Monitoring Local Bus Service Tenders in Englandwebarchive.nationalarchives.gov.uk/+/.../regional/buses/tendering/... · MONITORING LOCAL BUS SERVICE TENDERS IN ENGLAND Bus Tendering

Monitoring Local Bus Service Tenders in England

Bus Tendering Good Practice Guide: Version 1.0

MONITORING LOCAL BUS SERVICE TENDERS IN ENGLAND Bus Tendering Good Practice Guide: Version 1.0

Contents Section Page

Foreword iii

1. Introduction 1-1 Background 1-1

Supported Local Bus Services 1-2

Acknowledgements 1-5

2. Changes in Legislation and Sources of funding 2-1 Overview 2-1

Legislative Changes 2-1

Transport Act 2000 2-2

1998 Competition Act 2-3

Other Recent Legislative Changes 2-8

Provisions for De Minimis Contracts 2-10

Changes in Funding 2-10

Local Authorities' Duties 2-11

3. The Bus Tendering Process 3-1 Introduction 3-1

Requirements 3-3

Specification 3-5

Invitation to Tender 3-7

Evaluation and Award 3-15

Monitoring 3-16

Renewal 3-17

4. Key Themes and Case Studies 4-1 Introduction 4-1

Making the Most of Limited Funds 4-1

Balancing Risk and Reward 4-3

Maintaining Competition 4-4

Maximising Services, Quality and Reliability 4-7

Achieving Innovation 4-10

Achieving Integration 4-11

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Annex 1: Checklist 1

References 9 Publications and Guidance Notes 9

Acts and Regulations 9

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Foreword This Guide is intended to assist local authorities in England (outside Greater London) in procuring supported bus services as part of their wider Local Transport Plans.

Local authorities are able to secure the provision of local bus services that would not otherwise be provided on a commercial basis by bus operators by offering a contract for the provision of the service, in most cases after a competitive tendering process. This mechanism has enabled authorities to ensure that access to the transport system has been maintained and enhanced for a great number of people, particularly those without access to a car living in areas that would otherwise have limited public transport services. Currently around 20% of the total local bus service mileage in England (outside London) is supported by local authorities - the remainder being operated on a wholly commercial basis.

In recent years Government has substantially boosted funding available to authorities through the Urban and Rural Bus Challenge process1 and the Rural Bus Subsidy Grant (RBSG). The annual cost of supporting tendered local bus services in England (outside London) in 2003/04 was £332 million, including RBSG funding (£48 million) and Challenge funds.

Enabling local authorities to continue providing supported services remains a key element of the Government's 10-year strategy for transport. However, after a number of years of relatively stable prices the cost of supporting local bus services has been increasing in recent years and is a concern. Recent evidence from a number of sources indicates that local authorities have been facing annual cost increases of between 10% and 20% simply to secure the same level of supported service2. As in all areas of public sector procurement there is a need to ensure that value for money is being achieved and that funding is allocated in a way that best serves policy objectives.

Atkins Transport Planning has, on behalf of the Department for Transport (DfT), been reviewing how local authorities procure their tendered bus services with a view to establishing best practice and better understanding the key drivers of cost increases and how these might be best managed. Research undertaken has also sought to identify how value for money could best be achieved in the very wide range of different local circumstances under which supported local bus services are needed.

The conclusions of the review are presented in this document in the form of a Good Practice Guide. While the Guide is aimed primarily at local authority officers involved in the tendering process it is anticipated that it will benefit others working in local authorities and elected members. It is also expected to be of value to bus operators. It is emphasised that the Guide does not represent the binding advice of the Department and serves only to disseminate information on process and identify good practice.

1 Urban of Rural Challenge Funding amounted to £163 million over the life of the schemes. 2 Estimates of tender price increases were derived from a number of measures comprising: analysis of changes in cost of bus tenders awarded in a given year against those awarded in the previous year, using cost per annual bus hour as an indicator of tender price; and analysis of ‘like for like’ tender replacement costs comparing new award price against the current price of the tender being replaced.

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It is intended that this guide be updated and revised periodically. Some revisions may be considered in forthcoming months according to feedback. In the longer term new issues may need to be considered, in response to changes in funding or legislation, for example.

Finally, we wish to acknowledge the support given by the various local authorities and bus operators who contributed both to the research work and the identification of good practice. We also acknowledge the contribution of the Association of Transport Co-ordination Officers (ATCO), the Confederation of Passenger Transport (CPT) and the Passenger Transport Executive Group (PTEG).

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1. Introduction

BACKGROUND

1.1 This Good Practice Guide is intended as a resource document for local authorities in England who procure supported bus services. The Guide has been prepared by consultants Atkins as part of a research commission for the Department for Transport (DfT) examining the local bus tendering process and its outcomes.

The Scope of the Guide

1.2 The Guidance is directly applicable only to local authorities in England, outside Greater London. It also only applies to local bus services that are procured through the tendering mechanisms provided for in the 1985 Transport Act (see below). However, many of the elements of good practice are likely to also be relevant in other parts of the UK and in securing school and community transport services.

1.3 The Guide largely focuses on the mechanisms for securing supported services, though noting that a key element of the overall provision of supported services is the identification of need and the prioritisation of services that should be provided. Under the Local Transport Plan (LTP) process authorities have a duty to develop an overall bus strategy which sets out the supported services network. The focus on needs identification has been further amplified by recent DfT guidance for LTP2 and the requirement for authorities to develop Accessibility Strategies3. While this Guide does not seek to cover needs identification there is inevitably some degree of overlap in certain aspects of good practice.

1.4 The Guide does not represent the binding advice of the Department and is intended as a means of disseminating information to local authorities on the tendering process and its outcomes. It is also recognised that supported bus services need to be tailored to local circumstances and that not all elements of guidance or good practice will necessarily be applicable to every service or area.

The Need for a Good Practice Guide

1.5 As part of a commission for the Department for the Environment, Transport and the Regions (DETR) a document providing guidance to local authorities was published in June 1999 by the TAS Partnership4. The guide still forms an essential reference point for authorities procuring supported services and also covers community transport services (which are outside the scope of this Good Practice Guide).

1.6 This Good Practice Guide is an update and expansion rather than a replacement of the 1999 guide. It provides an update on legislative and funding changes that have taken place since 1999. It also provides an updated overview of the tendering process.

3 Full Guidance on Local Transport Plans, Second Edition, Department for Transport, December 2004 4 Local Authority Procurement of Local Bus and Community Transport Services: A Guide to Good Practice. The TAS Partnership (1999) 1-1 GPG Version 1.0_Jan 2005.doc


1.7 It has become clear that there is a considerable degree of variation in the way in which authorities go about procuring their supported services. The main focus of the Guide is to bring together and share information on good practice and highlight the many innovative approaches that have been employed to deal with specific local circumstances. The Guide draws upon the lessons that have been learned by both authorities and operators over recent years and has a particular emphasis on obtaining best value for money from the competitive tendering process. It also draws upon research undertaken by the Department on trends in bus tender prices5.

Who Should Read the Guide?

1.8 The aim of the guide is to ensure that good practice is disseminated in a way that enables local authorities to achieve best value in securing supported bus services. The Guide is aimed primarily at local authority officers involved in the tendering process. However, it is anticipated that it will benefit others working in local authorities and elected members. It is also expected to be of value to bus operators.

Document Structure

1.9 The Good Practice Guide is structured as follows:

♦

♦

♦

♦

The remainder of this introductory Chapter briefly sets out the role of supported local bus services and describes recent trends in the provision and price of supported services; Chapter 2 provides an update to the 1999 guidance setting out changes in legislation and sources in funding; Chapter 3 provides an overview of the local bus tendering process, focusing on the key decision areas that local authorities should consider in selecting the most appropriate approach to procuring supported services; and Finally, Chapter 4 focuses on a range of special issues that authorities have had to address identifying key elements of good practice.

SUPPORTED LOCAL BUS SERVICES

The Legislative Framework

1.10 The operation of local bus services (see panel for definition) in England is determined by the 1985 Transport Act as amended by the Transport Act 2000. The provisions of the Act became effective from October 1986 from which date the bus industry in Great Britain6 is generally referred to as having been "deregulated".

1.11 The Act introduced competition into the supply of bus services and led to the privatisation of both the National Bus Company (NBC) and Scottish Bus Group (SBG), in each case the individual operating units being sold separately. It also saw local authority owned operators being put at arm's length from the local authority.

1.12 Typically, the competition in the supply of bus services brought about by the Act is referred to as "on road" - in that it is based upon operators competing in the open

5 Monitoring Local Bus Tenders in England, Final Report , Atkins (February 2005) 6 The 1985 Act did not apply to Northern Ireland.

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market for passengers with the freedom to operate whatever services they wish, subject to holding an Operators Licence and registering the particulars of services with the relevant area Traffic Commissioner.

1.13 Since private sector operators focus on providing services on a strictly commercial basis, provisions exist for Local Transport Authorities (LTAs) – (see panel for definition) - to directly support non-commercial services. The Act places a duty on LTAs to secure the provision of appropriate public passenger transport services to meet public transport requirements where those services would not otherwise be available. These are generally referred to as secured or supported bus services (see panel for definition).

Key Definitions

♦ Local bus services are defined in Section 2 of the 1985 Transport Act as:

services where passengers are carried at individual fares and where it is possible to both board and alight within 15 miles.

♦ Local Transport Authorities (LTAs) (as defined by the Transport Act 2000) refers to those authorities in England (outside Greater London) who have a statutory duty to prepare a Local Transport Plan (LTP) and are required to make an assessment of requirements for supported services and meet the identified requirements. This comprises:

− County Councils and Unitary Authorities; and − Passenger Transport Executives (PTEs) on behalf of Passenger

Transport Authorities in Metropolitan Areas. District Councils can also secure local bus services but they are not required to make an assessment of local requirements7. Different rules apply in Scotland, Wales and Northern Ireland. However, many of the elements of good practice may still be applicable.

♦ Secured or supported bus services in the context of this Guide are defined as those local bus services procured by local authorities under the ‘The Service Subsidy Agreements (Tendering) Regulation 1985 (SI 1921)', 'The Service Subsidy Agreements (Tendering) (Amendments) Regulations 1989 (SI 464)' and The Service Subsidy Agreements (Tendering) (England) (Amendment) Regulations 2004 (SI 609) of the 1985 Transport Act.

1.14 The Act also obliges LTAs who wish to subsidise local bus services to go to open competitive tender and to determine which tender to accept solely by reference to what, in their view, is the most cost effective and economic application of the funds available for such subsidies. This ensures that there is "off road" competition for the supply of local bus services when such services are not commercially provided by operators through the mechanism of "on-road" competition. There is, though, the scope to let a restricted number of contracts without the need to competitively tender - the so called De Minimis provisions (discussed further in Chapter 2). The Transport Act 2000 introduced a duty for LTAs to have regard to the interests of the public and

7 District/ Borough Councils within PTE areas may not secure services.



operators when inviting and accepting tenders for subsidised services. As discussed in Chapter 2, this duty is broader than that originally included in the 1985 act which required LTAs not to inhibit competition between operators as a result of providing service subsidies.

Trends in Supported Bus Services

1.15 Since deregulation there has been a change in the balance between the size of the commercial and supported bus networks (see panel). In England, outside London, the extent of the commercial network (based on bus kilometres operated) has grown then declined again such that it is now broadly similar to the situation post deregulation. The extent of the supported network has increased by around 15% (based on bus kilometres operated) though the increase is almost entirely due to the availability of Rural Bus funding from 1998/99. The changes in bus kilometres need to be seen against the backdrop of declining bus patronage outside London.

Trends in Commercial and Supported Bus Networks: Bus Vehicle Kilometres Operated in England (excluding London)

1250

1300

1350

1400

1450

1500

1550

1987

/88

1988

/89

1989

/90

1990

/91

1991

/92

1992

/93

1993

/94

1994

/95

1995

/96

1996

/97

1997

/98

1998

/99

1999

/2000

2000

/01

2001

/02

2002

/03

Kilo

met

res

(mill

ions

) run

com

mer

cial

ly

240

250

260

270

280

290

300

310

320

330

r ru

n s

uK

ilom

etes

(miil

ions

) w

ithbs

idy

Commercial Subsidised

Source: Department for Transport, Transport Statistics

1.16 There have been increasing concerns that the cost of supported services to local authorities has been rising since the late 1990s. Because of the nature of supported services it is difficult to obtain true like-for-like comparisons, since tenders are generally let for periods of up to five years and then often re-let with different service and higher quality specifications. Moreover, the cost of supported services to a local authority in a given year will comprise a mixture of re-letting (i.e. replacement) of



existing tenders and tenders for new services. Data from various sources indicates that prices for re-let or newly let tenders have been rising at between 10% and 20% per annum since 19988, thereby contributing to the general increase in the cost of supported services.

1.17 Across the bus industry operating costs have been rising at a rate greater than ordinary inflation since 1999/2000, reflecting the general view that cost and efficiency gains achieved since deregulation have been exhausted. However, a further concern has been that there is less competition from operators for supported services as the bus industry has become increasingly consolidated amongst a few major operators. However, analysis of a large sample of replacement and newly let tenders over the last few years does not suggest that this is the case. While there is considerable variation amongst authorities and types of tender, the average number of bids per contract let in 1999/2000 was 3.2 compared to 3.0 in 2002/03. As discussed in Chapter 4, however, there is evidence that different types of contract are more likely to attract a higher number of bidders than others.

1.18 Overall it is reasonable to conclude that there are genuine inflationary pressures on prices for supported bus services brought about by increases in bus operating costs. It is likely that such pressures will remain placing an even greater emphasis on local authorities achieving value for money from their supported bus networks.

ACKNOWLEDGEMENTS

1.19 In preparing this Guide we are grateful for the contribution of the following organisations:

♦

♦

♦

Association of Transport Co-ordinating Officers, Confederation of Passenger Transport and Passenger Transport Executive Group. Bath & North East Somerset Council, Buckinghamshire County Council, Cumbria County Council, Derbyshire County Council, Devon County Council, Dorset County Council, Essex County Council, Greater Manchester PTE, Gloucestershire County Council, Hampshire County Council, Hertfordshire County Council, Kent County Council, Northamptonshire County Council, North Somerset Council, Oxfordshire County Council, Peterborough Council, South Yorkshire PTE, Swindon Borough Council, West Yorkshire PTE, and York City Council. Stagecoach, Solent Blue Line, Arriva, Passenger Services, Oxford Bus Company, and Thames Travel.

8 Estimates of tender price increases were derived from a number of measures comprising: analysis of changes in cost of bus tenders awarded in a given year against those awarded in the previous year, using cost per annual bus hour as an indicator of tender price; and analysis of ‘like for like’ tender replacement costs comparing new award price against the current price of the tender being replaced.



2. Changes in Legislation and Sources of funding

OVERVIEW

2.1 As described in Chapter 1, the legislative framework underpinning the procurement of supported local bus services in England is defined by the 1985 Transport Act. The 1999 TAS Guide to Good Practice sets out the tendering process within the context of the 1985 Act. A number of important changes to the provisions made by the 1985 Act have been introduced since the 1999 TAS Guide was published comprising:

♦ ♦ ♦

♦

European Legislation on public sector contracts; The Transport Act 2000; The impact of the 1998 Competition Act and subsequent guidance from the Office of Fair Trading (OFT); and Changes to rules on De Minimis contracts, service registrations and Bus Service Operators Grant (BSOG).

2.2 The changes are summarised in the sections below, though this document is not intended to be a definitive guide to the legislation.

2.3 There have also been changes in emphasis in the way in which local authorities should secure supported services set out in guidance on producing the next round of Local Transport Plans for 2006-2011 (LTP2).

2.4 Additionally, Government has introduced new mechanisms through which local authorities can obtain funding to secure supported local bus services. These, too, are summarised below.

LEGISLATIVE CHANGES

European Union

2.5 The European Parliament and the Council of the European Union adopted Directive 97/52/EC on 13 October 1997 in amendment of the previous Directive 92/50/EC concerning the coordination of procedures for the award of public service contracts. This is, however, due for early revision and will be superseded by a replacement Directive 2004/18/EC.

2.6 Contracts for the provision of bus services are covered by the term ‘public service contracts’ (Category 2 in relevant Annex) within the Directives.

2.7 Local authorities are ‘Contracting Authorities’ as defined by the Directives, but do not fall under the category of ‘Contracting Authorities - Central Government Authorities’ in the annexes to the Directives.

2.8 The Directives require local authorities (who are not therefore ‘Contracting Authorities – Central Government Authorities’) procuring ‘public service contracts’ to conform to the Directives if the value of payments under the contract (net of VAT) exceeds EUR



249,000 (2004/18/EC). This is broadly a value of almost £175,000. These values are reviewed and, as appropriate, amended on a two-year cycle.

2.9 Under the Directives, procurement for contracts of a total value (i.e. the total value of the contract not just the annual value) exceeding the EUR249,000 limit must normally follow a tendering process:

♦

♦

♦

♦

An ‘open’ procedure under which anyone who expresses an interest in the contract must be automatically invited to tender; or A ‘restricted’ procedure which means that only persons selected by the contracting authority may be invited to tender (a two stage procedure to initially identify a short list and then to undertake the actual tendering).

2.10 Both processes require a Contract Notice (OJEC) to be published in the Official Journal of the European Community to advertise the process. Prior to an OJEC a Prior Notification Notice (PIN) can be used to give advance notice of the process, but is not compulsory. If the ‘open’ procedure is utilised all contract documents must be available from the date of the OJEC publication. Inevitably the ‘restricted’ process has a longer contract administration procedure than the ‘open’ process, but is likely to be shorter in terms of tender evaluation. Both processes require a Contract Award Notice in the Official Journal after the contract award. The time periods associated with the notices, and their actual contents, are prescribed in the Directives.

2.11 In exceptional circumstances a negotiated procedure may be utilised. This will only be possible if it is unlikely that ‘open’ or ‘restricted’ procedures will allow the award of the contract, if only unacceptable tenders are received, where the services cannot be properly priced in advance. Further definitions and a procedure to cover this eventuality are defined in the Directives.

2.12 Tenderers may be asked to prove their technical and professional capability as well as to define their quality assurance and environmental management standards.

2.13 Contracts must be awarded for the most economically advantageous (price plus quality) from the point of view of the contracting authority. Within the contract notice the authority must define the basis for the award criteria and their relative weightings.

TRANSPORT ACT 2000

2.14 The Transport Act 2000 introduced a number of changes that could influence how authorities proceed with securing supported local bus services, as follows:

It introduced minimum standards for concessionary fares schemes. In England this comprises a 50% reduction on full standard adult fares for women aged 60 and over, men aged 65 and over (since expanded to 60 and over) and the disabled (excluding weekday morning peak periods). It explicitly defines authorities which are to be Local Transport Authorities (LTAs): in England this is councils of counties and unitary authorities; and Passenger Transport Authorities (PTAs). It imposes a duty on those authorities to prepare and publish a Local Transport Plan (LTP) setting out their policies for the promotion of safe, integrated, efficient and economic transport facilities in their area;



♦

♦

♦

♦

♦

♦

Linked to the LTP, Section 110 of the Act requires that all LTAs prepare a document known as a Bus Strategy as part of the LTP. From the context of supported services the strategy needs to set out the authority's general policy on ensuring bus service provision such that services meet the transport requirements of the people within the LTA's area; that bus services are provided to the required standards; and that appropriate additional facilities (including bus shelters, bus stations, bus priority measures, information about bus services, and integration with other modes) are provided. The Transport Act 2000 also revoked the 1985 Act requirement for LTAs to behave “so as not to inhibit competition” when tendering for non-commercial services. This is replaced by a broader duty to have regard to the interests of the public and of operators when making and varying Quality Partnership schemes, ticketing schemes and when inviting and accepting tenders for subsidised services. The implications of this change are discussed further below in relation to the Competition Act; The Transport Act 2000 also reinforced an approach to the provision of local bus services based on partnership between local transport authorities and bus operators. It introduced various new powers to increase authorities' influence over the provision of local bus services. In pursuit of the LTP bus strategy the authority may make quality partnership schemes with statutory force and multi-operator ticketing schemes. There is also a more far-reaching power to make quality contracts schemes which allow the authority to determine what bus services operate within the area covered by the scheme. Schemes may cover the whole or any part of the authority's area, and two or more authorities may make schemes jointly. Specified services or classes of service, within the area can be excluded from a scheme. An authority making a scheme would be obliged to tender competitively for the services covered by the scheme and let one or more contracts for a maximum of 5 years (the scheme itself lasts a maximum of 10 years). If a QC scheme is implemented, the standard provisions of the 1985 Transport Act would no longer apply. Operators would not be able to register any service wholly within the QC area for commercial operation. Sections 135 to 138 of the Transport Act 2000 empower LTAs, alone or jointly, to set up ticketing schemes, whereby operators of local bus services are required to make and implement arrangements to accept each other’s tickets or provide integrated ticketing in ways specified in the scheme. In making a scheme, the local transport authority must be satisfied that it is in the public interest and helps to implement the bus strategy. If a scheme is made, operators will be compelled to participate if they wish to provide local bus services in the area.

1998 COMPETITION ACT

2.15 The 1998 Competition Act (see panel) has a particular bearing on the provision of supported services in two respects:

the requirement it places on authorities' tendering practices to ensure that competition is not inhibited; and the restriction it places on co-ordination of ticketing and services - though this applies across both the commercial and supported networks.



The 1998 Competition Act specifically prohibits:

♦ agreements between undertakings, decisions by associations of undertakings or concerted practices which have the object or effect of preventing, restricting or distorting competition in the United Kingdom; and

♦ conduct by one or more undertakings which amount to the abuse of a dominant position in a market in the United Kingdom.

The Act provides a non-exhaustive list of agreements and conduct to which the prohibitions apply and includes:

♦ directly or indirectly fixing purchase or selling prices or any other trading conditions; and sharing markets or sources of supply; and

♦ sharing markets or sources of supply.

These two have particular relevance to the bus industry in terms of providing co-ordinated services and ticketing.

2.16 It is noted that bus operators have taken the Competition Act very seriously and have been are very wary of breaching any of its provisions. In the context of bidding for supported services many operators seek reassurance from the tendering authority that the contract is not in breach of competition rules.

2.17 The following sub-sections present a summary of the implications of the Act for supported services along with guidance now available from the Office of Fair Trading (OFT).

The Competitive Tendering Process

2.18 Ensuring that there is competition in the supply of local bus services is fundamental to the deregulated environment brought about by the 1985 Transport Act as amended by the Transport Act 20009.

2.19 Under the requirement of the 1985 Act, LTAs were required to ensure that, by supplementing the commercial network with supported services, the "on-road" competitive market between operators was not distorted or undermined. This requirement has been modified by the 2000 Act.

2.20 Furthermore, authorities are required, through their procurement strategy, to ensure that fair and equitable "off-road" competition for supported service contracts is maintained and encouraged in a manner which aims to achieve best value for money for the budget being spent. As discussed above the procurement strategy must also be compliant with EU Directives.

9 The 2000 Transport Act revoked the original requirement of the 1985 Act for authorities to behave “so as not to inhibit competition” when tendering for non-commercial services and replaced it by a duty to have regard to the interests of the public and of operators when making when inviting and accepting tenders for subsidised services (see below). Nevertheless, the interpretation of the requirements of the 1998 Competition Act remains important in letting contracts for supported services.



2.21 Because of the complexities of the Competition Act and the ramifications for LTAs (and operators) if supported services are found to have been specified and procured in breach of the rules, the Transport Act 2000 introduced the "Competition Test".

2.22 The OFT has provided guidance10 on applying the "Competition Test" to the process of identifying and then procuring supported local bus services in assessing whether they would adversely affect competition (see panel). Readers of this document are referred to the full OFT documentation for details.

2.23 LTAs are encouraged to use the Test themselves to subject proposals for supported services11 to scrutiny to see if the conditions apply. Under the new legal exception regime, the OFT does not grant decisions in respect of notifications of proposals. If a proposal passes the Test, then there is no need to inform the OFT. The OFT is available to give advice if LTAs are unsure if their scheme meets the criteria under section 9 of the Competition Act, but the advice is not a decision (i.e. it is not binding on the OFT).

2.24 Earlier best practice guidance on procuring supported services has been reviewed in the light of the OFT guidance.

Supplementing the Commercial Network

2.25 LTAs should still seek to ensure when supplementing the commercial network with supported services that proposals would not adversely affect the commercial network. In terms of good practice local authorities should generally seek to ensure that:

♦

♦

New services do not duplicate existing commercial services - though some duplication on common sections of route might be impossible to avoid, in which case service specifications should, as far as possible, aim to split existing headways; and Fares charged are consistent with fares on commercial services within the area in which the new service operates.

2.26 However, in line with the OFT Competition Test authorities may wish to consider whether the benefits that could be delivered with alternative service specifications (the "justifications") may outweigh the adverse effects on competition (i.e. that the benefits and the adverse effects are "proportionate"). An LTA could seek to procure additional and/or higher quality (e.g. low floor vehicles) services on a route where a commercial service is already operated.

10 Guidance on the Competition Test” (OFT393), October 2003, available at www.oft.gov.uk 11 The Competition Test was also developed to enable an assessment to be made of statutory Quality Partnerships and Quality Contracts that are included in the Transport Act 2000.



The Competition Test

If a scheme (a proposal for a supported bus service) is considered likely to have an adverse effect on competition it will need to satisfy the Competition Test. The Test recognises that even if a scheme has a significantly adverse effect on competition, this may be justified if the scheme produces certain benefits, and is ‘proportionate’.

Justification for a scheme exists if it:

♦ secures improvements in the quality of vehicles or facilities used for or in connection with the provision of local services, by, for example: − by specifying newer vehicles with wheelchair access or low- or flat-floor

buses, providing better access for disabled passengers and passengers with children; or

− providing bus stops that give electronic real-time information; or ♦ secures other improvements in local services of substantial benefit to users of

local services, by, for example: − providing more reliable services possibly at greater frequency; or − providing greater inter-modal integration of services; or − providing journey time savings; or

♦ reduces or limits traffic congestion, noise or air pollution, by, for example: − requiring the introduction of vehicles that produce fewer emissions; or − achieving increased public transport usage

Where a scheme has or is likely to have a significant adverse effect on competition, but can be justified, the adverse effect on competition must be ‘proportionate’ to the achievement of the justification. Where a scheme meets the first or second justification (above), the OFT will adopt a two-stage approach:

♦ First, it will balance any benefits to passengers against the detriment to competition. Accordingly, a significantly adverse effect on competition may still be considered proportionate if the benefits produced for passengers outweigh the detriments to competition, so that, overall, passengers or the wider general public are better off;

♦ Secondly, it will consider whether those parts of the scheme which result in a significantly adverse effect on competition are necessary to achieve the justification(s).

The OFT is not likely to consider that the elimination of all competition will be proportionate. It is possible that a scheme may meet more than one of the justifications: for example, an improvement in the quality of bus services may also benefit the public at large, by encouraging increased use of public transport, and consequently reducing pollution and improving air quality. Where a scheme meets the third justification, the OFT will assume that the benefits of the scheme to passengers or the public outweigh the detriment to competition, unless there is evidence to the contrary. However, it will still be necessary for an LTA to demonstrate that the restriction is necessary to achieve the third justification.



2.27 When let this could mean that the existing commercial operator may not be able to compete with the supported service and would withdraw the service. This may be judged not to have a significantly adverse effect on competition provided that the criteria for the tender are open, clear and transparent, as all operators, including the existing commercial operator, can compete for such a tender.

2.28 However, where the tendering of additional services results in fewer services for passengers (because an existing operator ceases to operate its services which are not replaced), there may be a significantly adverse effect on competition. It would be difficult for a tender to pass the second and third elements of the Competition Test (see panel) if it resulted in fewer services being available to bus passengers.

2.29 In principle, this means that LTAs have greater freedom than they did to supplement the commercial local bus network. It places greater emphasis, therefore, on using the increased freedom to secure bus service improvements within the context of overall LTP Bus Strategies and the identification of objectives and priorities for supported bus networks and wider Accessibility Strategies (see below).

2.30 However, it is noted that proposals that significantly adversely affect competition because they challenge existing commercial bus fares are less likely to be considered proportionate. The freedom to supplement the commercial network is therefore largely focused on route, frequency and service quality aspects.

2.31 It also has implications for the way in which services are procured. As discussed further in Chapter 4, the conventional approach to "infilling" the commercial network with individual route sections or special time of day services may not always be the most effective means of ensuring value for money and delivering wider benefits. It also means that there is a potential overlap between the role of conventional individual supported services and wider Quality Partnership and Quality Contract mechanisms (discussed further below).

The Tendering Process

2.32 The OFT guidance also sets out what could or could not be considered as open, clear and transparent tendering procedures. There are three key issues which affect whether or not a tender is likely to fail the Competition Test:

♦

Length of tender - the longer the duration of the tender the more likely it is that it will reduce competition, since there will be no competition for the duration of the tender. The longer the tender the greater the need to demonstrate that the benefits of the proposal outweigh the adverse affect on competition. In general, the OFT consider a tender for longer than five years would likely to be a barrier to entry and would therefore have a significantly adverse effect on competition. However, a tender offered for a longer period of time could be justified if it met one or more of the justifications, and was proportionate12. A specific example is where the tender requires capital expenditure on assets that could not easily be used elsewhere. In this instance the duration of the tender should be for a

12 Contracts cannot currently be let for longer than five years although the Regulatory Reform Order proposes extending this to eight years. Subject to the outcome of consultation the changes will be implemented in November 2005.



minimum period necessary to enable the net cost of the capital investment to be recovered. Packaging or bundling of services/routes - this can have the effect of excluding smaller operators without the capacity to operate large numbers of services. This could have the knock-on effect of restricting entry to the market meaning that ultimately competition for tenders could be reduced. Again, bundling of tenders could be acceptable if it fulfils one of the justifications, and is proportionate to the significantly adverse effect on competition. OFT suggest that cost savings achieved by bundling of services might be used to meet one or more of the justifications in order to pass the test.

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Restrictive specifications - concerns may also be raised where part of the tender requires buses specifically suited to the terms of the tender (for example low-floor buses), which may then provide the successful operator with an advantage when the route is re-tendered. As discussed in Chapter 4, this is increasingly becoming less of an issue as more buses meet accessibility standards, but could be an issue if new quality restrictions are imposed.

Co-ordination of ticketing and services

2.33 Effectively the Competition Act, as initially implemented, did not allow for a ticket to be offered at the same price by different operators. Equally, it did not allow for a jointly provided service to be the subject of discussion between the operators.

2.34 There is now a block exemption for multi-operator tickets although operators seeking specific rulings on individual schemes had, previously, faced an administration fee of £13,000. The OFT have, however, recently indicated that they will provide free advice to operators and local authorities regarding compensation issues, including ticketing on public transport services.

2.35 The complexity of the situation can lead to operators being unwilling to consider joint ticketing schemes, although provisions in the Transport Act 2000 (see below) allow for local authorities to set up such ticketing schemes whereby operators of local bus services are required to make and implement the necessary arrangements.

OTHER RECENT LEGISLATIVE CHANGES

2.36 Since the changes contained within The Transport Act 2000, there have been two significant changes in legislation which governs the bus industry. The first change relates to service registrations and the second to Bus Service Operators Grant (formerly Fuel Duty Rebate).

Service Registrations

2.37 As part of the proposals in the 1999 consultation document ‘From Workhorse to Thoroughbred: A Better Role for Bus Transport’ two important rules have been changed for the registration of local bus services:

The period for registration of a new service or the alteration of an existing service was extended from a 42 to a 56 day period. Reasons for the change include that it will allow bus operators less opportunity to make frequent changes to local bus



services, which can confuse and deter passengers. Further it will allow local authorities more time to provide accurate passenger information; and

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The other change was to abolish the ‘five minute rule’ which allowed operators to change the timing of individual buses by up to five minutes either side of the time quoted without informing the Traffic Commissioner.

2.38 These have an impact on supported services in as much that it may impact upon how LTAs seek to supplement the commercial network with supported services.

Bus Service Operators Grant

2.39 Eligibility to receive Bus Service Operators Grant (BSOG) has been extended to include a wider range of community transport operators. The Bus Service Operators Grant (England) Regulations 2002, which came into force on 1st May 200213, set down the range of services operated under a permit under section 19 of the Transport Act 1995 which are newly eligible to receive the grant. Eligibility to receive the grant was extended to a range of non profit making community transport services operated in England under a permit under section 19 of the Transport Act 1985. These services do not follow a fixed route and timetable and are for use by particular categories of passengers, rather than the general public.

2.40 The regulations provide that the newly eligible services are those used wholly or mainly by:

those aged sixty or over; disabled persons; those on income support or job seekers allowance; and those who are socially excluded by reason of unemployment, poverty or other economic factors, homelessness, geographical remoteness, ill health, religious or cultural mores, or who believe it would be unsafe to use other public transport.

2.41 This has limited direct impact on supported services but as part of wider Bus and Accessibility Strategies LTAs should seek to integrate community services with the commercial and supported networks. Now that community services are eligible for BSOG, providing additional support to community services may now be a more cost effective way for LTAs to achieve certain social inclusion objectives than conventional tendered local bus services.

2.42 Additionally, in February 2004, new regulations were introduced that enable demand responsive and flexible services to also qualify for BSOG14. This does have a direct impact on supported services in that it better enables LTAs to replace conventional supported services with flexible services, particularly in rural areas.

13 Full conditions of eligibility for Bus Service Operators Grant are contained within the Bus Service Operators Grant (England) Regulations 2002 statutory instrument No. 2002/1015 14 These regulations were amended by the Bus Service Operators' Grant (Amendment) (England) Regulations 2004, Statutory Instrument 2004 No. 9.



PROVISIONS FOR DE MINIMIS CONTRACTS

2.43 De Minimis contracts have played an important role in the tendering process. De Minimis rules/exceptions to the Service Subsidy Agreements (Tendering) Regulations enable authorities, under certain circumstances, to let supported services without having to go through competitive tender.

2.44 The rules governing De Minimis contracts have been amended on a number of occasions, most recently by the Service Subsidy Agreements (Tendering) (England) Regulations 2004 which came into force on 1st April 2004. Detailed guidance on the application and interpretation of the rules is available on the DfT's website15.

2.45 In summary the changes introduced mean that:

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LTAs with forecast expenditure on bus service subsidies in any one year of £600,000 or more are able to spend up to 25% on De Minimis contracts and within this 25% there is no limit on the expenditure on an individual contract or on the expenditure with a single operator; and LTAs with forecast expenditure on bus service subsidies in any one year of less than £600,000 the limit per contract is raised to £29,999 per contract in any one year and the previous £150,000 annual limit on expenditure with a single operator is removed.

CHANGES IN FUNDING

2.46 Since the 1999 TAS Guide to Good Practice additional sources of funding have been made available to local authorities.

2.47 The main source of funding for supported services comes from LTA revenue budgets. This has been supplemented by the Rural Bus Subsidy Grant (RBSG) introduced in 1998/99 which provides for additional bus services to rural communities previously not well served. The grant is distributed to English local authorities with allocations based on numbers living in rural areas. Decisions on which services to support are made by the local authority.

2.48 In recent years LTAs have also been able to bid for supplementary funding through the Rural Bus Challenge (RBC) and Urban Bus Challenge (UBC) schemes, though these are unlikely to be continued beyond 2004/05. LTAs can, of course, continue initiatives launched using RBC or UBC funding through their own normal supported service funding channels.

2.49 Additionally, LTA's can secure funding for local bus services through Section 106 agreements of the Town and Country Planning Act 1990. LTAs can also secure Prudential funding whereby local authorities can now directly fund assets. It allows LTAs to raise funds, for example, to purchase specially equipped vehicles, which it can then provide for operators to use in the provision of a tendered service. The potential for LTAs to achieve value for money through such funding is discussed in Chapter 4.

15 http:\\www.dft.gov.uk/stellent/groups/dft_localtrans/documents/page/dft_localtrans_028602.hcsp



LOCAL AUTHORITIES' DUTIES

2.50 There have also been changes made to local authorities' duties since the 1999 TAS Guide to Good Practice. For reference these comprise:

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New guidance on the second round of Local Transport Plans (LTP2). As noted above the Transport Act 2000 requires all local transport authorities to prepare a Bus Strategy, as part of that authority's LTP. Guidance for LTP216 identifies that the Department considers it essential for the development of a Bus Strategy to be fully integrated within the wider local transport strategy/LTP process, so that LTPs can demonstrate the full contribution of buses to the delivery of better transport outcomes for the 'Shared Priorities' - congestion, pollution, accessibility and road safety. Like the rest of the LTP, the aim of a local Bus Strategy should be to deliver the best possible value from all available funding. Bus elements of LTPs should therefore take particular care to demonstrate how the LTP would maximise the value for money of any funds provided to support the operation of bus services, as well as capital funds for infrastructure. The move towards performance monitoring including Best Value and Comprehensive Performance Assessments (CPA). CPA scores take into account the quality of the LTP and the assessment of the Annual Progress Report (APR). It is noted that LTP2 guidance identifies local bus patronage as a mandatory for performance monitoring. In the context of supported services this means that obtaining value for money from tendered services is an important contributor to overall local authority performance. LTAs are required as part of LTP2 to develop Accessibility Strategies. Authorities are advised to use accessibility planning techniques17 to understand the links between social exclusion and transport in their areas, and to develop transport solutions that can help to improve the lives of those at risk of social exclusion. The role of supported bus services in this context is considered important and it is expected that authorities should be seeking to improve integration between commercial, supported and community services.

16 Full Guidance on Local Transport Plans, Second Edition, Department for Transport, December 2004, available on www.dft.gov.uk 17 DfT has developed the Accession software which is available to LTAs to assist in the development of Accessibility Strategies. Guidance is available at http://www.dft.gov.uk/stellent/groups/dft_localtrans/documents/page/dft_localtrans_033734.hcsp



3. The Bus Tendering Process

INTRODUCTION

3.1 This chapter provides an overview of the local bus tendering process. It is not intended to reproduce the detailed Guide to Good Practice produced by the TAS Partnership on behalf of the DfT in 1999. Instead, drawing upon the accumulated experience of tendering over many years and current research, it focuses on identifying the key "decision areas" that LTA are likely to need to address in procuring supported services and updating the TAS guidance in the light of the legislative changes described in Chapter 2. The "decision areas" represent key points within the tendering process where LTAs are faced with choices on how to procure and manage supported services.

3.2 The overall tendering process is shown in the figure below, depicted according to the following key stages:

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Requirements Specification Invitation to Tender Evaluation and Award Monitoring; and Renewal.

3.3 As shown in the diagram, each stage includes one or more key decision areas. The remaining sections of this chapter identify and discuss the key issues that should influence the selection of procurement approach.

3.4 It is emphasised that there is no one generic approach that is expected to fit all LTAs, since the procurement process does need to be tailored to specific local circumstances. The aim is to highlight the greater flexibility open to LTAs when procuring bus services. LTAs should adapt their approach according to local and specific circumstances.

3.5 However, the guidance is based on the premise that LTAs will be seeking to achieve the wider policy objectives as set out in the Government's "Shared Priorities for transport"18 and will be seeking to achieve best Value for Money (VfM) in procuring supported services.

18 The Government and the Local Government Association agreed, in July 2002, a set of seven shared priorities for local government across a range of areas. These priorities, which include raising standards across schools, transforming the local environment and meeting local transport needs more effectively, are a focus of Government and councils for improving public services. The shared priority for transport includes improving accessibility and public transport and reducing problems of congestion, pollution and safety. The shared priorities are also informing work in developing the Comprehensive Performance Assessment (CPA) for 2005 and beyond.




Requirements Specification Invitation Evaluation Monitoring Renewalto Tender and Award

Competitive Tender or De Minimis Rules?

How Should Tenderers be Invited to Bid? Should a Bus

Service be Procured as a Supported Service?

Should the contract be awarded on not?

Outline or Detailed Specification?

How Long Should the Contract be For?

Should performance be monitored closely of not?

Should the Contract be Renewed? Minimum Cost

of Minimum Subsidy Contract?

What is the Threshold for Deciding to Support?

How Should Supported Services be Packaged?

Should the contract be re-tendered?

Should an Inflation Adjustment be Included?

Prescriptive Conditions of Contract or Not?


The Checklist

3.6 A "Procurement Checklist" has been prepared to accompany the overview of the tendering process. The checklist aims to present, in an easy to use and very succinct format, all key issues that LTAs should consider in addressing each of the above stages of the procurement process.

3.7 The checklist is presented in Annex 1.

REQUIREMENTS

Should a Bus Service be Procured as a Supported Service?

3.8 Each LTA will have a Bus Strategy - a statutory requirement of the LTP process - which, for LTP2, should be linked to an Accessibility Strategy. In line with LTP2 Guidance, the Bus and Accessibility strategies should be linked with the LTP and wider corporate authority objectives.

3.9 In principle, the identification of bus services that should qualify for potential LTA support should be objective-led rather than solution-led - i.e. the question being asked should be "how should travel needs best be met to achieve LTP objectives?" rather than "do we need a supported local bus service?". Through the ongoing LTP2 planning and delivery process LTAs are expected to continually assess the need for the services making up their supported networks and proactively specify new or modified supported services as appropriate. This is likely to include

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the identification of gaps in the commercial bus network, and/or where service levels fall below the minimum requirements, and/or where there is evidence of suppressed demand; the use of social need indicators based on car ownership, unemployment, age and disability etc. to identify accessibility needs; the identification of accessibility problems to facilities such as shops, health, employment, post offices etc.; and the identification of new opportunities to encourage public transport use - e.g. bus services to new residential or commercial developments, or bus services to rail stations and public transport interchanges.

3.10 As discussed in Chapter 1, the focus of this particular guide is on the mechanisms of local bus service procurement. A more comprehensive review of the identification of need and the prioritisation of services that should be provided is the subject of separate DfT guidance.

3.11 In practice, however, LTAs regularly have to decide on whether to support specific service proposals aimed at dealing with highly localised and often politically sensitive issues. Such proposals may emerge from a number of sources and for a number of reasons. As discussed further in Chapter 4 (under Making the Most of Limited Funds) LTAs have been particularly affected in recent years by the withdrawal of commercial services requiring them to take a view on whether to provide these services on a supported basis.



3.12 The Bus Strategy should form the first reference point for assessing whether a service should, or should not, be supported. LTAs could consider identifying how a proposal for a service would support achieving LTP objectives and delivering LTP outcomes as a means of ensuring that proposals taken forward are consistent with strategy.

3.13 However, the definition of the criteria for supporting local bus services within LTP strategies may be very generic and the assessment of whether a service should be supported comes down to detailed, and often complex, local circumstances. Many LTAs have established criteria to assist in determining whether a service should be considered for support. This is recommended as good practice. Examples of such criteria are presented in Chapter 4 (under Making the Most of Limited Funds) and the range of issues that LTAs could consider are listed in the Checklist in Annex 1. Accessibility planning will significantly improve the data available in the procurement decision making process and it is essential that such information is included in deciding which services to procure.

Third Party Funding

3.14 When dealing with services with third party funding, such as S106 redeveloper contributions, the LTA does not need to undertake any additional actions, other than those defined in relation to the actual third party contract (or Town and Country Planning Act Agreement). Issues which the Local Authority should consider in tendering a service funded by a Third Party include:

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How the funding will be made available (lump sum or operating costs for an agreed service level); Whether all the service requirements are being met by the contract specifications and conditions of contract; What will happen at the end of the contract period (is additional third party funding available, will the service be commercial, will there be a need for LTA support?)

3.15 Alternatively the third party themselves can deal directly with an operator and form a contract without following any of the local authority / Transport Act procedures.

What is the Threshold for Deciding Whether to Support?

3.16 In tandem with deciding on whether to progress a service proposal through the supported local bus service procurement process, LTA’s should consider whether services would meet their support thresholds.

3.17 Once the need for a service or service improvement is identified, there should be clearly defined and understood criteria for supporting services, not only to prioritise and provide justification for funding, but also to assist in subsequent contract specification and tender evaluation.

3.18 In general LTA’s already use a VfM threshold such as maximum cost per kilometre or maximum cost per passenger journey. Additionally, LTAs could consider minimum quality thresholds (e.g. vehicle type, operator performance etc.). The aim is to establish appropriate explicit criteria prior to contract tendering that enable alternative tenders to be assessed and, in perhaps the worst case, a decision to be taken not to



let a tender because the VfM and quality attributes are above or below the thresholds.

3.19 It is essential that any VfM threshold is reflective of the revenue support budget; setting the threshold too low is likely to result in a financial overspend. LTA’s might wish to consider setting different thresholds based on their priorities. For example, services which improve accessibility might have the lowest VfM threshold.

3.20 Again, the range of issues LTAs could consider is suggested in the Checklist in Annex 1.

SPECIFICATION

Outline or Detailed Specification?

3.21 There are two basic approaches to service specification, as follows:

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An outline specification that provides only a broad description of the service requirements (route, frequency and days or operation) and leaves the operator with scope to define the precise route, detailed timetable, fares and vehicle specification and, in some instances, the form of contract (e.g. minimum subsidy or minimum cost); A detailed specification that as a minimum provides precise route and timetable specification as well as times/days of operation, and as a maximum may also define fare levels and quality attributes such as vehicle specification, electronic ticketing, ability to link with real time information etc.

3.22 In general most LTAs now opt for detailed specifications. The move towards aligning supported bus networks with LTP Bus Strategy and, for LTP2, Accessibility Strategy, is likely to mean that most LTAs will want to use detailed briefs such that the services delivered are fully focused on supporting wider LTP objectives.

3.23 However, LTAs should consider avoiding making specifications overly prescriptive since this could:

Deter potential bidders - particularly small operators who may not be able to fully meet all the quality elements or who do not have the resources to prepare the tender; Potentially add to the overall tender cost; and Potentially restricts the operators' ability to develop flexible and innovative solutions which can be better VfM - though operators should be given the opportunity to submit variant bids (see below).

3.24 It is essential, even when trying to avoid overly prescriptive contracts, that there is enough detail in the specification to inform operators of what is required (to avoid them wasting resources bidding for a contract which they could not operate and being deterred from submitting future bids). Specifications should clearly identify what the LTA is trying to achieve without getting too caught up in detail.



3.25 LTA’s could be both prescriptive and allow room for innovation by issuing a detailed tender and at the same time inviting operators, who have the expertise and resources to do so, to submit innovative variations. LTA’s should use their knowledge of the local operators’ expertise to structure tenders in such a way as to get the best results. Again, it is essential that LTA’s make the objectives and required results clear when inviting variations to tenders.

3.26 Conditions of contract (as distinct from service specification) are discussed further below.

How Should Supported Services be Packaged?

3.27 Research on the bus tenders let over the last few years has revealed that there is huge variation in practice in packaging supported routes and services. At one extreme, LTAs are letting contracts for individual services that infill or extend the commercial network (e.g. early morning or evening services, weekend services). At the other extreme, LTAs are letting whole routes and even packages of whole routes. In general the practices that have arisen have been driven by individual local circumstances though the default position adopted by many LTAs appears to be to let tenders at the most disaggregate level (i.e. whatever is the smallest sensible individual service or route component) rather than as packages.

3.28 As discussed in Chapter 2, guidance from the OFT suggests that packaging of supported services could be deemed as anti-competitive since it potentially excludes smaller operators from bidding. However, in line with Transport Act 2000 Competition Test, LTAs may be able to demonstrate wider benefits and VfM from packaging.

3.29 Evidence from monitoring costs of supported services suggests that infill and special services have experienced the highest cost increases in recent years. Such services are likely to be more difficult for operators to resource in terms of both staff and vehicles. Typically infill services may not result in full utilisation of vehicles and, on a cost per kilometre or per passenger, will be more costly if they do not fit in with existing schedules. Similarly, evening or weekend services can incur higher driver costs, depending on the wage structure and whether overhead costs are included in the tender price.

3.30 Packaged route/service tenders could achieve economies of scale and are more likely to elicit innovative responses from operators than small individual single route/service tenders. By packaging routes and services the LTA is more likely to enable bidders to factor in their own specific operational structures, opportunities and constraints (as well as knowledge of the passenger market) in responding to a tender. This could be expected to result in more efficient operational solutions which should, subject to effective competitive tendering, be passed on to the LTA as lower costs. It is noted that many LTAs appear to operate an informal packaging approach that seeks to optimise operational efficiency whereby operators themselves make proposals for the combination of more than one tendered service so as to make better use of their resources.

3.31 However, in many instances services which are an incremental "add-on" to existing commercial services, particularly evening services and additional off-peak services, can be provided at reasonable cost by the incumbent commercial operator on a



route. In such circumstances there is likely to be little or no competition for a tender. Achieving VfM is likely to require the LTA having a very high level of understanding of individual bus operations and effective working relationships with the operator(s).

3.32 Packaging of services could also achieve other objectives. Larger contracts are likely to encourage greater investment in vehicles and service quality - though this also depends on the length of the contract. There is, however, a balance. If contracts are too large smaller independent operators with limited capacity may struggle to compete against the larger national operators.

3.33 Packaging of supported services may also enable LTAs to achieve wider transport and social objectives. For example, letting a package of routes may enable the LTA to better ensure network-wide improvements in quality, take-up of integrated ticketing. It may also allow them to influence fares levels.

3.34 Ultimately, it is recognised that the decision on whether to package supported services and the size and nature of such packages will depend on individual local circumstances. If LTAs do not wish to package work they could still provide a list of possible contract combinations to assist operators with submitting packaged bids. Various examples of current practice in packaging services are described in Chapter 4 under a number of the cross-cutting themes.

3.35 If packaging of tenders is considered to be desirable, whether by the LTA or by operators, it is essential that the tendering programme facilitates this, and that tenders which could potentially be combined are being issued at the same time. Where the commercial network is unstable de minimus and/or short term contracts can assist LTA’s in keeping common tender dates.

INVITATION TO TENDER

Competitive Tender or De Minimis Procedures?

3.36 LTAs have the option, subject to certain constraints, to let tenders for supported services using the De Minimis procedures and do not have to go to competitive tender. The 2004 changes to the thresholds under which contracts can be let under the De Minimis procedures are described in Chapter 2.

3.37 Evidence from monitoring bus tender prices does not suggest that costs of tenders let under De Minimis provisions are necessarily higher than those let under competitive tendering. However, it is clear that LTAs need to use De Minimis provisions effectively if VfM is to be achieved.

3.38 There is no compulsion to use De Minimis contracts - it is up to individual authorities - though the relaxation of the constraints on contracts procure through De Minimis provisions was made specifically to provide LTAs with greater flexibility in managing their network of supported services.

3.39 LTAs should consider using De Minimis provisions in circumstances where a competitive tendering process is either inappropriate (e.g. because of the need to secure an emergency service replacement) or will not necessarily result in achieving VfM (e.g. when it is clear that only one realistic bid is likely to be received). To date De Minimis contracts have been used successfully by many authorities as a means



of securing minor service alterations and enhancements without the need to re-tender existing contracts or tendering entirely new contracts. They are also useful in delivering the kick-start principle where service enhancements can be delivered without the need to issue a tender which would otherwise have to include commercial services. De Minimis contracts have also been used successfully in patching up networks after commercial de-registrations (see Chapter 4 under Maintaining services, quality and reliability).

3.40 In using De Minimis provisions, it should be noted that:

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LTAs with expenditure on bus service support of greater than £600,000 should consider retaining sufficient scope to use De Minimis contracts in future (e.g. as a mechanism to quickly procure services to, say, deal with commercial deregistrations) by not immediately using up their entire 25% allocation or committing to particularly large or lengthy contracts. De Minimis contracts still fall within the EU tendering regulations - there is a limit on the size of contracts that can be let by LTAs with expenditure > £600K. Care should be taken to ensure that the contract being let under a De minimis contract also meets the financial regulations of the LTA. Many LTAs have had to let emergency contracts in special circumstances - e.g. to ensure services are provided following early-termination of a supported service or following the withdrawal of a commercial service. Emergency contracts defined according to the LTA's own particular procurement procedures are let under Section 89 of the 1985 Transport Act. On letting an emergency contract LTAs must as soon as possible undertake competitive tendering and award a contract within three months19. The actual length of the emergency contract will be dictated by local circumstances, in particular whether the contract will be replaced in its existing form and/or whether a VfM review is necessary.

How should Tenderers be invited to Bid?

3.41 In line with the 1999 guidance, ensuring that operators are aware of tendering opportunities and that they have sufficient time to prepare and submit a bid is vitally important to the competitive tendering process. Normally LTAs are required to procure contracts framed by the various legislative requirements summarised in Chapter 2, though LTAs will also have their own specific tendering procedures that will overlay these requirements. The key distinction in how tenderers are invited to respond is the expected size of the contract relative to the EU procurement threshold.

Contracts above the EU threshold

3.42 For contracts that exceed the EU threshold and therefore require advertisement via the OJEU, LTAs have the option to follow different tendering approaches, as follows:

Open tendering procedures; or

19 Section 91(4) of the Transport Act 1985 states that “any emergency contract shall remain in force no later than the end of the period of three months beginning with the day immediately following the end of the period allowed for the submission of tenders”.



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Restricted tendering procedures - which involve a pre-qualification process.

3.43 Open tendering procedures are likely to suit most LTAs since they will shorten the timescale between inviting tenders and letting the contract. Restricted tenders will require an initial short-listing or pre-qualification stage which would lengthen and increase the administration of the tendering process (and may involve a greater element of negotiation during the tendering process). As per the 1985 Transport Act only operators holding a valid Operating Licence will be able to accept a tender. As such this effectively restricts tenderers to those operators holding a licence on the date of invitation to tender (since the time taken to obtain a licence is likely to be longer than the tender submission period).

3.44 LTAs may wish to consider restricted tendering procedure for large contracts which have significant quality elements as a means of limiting the number of bidders submitting detailed bids.

Contracts below the EU threshold

3.45 It is likely that the LTAs' own individual procurement procedures will most influence how tenderers are invited to bid for contracts. LTAs are required to maintain a list of interested operators and ensure that invitations to tender are sent out to these parties.

3.46 A number of LTA’s, such as Essex, are now issuing tenders by email. There are a number of advantages to this, including time and cost savings. Care must be taken to ensure that operators without access to email are still provided with paper copies of tender documents.

3.47 In addition, LTAs may contact a single operator to procure contracts under the De Minimis provisions.

How Much Notice Should be Given?

3.48 The ‘Code of Conduct on Service Stability’ (The Bus Partnership Forum) states that contracts should be awarded 11 weeks before the start date and operators should be given 15 weeks notice. The document also outlines the benefits of limiting the number of changes and implementing them on set dates each year.

3.49 Ensuring that operators are aware of the re-tendering programme well in advance also has a number of benefits. Kent County Council, for example, make their programme of changes available and known to operators so that whenever possible they will make changes to their commercial services at the same time.

How Long Should the Contract be for?

3.50 Tenders for supported bus services cannot be let for longer than 5 years20. Tenders longer than this could be considered as adversely affecting competition. The DfT's research has shown that, based on a sample of tenders let over the last few years across a range of authorities, the average length of contract is around 4 years.

20 The Regulatory Reform Order proposes extending this to eight years. Subject to the outcome of consultation the changes will be implemented in November 2005.



3.51 In line with previous guidance longer contracts are likely to:

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In theory, offer lower prices (since they give operators greater stability and certainty) though in the light of recent experience and research findings there appears to be little hard evidence that longer contracts are necessarily better value for money, because operators build in more risk; Encourage operators to take ‘ownership’ of a route and develop it; Encourage operators' investment in newer vehicles. For example, on larger contracts Surrey invite tenders for five years with vehicles less than three years old and for three years with vehicles of any age; Provide greater stability in service provision; Reduce LTA's administrative costs (since the time between re-tendering exercises will be longer than if a shorter contract length had been used); and Attract more bids, though available evidence suggests that only the very longest contracts of 5 years appear to attract significantly more bidders.

3.52 As with most aspects of the tendering process, the length of contract needs to be considered as a balance of a number of factors. Shorter contract lengths should be considered for:

Contracts let in circumstances where passenger requirements could change or likely passenger demand is poorly understood or potentially uncertain - this would apply especially to minimum subsidy contracts where operators are likely to factor in a significant contingency in their price to cover revenue risk; Contracts let under De Minimis provisions - since long term commitments to such contracts could constrain the LTA to letting further De Minimis contracts in the future, given the 25% of supported services expenditure limit, to deal with specific changes in supported service requirements. This will only impact upon those LTAs with forecast annual expenditure on supported services of greater than £600,000. Providing greater flexibility to LTAs in managing the supported network. The impact of commercial withdrawals and early terminations of supported services over recent years has meant that LTAs have had to reprioritise funding for services. Unnecessarily long contracts could restrict the ability to redirect funding without incurring additional costs. In addition, with the move towards statutory Quality Partnerships and, in particular, the opportunities for Quality Contracts, certain LTAs may wish to limit their commitment to longer contracts which could, in time, be replaced by wider Quality Contracts. Guaranteeing funding over the longer term - this is likely to need to be considered for services whose funding is tied to RBC or UBC funding and, to an extent, the future likely level of RBSG funding.

3.53 It is likely that the purpose and value of the contract will be the main influence in determining how long a De Minimis contract will operate, up to a maximum of five years.

Minimum Cost or Minimum Subsidy Contract?

3.54 LTAs have the option to procure services using a number of different contractual models. At the highest level there is a choice between using either:



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A minimum cost contract - whereby the operator is paid a fixed amount to operate the service but the fares are set and revenue is taken by the LTA and the operator bears no revenue risk - these are also referred to as gross cost or cost contracts; A minimum subsidy contract - whereby the operator is paid a fixed amount to operate the service and both sets the fare and takes the revenue, i.e. the operator bears the revenue risk - these are also referred to as net subsidy, net cost or subsidy contracts.

3.55 In principle, minimum subsidy contracts should minimise the risk to the LTA and encourage operators to seek to increase passenger demand and revenue. They are also easier for the LTA to administer since under a minimum cost contract the LTA needs to use inspectors to check that revenue is being collected. However, evidence from the monitoring of local bus tenders indicates that the price of minimum subsidy contracts has been rising at a rate greater than that of minimum cost contracts. This suggests that operators are increasingly concerned about taking on the revenue risk for supported services and have been pricing the risk accordingly in their bids. There is no hard evidence to suggest that minimum subsidy contracts are necessarily better value for money than minimum cost.

3.56 It is noted that the vast majority of supported bus services are now being procured using minimum cost contracts. A survey of LTAs in 2002/03 showed that around 70% of supported services (by value) are let as minimum cost contracts21. Of the LTAs who responded there is very considerable variation in practice between authorities.

3.57 In considering whether to let a contract as minimum cost or minimum subsidy the following criteria could be considered:

The size of the revenue risk - in circumstances where the level of likely passenger demand is uncertain then operators are likely to include a significant cost contingency in a minimum subsidy bid to cover the risk. However, in line with their wider LTP Bus Strategy and (now) Accessibility Strategy LTAs should only be considering supported services where there is an identified need and potential demand for services should be reasonably well understood. Inevitably, though, the demand and revenue case for certain services, for example new routes where demand is expected to build up over time, could be uncertain. Where demand is expected to increase over the life of the contract (such as a bus route serving a growing residential development) year one revenue estimates, which the bid is likely to be based on, are likely to be low. In such circumstances a minimum cost contract is likely to provide better value for money. The level of fare paying passengers on the route may be low, particularly on routes with high proportions of school passes and concessionary fares. In these instances, since the revenue is, in effect, provided by the LTA there is little point in procuring the service as a minimum subsidy contract. This also avoids difficulties associated with generation factors.

21 Survey of LTAs 2002/03 reported in Monitoring Local Bus Service Tenders in England, Final Report, 2004



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Whether the LTA wishes to influence fares - notwithstanding the issues relating to competition (described in Chapter 2), if the LTA wishes, as part of wider objectives such as regeneration and/or social inclusion agendas, to set bus fares then it needs to use a minimum cost contract. Minimum subsidy contracts allow LTA’s to better predict their budgets and the administration and monitoring demands are lower than with minimum cost contracts. Operators also benefit from lower administration requirements with minimum subsidy contracts.

3.58 A further issue in deciding upon minimum cost or minimum subsidy is the impact of integrated ticketing schemes. With the 2000 Transport Act and the OFT block exemption these have become easier to establish and operate. LTAs may wish to consider whether minimum subsidy or minimum cost contracts make the system easier to administer. For supported services run by operators participating in the integrated ticketing scheme it is likely that a minimum subsidy contract avoids the involvement of the LTA in the apportionment of revenue. Conversely, for supported services run by operators outside the integrated ticketing scheme (typically small independent operators) letting as a minimum cost contract could enable the LTA to take the revenue and ensure that multi-operator tickets are available on the supported service. By implication minimum subsidy contracts may deter bids from operators who are not part of integrated ticketing schemes.

3.59 LTAs may specify whether a contract is to be let as either minimum cost or minimum subsidy. Alternatively they can give operators the opportunity to bid on both or only one of the options, as happens with certain authorities. This latter approach will give LTAs the opportunity to make a decision on which contract type best achieves value for money given the level of risk transfer. Care must be taken, however, not to deter operators from bidding by increasing the demands of the bidding process.

3.60 Overall LTAs should seek to identify appropriate decision-making criteria on which form of contract best suits their specific local circumstances.

3.61 Increasingly LTAs are seeking to implement services which encourage additional patronage, following the kick start principle. In such circumstances LTAs might want to establish a service which allows a gradual transfer of risk over the life of the contract. This type of contract is normally of an 'open book' type which allows access by a local authority to an operator's costs and revenues. There are two main options for achieving this partnership approach:

A minimum subsidy contract where the operator retains all the revenue but this is taken away from the actual cost payment he receives so that he is no better or no worse off in terms of the total moneys received until the revenues exceed the net cost; or A minimum cost contract where all the revenues pass as would be normal to the LTA, but at certain thresholds of income the additional moneys are split between operator and local authority.

3.62 Further discussion of contract types is provided in Chapter 4 (under the theme Balancing Risk and Reward).



Should a Contract Include an Annual Inflation Adjustment?

3.63 For contracts for periods of more than one year LTAs could reasonably include an inflation-related adjustment which increases the cost of the contract on an annual basis to reflect inflation. The 2003 ATCO survey of LTAs found that 96% of all authorities who responded to their questionnaire applied an annual price increase (see panel). The Atkins survey of LTAs in 2002/03 showed that all the LTAs who responded apply an annual inflation adjustment mechanism - which varied from around 1% to almost 4%. As shown in the panel, practice varies from adjustments based on the Retail Price Index (RPI) through to mechanisms that take into account fuel cost and driver wages increases.

3.64 The rationale for inflation adjustments is that they enable cost increases that are, in the most part, outside operators' control to be factored into the contract price on a transparent basis. From the LTAs' perspective this means that tender prices are not affected by different operator attitudes to inflation risk.

3.65 In theory inflation adjustment mechanisms are most applicable to minimum cost contracts - and less relevant to minimum subsidy contracts where the operator is taking a view on risk - in the form of revenue risk - in any case . In practice, however, inflation adjustments are applied to both types of contract (as shown by the Atkins and ATCO surveys).

3.66 LTAs should consider the use of an annual adjustment for contracts which last for more than one year. The decision on the method to use will, to an extent, depend upon local circumstances. In general, for minimum cost contracts LTAs should consider RPI-based methods, though an allowance for fuel and other costs beyond an operators control could also be considered. LTA’s might award a basic RPI increase and then invite operators to apply for proven additional costs, potentially supported by a Transport Index. A further alternative is to consider inviting operators to submit an alternative bid for contracts and include an annual inflation figure as a means of encouraging a predictable cost for the contract. In general, LTAs should avoid methods which include drivers' wages since these are set by the operators.

3.67 However, in circumstances where operators have the freedom to increase fares (as they do under minimum subsidy contracts) LTAs may wish to consider whether annual inflation-related adjustments represent good VfM.



Methods used by LTAs to Calculate Annual Price Increases on Bus Contracts

Method Proportion of LTAs responding to the Survey Average Increase 2003

Retail Price Index (RPI) 30% 2.7%

Retail Price Index excluding mortgage payments (PRIX) 7% 2.0%

Transport Index 53% 3.3%

Other/Unspecified Method 11% 2.7%

Source: Local Authority Bus Contracts, Price, Expenditure and Competition Survey, ATCO (2003)

How Prescriptive Should Conditions of Contract Be?

3.68 The conditions of contract are the mechanism by which the LTA is able to legally enforce operators delivering the service set out in the specification. It is used to apply performance deductions or penalties to operators if the service provided breaches the agreed conditions.

3.69 The specification and the conditions are clearly very closely linked. The conditions of contract are usually viewed as overarching conditions applied to all tendered services let by an LTA whereas the specification varies according to the service/route being tendered.

3.70 The 1999 TAS guidance provides a detailed description of elements that can be included in the conditions of contract. These can be summarised as:

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Staffing requirements and standards; Accessibility requirements; Vehicle age and standard; Livery and badging; Ticketing; publicity and information; Complaints procedure; Provision of data to the LTA; Monitoring procedures; and Ticket checking procedures.

3.71 Appropriate conditions of contract are essential to ensure that supported services are delivered by operators according to the service and quality specification defined by the LTA. However, overly prescriptive conditions may be counter-productive from the LTA's perspective. Many conditions of contract have very exacting and detailed specifications for vehicle standards, for example, which constrain operators in both day-to-day operational management and fleet replacement options. It is also likely to constrain innovative approaches to tenders. It is recognised that many operators regard very detailed and unnecessarily prescriptive conditions of contract with suspicion and anecdotal evidence suggests that prescriptive conditions have deterred some operators from bidding, due in part to the amount of resources



required to prepare the bid. In addition the requirements of the Disability Discrimination Act and the increase in the number of low floor vehicles is in some cases reducing the need for such prescriptive vehicle specifications.

3.72 Additionally, with increasing numbers of partnerships between LTA’s and local bus operators, there may be an argument for having less prescriptive conditions of contract. In such cases the focus should be on the outcome objectives of the partnership.

3.73 LTA’s might consider introducing highly prescriptive conditions of contract where there is a particular quality issue. For example, they could be used to improve vehicle quality and driver standards. Monitoring is particularly important where highly prescriptive conditions of contract are in place, and the need for such conditions should be reviewed when quality standards have been achieved.

EVALUATION AND AWARD

Should the Contract be Awarded or Not?

3.74 On receiving tender submissions LTAs need to decide whether to award the contract. LTAs should ensure that a suitable evaluation mechanism exists. The biggest single issue is trading off quality against cost in circumstances when lowest cost is not matched by highest quality. LTAs need not accept the lowest price bid provided that they are satisfied that the additional quality offered by a higher priced bid outweighs the cost differential. LTAs should also consider the realism of bids in terms of pricing. Unrealistically low prices may not be sustainable and could result in an operator, either voluntarily or involuntarily, terminating the contract early.

3.75 As per the 1999 TAS Guidance it is good practice to enable tenderers to submit variant bids, providing that they also submit a compliant bid. This allows operators to factor some degree of innovation into their bids. However, in order to assess the value of variant bids LTAs need to have a suitable evaluation mechanism that enables them to assess the benefits of variant bids over conforming bids.

Should the Contract be Re-Tendered?

3.76 In circumstances where it is not possible to let a contract put out to competitive tender - for example bids received are judged not to meet VfM and quality thresholds or simply that no bids were received - then LTAs should consider what changes could be made to enable the service/route to be procured. If a contract has got as far as being put out to tender then it should already have been identified as an important element of the LTA's Bus and Accessibility Strategies. If not, then it should not really have been tendered in the first place. On the basis that the LTA still wishes to procure the service the options available comprise:

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Investigating with operators issues which deterred them from bidding to potentially resolve such issues. This could include inviting operators to submit a non-compliant bid if they have not already done so. Re-specifying the route/service such that it is likely to be more attractive to operators to bid - for example this could include reviewing how services could better fit with operators existing commercial and supported service operations.



This could entail providing an outline specification rather than a detailed specification to operators. It could also entail re-specifying a conventional fixed route service as a flexible or demand responsive service.

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Packaging the route/service along with other routes/services; Reducing quality specifications or relaxing certain conditions of contract - e.g. not insisting on particular vehicle types; Open discussions with an operator about using De Minimis provisions - though an appropriate understanding of the bus operators services and resources will be required to ensure that VfM is maximised; Providing the vehicle (potentially made easier under prudential funding arrangements) such that operators bid only to provide staff for the service; Exploring whether the supported service could be provided in conjunction with community services.

3.77 There will be occasions where LTA’s will wish to renegotiate a contract in mid term as a result of a change in circumstances/requirements. A number of options will be available in such circumstances and the best course of action will be dependant upon local circumstances. The main options for the LTA are to negotiate the existing tender, re-tender the contract or issue an additional De minimis contract. Issues to consider include:

Whether the existing operator has the resources to provide the revised specification within the required timescales; The implications of the termination clause in restricting how quickly the LTA can re-tender and whether it can be achieved within the required time scale; Which course of action will provide the best VfM; The time remaining on the existing contract; and Whether switching to a De Minimis contract would take them over the limit taking account of any existing contracts that are already running.

3.78 In making any changes to contract LTA’s must ensure that they are acting within their Conditions of Contract.

MONITORING

Should Performance be Closely Monitored or Not?

3.79 An appropriate level of monitoring of operator performance is required to ensure that the supported service is being provided according to the service and quality specifications. For minimum cost contracts it is also important to ensure that revenue is being collected and passed to the LTA.

3.80 LTAs have two broad options:

Joint monitoring in conjunction with the operator; or Self monitoring by the operator.

3.81 Whilst self monitoring by the operator provides significant cost savings for the LTA’s, LTA involvement could be a greater incentive for operators to provide a high quality



service. The use of planning staff in monitoring can ease the burden on resources as well as ensuring they are informed about service operation and use.

RENEWAL

Should a Contract be Renewed at the end of the Contract Period?

3.82 LTAs should consider carefully whether a contract should be renewed in its current form on contract expiry. In general the review of local bus tenders undertaken on behalf of the DfT has shown that few tendered services are re-let in exactly the same form. A contract should only be renewed if it remains consistent with the LTA's Bus and Accessibility Strategy, has a higher priority than other transport spending needs, and remains consistent with relevant VfM criteria.

3.83 LTAs could also consider whether VfM, quality and wider LTP objectives could better be served by procuring the route/service in a different way - for example using a different specification (including DRT), packaging with other routes/services, and/or using a different type of contract or contract length. This should also include identifying whether the objectives of the supported service could be achieved, in full or in part, by encouraging operators to modify their commercial networks.



4. Key Themes and Case Studies

INTRODUCTION

4.1 This Chapter presents good practice according to a number of key themes identified as crucial in ensuring that the procurement of supported local bus services meets wider LTP objectives and delivers value for money. The issues raised in Chapter 3, relate to these themes, which comprise:

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Making the most of limited funds; Balancing risk and reward; Maintaining competition; Delivering service quality and reliability; Achieving innovation; and Improving integration.

4.2 The chapter draws upon evidence drawn from case studies of current procurement practices. It recognises that many LTAs have found innovative ways of developing their tendering and procurement practices, to deal with both generic issues and local requirements. Although categorised according to the above themes, many of the case studies illustrate good practice in more than one category.

MAKING THE MOST OF LIMITED FUNDS

4.3 LTAs are constantly faced with the need to prioritise funding across and within their various public service responsibilities.

4.4 The biggest challenge in many areas over recent years has been the withdrawal of commercial services. The decline in bus patronage, especially outside urban areas, coupled with increased operating costs has led to increasing pressure on the profitability of many commercially operated local bus services. Operators have responded by withdrawing services - commercial de-registrations - and in many instances re-structuring networks such that services are focused on core routes. At the extreme some operators have ceased operating.

4.5 The evidence indicates that the level of commercial withdrawals has increased over recent years requiring LTAs to then step in and procure supported services where it has been considered sufficient need exists (relative to other priorities of supported bus services). This has placed pressure on budgets for existing supported services and required LTAs to review priorities.

4.6 The approach to dealing with commercial withdrawals will vary and will, necessarily, be dependent on local circumstances. Two examples of case studies representing how LTAs have handled different types of commercial withdrawal and restructuring in different ways are presented below.



Case Study : Wholesale Commercial Withdrawals in Surrey In recent years Surrey County Council has experienced significant commercial withdrawals. Just over half of bus mileage is now operated by supported services.

The initial impact was a significant increase in the budget needed to maintain existing services. More recently there has been a re-prioritisation of services with cutbacks in the level of supported evening and Sunday services. The County has changed a number of elements of its bus tendering process, including:

♦ Reviewing deregistered services to ensure that they would meet priorities and provided VfM before reacting.

♦ Offering contracts for five years to encourage investment in new vehicles (must be less than three years old) whilst inviting bids for vehicles of any age to operate the same contracts for three years..

♦ Considering quality aspects in tender award decisions; poor quality operations can erode the passenger base resulting in increased revenue support requirements in the long term (although budget constraints often make choosing quality over price difficult).

♦ Making use of De Minimis contracts where they will secure value for money. ♦ Using a combination of contract and service types when faced with commercial

deregistrations to maintain the necessary services (For example, a mixture of demand responsive and conventional services depending on demand).

♦ Encouraging operators to submit alternative bids on a route or network of routes if they provide better value for the LTA and passengers.

♦ Packaging contracts to make a days work including peak and off peak journeys.

Case Study : Commercial Network Restructuring in Peterborough

In April 2004 the main operator in Peterborough, undertook a substantial revamp of their network. Whilst many areas have benefited from enhanced services others have experienced a reduction in service levels.

Actions taken by the Council to minimise the negative effects of the network review include:

♦ Enhancing frequencies on a number of existing secured bus services and issuing seven three month tenders for trial bus routes as a temporary measure to restore services;

♦ Monitoring the temporary services to assess whether to provide them on a permanent basis.

♦ Undertaking a holistic review of the local bus network to determine how to achieve VfM and improve social inclusion.

♦ Consultation with the bus operators to minimise the negative effects of the review.

♦ Establishing a working group of operators, user groups, and the Council to consider service modifications, performance, publicity and media image.



BALANCING RISK AND REWARD

4.7 A key element of achieving VfM from supported services is achieving a balance between risk and reward. Bidders will, naturally, seek to mitigate potential risks by allowing contingencies within their tender price. While different bidders will have different attitudes to risk and will face different levels of uncertainty (e.g. larger operators smooth out fuel cost uncertainties by hedging) LTAs will need to ensure that the potential reward the successful tenderer can obtain is commensurate with the risk that they are taking on. In the worst instance LTAs could be paying too much for bus services if they enable operators to over price risky elements of contracts simply because the uncertainties are not understood.

4.8 The two key uncertainties faced relate to revenues and costs:

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As discussed in Chapter 3, the allocation of revenue risk is determined by whether an LTA opts for a minimum cost (where the LTA takes the revenue and therefore the revenue risk) and minimum subsidy (where the operator takes the revenue) contracts. In general, practice appears to have tended towards the LTA taking the revenue risk in circumstances where patronage levels are considered most uncertain, letting minimum cost contracts. Typically this is for rural, low demand services. In urban areas where potential for increasing demand is likely to be higher, minimum subsidy contracts are more prevalent. Many elements of operating cost increases are affected by external pressures that are not directly within an operator's control. To avoid operators building in contingencies which could push up tender prices, practically all LTAs use an annual inflation adjustment mechanism. Effectively this means that the LTA is taking the risk on certain elements of cost increases.

4.9 However, LTAs can also seek to "de-risk" certain elements of tenders and, in so doing, potentially reduce tender costs. This largely concerns overly prescriptive specifications and contract conditions. Should operators feel that there is a reasonable risk of breaching conditions (e.g. ensuring that a particular type of vehicle is always available) and incurring penalties then they may cost this risk in their tender accordingly. Unless a particular specification or condition is vital, LTAs could consider a less prescriptive approach. LTAs can also "de-risk" tenders by providing vehicles (see case study on Andover below).

4.10 LTAs should also not lose sight of the incentivisation of operators, through appropriate reward mechanisms. These may come in the form of the sharing of additional fares revenue beyond a defined threshold, to encourage operators to build the business. However, it is recognised that as many minimum cost contracts will be let in respect of services with relatively low fare box potential, the scope for this type of incentive may be limited.

4.11 Ultimately, it is unlikely that LTAs will be able to achieve an optimum balance between risk and reward unless they understand the passenger market and the operators competing ("on road" and "off road") in that market. In terms of the passenger market this means that needs assessment and a realistic view of potential passenger demand is more likely to enable the LTA to specify and procure services that achieve acceptable VfM. Equally, good working relationships with bus operators and an understanding of the commercial pressures under which they work is likely to



be valuable. Both will be especially important in letting contracts through De Minimis provisions.

Partnering

4.12 Taking the concept of good working relationships with operators a stage further leads to partnering arrangements. The concept of partnering the supply chain was spearheaded in the relationship between the construction industry and Central and Local Government by Sir John Egan’s working party which he headed up for John Prescott in 1997. This led onto the ODPM and LGA producing the ‘’National Procurement Strategy for Local Government”22.

4.13 Although this approach was developed in the context of PFI contracts, the new approach does offer the flexibility to develop other types of relationship where there are incentives to both parties, and this philosophy is already in evidence in the Quality Partnership and Quality Network approaches.

4.14 The concept of soft issues behind partnering includes:

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The agreement between both parties of shared objectives. This is usually assisted by an independent facilitator, who fuses similar and different objectives from each party, into one set of objectives shared by both. The introduction of a culture of openness and honesty between the parties. A commitment to ongoing continuous improvement achieved by both sides constantly seeking to innovate.

4.15 More formal partnering arrangements can comprise:

A mechanism for resolving issues and problems. This should be achieved by employees working at the lowest echelons within each organisation to ensure speed of delivery, and to ensure that senior managers can focus on the overall objectives and continuous improvement of the service. Structure of regular reviews of service performance against agreed Key Performance Indicators. ‘Open book’ audits.

MAINTAINING COMPETITION

4.16 Fundamental to the competitive tendering process is the maintenance of a sufficiently competitive "off road" environment between bus operators such that market mechanisms are able to deliver VfM.

4.17 While the number of tenders received for supported services appears, overall, not to have declined it is clear that many authorities supporting services in rural areas have been faced with few or, in some instances, no bids for tenders. There are various means by which LTAs can seek to encourage competition. These may be summarised as:

Ensuring that the potential tenderers are made aware of forthcoming tenders and that competitive tendering processes are sufficiently open;

22 Further details at www.m4i.org.uk



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Ensuring that the results of a competitive tender process are published and are accessible - LTAs are required to publish a minimum amount of information on tenders, however they also have the option to provide more information in the form of feedback on positive and negative aspects of bids to unsuccessful bidders; In certain circumstances large or lengthy contracts are likely to discourage smaller operators from bidding since they are unable to cost-effectively supply the necessary capacity. This issue is particularly important given the dominance of the largest operators over the last ten years. For many LTAs the only way of maintaining "off road" competition is to ensure that there are sufficient number of small contracts for which the smaller operators can compete. However, there is a balance. Evidence suggests that more tenders are received for larger packaged route/service and longer contracts since they provide greater longer-term revenue certainty to operators and give them the confidence to invest in their businesses. Avoiding overly prescriptive specifications and conditions of contract unless absolutely essential to ensure a supported service meets objectives. Again, it is noted that such specifications or conditions could affect smaller operators the most. Many LTAs need to balance this against maintaining a competitive "off road" environment.

4.18 Measures which LTAs can undertake to encourage competition have been considered in the case studies. In Oxfordshire, for example, the importance of the small operator is recognised in the tendering process. Although they find it difficult to encourage competition they:

Target operators directly to encourage them to bid; Approach operators outside the county (this has had limited success); and Keep tendering areas small enough so that operators are able to bid in more than one area (particularly important if they lose existing contracts as they will not have the opportunity to re-bid for four years in that area).

4.19 However, there are a number of special issues that have distorted the competition for supported services, as follows:

Some LTAs have their own “in house” bus operations who, while focusing primarily on school and community bus services also bid for tendered local bus services. In many areas the conventional commercial operators regard the LTA-owned operators as having an unfair advantage when tendering for supported services. However, there are also many areas where the "in-house" operator is not necessarily regarded as an issue and, from the LTA's perspective, provide a valuable means of benchmarking and maintaining competition - see case study on Kent below.



Case Study Evidence: Kent

Kent has an in-house transport provider ‘Passenger Services’ which operates local bus tenders, bidding for them in the same way as independent operators. This creates additional competition within the local market.

Passenger Services provides a number of advantages to Kent County Council including benchmarking and providing additional competition. Whilst operating a significant number of contracts Passenger Services does not dominate the KCC tender market, with two big groups operating almost half of all tendered services between them.

The LTA recognises concerns from other operators and treats Passenger Services the same way as other operators. In general, operators acknowledge that many of the fears they had had when Passenger Services was set up have not materialised and they do not feel that Passenger Services have an unfair advantage.

Passenger Services appears to have had a largely positive effect on competition within the local bus tender market in Kent. If an in-house provider is used to operate local bus tenders experience suggests that LTAs should:

♦ Ensure that all operators, including the in-house provider receive the same treatment;

♦ Be fully open about how the in-house transport provider works to minimise suspicion from operators including publishing audited accounts;

♦ Make operators aware of the situation and reasons for introducing the in-house provider; and

♦ Ensure that the in-house provider operates services to a high standard (otherwise it will be difficult to enforce quality issues with other operators).

♦ Because of the different bus regulatory environment in London, many of the LTAs around the capital have faced unique pressures in maintaining competition as London has drained away bus resource from the rest of the south east of England. This has resulted in lack of competition and increased costs due to higher wages paid to drivers. Different means have been needed to maintain competition and secure services (see panel). It is also likely that similar, though not so extreme, pressures have been felt by LTAs on the edge of PTE areas.

Case Study Evidence: London Effect

Evidence suggests that London operations are attracting staff from outside the capital and that increased staff demands for Transport for London (TfL) contracts are in part to blame for the withdrawal of commercial services.

Competition for tendered services appears to have declined because of better returns and security of contract from TfL. There are few spin-off benefits for the LTAs neighbouring London in terms of larger and more modern bus fleets since TfL's specifications for lower seating capacity would not satisfy many contracts



outside London.

LTAs have sought to maintain the competitive environment in a number of ways:

♦ Proactively targeting operators who are least likely to be involved in TfL contracts (due to size and/or quality thresholds);

♦ Seeking to maximise the potential of TfL cross boundary services to meet local needs, though being conscious of the higher cost due to the higher quality standards and the potential effect on the commercial network;

♦ Seeking to award longer contracts to make them more competitive with TfL and encourage vehicle investment.

♦ Using bus priority measures to ensure that journey times and service delays are kept to a minimum and the level of resources required is as low as possible; and

♦ Packaging routes/services into manageable chunks to ensure that small operators, who are probably the least likely to be operating TfL contracts, are not discouraged from bidding.

In the longer term greater integration of transport within the Local Authorities, combining supported services, education, non emergency health, and social services travel requirements could potentially minimise the requirement for resources which might help in the delivery of supported services.

MAXIMISING SERVICES, QUALITY AND RELIABILITY

4.20 Within local authorities' LTP2, there is expected to be an increased prominence given to bus-based public transport. LTAs' success in delivering local transport policy - as embodied by the Shared Priorities - will be measured against both the volume of bus use and the quality of services provided. Case study evidence from Oxford highlights the benefits of creating the right operating conditions to deliver a high quality service both on the network as a whole and on the requirement for supported services.

Case Study Evidence: Oxford

In Oxfordshire around 34 million passenger journeys are made each year on local buses. For many years Oxford has seen an increase in passenger numbers, unlike the country as a whole which has seen a drop in people travelling by bus; between 1988 and 2000 there was an estimated 80% growth in bus use in Oxford.

A number of initiatives are in existence in Oxfordshire to ensure that the bus is a potential alternative to the private car. These include:

♦ Park & Ride – Oxford has an extensive Park & Ride network, operated by a fleet of easy access buses. The service operates seven days each week for up to eighteen hours a day;

♦ Bus Priority Measures – Oxford has a number of well used bus lanes which increase the speed at which buses travel around the city, and enhance operational reliability; and



♦ Oxford Bus Partnership – Oxford is committed to working in partnership with bus operators and other companies. Existing partnerships have resulted in increased bus users and reduced pollution levels.

The LTA believe that by creating the right operating conditions people are more likely to travel by bus, minimising the need for financial support. Indeed, there are a number of examples of supported services becoming commercially viable within Oxford.

4.21 Likewise, there is case study evidence that providing a poor quality bus service can erode the existing passenger base which, for marginal commercial services could increase the requirement for revenue support. If patronage on a supported services is being eroded it could result in the service dropping below the VfM threshold.

4.22 There will, correspondingly, be pressure for LTAs to improve the number, capacity, quality and reliability of supported local bus services. There is a range of potential options that LTAs could employ to deliver service improvements. As ever, local circumstances will dictate how relevant and achievable such options are. They comprise:

♦ Re-specifying or re-packaging supported services to better serve local objectives and/or radically improve service offering. The case study on Andover - see panel below - illustrates what can potentially be achieved by re-specifiying a collection of individual supported services into a single flexible service.

Case Study: Restructuring the Supported Network, Andover, Hampshire In response to financial challenges in supporting the rural network Hampshire County Council undertook a Quality Network Approach (QNA).

The QNA involved a review of tendered services, social services, community transport, and school transport to consider whether financial resources are being used in the most efficient manner. The resulting Quality Network comprises a combination of commercial services (concentrated in the urban area) and the demand responsive Cango service (in surrounding rural areas). Key features of the scheme include:

♦ The consolidation of commercial bus routes, social services, community and school transport in a rural area to form a single demand responsive service operating a number of routes;

♦ Detailed consultation with operators during the tendering process to ensure understanding and encourage bids;

♦ A minimum cost contract to remove the commercial risk and encourage more operators to bid;

♦ Providing the vehicles to operate the service, removing barriers to smaller operators and ensure a consistent high quality vehicle specification;

♦ In-house operation of the call centre, allowing it to be customer focused and easily adapted to the needs of the service as it develops;



♦ Diversification of the call centre to carry out additional roles increasing the number of funding streams;

♦ A strong partnership between the operator and HCC benefiting the service in terms of efficiency of the operation and passenger confidence.

HCC has found this approach to be a cost effective and efficient way of improving social inclusion and a key feature of the success of the scheme has been the partnership approach. The 2003 Annual Progress Report states that by the fifth month of operation, 68% more passengers were travelling on Cango services than on the previous network.

♦ Encouraging investment in newer or higher quality vehicles. This potentially

could be achieved through prescriptive conditions of contract, longer contracts and/or service/route packaging. GMPTE, for example have opted for highly prescriptive conditions of contract to improve vehicle quality.

Case Study Evidence – Greater Manchester PTE

GMPTE has opted for prescriptive Conditions of Contract, and in particular its vehicle specification document is very thorough. This has resulted in a young fleet in the conurbation, improved passenger facilities and interior design, but without raising the tender costs.

The specification includes details on step height, route and destination displays, luggage space, handrails and gangways for a number of different vehicle types. Whilst it is a lengthy document GMPTE provided resources to help operators to comply with the specification and translate the vehicle specifications into specific vehicle types.

♦

♦

♦

♦

♦

Providing vehicles with which to operate supported services - noting that for many LTAs capital funding for transport funding is easier to secure than revenue funding; Ensuring that infrastructure measures such as bus priority, real time information, bus stop improvements etc. benefit the supported network as well as the commercial network; Focusing tendered service quality specifications and conditions of contract on the key quality issues such that, over time, general quality improvements are delivered. Ensuring that effective service delivery and quality monitoring systems are in place; and Building a constructive working partnership with local operators. The Oxford case study highlights the benefits of a partnership approach between the LTA and Local Operators. Hampshire County Council (HCC) has taken the partnership approach one step further in the Andover area, as already considered.



4.23 One of the key issues facing LTAs is the level of detail and prescription that should be included within service specifications and conditions. As discussed in Chapter 3, LTAs need to balance the degree of detail/prescription against their objectives for the tendered service/route and the need to achieve VfM. As stated, GMPTE have opted for highly prescriptive Conditions of Contract to achieve improvements in vehicle quality. SYPTE, have, however chosen less prescriptive conditions of contract as discussed below.

Case Study Evidence: South Yorkshire PTE South Yorkshire PTE undertook a review of its Conditions of Contract for the procurement and management of bus services. The updated conditions, wherever possible, were streamlined, simplified (use of ‘plain English’) and most importantly made more operator friendly, most particularly by making them less prescriptive. The main alterations related to performance deduction penalties and vehicle specifications. The previous Conditions contained a detailed section relating to the required vehicle specification (i.e. destination displays, entrances, seats, floors and handrails) which was found to be off-putting and served to frustrate rather than encourage operators to improve vehicle standards (which were in any case being improved through other pressures). The new Conditions are much less prescriptive and specify that “any vehicle used in providing the Services will meet all the requirements of all relevant Acts of parliament, Statutory Instruments, orders or regulations from time to time in force”. At the time of writing it is thought to be too early to ascertain the affect the new conditions of contract will have on the level of operator response, tender prices and the quality of the service provision.

ACHIEVING INNOVATION

4.24 The requirement for innovation lies with both LTAs and operators.

4.25 LTAs should be using innovative methods of attracting new bidders in order to ensure that the supply chain is continually refreshing itself. It should be recognised that smaller operators do have a role in operating supported services, and as discussed above, LTAs need to be aware of the balance between obtaining VfM and ensuring that it is not creating barriers to market entry, when packaging tenders for subsidised contracts.

4.26 They should also ensure that they are encouraging the ‘ownership’ of supported services by operators, so that there is a joint approach to the development and sustainability of the required service. This can be achieved by adopting some or all of the features covered both in this chapter and in chapter 3, which encourage innovation on the part of the operator when bidding, including:

♦ Providing outline rather than detailed specifications;



♦ ♦

♦

♦

♦

♦

♦

Encouraging variant bids; Ensuring that there is a continuous dialogue with operators before and after the contract is let; Balancing reward with penalty in contract specifications, where there is scope for this; and Pursuing the QP or QN approach, both of which require a partnership approach as a pre-requisite to success.

ACHIEVING INTEGRATION

4.27 The theme of integration remains core to the delivery of transport improvements at the local level. Integration comprises both the integration of travel opportunities between travel modes and the integration of policy initiatives across LTA's public service sectors.

4.28 The supported local bus service process can enable both forms of integration. LTAs could consider:

How the specification of supported services could better enable interchange opportunities between commercial and supported networks and with rail services, and how improvements to walking networks could also enable better access/egress to bus services; How supported services can be included within integrated ticketing schemes; and How conventional supported bus services are re-specified or combined with community (and possibly school) services to improve VfM and provide better overall services for all types of passenger. Supported services could also be included as part of Transport Co-ordination or Call Centres acting as a resource broker to ensure that transport availability and travel needs were matched in the most efficient manner.

Cross-Boundary operations

4.29 A particular element of integration is how cross-boundary services between neighbouring authorities are procured and managed. In most circumstances neighbouring authorities procure services/routes separately but come to an arrangement on joint funding. However, in certain areas (see panel) more formalised cross-boundary arrangements have been established.

Case Study Evidence: Cleveland

During the 1990s the County of Cleveland was divided into a number of smaller Unitary Authorities. With this change, the responsibility for local bus service procurement passed from the County Councils to the Unitary Authorities. However, while in some areas the individual UAs took on this function directly in Cleveland three of the four successor authorities established a Joint Public Transport Group to handle the work on their behalf.



Evidence suggests that some form of Joint Public Transport Group, operated on behalf of a number of local transport authorities over a given area, is likely to be able to offer administrative economies of scale and avoid potential duplication of services. However for a Joint Public Transport Group to be particularly efficient and effective in the delivery of services it should:

♦ Cover authorities which are contiguous; ♦ Cover authorities with similar characteristics; ♦ Not cover too many authorities so that management expenses overcome

economies of scale; ♦ Cover authorities which have similar approaches to public transport strategy; ♦ Cover authorities which encompass a number of cross-boundary services; and ♦ Cover authorities which are served by a number of the same bus operators.


Annex 1: Checklist

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MONITORING LOCAL BUS SERVICE TENDERS IN ENGLAND Bus Tendering Good Practice Guide: Working Draft

Tendering Stage

Key Tasks Issues to Consider

Ensure that Service Proposal is Consistent with LTP2 Bus Strategy and Accessibility Strategy

− Accessibility/inclusion − Modal change − Economic regeneration

Ensure that the rationale and objectives for letting a contract as a supported service are clearly identified

− Insufficient passengers/revenue generated − Demand not being met – new service − Opportunity to achieve modal switch − Commercial service withdrawal − Existing supported tender termination − Existing supported tender renewal

Establish likely "on-road" competitive impact of the proposal - and apply the Competition Test as appropriate

− Level of duplication of existing commercial services − Potential level of abstraction from existing commercial or supported

services − Likely operator response to new supported service − Fares levels on supported service against wider network fares levels − Likely patronage, quality and reliability improvements the supported

service is expected to bring about − Qualitative and quantitative assessment of potential benefits and

disbenefits

Establish quality and wider objectives criteria for assessing tenders and deciding whether to let the tender or not.

− Service level matrix − Social need indicators − Suppressed demand indicator − Existing public transport indicator

Establish VfM criteria for assessing tenders and deciding whether to let the tender or not.

− Minimum number of passengers − Ratio of subsidy to fares − Subsidy per passenger or passenger kilometre − Subsidy per bus kilometre

Req

uire

men

ts

If the proposal is to address a commercial service withdrawal assess whether the service should be directly replaced by a supported service or whether other courses of action should be pursued.

− Is the need to replace justified by the criteria for supporting services? − Does it meet VfM indicators? − If so, can the need be met within existing network? − Can it be met with variation to existing network? − Would a replacement operator provide the service commercially? − Would DRT or shared taxi provide better VfM?

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Tendering Stage


Establish whether an outline or detailed specification should be employed

− LTA understanding of potential patronage and local operational issues; − Level of understanding of operators opportunities and constraints; − Potential patronage and revenue and ability for operators to increase

patronage through innovation; − Whether the LTA needs to specify fares levels and/or require the operator

to participate in integrated fares scheme − Need for specific requirements (timetable, route, quality) to achieve LTP2

and specific local objectives; − Potential interest and likely response from operators in terms of number of

bids.

Establish whether the service proposal would better be let as part of a larger package of supported services

− Current performance of supported network in terms of VfM, quality and reliability

− Likely interest from operators and potential number of bidders for tenders and ability to maintain and improve the "off road" competitive environment.

− Potential negative impact on competitive environment due to larger contract size and ability to resource;

− Extent of positive impact on wider transport objectives including whether benefits are proportionate to any competition disbenefits;

− Ability/requirement to achieve network-wide quality enhancements and/or radically change the supported network;

− LTA and operator commitment to partnerships in improving both commercial and supported networks.

Spec

ifica

tion

Consider whether options other than a conventional fixed route bus services could better achieve the transport and wider objectives

− Defining the service as a flexible or demand responsive service - potentially as part of a wider package of services;

− Potential to operate the service under a shared taxi arrangement?; − Providing the service in conjunction with community, social services or

school transport.


3



4

Tendering Stage


Establish whether to let as a Competitive tender or using De Minimis provisions

− Whether the likely contract value is within the LTA's De Minimis limits and below the EU procurement limit;

− Would essential service provision likely to be interrupted if De Minimis was not used?

− Is VfM likely to be achievable through a De Minimis contract; − Would the "off road" competitive environment be adversely affected by

letting as a De Minimis contract?

Provide Notice of Commencement (For tenders to be let through competitive tenders) and Tender Documents

− Whether the likely contract value is below/above the EU procurement limit; − In the case where EU limits apply whether an open or restricted procedure

is to be used; − Providing potential bidders with advance warning of invitation and whether

to engage with operators in determining specification − Clarity and simplicity rather than something which represents a daunting

legal commitment

− Encourage innovation from bidders by offering flexibility through variant bids; prospect of sharing risk/reward; use of pre-award negotiation with preferred bidder etc.

Invi

tatio

n to

Ten

der

Identify contract type - minimum subsidy or minimum cost (or other resource-based mechanism)

− Minimum subsidy – revenue risk with operator − Minimum cost- revenue risk with Authority - appropriate

− where the volume of passengers and/or fare paying passengers is low, or where volumes are yet unknown e.g. on a new service.

− Where the authority wants to influence fares where this helps achieve wider objectives e.g. social inclusion.

− Output led - outline definition of service requirements. − Resource tender – define bus hours required and bus kilometres − Bus provided by Authority for use by operator

− Incentive contracts – e.g. revenue sharing above a defined threshold


ersion 1.0_Jan 2005.doc 5

Tendering Stage


Identify length of contract Benefits from longer term – − Does it result in more competitive prices or do operators build in more

risks? − Greater service stability – minor changes could be built in using De

Minimis − Operator has more chance of making a return on investment. − Spreads the costs of tendering/bidding for Authorities and Operators − Will it encourage more bids or reduce them – will a long term commitment

be daunting, particularly amongst small operators? Shorter terms more appropriate where: − The Authority cannot guarantee levels of funding long term − Known changes in demand affecting services are forecast

− Changes on other services which are likely to impact on tendered service Identify whether the contract should include an annual inflation adjustment and the mechanism that should be used;

− whether contract is minimum cost or minimum subsidy; − Current performance of supported network in terms of VfM, quality and

reliability

− Specific local issues that may be causing inflationary pressures on bus operating costs;

Define Conditions of Contract

♦ Drivers Uniform, customer care/disability awareness training

♦ Vehicles Compliance with DDA ‘Good quality’ vehicles Capacity Vehicles meet legal minimum requirements for maintenance and safety

♦ Routes, timetables, stops Detailed specifications only

♦ Compliance with registration procedures Operator responsibility

♦ Fares/ticketing Inter availability of passes and ticketing systems Electronic ticket machines a minimum requirement

Invi

tatio

n to

Ten

der

♦ Sub-letting Only with the Authority’s approval

GPG V



Tendering Stage


♦ Define requirements of Partnering mechanism ‘Soft’ issues - shared objectives - culture of openness and honesty - commitment to improvement through innovation ‘Hard’ issues

- framework of meetings/reviews - process for resolving problems at the

lowest level within each organisation

♦ Use of Method Statements Commonplace in contracts for the provision of other services but not tendered bus services

♦ Publicity/promotion Responsibility to lie with whoever takes revenue risk

♦ Penalties Non compliance with reliability and qualitative requirements Define required time windows for reliability/punctuality

Liquidated damages based on points system

♦ Rewards Linked to financial incentives for: Passenger/revenue growth beyond defined level – revenue share Exceeding reliability and quality requirements e.g. higher levels of

passenger comfort by using vehicles which exceed contract requirement

♦ Management information/data collection requirements Define requirements such as: Passengers on/off Ticket type Revenue Mileage Exception reports – lost mileage; late and early running Schedule of complaints Information to be supplied electronically Open book accounting

♦ Payment terms Monthly based on operators invoice Keep back payment in hand to fund liquidated damages?

♦ Performance monitoring See below

♦ Complaints See Performance Monitoring below

Invi

tatio

n to

Ten

der

♦ Price review mechanism Formula for annual review, reflecting industry and local indicators rather than RPI

Formula for dealing with service variations, defining trigger points at which review takes place

GPG V



Tendering Stage

Key Tasks Issues to Consider In

vita

tion

to

Tend

er

♦ Contract requirements • Performance Bonds and PCGs • Insurances and indemnities • Responses to changes in legislation • Procedure for dealing with disputes • Termination/exit strategy

Evaluate tender submissions

♦ Bid assessment criteria Points system taking account of: Price Qualitative submission where applicable Past record Added value/innovation

Benchmark bids against: Value for money criteria ‘Ghost’ bid prepared by Local Authority

♦ Variant bids In addition to compliant bid, encourage operators to submit variant bids or combination bids where services are let in separate lots, and where these demonstrate an improvement on the Authority’s service aspirations

♦ No compliant bids passing the evaluation criteria Strategy required e.g. go back to selected bidders and negotiate; retender etc.

Eval

uatio

n an

d A

war

d

♦ Publish results/provide feedback − Minimum requirement to publish tenders received and tender prices in alphabetical and descending order of value respectively

− Offer ‘one to one’ feedback on request

− Good feedback may help to improve quality of future submissions Self monitoring by operator − Data required from the operator is measured against Key Performance

Indicators defined in the contract − Open book access to relevant records kept by operators.

Local Authority monitoring LA inspectors checking that: − Journeys are being operated − There is compliance with the contract’s operating and quality

requirements. − Revenue is being properly accounted

Mon

itorin

g

Complaints Operators should be required to either: − Deal with complaints in accordance with the Local Authority’s procedures − Demonstrate that their own procedure mirrors the Authority’s − Procedures should provide a trail from point of complaint, to sign off once

an outcome has been achieved.

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Tendering Stage


Ren

ewal

Assess case for contract renewal

− Need for the service against current LTP2, Bus Strategy and Accessibility strategy objectives;

− VfM achieved from existing contract; − Potential for LTP2, VfM and quality objectives to be achieved in other

ways;

− Views of operators on contract renewal value and options; − Whether operators can be encouraged to achieve all or part of the

supported service objectives through changes to our extension of existing commercial services.


8


References

PUBLICATIONS AND GUIDANCE NOTES

Code of Conduct on Service Stability, The Bus Partnership Forum (2003)

From Workhorse to Thoroughbred: A Better Role for Bus Transport, DfT (1999)

Full Guidance on Local Transport Plans Second Edition, DfT (2004)

Guidance on Best Value Performance Indicators 2003 - 2004, ODPM (2003)

Guidance on the Competition Test (OFT393), OFT (2003)

Guidance on New De Minimis Rules for Bus Subsidy Contracts, DfT (2004)

Local Authority Bus Contracts, Price Expenditure and Competition Survey 2003, ATCO (2003)

Local Authority Procurement of Local Bus and Community Transport Services, A Guide to Good Practice. TAS (1999)

Monitoring Local Bus Tenders in England, Final Report. Atkins (2004)

National Procurement Strategy for Local Government, ODPM (2003)

Technical Guidance on Accessibility Planning in Local Transport Plans, DfT (2004)

ACTS AND REGULATIONS

Bus Service Operators’ Grant (England) Regulations (2002)

Bus Service Operators’ Grant (Amendment) (England) Regulations (2004)

Competition Act (1998)

Directive 97/52/EC (1997)

Directive 2004/18/EC (2004)

Service Subsidy Agreements (Tendering) Regulations (1985)

Service Subsidy Agreements (Tendering) (Amendments) Regulations (1989)

Service Subsidy Agreements (Tendering) (England) (Amendments) Regulations (2004)

Transport Act (1985)

Transport Act (2000)

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