staff skills required; assessment of

quantum of workload and critical mass for each group of activities plant wise,

etc.

A PO A & PO

Setting up bus fleet maintenance management system e.g. A Two tier Unit

replacement based maintenance management system; Setting unit wise

(aggregate wise) norms for quantum of float of assemblies; Firming up

activities to be carried out at two tiers - viz at central workshop and at depot

workshops;

A PO A & PO

Requirement planning for stores and spares by developing consumption

standards of spares, etc. for reconditioning and repair / maintenance of buses;

A PO A & PO

Acquiring /developing specifications for materials / spares, etc. for

procurement and quality assurance;

A PO A & PO

Laying down inventory management policies, norms, etc. A PO A & PO

Procurement, storage, distribution of spares amongst user depots, accounting

of stores, disposal of obsolete and scrap items

A PO A & PO


Page | 158

Planning for repair and re-treading of tyres - quantum in each category,

process for re-treading and cut repairs, storage and distribution system,

scrapping and disposal of scrapped tyres,

A PO A & PO

Planning processes for repair and maintenance requirement / loads of various

activities at Depots and Central workshops;

A / Ao A & PO

Planning for and Identification of plant and equipment, machinery and tools,

etc. for depots;

A / Ao A & PO

Acquisition, installation and commissioning of such items at depot workshop; A / Ao A & PO

Repair and Maintenance of plant and equipment at depots A PO

Planning for and Identification of plant and equipment, machinery and tools,

etc. for Central workshop;

A / Ao A & PO

acquisition, installation and commissioning of such items at CWS; A / Ao

Repair and Maintenance of plant and equipment at Central workshop A / Ao

Staff requirement assessment category wise- skill level wise separately for

depots and central workshop;

A / Ao A & PO

Setting staff requirement norms for depots and central workshop; planning

for training and career development, etc. of workshop staff; ,

A / Ao A & PO

Planning for training and career development, etc. of workshop staff; , A / Ao PO A & PO

Recruitment, induction and training of technical staff at depot workshops A / Ao PO A & PO


Page | 159

Recruitment, induction and training of technical staff at Central workshops

(CWS)

Reconditioning of aggregates, repair and retrieval of worn out items, testing

/ calibration of repaired and reconditioned aggregates, etc. at CWS

A / Ao

Repair of major accidental buses; fabrication of bus body items and their

fitments including, repair and maintenance /replacement of seats /

upholstery, body panels, glasses, etc.

PO

Monitoring and control of maintenance activities and functions, setting

performance parameters and bench marking their standards of achievement,

collection of data for various activities / functions consumption levels

including those of spares, fuels, lubes, tyres, etc.; their analysis, identification

of deviations / defaults compared to benchmarks for corrective action.

A / Ao PO A & PO


Page | 160

Identification of activities and decision making

Sr.

nr

Activities /

decision area

Sub activities / Sub-

components for as part of

business process / decision

matrix / contracts

PT service contract options

Preferred

option

Why preferred? Action /

decision by

GCC NCC Combinat

ion

1

Fleet size per

Depot / per

operator

Maximum fleet size per depot GCC NCC GCC+N

CC GCC

To be limited to about 100 buses for

optimal management and use of

resources

Fleet size, travel demand and depot

land / space guided.

While NCC faces Issues in

expansion, GCC conveniently

accommodates such requirements.

Minimum / maximum fleet per

operator GCC NCC

GCC+N

CC All

For operational, maintenance and

managerial convenience / improved

performance, fleet size per operator

be planned in multiples of depot

capacity in terms of fleet size.

One operator per depot, one make

/model of buses in a depot fleet


Page | 161

Requirement assessment process

Sr

nr Item Description Process / remarks / comments etc.

1 13. Buses

Process of assessment of bus fleet size

Basis of assessment of fleet requirement:

spatial, temporal and category wise travel demands –

daylong & peak period;

Service levels – span of operations, trip head ways

route wise, - demand directed and policy directed

Overall city wide travel demand, route wise

Average pax trip length

Assess overall requirement of standard buses inter-alia

considering:

o city wide travel demand in terms of pax km and

o supply capacity of standard buses in terms of

carrying capacity km (seated + standees)

Set acceptable range of operational head ways

Identify bus sizes /capacity corresponding to travel demand

and range of headways

Select bus size/capacity that meets the demand at minimal

headway

Allocate fleet route wise

Group buses around prominent origin- destinations for

allocation to depots

2

Fleet size per

operator – type of

permits and

general suitability

for NCC or GCC

Authority as operator – entire fleet with the authority /

operator

Private operator – on area permits - NCC as an option :

Clearly demarcated operational area essential with

minimal inter-area operations

Entire fleet to one operator per area.

‘Competition for market’ possible basis for Area

allotment

Further depending upon fleet size and operator’s

capacity for investment and management of larger fleets.

For lack of capacity as above - allot large fleets to

multiple operators in multiples of up to about 100 buses

– though fraught with all the ills of ‘competition in the

market’ and hence not a preferred option.


Page | 162

NCC- could be considered for area permits and single

operator though still fraught with problems of

incorporating variations in services, etc.

Private operator –on ‘route permits’ :

Entire fleet for each route to one operator - NCC

‘Competition for market’ possible basis for Area

allotment

Yet dangerous and unsafe competition ‘in-market’

unavoidable particularly on overlapping portions of routes

and also fraught with problems of incorporating variations

in services, etc.

NCC generally unsuitable for route contracts - ‘in- market

competition’ being almost always unavoidable

GCC - the preferred option for route permits

Fleet size as per route demand and capacity of operator to

invest and optimally manage

Fleet size per operator normally synchronising with depot

capacity and further allotment in multiples of one or more

depot capacity.

No ‘in market competition’ even if more than one operator on a

route and or extensive overlapping of routes

Asset ownership investment, operation and maintenance

Sr.

No.

Assets Description / assets / activities Responsibility Preferr

ed

option

Remarks Decisio

n by Possible Options as who / which

agency suitable / should do

Authority Private Joint –

Authorit


Page | 163

y +

Private

1. Bus

fleets

Operation A Po A+Po Po A

Acquisition A Po A+Po Po

Investment A Po A+Po Po

Fleet ownership A Po A+Po Po

Insurance A Po A+Po Po

Long term legal liability in case

of accidents including after

completion / termination of

contracts

A Po A+Po Po

Scrapping and disposal of buses

at the end of contract Po Po

Phasing out of buses

prematurely, if warranted, A Po A+Po A+Po

Maintenance at depot level

A Po A+Po Po

To be considered for large fleets forming

a critical mass for the workshop

Terms and condition for such

arrangement, cost of repaired aggregate,

revision of costs, warranty, etc. to be

specified


Page | 164

For smaller fleets – arrangement by

operator and acceptance by authority to be

firmed up.

Heavy repairs / reconditioning

at Central Workshop (CWS)

level mainly related to bus

aggregates

A Po A+Po A, Ao


Page | 165

ANNEXURE VI – INFRASTRUCTURE

Responsibility allocation for infrastructure Planning

Legend:








Sr.


Responsibility

Options

Authority (A)

/ Ao

Private

operator (P)

Authority &

Private

1

Infrastructural

facilities

14. Infrastructure and other Facilities planning A / Ao

Depots

Identification of depot activities, Planning depot location, size, facilities, etc. A / Ao

Preparation of depot layout plans, designs, facilities, etc. A / Ao

Land acquisition A / Ao

Construction, provision of all utilities, etc. A / Ao


Page | 166

Maintenance of depot buildings, utilities, etc. A PO

Planning for depot plant and equipment, its layout, equipment specs and

standards, etc.

A / Ao

Acquisition of plant and equipment, installation and commissioning A / Ao PO A & PO

Maintenance of Plant and equipment A PO A & PO

Terminals

Identification of terminal activities, Planning terminal location, size,

facilities, etc.

A / Ao

Preparation of terminal layout plans, designs, facilities, etc. A / Ao


Construction, provision of all utilities, etc. A / Ao

Maintenance of terminal buildings, utilities, facilities, etc. A / Ao

Bus Stops

Identification of Bus Stops location, size, facilities, design, etc. A / Ao


Construction, provision of utilities, etc. A / Ao

Maintenance of Bus Stops sheds, utilities, facilities, etc. A / Ao

2 MIS

MIS system design

MIS reports for management, monitoring and control,

Data compilation for future growth and PT services planning

A / Ao PO A & PO


Page | 167

Operations related info for monitoring and control of operations performance

and service quality delivery

A / Ao PO


Page | 168


Sr.

nr

Activities /

decision area




matrix / contracts


Preferred

option Why preferred?

Action /

decision by GCC NCC Combina

tion

1

15. Information

and

communicatio

n/

16. ITS-IT

Information is generated,

communicated and processed

using ITS/ IT –normally

installed ‘on –board’, on bus

terminals / shelters and in

control rooms in each depot as

well as at a central location,

Clarification needed about

division of responsibility and

the process of utilisation of data

/ information and coordination

amongst a number of operators,

service providers, agencies, etc.

In a multi-cornered NCC or

GCC systems – better to

have ownership of control

rooms by authority --

design, procurement,

operation and management

by out sourced agency (Pi),

Operators to share costs to

seek assistance of control

rooms / use info /data.

Recovery equipment –

owned by each operator and

suitably located – deployed

on obtaining alerts from

control rooms


Page | 169

Requirement Assessment Process

Sr

nr Item Description Process / remarks / comments etc.

1

17. Infrastructure –

quantum and

locations

Bus Depots

Assessment of no. of depots, their locations, facilities and

equipment, etc.

Depot locations near clusters of route ends /origins –

destinations for least dead km operation

Depot size - one depot of about 5 acres land per 100

buses for optimal utilisation of assets and for efficient

management of resources / operations –

Depot facilities on the basis of all activities envisaged in

depot, frequency of occurrence and cycle time of activities

Plant and equipment planned similarly.

Bus terminals

Terminal locations at transfer intensive stops en route

and or at trip origin / destination clusters

Terminal Size and facilities worked out on the basis of

quantum of operations, bus dwell times, bus terminal times at

route ends, etc.

Bus stops/ shelters

On both sides of the route at an average distance of about

350 to 750 meters adjusted to traffic concentrated demand

locations


Page | 170

Facilities to meet commuter needs


Sr.

No. Assets

Description / assets /

activities

Responsibility

Preferred

option Remarks

Decision

by

Possible Options as who /

which agency suitable /

should do

Authori

ty Private

Joint –

Authori

ty +

Private

1 Depots

Land acquisition A A

Design, construction, provision

of utilities and commissioning A, Ao A, Ao

Investments A A

Ownership A A

Insurance A Po Po

Use of depot facilities A Po A+Po A+Po

Maintenance of buildings and

yard – civil assets A, Ao Po

A,

Ao+Po

Po /

A, Ao

Po to do this activity to the

satisfaction of Authority assessed


Page | 171

through outsourcing. Arrangement

conducive to avoid blame game.

Maintenance of utilities A, Ao Po A,

Ao+Po

Po /

A, Ao As above


of accidents including that after


contracts as legal cases take

long periods till settlement

A / Po

Clearance or indemnity bond /

security / bank guarantee required by

authority till finalisation of case.

Treatment at the contract end:

Given to operator / Retained by

authority

A A, Ao

Likely condition of the depot

/utilities, etc. at the end of contract

be handed over to the authority in

prescribed condition and accepted

by operator; condition to be verified

by outsourcing

2 Plant &

Equipment

Operation Po

Acquisition A Po A

Investment A Po A

Ownership A Po A

Insurance A Po A

Maintenance A, Ao Po Po AMC and its administration by

authority with equipment suppliers -


Page | 172

but blame game possible between

operator and authority

Po be made a party to AMC and

responsible for administration of

AMC and for payments






A / Po






authority

A Po A, Ao

Likely condition of the equipment at

the end of contract be specified by

authority and accepted by operator;

condition to be verified by ‘Ao’

before taking over by owner

3 Moveable

equipment

Operation Po

Acquisition Po Po

Investment Po Po

Ownership Po Po

Insurance Po Po

Maintenance Po Po


Page | 173


of accidents including after


contracts

Po / A




Given to contractor / Retained

by authority

Po Po

4 Terminal




Investments A A

Ownership A A

Insurance A, Ao A, Ao

Operations / management A, Ao A, Ao ‘A’ through ‘Ao’ - outsourcing

Use of terminal and its facilities A, Ao Po A+Po A+Po+Ao ‘Ao’ may be allowed commercial

exploitation of terminal assets

Maintenance of buildings and

yard, bus shelters, street

furniture, etc. – all civil assets

A, Ao A, Ao

‘A’ to do this activity through ‘Ao’ -

to the satisfaction of Authority.

Maintenance of utilities A, Ao A, Ao As above




A, Ao Clearance or indemnity bond /



Page | 174



authority from ‘Ao’ till finalisation

of case.



authority

A A, Ao

Likely condition of the terminal and

its facilities at the end of contract be

specified by authority and accepted

by Ao;

Condition to be verified by third

party outsourcing before handing

over to ‘A’

5 Bus stops




Investments A A

Ownership A A

Insurance A, Ao A, Ao

Operations / management A, Ao A, Ao ‘A’ to do this activity through ‘Ao’

outsourcing

Use of bus stops / shelters and

its facilities A, Ao Po A+Po A+Po+Ao

‘Ao’ may be allowed commercial

exploitation of assets

Maintenance of bus shelters,

street furniture, etc. – all civil

assets

A, Ao A, Ao

‘A’ to do this activity through ‘Ao’ -

- to the satisfaction of Authority.


Page | 175

Maintenance of utilities A, Ao A, Ao As above






A, Ao



authority from ‘Ao’ till finalisation

of case.



authority

A A, Ao

Likely condition of the terminal and

its facilities at the end of contract be

specified by authority and accepted

by Ao;

Condition to be verified by third

party outsourcing before handing

over to ‘A’

6 Control

room

Provision of built up space,

utilities and commissioning in

depots and at a central location

A, Ao Po A+Po A, Ao

Investments A A

Ownership A A

Insurance A Po Po

Use of Control room and its

facilities A Po A+Po A+Po

Maintenance of civil assets /

utilities A, Ao Po

A,

Ao+Po

Po /

A, Ao

‘Po’ to do this activity to the

satisfaction of Authority assessed.


Page | 176

Arrangement conducive to avoid

blame game.






A / Po






authority

A A, Ao

Likely condition of the control room

/utilities, etc. at the end of contract

be handed over to the authority in

prescribed condition and accepted

by operator;

Condition to be verified by

outsourcing before handing over to

‘A’

7

ITS / IT and

Control

Room

ITS / IT equipment in control

rooms Pi

- Private operator for IT/ITS

System design, setting

standards, equipment specs,

acquisition, installation and

commissioning of all control

room equipment, hardware,

software and facilities

A,Pi Po A,Pi+

Po A,Pi

Integration of control room

equipment with ITS / IT /

communication items on board

A,Pi Po A,

Pi+Po A,Pi


Page | 177

Operation A,Pi Po A,Pi+Po A,Pi

Provision be made for ‘Po’ to

position its staff in control room and

accessibility for data acquisition,

attending to alerts, etc.

Acquisition A,Pi Po

A,

Pi+Po A,Pi

Investment A Po A+Po A+ Po ‘Po’ to share investments for use of

facilities and or pay usage fees

Ownership A Po A A

Insurance A Po A,Pi A,Pi

Maintenance A,Pi Po A,Pi+Po Pi






Pi






authority

A Po A, Ao

Likely condition of the equipment at

the end of contract be specified by

authority and accepted by operator;

Condition to be verified by

outsourcing if IT/ITS systems to be

given to ‘A’


Page | 178

ANNEXURE VII– OPERATIONS

Responsibility Allocation for Operations

Legend:








Sr.


Responsibility

Options

Authority (A)

/ Ao

Private

operator (P)

Authority &

Private

1 Bus operations

Service planning, setting trip schedules and headways – route

wise and service category-wise

Manpower planning – drivers

Arranging revenue collection

Financial Planning

A / Ao

Preparation of bus and driver schedules PO

Deployment of buses with drivers on routes PO


Page | 179

Tracking bus operation en route A PO

Checking bus operations en route for service quality, commuter complaints,

presentation of buses

A / Ao PO A & PO

Deployment of replacement buses for buses failing on road PO

Recovery of broken down buses to depot PO

Arranging for repair of buses at site PO

Attending to commuter complaints, incidents en-route, etc. A PO

Attending to accidents, organising removal of damaged vehicle, medical

aid to accident victims, preparing accident reports, etc.

A PO

2 Monitoring and

control of Operation

Monitoring and control of PT services A / Ao P A & PO

Planning for setting up a control room A / Ao A & PO

Provision of land, building and utilities for Control room, acquisition and

maintenance of the same

A / Ao

Equipping of control room with IT, ITS, Communication systems, fixtures

and furniture,

A / Ao P

Maintenance of control room facilities / equipment, systems, software, etc. A / Ao

Staffing, operation and management of Control room A / Ao P A & PO

Acquisition of emergency service equipment, e.g. recovery van fully

equipped, man power, telecom system

A P A & PO


Page | 180

Incident alerting - whom and how? A / Ao PO A & PO

Data mining and data analysis A / Ao PO A & PO

3

Marketing and

Branding of PT

services

Branding of PT services, design of logo, A / Ao

Marketing PT services - responsibility A / Ao PO A & PO

4

Dispute resolution

and grievance

handling

Planning for and instituting a dispute resolution mechanism - A / Ao PO

Planning for and instituting a Grievance handling system A / Ao PO


Page | 181


Sr.

nr

Activities /

decision area




matrix / contracts

PT service contract options Preferr

ed

option

Why preferred? Action

/

decisio

n by

GCC NCC Combin

ation

1 Growth/ variations

in operations

Mechanism for handling growth /

variation of:

Travel demand- temporal and

spatial

fleet for an operator and or in

a depot

Routes

o fixed routes,

o route extension / truncation

o re-routing /variation in route

length/pattern

o Services

o Variation in services – trips,

headways

GCC NCC GCC+N

CC GCC

Details of mechanism to handle needs

related to growth / variations during

contract operational periods be decided

as part of business process planning

GCC handles such issues better

A

2

Socially relevant

revenue related

issues

Mechanism for dealing with

subsidised operations / tariff

concessions for :

Certain categories of travellers,

variations in categories,

quantum of concession, etc.

Quantum of subsidy and

mechanism – accurate

assessments

GCC NCC GCC+N

CC GCC

NCC

o Calls for an accurate assessment of

concessions and quantum of

revenue losses – difficult to predict

/assess

o Very difficult to:

- accurately assess loss of revenue

on account of concessional tariffs

A


Page | 182

Operation of socially relevant

but un-economic routes or trips

Revenue compensation

mechanism for above

- accommodate variations in

categories of such travellers /

quantum in concessions/ operations

of such trips / routes, etc.

GCC easily handles these

requirements.

3

En route -

Operational

environment

Route condition / behaviour:

Congestion on account of

increased traffic,

Diversions due to repairs etc.,

Bus speeds impacted,

Addition of bus stops /

terminals

Travel demand variation

requiring fleet size variation –

Increase / decrease

Privately operated PT buses /

mini buses / micro buses /

auto-rickshaws, etc. :

o Sharing of bus stops

o Addition of above PT

vehicles and their impact

on revenues,

Addition / removal of IPTs,

existing PT buses / bus

operators

GCC NCC GCC+N

CC GCC

GCC

Route speed at initial bidding along

with a mechanism for assessment and

the periodicity during contract period

Impact of speed variation on bus

fleet productivity and bus fleet size

Compensation mechanism for above

variations along with triggers if any

Similarly a mechanism for other

variations such as varying bus stops

/routes / terminals / other PT

vehicles, etc.

In GCC – comparatively easier to make

objective assessment of impact and

compensation if any,

In NCC

Very difficult to accommodate above

aspects

A

4 Accidents Implications of accidents – on

road and in depots GCC NCC

GCC+N

CC All

In NCC and GCC: A


Page | 183

Legal and other expenses

during and after contract –

almost all cases take much

longer legal process to settle

than the contracts duration

Workmen compensation for

in-depot accidents

MACT compensation

Insurance of buses,

passengers, crew, etc.?

Insurance of depots and its

assets by whom?

- Responsibility clearly of bus fleet

owners

- Investment and ownership of buses

preferably be of and by the bus fleet

operators

- In- depot accidents – responsibility

of depot lessee /operator

- Security deposit / indemnification

for the authority?

- Insurance by operators/ lessees in

all cases

5 Performance

Performance parameters-

quantifiable and qualitative (non

quantifiable):

Service quality

Physical

Financial

Benchmarking,

monitoring,

defaults, treatment of

defaults

Data acquisition,

compilation, analysis

evaluation, report

generation, monitoring

and control

GCC NCC GCC+N

CC GCC

In all types of contracts-- Service

quality parameters, their

benchmarking, monitoring and

control essential-- by authority

Easier to obtain data, monitor and

control in GCC –payment system

provides a possible leverage

Very difficult to do so in NCC – no

leverage

In GCC, acquisition, processing

and monitoring of revenue data by

authority

Physical performance in all types of

contracts to be monitored and

controlled by operator – need for

suitable arrangement with IT- ITS

system provider / authority / control

room

A


Page | 184

Financial performance in NCC by

Pvt Operator and in GCC by

authority / Revenue collection by

private agency

6 Reconditioning of

aggregates

Division of responsibility

amongst multiple service

providers / operators for

development of facilities,

management and accounting w.r.t

reconditioning of bus aggregates,

and procurement of spares, etc. –

an issue

Creation of facilities for

reconditioning, usage in a multi

operator scenario, deciding and

charging rates of overhauled

items; assessing residual values of

repairable items, etc. – another

issue

Requirement planning of spares,

procurement of spares, those

common for depots and CWS use,

their costing / pricing mechanism,

- yet another issue

Various aspects related to

reconditioning of aggregates, etc. need

to be addressed for various types of

contracts as none of the private

agencies would have critical mass to

establish facilities.

7 Competition No competition GCC

GCC –

‘No

compet

ition’

Issues associated with ‘on road’

competition eliminated. A


Page | 185

Unit rates for services obtained through

a competitive transparent open bidding

process

NCC –issues as brought out earlier

Competition ‘for the market’

NCC

NCC part

of

combinat

ion of

NCC and

GCC.

NCC –

compet

ition

‘for the

market.

Issues associated with ‘on road’

competition eliminated.

Selection of service provider through a

transparent open bidding process for

each of the operational areas.

Fraught with some of the issues

discussed earlier w.r.t NCC

A

Competition ‘In the market’

Not suggested to avoid

dangerous operational

behaviour of operators

Avoid

in all

types

As discussed A


Page | 186

ANNEXURE VIII – REVENUE

Responsibility Allocation for Revenue Activities

Legend:








Sr.


Responsibility

Options

Authority (A)

/ Ao

Private

operator (P)

Authority &

Private

1 Revenue

collection

Planning for tariff collection system and mechanism - on-board, off-board or

both;

A / Ao PO

Planning for Manual or electronic ticket vending machines - hand held or

floor mounted; ticketing medium - paper, tokens, smart card and or any other;

etc.

A PO A & PO

Developing design Standards, specifications, security systems, etc. for

ticketing equipment

A PO


Page | 187

Revenue collection by authority and or by operator A / Ao PO

If responsibility of revenue collection of the authority -- decision about in-

house or outsourcing

A / Ao

By Private operator - in case of GCC

By Private operator - in case of NCC

Mechanism for engaging revenue collection agency A / Ao P

Ownership and investment in equipment A / Ao PO

Repair, maintenance and replacement of equipment A / Ao PO

Revenue and other data, way bill generation and communication to control

room, compilation, analysis, reporting and usage

A / Ao PO A & PO

Integration of tariffs with other modes of urban travel; A / Ao PO A & PO

Curbing revenue loss on account of pilferage/ticketless travel, etc. by on-line

checking, monitoring and control,

A / Ao PO A & PO


Page | 188


Sr.

nr

Activities /

decision area




matrix / contracts


Preferred


Action /

decision by GCC NCC

Combina

tion

1 Tariff and

payments

Tariff Fixing, structuring and

revision:

Basis of tariff fixation?

Whether tariff fixation based

on cost of inputs?

Revision ad-hoc / delayed /

inadequate

Gaps in ‘allowed tariffs’ and

‘input cost based economic’

tariffs

Mechanism for revision of

payments / triggers /

periodicity

Mechanism to bridge gaps

on account of above

GCC NCC GCC+N

CC GCC

NCC:

Process of tariff fixation,

structuring and revision to be

firmed up in advance along with

basis / triggers / periodicity of

revision

Mechanism for compensation

for delays / shortfalls, etc. in

tariff revision to be devised

Consolidation and provision of

accurate, reliable and relevant

data for the purpose difficult

GCC

Cost of inputs could be easily

and accurately worked out for

revision of payments along with

triggers for rate revision under

GCC

A

2 18. Revenue Possibility of linking payments

in GCC with operational load

GCC Modified GCC A modified GCC required A


Page | 189

factor – a major issue related to

GCC – to be explored


Page | 190


Sr.

No. Assets Description / assets / activities

Responsibility

Preferred

option Remarks

Decision

by

Possible Options as who /

which agency suitable / should

do

Authority Private

Joint –

Authori

ty +

Private

1 Revenue

Revenue collection agency in:

NCC Po Po

GCC A, Ao Po Pr Pr

Pr- revenue collection private

agency

Tariff collection medium n

equipment

Tickets- pre-printed, smart card,

on – board printing in:

NCC Po Po

GCC A, Ao Pr

Tariff charging equipment


Page | 191

Hand held ETVMs with GPRS /

GPS compatibility or Floor

mounted vending machines in

GCC:

In NCC:

Decisions about type of equipment,

etc. by authority,

Ownership, investment, operation,

maintenance, insurance, long terms

liability, etc. of Po

Operation A, Ao Po Pr Pr

Acquisition A, Ao Po Pr Pr

Investment A, Ao Po Pr Pr

Ownership A, Ao Po Pr Pr

Insurance A, Ao Po Pr Pr

Maintenance A, Ao Po Pr Pr






A, Ao Po Pr Pr






authority

A, Ao Pr


Page | 192


Page | 193

ANNEXURE IX – PERMITS

Responsibility Allocation for Permits

Legend:








Sr.


Responsibility

Options

Authority (A)

/ Ao

Private

operator (P)

Authority &

Private

1 Permits

Obtaining Operational Permits from RTO A A & PO

Route permit A

Areas permit A

Hybrid - combination of route and area permit A


Page | 194


Sr.

nr

Activities /

decision

area




matrix / contracts


Preferred


Action /

decision

by GCC NCC Combination

1

Permits for

bus

operations

Route permits and Route

cluster permits GCC NCC

Combined

contract =

GCC (for

inter-cluster

routes) +

GCC or NCC

(for intra-

cluster)

GCC

GCC

Avoids dangerous / unsafe

competition on – road,

Easy to vary fleet deployment /

service levels, routes, etc.

Easy to carryout route

deviations, extensions, truncations

NCC

Has problem of route

overlapping by multiple operators in

NCC even if one operator selected for

a route or a route cluster through

competition ‘for market’.

Causes ‘on route’ competition

by other route operators on

overlapping sections – dangerous and

unsafe

Very difficult to vary fleet

deployment / service levels

Very difficult to carryout route


GCC + NCC

A


Page | 195

Problems of dangerous &

unsafe competition persist on

overlapping sections of routes

Area permit -- single area for

the whole city and or multiple

Area permits–for a large city

NCC

NCC for

intra-area &

NCCs for

inter-area on

reciprocal

basis

NCC (for

each area)

NCC

Area permit contract awarded

through competition ‘for market’.

No dangerous competition on routes

Possibility of affording freedom to

plan routes in given area

Problems of inter area operations

need to be addressed

Problem of monopolistic behaviour

of a single operator in due course,

Difficult to clearly demarcate city

areas particularly in medium and

small cities

Difficult to find a single operator for

large cities

Very difficult to vary fleet

deployment / service levels

Very difficult to carryout route


Obtaining operational and other

data needed by authority for day to

day use and for future planning is

very difficult in absence of any

leverage with the authority to press

for such data.

A


Page | 196

Area and route permit

GCC

for

inter-

area

+

NCC

for

intra-

area

NCC for

intra-area &

for inter-area

on reciprocal

basis

NCC for:

each area &

for inter

area routes

(reciprocal

basis)

OR

NCC for

intra area &

GCC for

inter-area

Intra area as above and Inter area route

contract to ‘area operators’ on equal /

reciprocal penetration basis

Or

GCC

For inter area routes operations, NCC

area operators allowed to participate.

Problems of NCC as discussed earlier

persist

A


Page | 197

ANNEXURE X – PLANNING & CONTRACTUAL ISSUES

Responsibility Allocation

Legend:








Sr.


Responsibility

Options

Authority (A)

/ Ao

Private

operator (P)

Authority &

Private

1

Strategic Planning

of PT Agency

(PTA) for City Bus

Services(CBS)

Strategic Panning including but not limited to:

Statement of:

- Vision

- Mission

- Goals

- Aims and objectives,

Policies, institutional and Organisational set ups

Business processes,

Organisational structure and needs

A /Ao


Page | 198

Resources needs and provisioning

Financing needs and funding

Operational systems, and management

Monitoring and control

Any other aspect

2

Planning and

Setting Standards,

specs, norms, etc.

Planning for PT services including

travel demand assessment

spatial and temporal

short , medium and long term

service category wise

Route network and route structuring

Setting Standards for

Service quality

Buses

Vehicular emissions

IT and ITS and control room operations

Any other item / function

A / Ao

3

Concession

Contracts Planning and structuring of concession agreements

A / Ao A & PO

Risks

Identification of risks

Evaluation of and allocation of risks

Limits to risk transfer

A / Ao A & PO

Payments

19. Planning for payment mechanism and related aspects

Payment mechanism

User charges

Usage payment

Availability payments

Quality performance payments

A / Ao A & PO


Page | 199

Monitoring service availability and performance

Third-party and secondary revenues

Liquidated damages and performance bonds

Price variations

Governance issues

Flexibility Flexibility and in-operation negotiation A / Ao A & PO

Contract Duration Contract duration and investment

Contract duration and flexibility

Contract duration, competition, and incentives

Contract duration in service unbundling

A / Ao A & PO

Other Contractual

Issues

Refinancing

Early Contract Termination

Transparency and confidentiality in PPP contract design

Any other issues

A / Ao A & PO


Page | 200

ANNEXURE XI – SERVICE QUALITY PARAMETERS

Service quality performance shall normally be evaluated, monitored and controlled in respect of the following parameters amongst others:

Sr.No. Parameter

Parameter defined Parameter values Proposed

Weightage* of

parameters on a

scale of 100 Symbol Formula Units Contracted Achieved

1. Regularity of Service

i. Trips Operated Rt no. of trips operated*100 / no. of trips

scheduled % Rt Rtª 8

ii. Kilometre (km) operated Rk No. of km operated*100/No. of km

scheduled % Rk Rkª 7

2. Punctuality of operations

i. Start of trips–Origins Ps No. of trips on- time at start*100 / Total

no. of trips operated % Ps Psª 10

Ii Arrival of trips - destinations Pd No. of trips on time at destination*100

/ Total no. of trips operated % Pd Pdª 5

3.

Operational Reliability

(Inverse of rate of

breakdowns per lakh km

operation) --- Higher number

reflecting higher reliability

B 1 / (Total no. of breakdowns*one lakh /

Total km operated) Number B Bª 15

4. Operational Safety


Page | 201

I

General

(Inverse of rate of accidents

per lakh Km operation) --

Higher number reflecting

higher safety

Sg 1 / (No. of accidents*one lakh / Total km

operated) Number Sg Sgª 10

II

Severity

(Inverse of rate of fatalities in

accidents per lakh km

operation) -- Higher number

reflecting higher safety

severity

Ss 1 / (No. of fatalities *one lakh / Total km

operated) Number Ss Ssª 15

5.

Operational Security

(Inverse of rate of security

related incidents per lakh km

operation) -- Higher number

reflecting higher security

Z 1 / (No. of security related incidents

*one lakh / Total km operated) Number Z Zª 15

6.

User Satisfaction (Inverse

of rate of complaints per lakh

km operation) - Higher

number reflecting higher

user satisfaction

U 1 / (No. of complaints*one lakh / Total

km operated) Number U Uª 15

Notes

I. Regularity of services


Page | 202

It is measured as percentage of trips and km operated to those scheduled respectively. In this case the number of trips and km scheduled are the sum

total of respective operational schedules on a quarterly basis in their denominators, and actual trips operated and actual km paid for in their respective

numerators.

II.

Punctuality of bus operation

Punctuality indicates the level of on-time services. It is reflected by percentage of on-time start and arrival of trips to total operated trips in each case.

In this case, total number of trips starting / arriving late during the month is recorded and subtracted from the number of trips operated to arrive at the

on-time trips operated figures separately in each case.

A relaxation equivalent to 5 minutes, for start of the bus schedule, and 10% of the subsequent scheduled trip time (subject to a maximum of 15

minutes) for start of subsequent schedules and arrival of trips.

III. 1

1

.

Reliability of bus operations

This parameter reflects the health of a bus and in turn indicates the operational reliability of buses. It is assessed in terms of number of breakdowns

per lakh km (actually paid for) operated. Higher the rate of breakdowns poorer is the health of buses and lower is their reliability. Inverse of breakdown

rate is an indicator of operational reliability – higher values reflect higher reliability.

IV.

Safety of operations

It is one of the most important parameters. It is indicated in terms of number of accidents per lakh km operated. Higher the rate of accidents, lower

is the safety of bus services. Rate of accidents is assessed by dividing cumulative number of accidents by all buses of the operator by actual number

of operated km paid for during the quarter. The severity of operational safety is similarly assessed by analysing number of fatalities in accidents

instead of accidents in general. Inverse of accident rate is an indicator of operational safety – higher values reflecting higher safety.

V.

User Satisfaction

The citizens need to be regularly involved in evaluating the performance of bus services. Encouraging them to report freely about their observations

on all aspects of the bus services not only renders the system "an inclusive one" but also generates useful and un-biased feedback for necessary

corrective action. The complainant, however, needs to be informed of the actions taken, in least possible time, for his/her continued interest in the

system. It is estimated in terms of negative feedbacks/complaints received per lakh bus km operated. Inverse of rate of user complaints reflects user

satisfaction - higher number reflecting higher user satisfaction.


Page | 203

VI. Operational security is also defined and assessed similarly as user satisfaction.

VII.

Benchmarking of service quality parameters may be done by authority based on prior experience or on the basis of experience of other Authorities

in other cities.

Bench marked performance levels of service, as an example, may be considered as under:

Rt & Rk ≥ 96% each;

Ps≥ 94%, Pd ≥ 92% (excluding the exclusions as mentioned in point II)

B ≥ 5 ;

Sg ≥ 10, Ss ≥ 100;

Z ≥ 100;

U ≥ 10

VIII. Formula for calculation of the variation in service quality has been provided in Clause16.2.


Page | 204

DATA SOURCES FOR PERFORMANCE PARAMETERS:

Sr.

No. Parameter Formula Data source for performance parameters:

1 Trips Operated no. of trips operated*100 /

no. of trips scheduled

Trips scheduled – Data obtained from operational schedules prepared by authority

– trip wise route wise for urban areas. Schedules inter-alia indicates no. of trips

scheduled on each of the routes in operational area which would add up to sum of

all trips scheduled.

Trips Operated – Data obtained from physical performance reports w.r.t no. of trips

operated route wise which when added reflects all trips operated – reports prepared

periodically (daily / monthly/as required) – by authority and or by PO.

2 Kilometre (km) operated

No. of Km

operated*100/No. of Km

scheduled

Km scheduled - Data obtained from operational schedules prepared by authority –

trip wise route wise for urban areas. Schedules inter-alia indicate no. of trips

scheduled route wise and route length in km of each of the routes. No. of trips

scheduled on each route multiplied by respective route length provides route wise

km scheduled, which when added up for all routes indicates overall km scheduled.

Km operated - Data obtained from physical performance reports w.r.t no. of trips

operated route wise and respective route length, which when multiplied indicates

route wise km operated. Sum of route wise km reflects all km operated – reports

prepared periodically (daily / monthly / as required) – by authority and or by PO.

In GCC and Hybrid GCC, km operated may also be taken from “km paid for”

reports

3 Start of trips–Origins

No. of trips on- time at

start*100 / Total no. of trips

operated

Scheduled start time for Trips at origins – Data obtained from operational schedules

prepared by authority – trip wise route wise for urban areas. Schedules inter-alia

indicates start time for each trip scheduled on each of the routes in operational area.

Trips started ‘on-time’ – Data obtained from physical performance reports w.r.t no.

of trips operated (started) ‘on-time’ route wise which when added reflects all trips


Page | 205

operated – reports prepared periodically (daily / monthly / as required) – by

authority and or by PO.

4 Arrival of trips - destinations

No. of trips on time at

destination*100 / Total no.

of trips operated

Scheduled arrival time at trip destinations – Data obtained from operational

schedules prepared by authority – trip wise route wise for urban areas. Schedules

inter-alia indicates arrival time at destination for each trip scheduled on each of the

routes in operational area.

Trips arrival at destinations ‘on-time’ – Data obtained from physical performance

reports w.r.t no. of trips operated (arrived) ‘on-time’ route wise which when added

reflects all trips operated (arrived at destination) ‘on-time’– reports prepared

periodically (daily / monthly/as required) – by authority and or by PO.

5

Operational Reliability

(Inverse of rate of breakdowns per

lakh Km operation) --- Higher

number reflecting higher reliability

1 / (Total no. of

breakdowns*one lakh /

Total Km operated)

No. of breakdowns - Data obtained from physical performance reports w.r.t no. of

breakdowns en-route route wise which when added reflects all breakdowns during

operated km – reports prepared periodically (daily / monthly/as required) – by

authority and or by PO.






reports

6

Operational safety - General

(Inverse of rate of accidents per

lakh Km operation) -- Higher

number reflecting higher safety

1 / (No. of accidents*one

lakh / Total Km operated)

No. of accidents - Data obtained from physical performance reports w.r.t no. of

accidents route wise which when added reflects all accidents during operated km –

reports prepared periodically (daily / monthly/as required) – by authority and or by

PO.




Page | 206




reports

7

Severity

(Inverse of rate of fatalities in

accidents per lakh Km operation) -

- Higher number reflecting higher

safety severity

1 / (No. of fatalities *one


No. of fatalities in accidents - No. of fatalities in accidents - Data obtained from

physical performance reports w.r.t no. of all fatalities in accidents during operated

km – reports prepared periodically (daily / monthly/as required) – by authority and

or by PO.





In GCC and Hybrid contracts, km operated may also be taken from “kms paid for”

reports

8

Operational Security

(Inverse of rate of security related

incidents per lakh Km operation) -

- Higher number reflecting higher

security

1 / (No. of security related

incidents *one lakh / Total

Km operated)

No. of security related incidents - No. of security related incidents - Data obtained

from physical performance reports with respect to no. of all security related

incidents during operated kms – reports prepared periodically (daily / monthly/as

required) – by authority and or by PO.





In GCC and Hybrid contracts, km operated may also be taken from “km paid for”

reports

9 User Satisfaction (Inverse of rate

of complaints per lakh Km

1 / (No. of complaints*one


No. of Public Transport (PT) related complaints –Data for PT related complaints

obtained from: (i) PO – directly received by his office and or on line and or through

on-board complaint books, (ii) Authority – through similar sources / means


Page | 207

operation) - Higher number

reflecting higher user satisfaction

(iii) Government and or any of its departments – as and when forwarded by them to

PO and or to authority. Sum of user complaints so received reflects all PT related

complaints over a period or during certain operated km.





In GCC and Hybrid contracts, km operated may also be taken from “km paid for”

reports


Page | 208

ANNEXURE XII – LIST OF INFRACTIONS AND PENALTIES

I. Bus related infractions

Sr.

No. Description

Parameter

Unit Contracted

(bench marked) Achieved

Category of

infraction Symbol Definition / Formula

1 Buses

1.1 Roadworthiness

of the Bus Rw

No. of roadworthy buses*100/No. of buses

in fleet % # $

1.2

Fleet Utilisation

(Fleet

deployment for

operations)

FU No. of buses deployed for operation in

time *100 / no. of buses in fleet % @ $

1.3

Attending to

breakdowns en-

route

Time limit for attending to breakdowns en-

route hrs 3

2 Bus maintenance activities

2.1

Preventive

maintenance

(PM) schedules

Pm No. of PM schedules carried out*100/No.

of PM schedules due % 100% $ C1

2.2 Cleaning of buses Cl No. of buses cleaned *100/ No. of buses

due for cleaning

% 100% $ B2

2.3 Washing of buses Ws No. of buses washed*100/No. of buses due

for washing

% 100% $ B1


Page | 209

2.4

Roadworthiness

certification of

buses

Rc No. of buses attended for roadworthiness

*100/No. of buses due.

% 100%

$ C1

2.5

Pollution under

control

certification

(PUCC)

Pc No. of buses checked for PUCC*100/No.

of buses due

% 100%

$ B2

2.6

Other

maintenance

activities

Mo No. of buses maintenance activities carried

out*100/No. of buses due

%

100% $ A2

Notes

Benchmarked performance:

(#) 96% during warranty period (as per the contract signed with Bus Manufacturer); 94% up to 6 years from the date of purchase of Bus;

90% for the remaining term of the Contract

(@) 1% less than that of contracted values of roadworthiness of Bus. In other words, 1% of the Fleet from among the roadworthy Buses

shall be kept as reserve fleet at all times.

($) for up to every 2% shortfall in actual performance, Penalties would be levied as per category of infraction indicated against each.

Roadworthiness of Buses – considerations and pre-estimated damages- assessment

i. Buses generally operate in one or more shifts daily. They are shed out as per schedule of operations for various shifts. A

roadworthy bus ready for timely out- shedding as per shift wise schedules be considered available for that shift. Depot-wise/Bus-

wise availability of roadworthy buses is worked out quarterly for above purpose.

ii. Buses are not considered available in a given shift in any of the following cases:

a. A Bus not available for timely out-shedding as per given schedule for any reason.

b. A Bus breaking down en-route after leaving Depot as per schedule unless attended promptly and completes 90% or more

scheduled Km operation in that shift. Loss of revenue earning Km however be subject to recovery of pre-estimated damages

equivalent to net loss of revenue for lost kms.


Page | 210

iii. Exclusions while calculating availability of Buses on quarterly basis:

a. Failure of availability of any Bus due to natural disaster, riots or such other reasons beyond control of Operator

b. Failure in providing Bus Services because the Bus is in police/judicial custody or for such other reason provided non-

availability of Bus is not due to an event caused by improper maintenance or negligence on part of Operator. Authority’s

decision in this regard shall be final.

iv. Pre estimated loss of revenue and damages for non-availability of Bus as above:

1. Failure to make availability of Buses as specified, renders Operator liable for payment of pre-estimated damages worked

out as under separately for each Bus shift, Depot and Operator.

2. For a preceding quarter, let “k’ (Km / shift / bus) be the average scheduled Km, ‘l’ as average load factor, ‘p’ passengers

as carrying capacity of bus and ‘t’ as tariff (Rs.) per passenger km, ‘r’ be Per Km O&M Fee (Rs), for the related shift of

a Depots, then net revenue loss (∆R), per bus shift, for non-availability of Bus is worked out as,

∆R=k*(l*p*t-r)

e.g. for k=120, p=70, l=0.70, t=1, r=10,

net ∆R in a shift = Rs. 4,680/-

Or ∆r – net average revenue loss per bus km = 4,680/120= Rs 39/-

∆k = Average kms operation per bus per hour (for an 8 hr shift) = 120/8 = 15 kms

3. Amount of pre-estimated damages be recovered from outstanding payment of Operator or from Performance Security as

the case may be.

v. Damages for delayed response to break downs en-route

Any delay beyond 3 (three) hours, in attending a failed Bus en-route, would attract pre-estimated damages equivalent to Km

lost multiplied by net revenue loss per Bus km. For example, a delayed attention to a failed Bus by 3 (three) hours would

entail a net loss of revenue equal to 2*∆k*∆r where ∆k is average Km per bus per hour and ∆r is average loss of revenue per

bus per km loss - ∆k and ∆r worked out as illustrated as above.

vi. Damages in general


Page | 211

If the operator fails to ensure Bus-wise 88% availability of Buses on quarterly basis during warranty period, 85% beyond

warranty period and up to end of 6th year from the purchase of Bus and 82% thereafter, Authority shall, without prejudice to

other remedies under contract, levy/deduct pre-estimated damages as specified above subject to a ceiling equivalent to average

revenue per Bus per day in preceding quarter less Km charges not incurred

vii. Operator agrees that above pre-estimated damages are fair and genuine pre-estimates and not by way of penalty. Operator

also agrees that he shall not dispute the same in any manner

Presentability of Buses and other infractions in provisioning of Bus Service

i. Presentability of Buses and other infractions in providing Bus Service shall be evaluated by recording infractions and

consequent performance deficiency damages/ recoveries.

ii. ‘Infraction’ in Bus presentability, for example, is an incidence of sub-optimal performance and / or non- compliance of

prescribed specifications and standards at the time of declaring a Bus roadworthy.

iii. Infractions can be identified based on visual checking at the time of out shedding or detected during field checking. Fresh

infractions, if any, occurring during course of operation of a Bus during that shift, are excluded.

iv. In the event of a Bus held upon account of any infraction e.g. poor presentability, cause /reason need to be recorded and

maintained by the authority and same shall also be noted by operator’s Representative before imposing any damages on this

account.


Page | 212

II. Infractions and their categorisation related to different aspects of the project

Sr. No. Description of the infractions

Category of Infraction

A B C

1.0 Bus related additional infractions

1.1 Damaged /Missing window safety guard rails A1

1.2 Missing, damaged, or loosely hanging rub rails, hand grab rails, handholds, etc. A1

1.3 Section of hand rail loose or with sharp edges A1

1.4 Damaged or bent, inadequately fastened / loosely hanging bumpers B2

1.5 Modification of colours/designs of external paintwork vs originals B2

1.6 Discoloration, paint peeled off, and or unpainted repair work inside bus or on any of its items / sections A1

1.7 Defective, damaged, or another wise in operative wheel chair ramp, where provided B1

1.8 Missing, broken, or loosely hanging, seatbelts, or wheelchair anchorages B1

1.9 Damaged floor, steps, hatches, or hatch covers in the bus A2

1.10 Visible dents that are more than 5mm in depth and or 200sq mm in area A2

1.11 Missing / non-operative, saloon lights, indicator lights, wiper system, wiper blades, prescribed horn

& any indicating instruments (per item) A1

1.12 Installation of additional lamps, for illumination or decoration A2


Page | 213



A B C

1.13 Defective head light B2

1.14 Defective front, and / or back brake lights; side marker lights B1

1.15 Damaged, broken, loosely fitted, incomplete or missing passenger seats B1

1.16 Defective operation of entry / exit doors B2

1.17 Defective operation or damage to emergency exits doors, non-availability of hammer for breaking of

emergency glass C1

1.18 Oil spillage on wheel rims, hubs, tyres, etc. B1

1.19 Defective and or inoperative PIS partly or fully B1

1.20 Installation of any type of decoration or non-functional items inside or outside the vehicle, not originally

installed in bus. A2

1.21 Installation of horn(s) other than that originally fitted in bus B1

1.22 Application of opaque films / paints, etc. on side, front or back windows / glasses B2

1.23 Use of worn out tires i.e. tread depth being below tread wear indicator (TWI) depth C2

1.24 Damaged or under/over inflated tyres C1

1.25 Dirty vehicle, outside or inside, at the time of out-shedding of bus and or at crew change at change – over

locations B2


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A B C

1.26 Unauthorised advertising material on bus / advertisements not legally permitted on bus B2

1.27 Excessive emission of visible smoke / abnormal noise of high intensity C2

1.28 Non availability of specified fire extinguishers, lack of charge of same, expiry date due or no specification

of expiry date C1

1.29 Non-provision of fire hydrants C2

1.30 Any other bus related infraction

2.0 Operations related infractions

2.1 Parking in places other than those established by authority B1

2.2 Not stopping at earmarked station en-route as scheduled A1

2.3 Stopping at a station and/or place not earmarked for route service and or in a manner to cause obstruction to

other traffic. A1

2.4 Changing the route of a service B1

2.5 Operating un-authorised hours or services C1

2.6 Picking or setting down passengers at points other than the scheduled bus stops. C2

2.7 Operating outside the established and designated routes C2

2.8 Delaying operation without cause. B1


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A B C

2.9 Abandoning and/or alighting from vehicle without cause and or without informing Authority. C2

2.10 Stopping on / ahead of zebra crossing A2

3.0 Crew (mainly driver) related infractions

3.1 Failure to carry on-board personal identification and / or vehicle registration book / any other vehicle identity B2

3.2 Failure to carry first aid kit C1

3.3 Refusal to provide information to authorised staff / passengers B2

3.4 Park bus dangerously / at away from earmarked space in depot C1

3.5 Cross a red light B1

3.6 Disobedience to lawful instructions / orders of designated authorities C2

3.8 Drunk while on-duty C2

3.9 Irresponsible behaviour causing an accident C2

3.10 Driving above prescribed speed limits B2

3.11 Invasion of zebra crossings B1

3.12 Carry companions in driver work area A2

3.13 Bus running out of fuel B2


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A B C

3.14 Delayed reporting of bus breakdowns / incidents en-route (reaction time < 30 minutes) A1

3.15 Verbal or physical misbehaviour with passenger B1

3.16 Failure to follow or acknowledge instructions of authorised staff B1

3.17 Non wearing prescribed uniform, badge, etc. while on-duty A2

3.18 Non submission of defect / route incidents, reports, etc. on completion of work shift but before leaving depot

premises B1

3.19 Not carrying complaint book and or not presenting complaint book to passengers when demanded B1

4.0 Management Information System (MIS) and ITS related infractions

4.1 Delayed / incomplete / erroneous submission / non-submission of any / all of the prescribed MIS reports. A

few of such reports given here under:

4.1.1 Applicable operations related reports e.g. vehicle productivity data - vehicle wise, route and trip wise; Data

about incidents / accidents / fatalities en-route along with cause-wise details; C1

4.1.2 Revenue data, way bill data, passenger boarding- alighting details; concessional travel data, cost details, C1

4.1.3 Ticketing machines quantum in use, functioning, / serviceable / under repair and maintenance data C1

4.1.4 PIS systems – serviceable / under break down repairs; B1

4.1.5 ITS equipment on–board and their serviceability status – daily bus wise and consolidated C1


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A B C

4.1.6

Bus fleet maintenance related data as per details and formats prescribed by the authority from time to time -

a few requirements given here under

Fleet maintenance activities completion – due and completed – daily and as per prescribed

periodicity

o Preventive maintenance schedules

o Cleaning of buses

o Washing of buses

o Roadworthiness certification of buses

o Pollution under control certification

o Other maintenance activities

o Road worthy fleet

o Fleet Utilisation

Fuel, oil and lubricants consumption data,

Break down related data,

Accidents related data

Pollution under control certification details

Noise checking data

Data related to average life of aggregates

B1

5.0 Administration related infractions as related to applicable contract(s)


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A B C

5.1 Preparation of and submission of all reports / information as required by the authority from time to time. A

few of such reports / information are given here-under

5.1.1 Compliance with all statutes, rules, regulations, obligations, responsibilities as applicable to bus operations

and all its constituents and sub systems and or as prescribed by law and or by authority B2

5.1.2 Change of composition / constitution of the business entity / business / registered office/ CEO and or other

key officials A2

5.1.3 Capacity building of PT operations related crew / staff – quantitative (person days) and operational field

related as agreed / indicated by authority and/or with the training plan. C1

5.1.4

Non-compliance with the waste management or water recycling, defective sewerage system, leaking water

lines / pipes, defective wash rooms, dirty / foul smelling / lack of disinfection of sanitary fittings, defective

drinking water supply system / its sub components, defective electrical / hanging wires / lighting systems/

In-adequate illumination,

C1

5.1.5 Failure to make timely payments of dues, penalties, damages, etc. to Authority C1

5.1.6 Non-payment / delayed payment of wages, social security benefits like Provident Fund, pension contribution,

Employees State Insurance dues, leave salary, etc. to employees C1

5.1.7 Violation of business days, working hours per day, minimum wages, etc. and any other working conditions

requirements as per applicable legal / contractual provisions. B2

5.1.8 Failure to comply with the corrective and preventive maintenance plan as applicable to infrastructure, plant

and equipment and other facilities C1


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A B C

6.0 Any other infraction identified and communicated to Operator by the authority


Page | 220

III. Penalty for various categories of infractions and time period to resolve

Sr.

No.

Category

of

Infraction

Amount of performance deficiency

damages/penalty per infraction per

bus per day (in INR)

Time to resolve (infraction) as

under or as stated against each

infraction whichever is higher

1 A1 2X* subject to a minimum of Rs 200/- One day

2 A2 4X subject to a minimum of Rs 400/- One day

3 B1 6X subject to a minimum of Rs 600/- One day

4 B2 8X subject to a minimum of Rs 800/- One day

5 C1 10X subject to a minimum of Rs 1000/- One day

6 C2 12X subject to a minimum of Rs 1200/- One day

(*) ‘X’ represents per km O&M Fee payable for provisioning bus service as applicable from time to

time. Minimum value of penalty for each category would also stand increased proportionately (rounded

off to next higher ten)


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ANNEXURE XIII – FARE FIXATION, STRUCTURING AND REVISION

INTRODUCTION

This Annexure details the basis for fare fixation, the method for fare revision along with fare structuring process. The annexure also details the bus input cost

review process along with the steps for amending cost of inputs in a Net Cost Contract. The method for fare revision has been detailed for Net Cost Contract but

is applicable for all other contract types as well.

1. BUS FARE FIXATION

1.1 User tariff

Bus fares / tariffs are user charges payable by bus user for availing of bus transport stage carriage services.

1.2 Basic unit of User tariff

Basic unit of user tariff is fare per passenger km travelled.

1.3 Factors for fare fixation

Generally user fares are fixed considering cost of inputs for acquisition, operation and maintenance of buses in addition to similar costs for transport infrastructure,

cost of capital and applicable taxes, fees, rates, etc. Affordability by users, return on capital invested particularly if a private entity provides transport services,

policy of local, state, central governments, etc.

1.4. Factors in Net Cost Contract

In case of PPP for provision of public transport services, under a Net Cost Contract (NCC), private bus operator (PO) considers all factors affecting overall costs

and revenues, profitability and sustainability of business of provision and operation of buses for PT and quotes a well-considered rate against requisite bidding

parameter say, System Management Contribution (SMC) rate . A transparent bidding process used for selecting a successful bidders normally brings out the most

competitive rates , for System Management Contribution (SMC) as bidding parameter, leading to selection of PO - other conditions having been satisfied. PO,

however depending upon the business model selected by the authority, does consider other costs such as those involved with provision of transport infrastructure;

some equipment and facilities to be provided by authority; monitoring and controlling of operations by authority including setting up, equipping, operation and

maintenance of control room; planning and administrative expenses of the authority, utilities and other applicable, rates and taxes, etc. besides any other expenses

for successful provision of PT services as all such expenses are normally recovered from fare box revenues mainly dependent upon user tariffs. Although in NCC

contracts, PO recognises cost of revenue collection as part of input costs for operation and maintenance of PT services, yet in the proposed system of fare fixation,

revision, etc., revenue collection is separated to facilitate incorporation of policy decisions, any other aspect related to provision of services, for example, to

socially relevant but un-economic operations / services, etc.


Page | 222

1.5 Responsibility allocation for different cost heads

Sr

no.

Activities for bus operations in NCC and costs related

there to

Responsibility of / provision by Cost head including all

applicable elements of

costs (Rs per year) for

provision of PT and related

services

Authority

(A)

Private

operator

(PO)

Ao - outsourcing by

A

a

Travel demand assessment, overall planning, setting

route network, operations planning and scheduling;

setting bus fleet standards, specs and requirements;

benchmarking service quality levels, operators

performance parameters, etc.; contracting of various

services and contract administration; branding of PT

services, etc.; overall monitoring and control of all

activities related to PT operations; all administrative

functions, any other activities related thereto,. All

miscellaneous activities and contingencies for

provision of PT services. Costs for above activities

collectively termed as 'administrative costs' and

termed as 'A'

A - - A

b

Acquisition of bus fleets including investments

therefore, operations and maintenance of buses;

acquisition of set of tools, plant and equipment,

auxiliary vehicles, jigs and fixtures, etc. as decide by

the authority as part requirement schedule of PO - their

investments, operation and maintenance; upkeep and

maintenance of depot infrastructure, plant and

equipment procured and provided to PO by authority

and all other activities as decided by authority at the

time of award of NCC contract. Costs for all above

- PO - C


Page | 223

activities collectively termed as 'cost of inputs for bus

provisioning and operation under NCC' and designated

as 'C'

c

Acquisition of PT infrastructure such as depots,

central workshop if any, including investments

therefore; acquisition of / investment in plant,

equipment and other facilities of infrastructure for

handing over to POs for their usage, operations and

maintenance; acquisition of other infrastructure such

as bus stops, terminals, control rooms, etc. - their

investments upkeep and maintenance, etc.; acquisition

of set of plant and equipment, auxiliary vehicles,

furniture and fixtures, computers, ITS facilities,

equipment, their operation and maintenance, etc. as

provisions by the authority as part of authority's

responsibilities. Costs including operational costs,

consumables cost, maintenance cost; utilities costs

collectively termed as 'I'

A - - I

d

Cost of revenue collection includes those of related

hardware and software, communications, checking,

accounting, etc.

- PO - R

e

Return on investment (ROI) and cost of borrowed

capital, payment of 'SMC' to authority, etc. (Though

ROI, does not normally constitute 'input costs', yet

same is considered here as part of 'input cost' for tariff

fixation as the same is to be recovered from pax tariff

in NCC.)

- PO - B


Page | 224

f Total cost of provision of bus transport services in a NCC model under PPP particularly for user

tariff fixation, etc. T = C + R + I + A + B

1.6 Fare fixation in terms of fare per passenger kilometre

The fare fixation process described here in takes under consideration the input costs identified above to work out the fare per passenger kilometre.

i. Fix bus user fare considering all above elements of input costs including return on investment, cost of capital, depreciation, fees, rates, taxes, SMC,

etc. Bus user fare should be adequate to recover total costs as above.

ii

Fare per passenger km (F): 'F' be worked out considering benchmarked physical performance parameters (namely: Fleet size, category, bus capacity,

fleet utilisation, bus productivity, capacity utilisation) of bus per unit period, say a year. As physical performance of buses deteriorates with usage,

appropriate deterioration factors with respect to various parameters need also be considered. In the following case entire bus fleet is taken as new

comprising of type 1 (non-deluxe standard as per AIS 052) buses and fare fixation is demonstrated during first year of serviceable life of bus.

iii

Physical performance (benchmarked / contracted) and passenger kms serviced per yr. by the fleet.

Description units symbol

a. Avg. Bus fleet size during the yr. nos Q

b. Avg. benchmarked fleet utilisation % W

c. Bus fleet utilised during the yr.=a*b*365 i.e. no. of

days in a yr. bus days U

d. Avg benchmarked bus productivity per bus on road

during the yr. kms per bus / yr. K

e. Bus capacity seated + standees per bus nos N


Page | 225

f. Avg. planned capacity utilisation per bus during the yr.

=percentage of passenger kms utilised to bus capacity kms

supplied(=d*e)

% L

g. Planned usage or supply per yr. per bus on road in terms

of pax kms =d*e*f pax kms P

h. Planned delivery of PT services by contracted bus fleet

during the yr.=g*a*b pax kms D

iv

Total costs (as worked out at 1.5.f above) for provision of

PT services in NCC system as per benchmarked physical

performance parameters.

Rs T

v

Avg fare per pax km of PT service delivered = Avg. cost

of delivery of PT services per pax km during the yr.=1.6.iv

/1.6.iii.h

Rs/pax km F

2. REVIEW / REVISION OF BUS FARE PER PASSENGER KILOMETRE

The review process described here is applicable for all contract types but has been described for Net Cost Contract as fare box revenue forms an integral part of

the potential revenue for a private operator in Net Cost Contract.

Description Unit

Symbol of

various

items /

elements

Quoted /

assessed

values per

year.

Quoted / estimated values in

terms of fare per pax km Revised Rates for

initial values

quoted / assessed

Remarks

F as %age of F

2.1

Bus fleet operations,

maintenance, etc. related

costs during the year as at

1.5.b

Rs C C F1=C/D (C*100)/(D*F) Cr

As per bus input cost

details provided by PO

during bidding


Page | 226

Description Unit

Symbol of

various

items /

elements

Quoted /

assessed

values per

year.



initial values

quoted / assessed

Remarks

F as %age of F

2.2

Administrative and other

costs of / by the authority

during the year as at 1.5.a

Rs A A F2=A/D (A*100)/(D*F) Ar=A*Sr/S

As per revision of

Wholesale Price Index 'S'

to 'Sr' 2.3

Costs related to

infrastructure per yr. as at

1.5.c

Rs I I F3=I/D (I*100)/(D*F) Ir=I*Sr/S

2.4 Costs related to revenue

collection per yr. as at 1.5.d Rs R R F4=R/D (R*100)/(D*F) Rr=R*Sr/S

2.5

Return on investment (ROI)

and cost of borrowed

capital, payment of 'SMC' to

authority, etc.

Rs B B F5=B/D (B * 100)/(D *

F)

Br=B*(x₂*z₂ +

y₂*2*z₂) / (x₁z₁ +

y₁*2*z₁)

As per revision in

borrowing rates of SBI as

applicable to commercial

vehicles.

Weighted average of

prime lending rate for

commercial vehicles by

SBI on borrowed capital

and twice that rate for

return on own capital

invested. For

example, if borrowed

funds are 'x₁, x₂ ' and own

funds invested are 'y₁, y₂'

and prime lending rates

for commercial vehicles


Page | 227

Description Unit

Symbol of

various

items /

elements

Quoted /

assessed

values per

year.



initial values

quoted / assessed

Remarks

F as %age of F

by SBI are 'z₁, z₂' at

bidding and revision

stages respectively then

Br=B*(x₂*z₂+y₂*2*z₂) /

(x₁z₁+y₁*2*z₁).

SMC payable to Authority

would also get revised at

above weighted average

rates.

Description Unit

Symbol of

various

items/elements

Quoted/assessed values per

year

Revised Rates for initial values

quoted/assessed

2.6 Total costs during the yr. for provision

of PT services under NCC Rs T T = C + A + I + R + B

Tr = Cr + Ar + Ir + Rr + Br = [Cr + {(Sr

/ S)*(A + I + R)} + B * {(x₂*z₂ +

y₂*2*z₂) / (x₁z₁ + y₁*2*z₁)}]

2.7 Planned delivery of PT services during

the year in terms of pax kms = 1.6.iii.h pax kms D D Dr

2.8

Fare per pax km ('F')= cost per pax km

worked out on the basis of total costs

incurred for provision of PT services

by the fleet during the year and

Rs / pax km F F=T/D Fr=Tr/Dr


Page | 228

quantum of PT services delivered, in

terms of pax kms, at bench marked

physical performance parameters level

during the year.

2.9 Revised fare per pax km 'Fr' Rs/pa

x km Fr

Fr= Tr / Dr = (Cr + Ar + Ir + Rr + Br) / Dr = [Cr + (Sr/S) * (A + I + R) + B*(x₂*z₂ + y₂*2*z₂) /

(x₁z₁ + y₁*2*z₁) ] / Dr

2.10 Variation in total cost Rs TΔr TΔr = Tr - T = {Cr + Sr * (A + I + R)/S + B*(x₂*z₂ + y₂*2*z₂) / (x₁z₁ + y₁*2*z₁)} - (C + A + I

+ R + B) = (Cr - C) + (A + I + R)*{(Sr/S) - 1)} + B * {(x₂*z₂ + y₂*2*z₂) / (x₁z₁ + y₁*2*z₁)-1}

2.11 Percentage variation in fare

per pax km % FΔr

Δr = (Fr - F) * 100 / F = [(Tr / Dr) - (T / D)] * 100 / (T / D) = [(Tr * D / T * Dr) - 1] * 100 =

[{{(Cr + (Sr / S) * (A + I + R) + B * (x₂*z₂ + y₂*2*z₂) / (x₁z₁ + y₁*2*z₁)) * D} / {Dr * (C + A

+ I + R + B)}} - 1] * 100

2.12

Notes:

i. 'C' = Input Cost of bus operation, maintenance, etc., for the fleet during the year as submitted by the contracted NCC bidder during competitive

bidding process and accepted by authority.

ii. 'Cr' = Revised cost of bus operation and maintenance, etc., for the fleet during the year, as per process of revision placed at Annexure 1.

iii. A, I, R, B = Represent costs as brought out at sr nrs. 2.2, 2.3, 2.4, 2.5 respectively in table. Ar, Ir, Rr, Br represent revised costs of A, I, R, B

respectively. Cost revision is based upon variation in Whole Sale Price Indices for A, I, R and that of prime lending rate for commercial vehicles by

SBI for 'B'.

iv. S and Sr: 'S' - whole sale price index initial, at the time of fixation of fares, and 'Sr'- whole sale price index at the time of fare revision.

v. 'T' and Tr : 'T' & 'Tr' - Total (all inclusive) costs, during the year, for providing bus services initially and at the time of fare revision respectively.


Page | 229

vi. 'D' & 'Dr' : 'D' and 'Dr' respectively represent, initial and revised quantum of PT services planned / delivered, in terms of pax kilometres during the

year, at benchmarked physical performance parameters levels.

vii.'F' & ‘Fr’: 'F' &'Fr' - Fares per pax km initial and revised respectively.

viii. 'TΔr' & 'FΔr' : 'TΔr' & 'FΔr' represent variation in total cost and variation in fare per pax km (%) respectively between initial workout stage and

the revision stage

3. FARE REVISION / MODIFICATION IN NCC CONTRACTS FOR SERVICE QUALITY VARIATION

3.1 Revised fare i.e. 'Fr' modified for service quality variations = Frqs

3.1.1 Service quality variation =Qsv = (Qsa - Qsc) / Qsc

where Qsa = actual service quality score over the period of preceding three months & Qsc = contracted service quality score

3.2

Revised fare per pax km incorporating variation in service quality=Frqs:

Frqs = Fr * (1+service quality variation element) or

Frqs = Fr * (1+Qsv) where Qsv value shall be limited to actual or ± 10% which ever absolute value is lower.

For negative value of Qvs, only 60% of Qvs is to be considered in revision.

4. ASSESSMENT OF SERVICE QUALITY VARIATIONS

The assessment of service quality variation shall be done as per details given separately for service quality performance.

5. FARE STRUCTURING – NEED, PROCESS, AND EVALUATION OF STRUCTURED FARE

5.1. Fare Structuring

As discussed earlier basic unit of PT user tariff / fare charged for use of PT services is fare per pax km (F). During the process of fare fixation, 'F' may work out

as a whole number or a whole number followed by a fraction thereof e.g. Rs 1.29 per pax km. Similarly passengers travel trip lengths (in terms of pax kms) which

may also be whole nos and or fraction thereof e.g.8.76 kms. In such a situation working out chargeable fares from passengers would invariably cause operational

and handling inconvenience, journey time delays and other difficulties both for passengers and the tariff collectors. To address such issues PT routes are divided

into a number of fare stages appropriately placed and further adjusted for easy accessibility of passengers from residential, institutional, educational and other


Page | 230

traffic generation locations. Further basic fares are rounded off for operational ease and accordingly pax tariffs are decided stage wise. This process is generally

termed as 'fare structuring' and fares so decided constitute 'fare structures'.

Fare structures may be as simple as flat fare structure - charging one fare from all passengers irrespective of journey time or travel trip length. Fare structure may

also be designed as stage wise fare and or telescopic fare structure and or any other variation / combinations. In case of telescopic structures, user tariffs tend to

decrease with increasing trip lengths.

Fare structures prepared as above need to be evaluated to ensure that revenue generation remains in line with that planned while fixing basic fare i.e. fare per

passenger km. The process of evaluation of fare structures is also discussed along with the process of fare structuring.

5.2 Fare Structuring and fare structure evaluation to ensure that revenue from structured fares match fare fixed / revised in terms of fare per pax

kms

The fare structuring assumes the total distance for the route is SL8. A passenger who has travelled a distance more than SL4 but less than SL5 would fall under

fare stage 5 and would pay fare f5 and is assumed to have travelled a distance SL5. Thus, the average kilometres paid for by passengers falling under this fare stage

is SL5.

Fare

Stage

no.

Fare Slab Stages

Present

fare Rs

per pax

per slab

Avg. pax

kms paid for

Revenue

per stage

Rs

Fare option I -

Flat Fare=T₁

Fare option II - 2 slab

fares=T₂ & T₃

Fare option III -

Stage wise fares =

T₄ to T₁₁

From

(km)

To

(km)

Pax per

period for

each

distance

Revenue per

period at Flat

Fare = RT₁

Revenue per period at

slab wise fares = RT₂₃

Revenue per

period at stage

wise Fares = RT₄

to RT₁₁

i ii iii iv pk = ii * iii r = iii * iv RT₁ RT₂₃ RT₄₁₁

1 0 SL1 p₁ f₁ SL1p₁ r₁

RT₁ = T₁ * ∑(p₁

to p₈) RT₂=T₂*(p₁+p₂+p₃+p₄)

RT₄=T₄*p₁

2 SL1 SL₂ p₂ f₂ SL2p₂ r₂ RT₅=T₅*p₂

3 SL₂ SL₃ p₃ f₃ SL3p₃ r₃ RT₆=T₆*p₃

4 SL₃ SL₄ p₄ f₄ SL4p₄ r₄ RT₇=T₇*p₄


Page | 231

5 SL₄ SL₅ p₅ f₅ SL5p₅ r₅

RT₃=T₃*(p₅+p₆+p₇+p₈)

RT₈=T₈*p₅

6 SL₅ SL₆ p₆ f₆ SL6p₆ r₆ RT₉=T₉*p₆

7 SL₆ SL₇ p₇ f₇ SL7p₇ r₇ RT₁₀=T₁₀*p₇

8 SL₇ SL₈ p₈ f₈ SL8p₈ r₈ RT₁₁=T₁₁*p₈

Total p = ∑(p₁ to

p₈)

pk =

∑(SL1p₁ to

SL8p₈)

r=∑(r₁ to

r₈) RT₁=T₁ * p RT₂₃=RT₂+RT₃

RT₄₁₁ = ∑(RT₄ to

RT₁₁)

5.3 Average fare box revenue per passenger kilometre with respect to each option

F=r/pk F₁=RT₁ / pk F₂₃= RT₂₃ / pk F₄₁₁= RT₄₁₁ / pk

5.4 Fare Structuring Process Illustration

Fare

Stage

no.

Fare Slab Stages

Present fare Rs

per pax per slab63

Avg. pax kms

paid for

Revenue per

stage Rs

Fare structure

options at 'F' =

1.50 per pax

km

Fare option I --

Flat Fare=T₁

Fare option

II -2 slab

fares=T₂ &

T₃

Fare option

III - Stage

wise fares=

T₄ to T₁₁

63 Assumed from existing fare structures from different locations in India


Page | 232

From

(km) To (km)

Pax per period

for each

distance

Revenue per

period at Flat

Fare = RT₁

Revenue per

period at

slab wise

fares =

RT₂₃

Revenue per

period at

stage wise

Fares = RT₄

to RT₁₁

i ii iii iv pk = ii * iii r = iii * iv RT₁ RT₂₃ RT₄₁₁

1 0 2 15 3 30 45

10

10

5

2 2 4 10 5 40 50 8

3 4 6 25 7 150 175 10

4 6 8 12 9 96 108 12

5 8 10 13 11 130 143

15

15

6 10 12 11 12 132 132 17

7 12 14 8 13 112 104 20

8 14 16 6 14 96 84 20

5.4.1 Totals

i Total pax 100

ii Total pax kms paid for 786

iii Total revenue Rs 841 1000 1190 1211

iv Planned fare per pax km 'F' Rs 1.10 1.50 1.50 1.50


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v Tariff per pax km Rs ('Fc') for structured fares 1.07 1.27 1.51 1.54

5.5 Comparisons of fare per pax km planned('F') and that obtained 'Fc' in various fare

structures

Almost

matches

with 'F'

Fc' < 'F' -- fare

structuring

need to be

improved. For

example flat

fare fixed as Rs

12/- per pax,

'Fc' works to Rs

1.54 per pax

km. which is in

the range of

that planned i.e.

'F'=Rs1.50/-

and thus should

be accepted

Fc' ≥ ‘F’ i.e.

Rs 1.51/- as

obtained

using

structured

fare is equal

to that

planned i.e.

'F' = Rs

1.50/- . Fare

structuring

should be

acceptable.

Fc' ≥ ‘F’ i.e.

Rs 1.54/- as

obtained

using

structured

fare is more

than that

planned i.e.

'F' = Rs

1.50/- . Fare

structuring

should be

acceptable.


Page | 234

6. BUS INPUT COST REVIEW PROCESS

6.1. Bus input cost is the cost of operation, maintenance, etc. incurred by a Private operator (PO) for provision of buses for a Public Transport (PT) as

contracted and or revised by the authority, to operate passenger transport services in the operational area of the authority on routes, trips, timings, schedules, etc.

and as per other terms and conditions as finalised. SMC by PO is fixed in terms of Rupees per revenue earning km operated by a bus. Beginning and end of

revenue earning km shall generally be the start/end points of designated route(s) and or locations as finalised by the authority. SMC would automatically stand

revised in line with revision in parameter 'B' of fare revision elements.

6.2. Service quality performance shall be computed in respect of parameters and as per procedure detailed at Annexure XI of the document.

6.3. Authority shall initially mention, then applicable tariff structure for PT services, in the RFP and fix SMC on the basis of open tenders and or by any other

method / procedure decided by the authority.

6.4. While quoting rates, bidders have to provide cost element wise break up of input cost besides composite cost of operation and maintenance, etc. per km.

Benchmarked Service Quality performance levels for various parameters, process / formula, periodicity of assessment in each case as well as formula to assess

variation in overall service quality would form part of RFP document in a prescribed format. PO agrees to deliver service quality performance in respect of various

service quality parameters and its use in reviewing tariffs and SMC.

6.5. Above cost break up and the performance shall be used for amending the rate periodically.

6.6. PT tariffs in NCC system shall be amended periodically on the basis of variation in input costs and or performance of PO, particularly with reference to

service quality parameters, achieved during the period for revision of tariffs. Contracted parameters / cost data shall also be considered for review of user tariffs.

6.7. Initially quoted rate for SMC shall remain firm for a minimum period of six months from the date of induction of first bus of the PO.

6.8. Performance of PO shall be regularly monitored for various parameters during above period. On basis of performance during last month of above period,

and the input cost per km, Authority would consider tariff revision subject to approval by the concerned Government / Agency. However tariff review would be

undertaken once in six / twelve months or later subject to variation in cost inputs and or service quality performance exceeding ---- % of previous levels. Revised

rate shall be applicable during the following period. This process shall be followed thereafter unless quality performance levels warrant otherwise, in which case

review / revision of tariff rates or any other action deemed fit may be undertaken earlier by the authority.

6.9. Revision of tariff and SMC shall be undertaken as per formula given in tender document.

6.10. Quality performance for the purpose of tariff rate revision shall be taken for total bus fleet deployed by PO.

6.11. Responsibility for highlighting/submitting details of variations in cost of inputs shall be that of the PO and that for assessment of service quality

performance shall be of the authority.


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6.12. Tariff / SMC rates fixed and or modified herein would remain valid only for present contract. Should for any subsequent contracts the rates, terms and

conditions obtained are more beneficial to Authority, later (Authority)) shall have the right to implement the same for existing PO who shall be obliged to

accept the same failing which Authority may take action against the concerned PO as deemed fit.

6.13. Authority shall have right/option to ask PO to deploy more buses (up to 25% of the currently deployed quantum of buses within one year of induction

of first bus) from existing PO as per rates, terms and conditions currently applicable.

7. FIXING/AMENDING COST OF INPUTS FOR BUS FLEET OPERATION AND MAINTENANCE UNDER NCC

Sr nr. Input Cost elements Symbol of

Contracted /

tendered rate

per bus km*

Contracted /

tendered rates

as %age of CT

Remarks

cost element Rs/ bus km#

7.1. Input Cost per bus km(cpk)

7.1.1. Staff/Labour cost per km inclusive of overheads but excluding

revenue collection and repair maintenance cost ST ST

7.1.2. Fuel, Oil and lubricants cost per km FO FO

7.1.3. Tyres cost per km TY TY

7.1.4. Repair and Maintenance (R&M) cost per km (Rs / km) includes

labour for R&M, materials, spares, etc. # RM RM

7.1.5. Depreciation on buses, plant and equipment provided by PO DP DP

7.1.6. Taxes, fees, Insurance, etc. per km TX TX

7.1.7. Other charges per km OT OT

7.2. Total cost per km CT CT

7.3. Note: Item values marked '*' are only indicative values for assessing overall cost variations in future and may not reflect actual consumptions. '#'

rates as finalised by authority on receipt of bids


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7.4. For revision of input cost per km following parameters/cost data be considered

7.4.1. Elemental input cost variations

Sr nr. Cost element wise details

Affected Cost

element

(symbol)

Rates Rs per unit at

Remarks Contract stage

Revision stage

i. Minimum labour wage rate for highly skilled labour as fixed by

concerned State Govt ST ST1 ST2

ii. Fuel rate Rs per litre (as applicable to concerned city PT Agency) FO FO1 FO2

iii. Tyres cost /km (DGS&D rate contract rates) TY TY1 TY2

iv. Wholesale Price Index as applicable to Automobiles for calculation

of variations in repair and maintenance related cost element. P P1 P2

v. Depreciation DP DP1 DP2

vi. Tax basket Rs./bus/year '=Sum of MV tax, pax tax, permit fees,

Insurance, etc. per year per bus TX TX1 TX2

vii. Others (administration, utilities, etc.) as per variation whole sale

price index OT OT1 OT2

7.4.2. 3 NOTES

i Fuel cost Rs. per litre of fuel

ii Tax basket rate to be calculated by adding annual individual taxes per bus. For taxes charged on basis of passenger seats, its annual value shall be

worked out by multiplying annual tax rate by contracted carrying capacity (seated plus standee passengers) of the bus.

iii For revision of staff related costs, minimum wage rate of highly skilled workman shall be taken as the basis

iv. Revision in repair and maintenance cost element, whole sale price index of auto parts / automobiles would be considered.

7.5. 4 Basic revised input cost per km = CT2

CT2 = ST * ST2 / ST1 + FO * FO2 / FO1 + TY * TY2 / TY1 + P * P2 / P1 +

DP * DP2 / DP1 + TX * TX2 / TX1 + OT * OT2 / OT1 or a simplified version

of above as under may also be used CT2b (simplified) = ST * ST2 / ST1 + FO

* FO2 / FO1 + A * W2 / W1 where, 'W' is whole sale price index for all items


Page | 237

and 'A' is sum of all other cost elements' contracted values i.e. A = TY1 +

RM1 + DP1 + TX1 + OT1


Page | 238

ANNEXURE XIV – BLOCK COST ESTIMATES

(All costs are indicative)

Block Cost Estimates – broadly capital and revenue expenses – block estimates –bus fleet of 100 standard size non AC buses

Sr.

No. Component

Authority GCC NCC Total

staff Financial

implication (Rs.

In lakhs)

staff Financial

implication

(Rs. In

lakhs)

staff Financial

implication

(Rs. In lakhs)

staff Financial

implication

(Rs. In lakhs)

A Ao

I Capital expenses –

1 Infrastructure

1.1 Land 5 acres per depot of 100 buses @ Rs

1000/ per sq mtr 40 40

1.2 Buildings and all other civil construction

works complete with utilities and

workshops – ready to use i.e. buildings,

workshops, offices, control room, hard

standing, boundary walls, complete set of

utilities including high mast lights - all fully

installed and commissioned @ Rs 6000/=

per sq mtr of land area - weighted average

240 240

1.3 Bus terminals


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1.3.1 Land about 5 acres at one or more locations

depending upon city needs @Rs 1000/= per

sq mtr

40 40

1.3.2 Bus Terminal – all civil works – buildings,

hard standing, boundary wall, etc. as above

@Rs 3000/= per sq mtr of land area –

completed as above at 1.2.

120 120

1.4 Bus shelter @ 2 bus shelters per km of route

length- one on each side of road – total route

length of about 100 kms per city each

shelter costing@ Rs 10 lakhs per shelter –

land available free

200 200

1.5 Miscellaneous expenses and contingencies

– lump sum 50 50

1.5 Total Land and buildings 690 690

2.0 Plant and equipment, ITS, Control room,

etc.

2.1 Plant and equipment

2.1.1 Plant and equipment for repair and

maintenance of bus fleet including latest

driver training equipment, facilities and

simulator

350 350 350 700


Page | 240

2.2 Other miscellaneous equipment such office

furniture, air conditioners, vehicles,

computers, communication systems, etc.

40 20 40 40 100

2.3 ITS and Control room equipment including

those for data capturing, mining,

processing, analysing, report generations,

etc., other ITS equipment, software, etc. on

– board equipment with buses, and data

communication equipment, vehicle tracking

equipment on line, etc. by authority and PO

almost equally divided - assumption

200 200 200 400

2.4 Total for plant and equipment for 100 buses

maintenance

3.0 Buses

3.1 Buses -- 100 nos, low floor standard size

non AC diesel fuelled as per UBS II @Rs

50 lakhs per bus

5000 5000 5000 5000

II Operation and maintenance costs of PT

system of 100 buses

Nos Annual cost Rs

in Lakhs Nos

Annual

cost Rs in

Lakhs

Nos Annual cost

Rs in Lakhs Nos

Annual cost

Rs in Lakhs 1.0 Bus fleet and ITS, staff costs for Operations

and maintenance:

1.1 Staff for bus fleet O & M


Page | 241

Bus fleet operations and maintenance

management, administration, checking and

supervision, supervisors, managers, etc.

including CEO @8 man per bus for 2 to

2.25 shift working daily on an average and

government agencies leave, etc.; and

average cost to the company as Rs 25000/=

per staff per month

Staff distribution per bus taken as under:

Drivers : 3

Conductors : 3

Inspectors, Supervisors, Engineers,

Managers : 0.5

Workshop & Maintenance : 1

Administration, accts, etc. : 0.5

Total Staff per bus : 8

20 (335 by

revenue

collection

agency

outsourced)

60 1005 445 1335 780 2340 800 2400

1.2 Staff for ITS – O & M 15 45 10 30 10 30 25 75

2.0 Maintenance expenses

2.1 Bus fleet maintenance

Maintenance expenses for materials, spares,

bought out items, consumables, etc. for bus

fleet, etc. maintenance and management,

etc.

500 500 500


Page | 242

2.2 ITS and control room items

ITS system maintenance including

manpower etc. outsourced @20% of ITS

capital costs

40 40 40 80

2.3 PT infrastructure maintenance expenses

PT infrastructure maintenance @5% of

infrastructure cost (less land cost) 31 31 31

2.4 Plant and equipment maintenance

expenses @10% of P & E’s capital costs 41 39 39 80

3.0 Fuel and Lubricants costs

3.1 Fuel cost – Fuel Efficiency as 3.0 kmpl and

diesel rate as Rs 50 per litre, bus

productivity as 200 kms per bus held

1220 1220 1220

3.2 Lubricants 30 30 30

3.3. Depreciation, interest, etc. on borrowed

funds, etc. @15% of capital expenses 153 839 839 992

3.4 Miscellaneous expenses including taxes,

rates, utilities, communication, auxiliary

vehicles operation, etc. @ 33% of labour

costs

20 335 445 780 800

III Grand totals


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1.0 Capital costs 1080 220 5590 5590 6890

2.1 O & M expenses in one year for 100 bus

fleet

2.1.1 In GCC 233 1466 4509 - 6208

2.1.2 In NCC 233 126 - 5849 6208

3.0 Revenue in a year for 100 bus fleet at a

fare per pax km rate of Re 1.00, bus fleet

average load factor of 0.70, bus carrying

capacity of 70 pax

3577

3577

3577




capacity of 70 pax

5366

5366

5366




capacity of 70 pax

6260

6260

6260

Summarising:

1. Overall capital expenses of about Rs 69 crores required for operationalising a bus fleet of 100 standard size low floor Non – AC buses

2. Fare per pax km of Rs 1.75 – considering no discounts and highly optimistic, year-long, average load factor of 0.70 – would need to be charged for

recovering all expenses from user tariff only.

Sustainable Urban Transport Project (SUTP), an initiative of the Ministry of Urban Development, launched in May 2010, is a sequel to adoption of National Urban Transport Policy (NUTP), 2006. SUTP aims at building capacity in Indian cities and pilot projects with the concept of ‘priority for moving people, not vehicles’. It is financed by Government of India/ participating States & Cities and aided by World Bank, GEF and UNDP. The project’s funding, about INR 17.5 billion, is used in building capacity in Transport planning pan India and demonstration of six projects in different cities. Under technical assistance component of SUTP to improve National, State and local capacity to implement NUTP, various guidance documents are being developed and this operations document is a part of the same.

NOVEMBER 2016

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SUSTAINABLE URBAN TRANSPORT PROJECT (SUTP)

The Guidelines Document for City Bus Private Operations has been undertaken by the Sustainable Urban Transport Project, Ministry of Urban Development (MoUD), to guide cities in preparing a comprehensive bus contract suitable to the context and environment of their city.