Outsourcing for Senior Managers

This document contains the following 6 deliverables

1. Delivery Presentation

2. Trainer Manual

3. Participant Manual

4. Pre-Training Questionnaire

5. Post-Training Questionnaire

6. Group Activity

Outsourcing for Senior Managers

P resentation title[To edit, c lick View > Slide Master > Slide Master]

©2019 Deloitte Shared Services India LLP 1

Delivery Presentation

1

EFFICIENT AND SUSTAINABLE CITY BUS SERVICES PROJECT (INDIA)EFFICIENT AND SUSTAINABLE CITY BUS SERVICES PROJECT (INDIA)

OUTSOURCING FOR SENIOR MANAGERS

MINISTRY OF HOUSING AND URBAN AFFAIRS, GOVERNMENT OF INDIA

Consultancy Services for Design and Development of Training Programme for City Transport Professionals

December 2020

2

Preface

The Efficient and Sustainable City Bus Services (ESCBS) project was introduced to improve the efficiency and attractiveness of city

bus transport in India. ESCBS project has three major components, which includes, National Capacity Building (NCB); Regulatory,

Institutional and Fiscal Analysis; and City Demonstration. This engagement falls under the purview of the NCB component of the

ESCBS project. The objective of this engagement is to design and develop training programme for city transport professionals, and

involves undertaking pilot testing, implementation, evaluation, and suitable modification of the training programme.

As a part of this engagement, eight training areas have been identified, and prioritized by the Ministry of Housing and Urban Affairs

(MoHUA).

Policy Advocacy for

Senior Managers

Outsourcing for Senior

Managers

Monitoring and

Evaluation for Senior

Managers

Network Planning for

Middle Managers

Operations Planning for

Middle Managers

Outsourcing for Middle

Managers

Bus Operations for

Middle Managers

ITS and MIS for Middle

Managers

1 2 3 4

5 6 7 8

For each training area, a total of three modules have been prepared:

A. Participant’s Notes: Detailed reference notes containing links to more readings to be circulated before trainings.

B. Trainer’s Notes: Detailed notes for trainer’s reference containing focus points, questions for discussion, etc.

C. Delivery PPT: Brief presentation containing infographics, videos, group activities, etc. to be displayed on screen

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About the Module

This training on “Outsourcing of Bus Operations” provides guidance on the decisionmaking process for outsourcing activities and selection of an appropriatecontractual model for Senior Managers. This section discusses the intricacies,parameters, and issues that must be evaluated by Senior Managers beforeoutsourcing and deciding upon the appropriate contractual model. The moduleexplains in detail that the Authorities may consider outsourcing portions of or theentire bus operations to one or more contractors, as alternative to in-houseoperations. In addition, the training content will enable participants to formulatestrategies needed for executing and monitoring of contracts of outsourced busoperations.

4

1 Identifying segments of bus operations which can be outsourced

2 Taking decision on whether or not to outsource the identified segments or services

3 Selecting appropriate / suitable contractual model suitable as per the requirements

4 Overview of key contractual parameters

5 Appreciating the two-way relationship between the client and the supplier

6 Understanding the contours of bid process management

Learning Objectives

7 Appreciating the importance of monitoring and developing a monitoring framework

5

Contract Formulation

A. Key parameters in a typical outsourcing contract

B. Risks associated with outsourcing and allocation of risks

C. Deciding on the appropriate length of the outsourcing contract

D. Conditions precedent for the authority and operator

E. Key considerations in an outsourcing contract related to buses

F. Key considerations in an outsourcing contract related to infrastructure

G. Key considerations in an outsourcing contract related to performance standards

H. Key considerations in an outsourcing contract related to payment

I. Dispute resolution and contract flexibility

J. Early termination of contract

3

Decision on Outsourcing

A. Objective of the authority

B. Activities that can be outsourced

C. Decision for outsourcing

D. Infrastructure Analysis

E. Skilled Manpower Analysis

F. Financial Capacity Analysis

1

Contract Model

A. Various models for outsourcing bus operations

B. Summary of different types of Contract Models

C. Selection of the most appropriate Contract Model

2

Table of Contents

6


K. Operator and Authority Default

L. Transition Planning

M. Developing client supplier relationship

N. Contract Management Capacity

3

Evaluation and Selection A. Evaluation of bids5

Contract MonitoringA. Developing a comprehensive monitoring framework

B. Key Performance Indicators (KPIs) and their Outcomes

C. Monitoring the daily services provided by the bus operator

6

Table of Contents

Annexure 1 A. Selection of Appropriate Contract7

RFQ and RFP IssuanceA. Standard RfP Provision

B. Bid Process Management4

7

Deciding on outsourcing

Questions for Audience

2. Contract Models

1. Deciding on outsourcing

3. Contract Formulation

4. RFQ and RFP Issuance

5. Evaluation and Selection

6. Contract Monitoring

Objective of the AuthorityA

Activities that can be outsourcedB

Decision for OutsourcingC

Infrastructure analysisD

Skilled manpower analysisE

Financial capacity analysisF

Q1. Why think of outsourcing at all?

Q2 What all activities can be outsourced in a bus transport

organization?

Q3. What all activities will necessarily have to be be

outsourced for urban bus transport?

Q4. What all factors should a senior manager look at before

deciding to outsource an activity?

8


Objective of the authority - Elements of City Bus Transport

2. Contract Models












Route Planning Time table

designing

Fleet and Crew

Scheduling

Operations of

Services

Assessment of the prevailing practices used in planning and designing bus

operations and related aspects

Assessment of the prevailing practices used in planning and designing bus

operations and related aspects

Planning Framework

Monitoring Framework

• Readiness assessment

• Service Level Benchmarking

• Evaluation

• Reporting and Finding

9


Objective of the authority for providing bus operations

Authority’s objective is not to run the buses but to see

that the buses run.

The objectives should be very specific and clear

before outsourcing.

This objective should be explained to the private

operator before outsourcing

2. Contract Models












The primary objective is to be citizen centric. At the same time, the overall

objective of the Authority includes:

• Optimal modal share of public transport

• Decreasing the congestion in the city

Citizen Centric

Objectives

Environmental Objectives

Social Objectives

Adequacy

Regularity and Reliability

Comfort and Convenience

Affordability

Accessibility

7

6

54

3

2

1

Refer to “Policy

Advocacy” for details

10

2. Contract Models












Time allocation:

• Completing the Chart – 40 minutes

• Presentation of the Chart – 15 minutes (each group)

Group Activity

11


Activities that can be outsourced

2. Contract Models












S.No. Activity Mechanism

Activities that can be outsourced and the respective mechanisms

Authority:

Specialist:

Private Operator:

Authority may perform the activity in-house

Authority may hire a specialist to complete the task

Authority may outsource the activity to Private Operator (Contract)

1 Route Planning Authority / Specialist

2 Infrastructure Planning Authority / Specialist

3 Passenger fare Authority / SpecialistPla

nn

ing

Bu

ses 4 Procurement Authority / Private Operator

5 Ownership Agency procuring the buses

6 Operation and Maintenance Private Operator

12



2. Contract Models












Activities that can be outsourced and the respective mechanisms

12 Construction of Control Center Specialist / Private Operator

13 Procurement of equipment Authority / Private Operator

14 Ownership of Control Center Authority

15 Operation and Maintenance of Control Center Private Operator

16 Ownership of ITS equipment Authority / Private Operator

17 Operation and Maintenance of ITS equipment Private Operator

In

frastr

uctu

re

Mon

itorin

g

7 Land Acquisition Authority

8 Construction Specialist / Private Operator


10 Ownership Agency procuring the equipment

11 Operations and Maintenance Private Operator


Authority:

Specialist:

Private Operator:



Authority may outsource the activity to Private Operator (Contract)

13


Deciding on Outsourcing – Case Study

2. Contract Models












Seoul: Outsourcing of Bus Services

Context

• Prior to 2004, the bus system in Seoul was mostly deregulated.

• Private bus companies were allowed to provide services on any routes they deemed

commercially viable, subject to obtaining an easily available license from the public

authority.

• The Seoul Metropolitan Government (SMG) had very little control over the system

aside from setting fare levels.

Problem

• Highly inefficientand disorganized system with many overlapping routes.

• Low service levels in some areas and excessive supply in others.

• Poor integration between the various bus routes and other transport modes.

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2. Contract Models












Seoul: Outsourcing of Bus Services

Action

• The major change in this regard was to switch from a mostly deregulated market to

a 'semi-public' or 'quasi-public' system.

Impact

• All decisions regarding route planning, schedules, fare levels, and overall

system design are now under the control of the SMG.

• The private bus companies have to participate in a competitive tendering process.

• Bus companies that succeed in winning tenders provide services according to strict

contractual specifications stipulated by the SMG.

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2. Contract Models












Chandigarh Transport Undertaking (CTU): Outsourcing of Bus Maintenance

Action

• The Chandigarh Transport Undertaking (CTU) decided to recruit employees for

various branches through outsourcing mode.

• It was also decided to outsource the maintenance of two depots of the CTU, which

would soon float tenders for the same. The department had already outsourced the

maintenance of Depot No. 4. Under the agreement, the company looks after the

maintenance of buses and provides all kinds of spare parts.

• Except electricity and water charges, all maintenance, including expenditure on

account of tyres, replacement of batteries, bus charging stations, spare parts,

suspension, running, and major and minor repairs of the buses during the period of

the contract has been made the responsibility of the successful bidder.

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2. Contract Models












Chandigarh Transport Undertaking (CTU): Outsourcing of Bus Maintenance

Impact

• The quality of maintenance activity has improved considerably after making the

decision to outsource. It is because the private party brings in innovative mechanisms

and experience.

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Decision for outsourcing an activity

2. Contract Models












In order to make the decision to outsource an activity or conduct it in-house, the

authority needs to look at two important factors. They are as follows:

Available Infrastructure Skilled People

Business mind should never be outsourced. It must be developed by the authority.

Outsourcing should be availed from an organization / person with a reputation risk.

It is highly recommended that the authority should have a transaction advisor to

facilitate a balanced view.

The organization may choose to outsource entire or certain aspects of bus

operations, even when it has in-house capacity to deliver the same.

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Infrastructure

2. Contract Models












S.No. Activity Responsibility

INFRASTRUCTURE – Bus depot, Bus terminal, Bus stop, Control Center






The authority should assess the existing infrastructure in place and then make

necessary amendments before outsourcing bus operations.

Conducting as-is assessment would cover:

• Understanding Current and Future services needed.

• Understanding availability of infrastructure for services identified.

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Skilled manpower

2. Contract Models












BEST Undertaking stopped recruitment of employees for several years. When

the recruitment began, the new recruiters were unskilled, while the existing

skilled manpower was about to retire. This created an age gap in employees

suggesting that the HR policy was not implemented properly.

Recruit / Train

Outsource

Skilled manpower must be readily available for deployment. If absent then:

Skilled manpower (such as Data Analytics expert) must be retained.

20


Financial Capacity

2. Contract Models












The authority should understand that the money has to be paid by them. However, the

authority may chose to pay it up-front or pay it on an annual basis with the interest rate.

Financial assessment helps authorities in identifying the constraints within which

they need to operate.

Assessment include analyzing financial statements such as income statement,

balance sheet etc.

Organizations can assess revenue and cost breakdowns to identify key revenue and

cost parameters, respectively.

Further, financial constraints can be assessed through various KPIs, such as:

• Operating cost per passenger-km,

• Fare-box Ratio,

• Operating cost per passenger,

• Revenue per passenger, etc.

This training material discusses Operations and Management activities.

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Contract Models


Types of Contract ModelsA

B Summary of Contract Models

C Selection Criteria: Contract Models


2. Contract Models





Q1. What type of contract arrangements exists for

outsourcing activities of operations and management in

bus transport?

22

Contract Models

Models for outsourcing bus operations





2. Contract Models





Four Contract Models

Hybrid Net Cost Contract

Gross Cost Contract

Hybrid Gross Cost Contract

Net Cost Contract

1

3 4

2

23

Models for outsourcing bus operations: Hybrid GCC – Adelaide

Contract Models





2. Contract Models





The Hybrid GCC Contract Model (Adelaide)

Incentives linked to increased ridership

a. Operator’s payment is divided into two components - a fixed monthly sum

and a patronage-related incentive amount.

b. Area-based contracts gives operators’ exclusive rights.

c. Contract awarded through competitive bidding process.

d. Prescription of a set of minimum service standards.

e. With an initial contract term of five years, contract renewal can be

negotiated for another five years in cases of satisfactory performance.

f. The contracted operator made responsible for developing proposals for

service enhancements. Proposed changes need to be approved by the

transport authority.

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Models for outsourcing bus operations: NCC Indore

Contract Models





2. Contract Models





Net Cost Contract – Indore (AICTSL)

• 18 routes with highest ridership in

the city outsourced.

• Technical and service specifications

prescribed by AICTSL.

• Fleet procured and owned by

private operator.

• 90% of revenue from

advertisements on buses available to

the operator.

• First Right of refusal with operator

for additional requirement of fleet due

to demand increase.

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Case Study – Delhi Cluster Bus Operations

Contract Models





2. Contract Models





Context

Outcome

Critical Success Factors

• Procurement, monitoring, and management done by DIMTS.

• Greater focus on service quality.

• Robust performance management system.

• 100% electronic ticketing and deployment of special ticket checking squad.

• GPS installation in all cluster buses which are monitored.

1948-1992

Owned and operated by the Delhi

Transport Undertaking (DTU).

1992-2001

New scheme launched under Stage

Carriage Permits.

Successful operations of more than 2400 buses under the cluster scheme which carries a total of 10.6 lakh passengers every day.

2011-Onwards: Private operator running the buses

alongside DTC in the ratio of 60:40.

26

Summary of different types of Contract Models

Contract Models





2. Contract Models





Parameter GCC Hybrid GCC NCC Hybrid NCC

Suitability of

the contract

• Authority has

maximum

control

• Authority has

more control

and intends that

operator shares

some revenue

risk

• Operators have

more control

• Higher revenue

risk for operator

• Limited

competition on

routes

• Operators have

more control, but

less than NCC

• Revenue risk for

operator is lower

than NCC

• Limited competition

on routes

Revenue risk

• Authority Shared:

• Base cost by

authority

• Ridership

increase by

operators

• Operator • Operator, subsidy

by authority on un-

viable routes

Degree of

operator’s

incentive to

increase

ridership

• Nil

• Fixed

payment

irrespective

of ridership

• Moderate

• Bonus on

increase in

ridership

• High

• Revenue directly

linked to

ridership

• High


linked to ridership

27


Contract Models





2. Contract Models






Monitoring and

penalty regime

• Requires

strong and

consistent

monitoring

with penalty

for service

below

benchmark

performance

• Higher level of

monitoring than

GCC because of

greater

economic

incentive for

performance

• Less monitoring

• Only service

quality

parameters

monitored

• Level of monitoring

is higher than NCC.

• In addition to

service level

parameters,

monitoring of

movement of bus

on un-viable routes

Access to

Finance

• Guaranteed

income with

reduced

credit risk

• Part of income

assured; lower

risk

• Increases credit

risk especially if

no track record

or demand is

uncertain

• Risk should be

quantified

• Reduces revenue

risk as non-

commercial routes

are supported.

• Improves credit-

worthiness, but

lower than GCC

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Moving to a new bus contracting model - Lessons from London - Video

Contract Models





2. Contract Models





29


Contract Models





2. Contract Models





Q1. When and Why should a public transport agency

consider “outsourcing”?

Q2. How do you select the most appropriate contract

out of GCC / NCC / and their Hybrids?

30

Selection of the most appropriate contractual model

Rating Weight Score

Low 4% 1

Med. 10% 2

High 18% 3

Total Score Type of Model

Equal & Above

210

Gross Cost Contract

Between 150 &

210

Depends on inflection

points

Equal and Below

150

Net Cost Contract

Contract Models

• Service Plan

• Financial Capacity

• Institutional Capacity

Based on the Total Score, most

appropriate Contractual Model is

selected.

Selection Parameters

01

Calculating Scores

03

Selecting Contractual Model

04

Assigning Rates and Weights

02

Refer to Annexure 1 for the detailing of

selection of appropriate contractual model





2. Contract Models





31


Key parameters in a typical outsourcing contract

Part 1: Preliminary 2. Escrow Account

1. Definitions & Interpretations 3. Insurance

2. Performance Security 4. Accounts and Audit

3. Scope of Work Part 4: Force Majeure and Termination

4. Grant of Contract 1. Force Majeure

5. Conditions Precedent 2. Change of Scope

6. Obligations of the operator 3. Termination

7. Obligations of the authority 4. Transition phase

8. Representations and Warranties Part 5: Other Provisions

9. Disclaimer 1. Assignment and charges

Part 2: Operations 2. Change in Law

1. Buses 3. Liability and Indemnity

2. Bus Depot 4. Rights & title over project facilities

3. Entry of buses into commercial service 5. Dispute resolution

4. Operations 6. Disclosure

5. Maintenance 7. Redressal of Public Grievances

6. Monitoring of Operations & Maintenance 8. Miscellaneous

Part 3: Financial Covenants 9. Definitions

1. Payment to the Operator Part 6: Schedules

2. Contract Models

Key contractual parametersA

Risk assessment and allocationB

Length of contractC

Conditions precedentD


BusesE

InfrastructureF


Performance StandardsG

TerminationJ

Operator and Authority DefaultK

Transition PlanL




Payment MechanismH

Dispute resolution / Contract flexibilityI

PartnershipM

Contract Management CapacityN

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Risks associated with outsourcing and allocation of risks

Commission Risk

Revenue Risk

Procurement Risk

Performance Risk

Force Majeure Risk

Change in Law Risk

Financial Risk

Operating Risk

Authority

Authority

Authority/Operator

Operator

Authority/Operator

Authority

Authority/Operator

Operator

RISK TYPE GCC NCC

Authority

Operator

Authority/Operator

Operator

Authority/Operator

Authority

Authority/Operator

Operator

Risk allocation to be decided by Authority depending on their capacity to manage it.

2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


33



Commission Risk Revenue Risk Procurement Risk

Performance RiskForce Majeure

RiskChange in Law

Risk

Financial Risk RISKS Operating Risk

Analyzing these risks would avoid consequences such as increased costs, delayed time etc.

Risk is best allocated to the party which can manage that risk.

To identify them and assess their likely impact (Degree of Risk).

To conduct an assessment of likelihood (Likelihood).2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


34



Insignificant

CatastrophicMajor

ModerateMinorDegree of

Risk

Almost certain

RareUnlikely

PossibleLikely Likelihood

Retained

Risks

Less degree

Less likelihood

Shared

Risks

Transferred

Risks

High degree

High likelihood

2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


35



2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


36


Length of the outsourcing contract

Ideally, the length of the contract should be equal to economic life of buses.

Ensures timely commencement of services and generates interest among the

operators.

Length of contract should be suitable to its objectives and requirements.

The contract length should be long enough for the operator to cover investment

costs.

2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


37



Pros of short-term contract

Provides an opportunity to test market

prices frequently.

Private operators remain motivated to

maintain high performance standards.

Increases competition and the authority

may re-tender the project frequently to

get the best price.

Cons of short-term contract

Short contracts are costly and disruptive and may

not deliver anticipated benefits.

The interest of contractors for building the

business may deteriorate.

The value for money or lifecycle cost may not meet

the expectations of the authority. Not suitable if

operator is required to invest in infrastructure.

2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


38


Length of the outsourcing contract in Bogota (Columbia)

Features

• The regular operation period of the contract for TransMilenio (Bogota – Columbia) is

when average mileageof fleet usage reaches 850,000 kilometers.

• A higher mileage every year leads to a shorter contract while smaller mileage allows

for longer contracts giving the private operator time to recoup its investment.

Inference

• Length of the contract term is aligned with the asset life of the vehicle.

• Achieving higher mileage would require good maintenance of buses which would

ensure high quality service. In Bogota, a bus approximately runs 235 kms a day

which makes 85,000 kms a year making a general contract length of 10 years.

2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


39


Conditions precedent for the authority and operator

Conditions Precedent

1Authority’s conditions precedent

Depot license, bus permit, grant approval / authorization,

escrow account, utilities (water, sewage, electricity)

Operator’s conditions precedent

Signing agreement, bank guarantee, certify warranties,

deliver buses according to schedule2

Conditions precedent are the items and obligations the respective parties must

fulfil prior to the contract coming into effect.

Provision to extend if either party is unable to fulfil the conditions (liable to penalty)

Right to terminate if conditions are not fulfilled even within extended period

2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


40


Key considerations in an outsourcing contract related to buses

Buses

Who shall procure and

what shall be the

timeframe?

Who shall select the

type and number of

buses?

Who shall set the

technical

specifications?

Decision related to fleet procurement impact the efficiency of operations,

financials, service level, environment, etc.

Technical specifications set should not be manufacturer specific, such that it limits the

availability of fleet due to the specified design with limited manufacturers.

2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


41


Key considerations in an outsourcing contract related to infrastructure

• The bus depot operated by Prasanna Purple was encountering a drainageproblem due to which the buses were not maintained properly.

• Since drainage was unaccounted for, there was a delay in fixing the problem.

• As a result, only 12 out of 35 buses were running on the roads.

Infrastructure

Bus Terminal

Bus Depot Facilities

Bus Stop

IT Systems

1

3 4

2

2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


42


Key considerations in an outsourcing contract related to performance

Performance standards (Service level benchmarks)

• Establish performance metrics in line with the authority’s objectives.

• Create clear incentives which are specific, achievable, and consistent.

• Inclusion for service quality improvement, reasonable targets, and bonuses

• Performance metrics should include minimum threshold of service

qualities and penalties for failing to meet thresholds.

Performance standards comprise of Minimum Service Level (MSL) benchmarks.

Exceeding these benchmarks / falling below these benchmarks may result in

incentives / penalty as per the contract.

• Penalty is a corrective measure for deviant behaviour, not a revenue source

• If the penalty has to be applied, it should be equitable.

2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


43


Performance linked incentives – Transport for London (TFL)

Transport for London – Performance linked incentives

• GCC contracts are subject to financial incentives based on the quality of

service. For example, incentive for reliability.

• Every contract specifies a 'Minimum Performance Standard' and

percentage of on-time arrivals and departures.

• Bus companies are eligible for a bonus equivalent to 1.5% of the contract

price for every 2% improvement in on-time percentage.

• Similarly, they may face a 1% deduction for every 2% reduction in on-time

performance below the Minimum Performance Standard.

• Similar incentives exist for percentage of;

• Scheduled bus kilometers operated,

• Vehicle condition,

• Driver performance, and

• Customer service.

2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


44


Performance linked incentives – TraffiQ (Frankfurt)

TraffiQ (Frankfurt, Germany) – Environment linked incentives

• TraffiQ, (Frankfurt) tendered a 6-year Gross Cost Contract with

environmental incentives for a sub-network (3.3 million timetable-km/year).

• Policy aim was reduction of air pollution by demanding high anti-

pollution standards to fulfil the European anti-pollution regime.

• The operator of this bundle now uses vehicles already fulfilling the EEV-

standards for gas emission.

2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


45


Key considerations in an outsourcing contract related to payment

Net Cost Model in Santiago (Chile) - Payment Mechanism

• Payment is linked to number of passengers carried.

• Further, the authority provides guaranteed payment for reduction in demand.

• The operator receives a drop (or increase) in their income representing 10%

of the demand change.

• Thus, a 10% drop in user charges would impact operator’s revenue by 1%.

Fare box revenue (User charges)

Availability payment (Fee per km)

Quality performance payments (Incentives)

Non dare box revenues (Advertisements, grants, etc.)

2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


46


Dispute resolution and contract flexibility

Indore – Contract Flexibility

• Initially, each operator is required to operate minimum two buses on each route

assigned to them.

• Once they exceed the capacity in terms of passenger kilometers served, there is

provision for increase in number of buses.

• In such a case, the first opportunity to deploy buses is given to the existing operator. In

case they refuse, opportunity will be given to a new entity.

The contract needs to contain certain conditions that enable actions to address

changes in operating environment such as varying demand, such as:

Flexibility to assign vehicles across network

Adjusting fleet size to meet travel demands

Fare adjustment in case of increased competition

2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


47



Dispute resolution is required so that disagreements can be aired and resolved

amicably. It can be resolved through:

Conciliation

Arbitration

Adjudication

2

1

3

The person identified for the above should not be related to either party.

Dispute Resolution2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


48


Early termination of contract

The termination of contract may arise due to force majeure, due to default or

at the convenience of the authority. This termination clause enables

management of various risks and concerns of parties to the contract.

• During the implementation of the contract, a situation may arise when it

becomes necessary for the parties to terminate the contract. The termination

of contract may arise due to force majeure, due to default.

• The contract clause should define the specific conditions on fulfilment of which

the above termination situations will be initiated. The clause will also list the

consequences for the contracting parties once the contract is terminated.

• One very important component of the termination of contract is the rights and

obligations of the parties at termination. The obligation of the private

operator on termination is usually to hand over the project back to the

authority in a specified condition.

A transition plan is required to be in place to deal with a situation when thecontract’s term is completed, or it is terminated prematurely.

2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


49



Q1. Why is there a need to develop professional

relationship between the private operator and the

authority?

Q2. How can a contract ensure achieving a good

professional relationship between the private operator

and the authority?

2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


50


Developing client supplier relationship

1

2

3

Shared risk – assigning of risk to where it can be best-

managed

Contracts to be drafted based on financial

viability for both parties

Aiming for a win-win outcome – commitment is

honoured

The adherence to contract formulation parameters may be ensured by setting a

professional client supplier relationship. Fostering a professional relationship

improves the sustainability of performance of the overall bus operations.

2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


51



The Operator should respect and share updates on a regular

basis. A monthly meeting to share information would foster the

mutual partnership.✔

The Authority should pay the Operator as per the contract. The

motive of the Operator is to make a profit in order to sustain the

operations and a delay in payment may impact the sustainability

of operations and deteriorate quality of service.✔

The Authority should understand that Operators are partners,

and should discuss the possibilities of corrections prior to

taking actions. The Authority and the Operator must honor their

commitment made at the time of signing the contract.✔

Below are some tips for the authority and the operator for developing a good

client-supplier relationship:

2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


52


Assessment of Contract Management Capacity – Market Sounding

‘Market sounding’ exercise can be used by the authority to test the level of interest and

availability of potential private operators. It can be done in the following ways:

Key Takeaways

• The Authority must ensure that the views of stakeholders are incorporated while formulating contract.

• Market Sounding ensures that RfP is accepted by the bidders and you receive competitive bids.

EOIExpression of Interested can

be issued to identify firms that

are interested in bidding.

WorkshopA workshop can be conducted

to capture the inputs of various

stakeholders, such as, private

operators, vendors, transport

department, etc.

Road ShowsOrganizing road shows to display

the authority’s perspective and

vision for bus transport.

2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


53


Assessment of Contract Management Capacity

The Authority should understand their commitment to operators, commuters, vendors, etc.

by taking the responsibility to ensure bus services run in the city.

Parameters to assess Contract Management Capacity

• The Authority must have a plan to ensure sources of revenue from fare box, non fare box, and operational subsidy from government.

• To honor the financial commitment, payments are to made to private operators, sub-consultants, PMCs, other contracts such as monitoring, fare collection etc.

• Authority must plan for the necessary infrastructure facilities required for smooth bus systems.

• These include bus depot (for maintenance and parking), terminals and bus stops (with shelters).

• Authority must strengthen its capacity to monitor and control bus operations.

• ITS and MIS is an important tool to strengthen the capacity of monitoring and control.

Monitoring and ControlInfrastructure PlanningFinancial Planning

The Senior Manager must be aware about its strength and capability to honor the contract.

For further reading, kindly refer to the following material

• Model Contract Guidelines for City Bus Transport – MoHUA

• Draft Guidelines for City Bus Private Operations - MoHUA

2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


54

RFQ and RFP Issuance



Standard RfP ProvisionA

Bid Process ManagementB





2. Contract Models

Q1. Why should the authority hire a transaction advisor

for managing bid process?

Q2. What type of bid process is recommended to be

followed for outsourcing (one stage, two stage, etc.)?

55


Standard RfP Provision








2. Contract Models

It is strongly recommended to engage a transaction advisor considering the

scale of the project. Transaction advisor:

The Authority and the bidders are entering into high value and long

term commitments involving reputation risks apart from other risks.

Provides various skills such as legal, PPP, Bus operations, finance and feasibility

Is well equipped to handle high price contracts and provide innovation

Provides unbiased opinion on viability and responsibility of both parties

56


Standard RfP Provision – Sample calculation








2. Contract Models

Number of Buses: 100 buses

Daily assured kilometers: 100 km/bus

Annual assured kilometers: 36,00,000 kilometers (considering 360 days in a year)

Length of Contract: 8 years

Per kilometer O&M Fee: INR 50/km (operation and maintenance)

O&M Fee escalation: 10% per year

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8

Annual O&M Fee (in crores)

18.0 19.8 21.8 24.0 26.4 29.0 31.9 35.1

Total Outlay in contract period ~ 205 crores

Cost of buses ~ 40 crores

Cost of finances ~ 40 crores

Bank charges, depot lease change, other charges ~ 20 crores

Authority’s perspective

Private operator’s perspective

57


Bid Process Management

• Provides

transparency

• Can be one or

two stage

Competitive Bidding

• Single-stage process (RfP)

• Two-stage process (RfQ +

RfP)

Bid Processing

• Quality cum Cost Based

Selection

• Least cost method

Bid evaluation







2. Contract Models


The distribution of Technical to Financial score is generally kept 70:30, but should be considered in detail for evaluating bids.

Since a typical 8 year contract costs ~305 crores (As per the calculation on the

previous slide), comprehensive planning for RfP is recommended.

58


Bid Process Management – Case study (Outsourced fleet maintenance by DTC)







2. Contract Models


For further reading, kindly refer to the

following material

• Model Contract Guidelines for City Bus

Transport – MoHUA

• Toolkit on Contracting Urban Transport –

UNDP/SUTP/MoHUA/IUT

• Bus system toolkit 6 – ADB

Increase in electronic

content in buses mademaintaining vehicles by DTC

difficult.

NEED FOR OUTSOURCING

For consistent performance,

maintenance wasoutsourced to the supplier.

OUTSOURCINGOF MAINTENANCE OF BUSES

Multi-year contract

negotiated with existingmanufacturers to maintain

buses supplied by them.

NEGOTIATION

OF CONTRACT THROUGH

NON-COMPETITIVE PROCESS

59

Evaluation and Selection


Bid evaluationA






2. Contract Models

Q1. What should be the division of marks between

technical and financial evaluation?

Q2. What happens when you increase or decrease the

weightage of either of them?

60


Evaluation of bids

Bid evaluationA






2. Contract Models• Stringent criteria ensures that only serious bidders qualify, but not so high

that only few bidders qualify.

• Relevant experience (recommended to be within previous 3-5 years).

Technical Qualification

• Sufficient bidder capability to undertake financial burden of the project.

• Checked on the basis of average annual turnover and net worth.

• Authority should consider turnover from experience and other services.

Financial Qualification

The technical qualification takes into consideration not only bus operators but transport operators

capable of running buses (such as trucks and taxis). Furthermore, it analyses the operators based

on the capacity of the buses, number of vehicles and number of months of operations.

The operator must score the minimum evaluation to qualify for next round.

61

Contract Monitoring






2. Contract Models


Monitoring frameworkA

KPIs and their OutcomesB

Daily service monitoring C

Q1. How should the authority monitor activities which

are outsourced for operations and management?

62

Contract Monitoring

Developing a comprehensive monitoring framework

The monitoring framework should be comprehensive and should consider allissues that might arise in the project lifecycle, with due provision for reviewand update at any point of time.

Collection and analysis of information

1Evaluate existing

processes and tools

2

Set the output requirements, design KPIs

3

Design the performance monitoring mechanism

4

Review and update the

performance monitoring

system

5

During the development of the contract During the monitoring period





2. Contract Models




Authority should understand that a task which is not monitored properly is never completed.


63

Contract Monitoring






2. Contract Models





Monitoring by Strathclyde Partnership for Transport (SPT) (Third Party Inspection)

Action

• SPT Compliance Inspectors monitor bus services noting potential violations of

traffic regulations and preparing reports for the Traffic Commissioner.

• Nearly 3,000 vehicle checks were undertaken.

• SPT’s Compliance Inspectors also carry out monitoring and report instances of non-

compliance, including engine idling, parking issues or missing information.

• This ensures the service being provided by operators meet expected standards.

Impact

• There has been a significantly reduced level of non-compliance recorded since SPT’s

ComplianceInspectors started work. (Third Party Inspection)

• The high level of compliance is reflected by the very low number of breaches found and

specific monitoring is undertaken after complaints have been received.

64

Contract Monitoring

Key Performance Indicators and Outcomes

Outcomes

Customer’s perspective

Operator’s perspective

Financial perspective

City’s perspective

Community’s perspective

Quality of service• Regularity • Punctuality

Customer value• Frequency• Journey time• Behavior of crew• Comfortability• Skipping bus

stops• No. of services

per route defined

Efficiency of

service• Fleet utilization • Vehicle utilization• Crew utilization• KMPL of fuel• Tyre

consumption

Effectiveness of service• Reliability• Rate of incident• Rate of

breakdown• Rate of fatality

Quantitative • Cost/Kms• Variable cost• Fixed cost• Depreciation• Insurance• Taxes• Overhead

• Traffic revenue /kms

Economic viability• Operating ratio• Cost /kms• Earning / Kms• Profit / Loss

Adequacy of service• No. of public

transport buses per lakh population

• Organized bus transport share

• Availability of bus transport

• Service coverage of bus transport

Quality of service• Average waiting

time for bus transport users

Pollution• Reduction in

Pollution

Road • Congestion• Safety compared

to other modes

Women safety

Vehicle Ownership• Average no. of

vehicles per head (ownership)





2. Contract Models





65

Contract Monitoring


The Key performance indicators have to be analyzed before implementation. The trainingmaterial on “Monitoring and Evaluation” details out the Key Performance Indicators. Belowis a template in which the KPIs should be Benchmarked.

<Enter outcome here><Enter KPI here>

<Enter formula here>

Level of Service (LoS)

Interval Level of Service (LoS)

Slab 1 <1, 2, 3, 4, etc.>

Slab 2 <1, 2, 3, 4, etc.>

Slab 3 <1, 2, 3, 4, etc.>

Slab 4 <1, 2, 3, 4, etc.>

Frequency of Monitoring

Who is going to monitor Frequency

Operator<Daily / Weekly / Fortnightly / Monthly

/ Every 2 months / Quarterly / Semi

Annually / Annually>Middle Level

Senior Manager

Failure and Back End Causes

Assignable Causes Non Assignable Causes

1. Cause 12. Cause 23. …


Service Performance tools <Enter the method to measure this KPI here>





2. Contract Models





Refer to Training Material on “Monitoring and Evaluation” for more details.

66

Contract Monitoring

Monitoring the services provided by the bus operator





2. Contract Models





Control procedures

Vehicle breakdown response

Emergency or accident response

Malfunctions and technical support for support systems

Safety and security protocols and response

procedures

Reporting procedures

Quality inspection

procedures

Inspection and audit of contract

items

Disciplinary procedures

Monitoring and evaluation is covered in detail in the training session of Monitoring & Evaluation.

67

Contract Monitoring

Monitoring and supervision in London - TFL





2. Contract Models





Monitoring and supervision London (GB): Financial incentives in GCC

Monitoring for Gross Cost Contract for buses is done by TfL as follows:

• The “Quality Incentive” contract payments are based on a monitoring regime that

primarily measures the reliability of the buses. The contract dedicates an entire detailed

section to reliability. It states for example at which location and what frequency

monitoring will take place.

• In addition, customer satisfaction surveys are carried out, measuring waiting time

and riding, driving standard, cleanliness, information at bus stops, etc.

• Other monitoring mechanisms include: Mystery travelers, driving standards

reporting, accident and incident reporting, and environmental reporting.

• Operator league tables are published for reliability and excess wait time. Other

quality indicators are reported at network level only.

• Presently, monitoring is undertaken manually with a hand held device. However, TfL

is in the process of introducing GPS in the future. This tracking system would have

additional benefits, such as passenger information.

68

Thank You !

Time for Discussion

69

Annexures

70

Selection of contractual model based on service plan, financial capacity and institutional capacity

Parameters Description Score Weightage (%)

Max. Score

Parameter Max Score

A Service Plan Key questions to answer before assigning ratings

1 Average load factor What is the average load factor cumulatively on all the routes?

18 3 54

• Below 30% 3

• Between 30% and 60% 2

• More than 60% 1

2 Overlap of routes Are there significant overlap of routes? 10 3 30

• More than 20% 3


• Less than 10% 1

• No overlap 0

3 Authority's control over network and service plan

Should the authority have more control over frequency, headway, selection and modification of routes? If yes, rate 3 or else 0

4 3 12

4 Integration of different modes Is there a need to achieve seamless integration between different modes (metro, BRTS, water transport, trains etc.)? If yes, rate 3 or else 0.

4 3 12

5 Competing Modes Is there significant competition from other modes? If only one mode then give 1 score, two modes then give 2 score and three or more modes then give 3 score.

10 3 30

• Metro/Mono rail

• IPTs

• Any other

Annexure 1

Below is the detailed table for selecting the most appropriate contract based on service plan, financial capacity and institutional capacity. For further

reading, please refer to “Model Contract Guidelines for City Bus Transport – MoHUA”

Go Back to Slide 23 (Selection of

Contractual Model)

71


Annexure 1


Max. Score

Parameter Max Score

B Financial Capacity

1 Fund Allocation for Project Has the authority budgeted money for the entire duration of the contract? If yes, rate 3 or else 0.

10 3 30

2 Provision of dedicated funding Is there any provision for funding for the project created such as Urban Transport Fund and/or is there a resolution from the Urban Local Body/State Govt. for funding? If yes, rate 3 or else 0.

18 3 54

3 Credit Rating What is the credit rating of the authorities financing the project?

4 3 12

• BBB and above 3

• Between B and BBB 2

• Less than B 1

• No rating 0

C Institutional Capacity

1 Creation of SPV Is there a SPV created for this project? If yes rate 3, else score 0.

4 3 12

2 Adequacy of Staff for Bus Transport

Are there bus transport staffs dedicated to administer and monitor the project? If yes, rate high or else low.

18 3 54

• More than 10 employees 3

• Between 5 and 10 employees 2


• Less than 2 employees 0

Max. Score (A+B+C) 300Go Back to Slide 23 (Selection of

Contractual Model)

72

Reference table

A. 7-10

B. 11-16

C. 17

D. 18

E. 19

F. 20

A. 8-12

B. 13-15

C. 16

D. 17-18

E. 19

F. 20

A. 7-8

B. 9-11

C. 12

D. 13

E. 14

F. 15-16

Delivery

PPT

Trainer

manual

Participant

Manual

A. 21-24

B. 25-28

C. 29-30

A. 21-24

B. 25-27

C. 28-29

A. 17-19

B. 20-23

C. 24-25

Contract

Model




2

Deciding on

outsourcing







1

Contract

formulation







G. Key considerations in an outsourcing contract related to performance

standards



3

A. 31

B. 32-35

C. 36-38

D. 39

E. 40

F. 41

G. 42-44

H. 45

I. 46-47

A. 30-32

B. 33-35

C. 36-37

D. 38-39

E. 40

F. 41

G. 42-44

H. 45-46

I. 47

A. 26

B. 27-29

C. 30-31

D. 32

E. 33

F. 34

G. 35-36

H. 37-38

I. 39

73

Reference table

J. 48

K. 48

L. 48

M. 49-51

N. 52-53

J. 48-49

K. 48-49

L. 48-49

M. 50-52

N. 53-54

J. 40

K. 40

L. 40

M. 41-42

N. 43-45

Delivery

PPT

Trainer

manual

Participant

Manual

A. 54-56

B. 57-58

A. 55-58

B. 59-60

A. 46-47

B. 48-49

A. 61-63

B. 64-65

C. 66-67

A. 62-65

B. 66-67

C. 68-69

A. 51-52

B. 53-54

C. 55-57

Contract

formulation




M. Partnership


3


A. Standard RfP Provision


Evaluation and

SelectionA. Evaluation of bids5

Contract

Monitoring

A. Developing a comprehensive monitoring framework



6


A. 59-60 A. 61 A. 50

A. 69-71 A. 71-73 A. 59-61

74

Bibliography• DTTILLP. 2016, Final Guidelines for City Bus Private Operations, Ministry of Housing and Urban Affairs (MoHUA) and Sustainable Urban

Transport Project (SUTP) - http://mohua.gov.in/upload/uploadfiles/files/GuidelineCityBus.pdf, Accessed in April 2019

• PADECO Co., Ltd., 2008. Guidelines for Bus Service Improvement: Policy and Options. Ministry of Housing and Urban Affairs (MoHUA)

and Asian Development Bank

• UNDP, 2013. Toolkit on Finance and Financial Analysis of Urban Transport Projects. Institute of Urban Transport and MoHUA

• https://www.pppinindia.gov.in/toolkit/, Accessed in April 2019

• Urban Mass Transit Company Limited and CEPT University. Urban Bus Specifications Urban Bus Specifications – II. MoHUA

• https://ppiaf.org/sites/ppiaf.org/files/documents/toolkits/UrbanBusToolkit/assets/home.html, Accessed in April 2019

• UNDP. Training Module – Contracting in Urban Transport. Institute of Urban Transport and MoHUA

• Pucher, J., Park, H., Kim, M.K., and Song, J. 2005. Public Transport Reforms in Seoul: Innovations Motivated by Funding Crisis. Journal

of Public Transportation 8(5)

• Kim, H.J., 2007. “Seoul Public Transportation Reform: Experience & Current Initiatives”. Presented at Asia Clean Energy Forum:

Regional Policy and Finance Solutions for Energy Security and Climate Change. Organized by Asian Development Bank. 26-28 June

2007, Manila, Philippines. Retrieved: August 2008.

• Transport for London, London’s Bus Contracting and Tendering Process

• MoHUA provides model contracts for different types of Contract Models. These contracts need to be modified as per the organiz ation’s

requirements.

• GCC – http://mohua.gov.in/upload/uploadfiles/files/ModelGrossCost.pdf

• Hybrid GCC – http://mohua.gov.in/upload/uploadfiles/files/ModelHybrid.pdf

• NCC – http://mohua.gov.in/upload/uploadfiles/files/ModelNetCost.pdf

• Hybrid NCC – http://mohua.gov.in/upload/uploadfiles/files/ModelNetCostHybrid.pdf



Trainer Manual

1

December 2020December 2020




TRAINER’S NOTES – OUTSOURCING FOR SENIOR MANAGERSTRAINER’S NOTES – OUTSOURCING FOR SENIOR MANAGERS

2

PrefaceThe Efficient and Sustainable City Bus Services (ESCBS) project was introduced to improve the efficiency and attractiveness of city






(MoHUA).

Policy Advocacy for

Senior Managers


Managers

Monitoring and


Managers


Middle Managers


Middle Managers


Managers

Bus Operations for

Middle Managers


Managers

1 2 3 4

5 6 7 8





3

About the Module

It is strongly recommended that participant’s manual is referred prior to the training session.

This training on “Outsourcing of Bus Operations” provides guidance on the decision making process foroutsourcing activities and selection of an appropriate contractual model for Senior Managers. Thissection discusses the intricacies, parameters, and issues that must be evaluated by SeniorManagers before outsourcing and deciding upon the appropriate contractual model. The moduleexplains in detail that the Authorities may consider outsourcing portions of or the entire bus operations toone or more contractors, as alternative to in-house operations. In addition, the training content will enableparticipants to formulate strategies needed for executing and monitoring of contracts of outsourced busoperations.

4

Learning Objectives

✓ Identifying segments of bus operations which can be outsourced

✓ Taking decision on whether or not to outsource the identified segments or services

✓ Selecting appropriate / suitable contractual model suitable as per the requirements

✓ Overview of key contractual parameters

✓ Appreciating the two-way relationship between client and supplier

✓ Understanding the contours of bid process management

✓ Appreciating the importance of monitoring and developing a monitoring framework

5

Note for Trainers

Questionnaire, 20 min

Tea Break, 30 min

Discussion, 30 min

Group Activity, 100 min

Content Dissemination,

180 min

Lunch, 60 min

Session BreakupTotal 7 hours (420 min)

Key points for Trainers

✓ The trainers shall make sincere efforts to make the

training session interactive.

✓ The trainers shall adhere to the time given for a particular

module. Some time for discussions should be kept aside at

the end of the session.

✓ The trainers are requested to circulate the pre and post

training questionnaire at the beginning of the training

session.

✓ A group activity has been planned for each training

session. The trainers are requested to circulate the same

as per the power point presentation (Delivery

presentation).

✓ It is recommended that the trainer refers to the module-

wise notes. They provide the objective of that module,

along with notes and questions for discussion during the

training session.

Part 1 Part 2Lunch

10:00 AM to 1:00 PM

1:00 PM to 2:00 PM

2:00 PM to 5:00 PM

Tea break 1 Tea break 2

Structure of the training

6

Table of Contents

Contract Model




2








1

Contract formulation










3

7

Table of Contents





M. Developing client supplier relationship


3

RFQ and RFP IssuanceA. Standard RfP Provision



Contract MonitoringA. Developing a comprehensive monitoring framework



6


8


Notes for Trainer

2. Contract Models












Time allocated for this module

Approximately 40 minutes.

Module Notes

This module provides information on the key factors a senior manager should look at before

deciding to outsource an activity of the bus transport organization.

Focus point for trainer

The trainer should focus on the fact that the Authority should play the role of a regulator. The

trainer should make the senior managers realize that the responsibility of the authority is not

to run the buses but to see that the buses run.

Questions for Discussion

• What all activities can be outsourced in a bus transport organization?

• What all activities should never be outsourced for a bus transport organization?

• What all activities should be outsourced for a bus transport organization?

• What all factors should a senior manager look at before deciding to outsource an activity?

9



2. Contract Models












The city bus system comprises of the following elements:

Route Planning

Using ICT systems to improve route planning

methodology

Time table designing

Designing the time table on the basis of demand

on planned routes and

bus availability

Fleet and Crew

Scheduling

Mapping fleet and crew as per the time table

designed

Operations of Services

Operating the buses on the basis of planned

routes, timetable, and scheduled data

Assessment of the prevailing practices used in planning and designing bus operations and related aspectsAssessment of the prevailing practices used in planning and designing bus operations and related aspects

Planning Framework


Monitoring of bus services should be based on the following indicators:

• Readiness assessment (Setting the baseline)

• Service Level Benchmarking (Benchmarking various elements)

• Evaluation (Evaluating the elements based on benchmarks)

• Reporting and Finding (Reporting actual value & deviation from benchmarking in order to take necessary action)

10





• Guidelines for Bus Service Improvement – ADB

The authority should understand that it’s objective is not to run the buses

but to see that the buses run.

The objectives should be very specific and clear before outsourcing an activity.

This objective should be explained to the private operator before

outsourcing the activity

2. Contract Models












The primary objective of bus transport organizations is to manage bus transport system i.e., satisfying the

demand of the citizens. At the same time, the overall objective of the Authority include:

• Generate/Sustain/Increase modal share of public transport• Decreasing the congestion in the city

Citizen Centric

Objectives

Environmenta

l Objectives

Social

Objectives

Adequacy

Regularity

and Reliability

Comfort and

Convenience

Affordability

Accessibility

7

6

54

3

2

1

11


Objective of the Authority; Activities to outsource; Decision to outsource

2. Contract Models












Notes for Trainer: Decision on Outsourcing (Objective of the Authority)

• Focus on setting the objectives of the organization as per the demand of the customers. (This is

explained in detail in Policy Advocacy training material)

• The objective may vary as per the city route / area. Example: On one route, the passengers may

demand comfortable services, and on other they may demand affordable bus services.

• Focus on setting this objective straight before taking the decision on whether to outsource or not.

Notes for Trainer: Decision on Outsourcing (Activities to be outsourced)

• The mechanism may vary as per the organization type. Example: SPV and SRTC.

• Focus on the fact that activities to be outsourced require brainstorming and detailed analysis.

• Note that all of these activities are equally important. Operations and Maintenance of buses is just one

aspect of running an efficient bus service in a city.

• Seoul Case study: The Seoul case study focuses on decision of outsourcing because of the problems

listed. Note that the SMG shifted it’s role from operations to monitoring after taking the decision to

outsource. This shift in organization’s day to day activities needs to be focused upon.

Notes for Trainer: Decision on Outsourcing (Decision on Outsourcing)

• Focus on the detailed assessment of these two parameters for outsourcing any particular activity.

• Example: In operations and maintenance of buses, the available infrastructure would include depot,

terminal, and bus station. Skilled manpower would include drivers, conductors, artisans, etc.

• The key focus of this slide is on recruiting a transaction advisor to help draft the contracts and include

necessary agreements. Note that the shift in organization structure from operations role to monitoring

role would require two key aspects – concession agreement formulation and monitoring skills.

12

2. Contract Models












Time allocation:

• Completing the Chart

– 40 minutes

• Presentation of the

Chart – 15 minutes

each group

Group Activity

Notes for Trainer

Participants are from different cities and often more than one participant report from the same city, so

following is a prerequisite:

1. Formation of groups –

a) It is ideal to have a group of size of 04-06 participants; based on no. of participants, estimate

how many groups are required.

b) Identify the team leaders (voluntarily) for the groups and inform the other participants to join

the team leader. Ensure to create heterogeneous groups.

2. Now allot the group activity sheet.

3. On completion of group activity by each team, inform the participants to share the challenges they are

facing and what are the current practices they are following.

13






3 Passenger fare Authority / Specialist

4 Procurement Authority / Private Operator














Activities that can be outsourced and the respective mechanisms are provided below:

Pla

nnin

gB

uses

Infr

astr

uctu

reM

onit

ori

ng and

Contr

ol

Authority:

Specialist:

Private Operator:



Authority may outsource the activity to Private Operator

2. Contract Models












14



Seoul – Outsourcing of Bus Services

Context


• Private bus companies were allowed to provide services on any routes they deemed commercially viable,

subject to obtaining an easily available license from the public authority.

• The Seoul Metropolitan Government (SMG) had very little control over the system aside from setting fare

levels.

Problem

• Most significantly, the SMG played no role in route or system planning.

• Since there was no overarching organization of the bus network, this resulted in a highly inefficient and

disorganized system with many overlapping and circuitous routes, low service levels in some areas and

excessive supply in others, and poor integration between the various bus routes and other transport

modes.

Action

• The major change in this regard was to switch from a mostly deregulated market to a 'semi-public' or

'quasi-public' system.

Impact

• Under this new approach, private bus operators continue in their role as service providers, but all decisions

regarding route planning, schedules, fare levels and overall system design are now under the control of

the SMG.

• The private bus companies have to participate in a competitive tendering process in order to win the right to ply

specific routes.

• Bus companies that succeed in winning tenders provide services according to strict contractual specifications

stipulated by the SMG.

• The Seoul bus system transitioned from a 'passive franchise' model to a 'proactive planning with service

contracts' model.


• https://wrirosscities.org/sites/default/files/Bus%20Karo%20-%20Guidebook%20on%20Planning%20and%20Operations.pdf

2. Contract Models












15



Chandigarh Transport University (CTU) – Outsourcing of Bus Maintenance

Action

• The Chandigarh Transport Undertaking (CTU) decided to recruit employees for various branches through

outsourcing mode.

• It was also decided to outsource the maintenance of two depots of the CTU, which would soon float tenders for

the same. The department had already outsourced the maintenance of Depot No. 4. Under the agreement, the

company looks after the maintenance of buses and provides all kinds of spare parts.

• Except electricity and water charges, all maintenance, including expenditure on account of tyres, replacement

of batteries, bus charging stations, spare parts, suspension, running, and major and minor repairs of the

buses during the period of the contract has been made the responsibility of the successful bidder.

Impact

• The quality of maintenance activity has improved considerably after making the decision to outsource. It is

because the private party brings in innovative mechanisms and experience.


• https://www.tribuneindia.com/news/chandigarh/ctu-to-hire-staff-on-outsourcing-basis-40769

2. Contract Models












16



*The organization may choose to outsource entire or certain aspects of bus operations, even when it has in-house capacity to deliver the same. Example: The Authority may decide that operator may operate busesmore efficiently, the decision of in-house does not align with the vision of the authority (SPV), etc.

In order to make the decision to outsource an activity or conduct it in-house, the authority needs to look at

two important factors. They are as follows:

Infrastructure – The authority should look at infrastructure availability for carrying out the

activity which is under consideration for outsourcing. Example: It should not happen that the

operations of buses in a particular region / route is outsourced without the availability and proper

functioning of the supporting infrastructure such as bus depot, bus shelters, etc.

Skilled People – The authority should look at availability of skilled people for conducting the

activity which is under consideration for outsourcing. Example: For equipping buses with ITS

system, availability of skilled people for data analytics and ITS experts is necessary.

✓ In order to make the decision to outsource, the authority should understand that the business mind

should never be outsourced. The responsibility for business decisions must lie with the authority and not

be assigned.

✓ The outsourcing should be availed from an organization / person with a reputation risk. This would

ensure effective outcome on the outsourced task no matter the situation.

✓ It is highly recommended that the authority should have a transaction advisor. In order to make the

decision for outsourcing, drafting the RfP and modifying as per the response from bidders, the

transaction advisor is highly recommended to facilitate a balanced view.

In the absence of the above elements to an appropriate level, the authority needs to develop on these

before making the decision to outsource any activity.

2. Contract Models












17


Infrastructure; Skilled Manpower; Financial Capacity (Notes for Trainer)

2. Contract Models












Notes for Trainer: Decision on Outsourcing (Infrastructure)

• Under infrastructure, the as-is assessment is crucial. However, the future scope of provision of services

should also be considered.

• Example: while analyzing bus depot, the possibility of procuring more buses, possibility of including more

area for maintenance, etc. should be considered.

Notes for Trainer: Decision on Outsourcing (Skilled Manpower)

• Under skilled manpower, two things need to be analyzed simultaneously – manpower strength and

manpower skills.

• The strength and skills of manpower may be improved with recruiting and training respectively. However,

it is also possible to outsource the model to a private operator which already has skilled manpower.

• Furthermore, the focus must be on retaining the skilled manpower.

Notes for Trainer: Decision on Outsourcing (Financial Capacity)

• The trainer must ensure that the authority understands that by outsourcing, authority is still responsible

for payment of activities related to bus operations. It is a question of whether the authority chooses to

pay up-front (In-House) or by paying down the line (Outsourcing).

• In order to optimize the finance, the authority must utilize the current resources properly to ensure more

revenue (traffic and non-traffic revenue). There are various modes by which revenue can be earned,

example: monetization of data held by authority, proper marketing and advertising, and most

importantly, proper scheduling adherence and monitoring to ensure more ridership which will in-turn lead

to more traffic revenue. It is also suggested that the authority meet with experts regularly to take their

inputs and solve the problems on a regular basis.

18


Infrastructure

The authority should assess the existing infrastructure in place and make the necessary amendments

before outsourcing bus operations. The infrastructure in bus transport consists of Bus Depot, Bus Terminal,

Bus Stops, and Control Center (for Monitoring and Evaluation).





INFRASTRUCTURE






An as-is assessment of the existing activities of the authority is conducted to identify gaps in services and

infrastructure. Example: the as-is assessment may include analysis on the availability of bus depot, bus

terminal, bus stops, control center; utilities in the infrastructure, issues in the current infrastructure, etc.

As part of gap identification, the following aspects should be covered:

• Understanding current and future service needs in bus operations

• Understanding availability of infrastructure for provisioning of services across, such as fleet, passenger

amenities, bus depots and bus terminals.

2. Contract Models












19


Skilled manpower

Authorities should assess the availability of skilled manpower in the organization to deliver bus transport

services and facilitate decision making for outsourcing, training, and recruitment of staff.

Skilled manpower must be available for deployment, in the absence of which, the following steps can beundertaken to fill the gap.

Recruit / Train

This option should be explored when a long-term task is to be performedby the authority. The authority may recruit skilled manpower or train theexisting manpower to make them efficient in a particular task.

Outsource

This option should be explored when a difficult short-term task is to beperformed by the authority. This option may also be explored if theobjective of the authority would be to run on outsourcing model.

BEST Undertaking stopped the recruitment of employees for several years. When the recruitment began,

the new recruiters were unskilled, while the existing skilled manpower was about to retire. This created an

age gap in employees suggesting that the HR policy was not implemented properly.

The authority should understand the need for skilled manpower retention, which includes data analytics

expert, ITS expert, etc.

2. Contract Models












20


Financial Capacity

An analysis of the financial status of bus transport organizations can help authorities identify the

constraints within which they have to operate their bus services. This analysis also allows decision makers

to understand the extent to which costs of public transport needs to be recovered from users and/or non-

users.

Analysis of financial capacity in a bus transport organization

• Assessing the financial capacity in a bus transport organization requires analyzing its financial statements such as

Income statement, Balance sheet, and Cash flow statement.

• Financial constraints can be further assessed by employing various Key Performance Indicators (KPIs).

• Organizations can assess revenue and cost breakdowns to identify key revenue and cost drivers, respectively. In

addition to these, there are certain KPIs which can aid the assessment of operational efficiency and fare levels.

• These KPIs include

• Operating cost per km, Operating cost per passenger-km, Operating cost per passenger

• Revenue per km, Revenue per passenger-km, Revenue per passenger

• Profit / Loss, Operating Ratio

• Traffic and Non-Traffic revenue as a % of Total Revenue

• Passengers per effective vehicle km

• Revenue earning kilometers

• Operating Cost components (such as fuel and lubricants, tyres and spares, and staff) as % of Total Cost

• Non-Operating Cost components (such as depreciation, interest, etc.) as % of Total Cost, etc.

While the authority has to bear the cost, it may choose to pay it up-front or pay it on an annual

basis with the interest rate to be recovered from the users.

This training material discusses Operations and Management activities through four Contract Models.

2. Contract Models












21

Contract Models

Notes for Trainer





2. Contract Models







Module Notes

This module provides information on various Contract Models that can be used for outsourcing

bus operations and management activities.


The trainers should focus on selection of the most appropriate model for a particular city.


• What type of Contract Models exists for outsourcing activities of operations and

management in bus transport?

• How do you select the most appropriate contract out of the above?

22

Contract Models






2. Contract Models

Four types of Contract Models which may be used to outsource operations management activities are discussed in this training program.

Types of

Contract Models

Gross Cost Contract (GCC) Hybrid Gross Cost Contract (Hybrid GCC)

Net Cost Contract (NCC) Hybrid Net Cost Contract (Hybrid NCC)

• In GCC, the authority takes the major role ofmanaging the network, by contracting the operatorsand paying them to provide a set level of servicesunder set quality standards. The authority carries the

revenue risk, plans overall services, manages thecontract for Level of Service (LOS) and quality, and isresponsible for customer service.

• Under a hybrid GCC (a variant of the GCC), theauthority carries the prime responsibility forpassenger service outcomes and sets explicitMinimum Service Level (MSL). The authority also

incentivizes the operator through additional paymentfor ridership growth.

• In NCC, the authority performs a more regulatoryrole, and the operator carries the revenue risk.Service planning is mostly done by the operator,although Minimum Service Level and KPIs are set asconditions for awarding the NCC.

• In Hybrid NCC (a variant of the NCC), the authoritysupports non-commercial routes where service on theroutes needs to be provided as a public serviceobligation.







23


Contract Models

The Hybrid GCC Contract Model in Adelaide – Incentives linked to increased ridership

Key Features of Hybrid GCC Contract Model in Adelaide

a. Operator’s payment is divided into two components - a fixed monthly sum and a patronage-related

incentive amount, calculated according to the change in patronage from the base year, at a rate

of $0.50 per passenger boarding, plus $0.10 per passenger kilometer. Incentive component is typically

around 50% of contract payments.

b. The contracts are area-based giving operators’ exclusive rights within their service area and are

awarded through a competitive bidding process. A set of minimum service standards are

prescribed, both metropolitan-wide and specific to each contract area.

c. The initial term of the contract is five years which can be extended to another five years by way of

negotiations depending on performance satisfaction. The contracted operator has the primary

responsibility for developing proposals for service enhancements and variations. Any proposed

changes needs to be approved by the transport authority.

d. The fleet deployment plan is prepared by the transport authority. The operators had the

provision to submit a proposal, to amend the fleet deployment plan in accordance with their tactical

measures to improve services. However, proposals for these changes were subject to approval by

the authority.







2. Contract Models





24


Contract Models

Net Cost Contract - Indore

Atal Indore City Transport Services Limited (AICTSL), an SPV formed by Indore Municipal

Corporation and Indore Development Authority, operates their buses under the Net Cost Contract.

Key features:

• 18 routes with highest ridership in the city

are outsourced.



• Fleet procured and owned by private

operator.

• 90% of revenue from advertisements on

buses available to the operator.

• First Right of refusal is given to the operator

for additional requirement of fleet due to

demand increase.



• http://www.citybusindore.com/images/tender/NITANDTENDERDOCSECONDCALL.pdf





2. Contract Models





25


Contract Models





2. Contract Models





Context

Outcome

Critical Success Factors• GCC model has been adopted to ensure greater focus on service quality, which is also endorsed by the judicial system.

• Procurement, monitoring, and management of bus operations is now done by a professional agency called DIMTS (a joint venture of GNCTD and IDFC).

• DIMTS revamped the entire existing structure and re-grouped the 657 routes of Delhi into 17 clusters using digital models.

• In place is also a robust performance management system with incentives to reward or penalize the operator on the basis of quality of services delivered.

• 100% electronic ticketing through online ETM machines, deployment of special ticket checking squad, availability of real time tickets and traffic situation data, GPS installation in all cluster buses which are monitored in the control room.

1948-1992

Bus services in Delhi were

completely owned and operated by

the Delhi Transport Undertaking

(DTU).

1992-2001

To supplement DTC operations,

new scheme for private bus service

in Delhi was launched under Stage

Carriage Permits.

2011 Onwards

The bus transport market in Delhi

has transitioned from competition

‘in-the market’ to competition ‘for-

the-market’ through corporatization of private stage

carriage using the cluster approach.

Private operator running the buses alongside DTC in the ratio of

60:40.

Some of the key challenges during

their operations were high

operating costs, revenue

leakages, and inefficient

operations.

Key challenges were fierce

competition ‘in–the-market’

which led to negligent and rash

driving, leading to fatal accidents

and other operational weaknesses.

Successful operations of more than 2400 buses under the cluster scheme which carries

average daily passenger load of about 831 passengers per bus (a total of 10.6 lakh passengers every day)

26

Case Study - Delhi

Contract Models





2. Contract Models





Delhi: Outsourcing of Bus Services

• The first modified GCC with corporate sector operators

• Began with a Designated Account maintained & managed outside the

Treasury by the city government’s Programme Manager (PM) company

(private company).

• Its function defined as IM (Integrated Mechanism) which manages the entire

service, including FCM (Fare Collection Management), payment to Bus

Service Concessionaires & other vendors

• The Designated Account case itself bears a brief mention as it has stood the

rigors of audit scrutiny (both central & state/UT level) on the grounds that

the fare paid by pax is a user-charge and is a government receipt (not

revenue) which is meant to remunerate the service-provider.

• Made creative use of the MV Act, 1988 as it was in 2009-10 & not only

withstood judicial scrutiny but got strong judicial endorsement of the

Business Model and the method of its operation, monitoring & control.

27



Suitability of the

contract

• Authority has

maximum control

• Authority has more

control and intends

that operator shares some revenue risk

• Operators have more

control

• Higher revenue risk for operator


on routes


control, but less than

NCC• Revenue risk for

operator is lower than

NCC

• Limited competition on routes

Revenue risk


• Base cost by

authority• Ridership increase by

operators

• Operator • Operator, subsidy by

authority on un-viable

routes

Degree of

operator’s incentive

to increase ridership

• Nil

• Fixed payment

irrespective of ridership

• Moderate

• Bonus on increase in

ridership

• High


linked to ridership

• High

• Revenue directly linked

to ridership

Monitoring and

penalty regime

• Requires strong

and consistent

monitoring with penalty for

service below

benchmark

performance

• Higher level of

monitoring than GCC

because of greater economic incentive

for performance

• Less monitoring

• Only service quality

parameters monitored

• Level of monitoring is

higher than NCC.

• In addition to service level parameters,

monitoring of movement

of bus on un-viable

routes

Access to Finance

• Guaranteed

income with

reduced credit risk

• Part of income

assured; lower risk

• Increases credit risk

especially if no track

record or demand is uncertain

• Risk should be

quantified

• Reduces revenue risk as

non-commercial routes

are supported. • Improves credit-

worthiness, but lower

than GCC

Contract Models

Access to finance (Bankability) should not be the sole criterion for selection of a business model. Hence, extreme caution must be adopted while considering access to finance as one of the key parameters.





2. Contract Models





28

Selection of the most appropriate contract model

Rating Weight Score

Low 4% 1

Med. 10% 2

High 18% 3


Equal & Above 210 Gross Cost Contract

Between 150 & 210 Depends on inflection points

Below 150 Net Cost Contract

Contract Models

• Service Plan identifying the role of the

authority vis-à-vis the operators.

• Financial Capacity that deals with financingarrangements of contracting authorities for

operations.

• Institutional Capacity that captures the

ability of contracting authority to manage the

contract.

• Based on the Total Score, most appropriate

Contract Model is selected.

• Each of the above parameters may be rated

Low, Medium or High based on their relativeimportance in contract selection and

accordingly assigned a weight.

• Each parameter is further scored on a

1-3 point scale based on theassessment for that parameter.


Calculating Scores


Selecting Contract Model

01 02

03 04




selection of appropriate contract model.





2. Contract Models





29

Selection of the most appropriate contractual model – Notes for Trainer

Contract Models





2. Contract Models





Notes for Trainer: Contractual Model (Selection of the most appropriate contractual model)

• The trainer should focus on finalizing the selection parameters. The details of the same are provided in

Annexure 1.

• The assigning of weights on these parameters and calculating the score helps in finalizing which

contractual model is best for their city.

30


Notes for Trainer



Module Notes

• This module provides information on some of the important contractual parameters in a

typical outsourcing contract.

• Furthermore, it provides information on the importance of change required in the

relationship between the authority and the operator (Client-Supplier relationship).


The trainers should focus on the importance of developing a good client-supplier relationship

and understanding the needs of both the parties.


• What are some of the important clauses in a typical outsourcing contract for operations

and management?

• Why is there a need to develop a professional relationship between private operator and

authority?

• How can you achieve a good professional relationship between the private operator and the

authority?

2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


31



Part 1: Preliminary

1. Definitions & Interpretations

2. Performance Security

3. Scope of Work

4. Grant of Contract

5. Conditions Precedent

6. Obligations of the operator

7. Obligations of the authority

8. Representations and Warranties

9. Disclaimer

Part 2: Operations

1. Buses

2. Bus Depot

3. Entry of respective lot of buses into commercial service

4. Operations

5. Maintenance

6. Monitoring of Operations and Maintenance

Part 3: Financial Covenants

1. Payment to the Operator

2. Escrow Account

3. Insurance

4. Accounts and Audit

Part 4: Force Majeure and Termination

1. Force Majeure

2. Change of Scope

3. Termination

4. Transition Phase and Handback of Project Facility

Part 5: Other Provisions

1. Assignment and charges

2. Change in Law

3. Liability and Indemnity

4. Rights and title over the project facilities

5. Dispute Resolution

6. Disclosure

7. Redressal of Public Grievances

8. Miscellaneous

9. Definitions

Part 6: Schedules

Covered in this training

session



• http://mohua.gov.in/cms/model-citybus.php - Draft contract template

2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


32


Key contractual parameters; Risk assessment; Contract length (Notes for Trainer)

Notes for Trainer: Contractual Formulation (Key Contractual Parameters)

• The key contractual clauses are highlighted and discussed in this section.

Notes for Trainer: Contractual Formulation (Risk assessment and allocation)

• Trainer should discuss the definition of each risk and the need to allocate them properly.

• The allocation matrix is depicted in the next slide.

• A particular risk should be rated on two parameters, namely, “Degree of Risk” and “Likelihood of

occurrence”.

• The risk with less degree and less likelihood is generally retained by the authority.

• The trainer should focus on the importance of conducting the activity of risk allocation properly.

✓ Risk assessment and allocation

✓ Length of the contract

✓ Conditions precedent

✓ Buses

✓ Infrastructure

✓ Performance Standards

✓ Payment Mechanisms

✓ Contract Flexibility

✓ Dispute Resolution

✓ Termination

✓ Operator and Authority Default

✓ Transition Plan

Notes for Trainer: Contractual Formulation (Length of the contract)

• The trainer should focus on setting the appropriate contract length, and the methodology for extension of

contract if the authority wishes to extend it due to the above benchmark services.

• In this case study, the trainer should focus on setting the contract length equivalent to the asset life of

the vehicle.

2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


33



The main tasks in managing and mitigating risks are:

• To identify them and assess their likely impact (consequence).

• To conduct an assessment of likelihood (how likely is the occurrence of such an event).

Analyzing these risks would help in avoiding or dealing with consequences such as increased costs, delayed

time etc. Risk is best allocated to the party which can manage that risk.

Risk Explanation Consequence

Commissioning Risk Risk that the authority or the operator, or both, might not receive allapprovals needed to provide the services

• Additional Costs

• Delayed Service

Revenue Risk Risk which affects the overall profitability or viability of services, orthe level of public subsidy required to support services

• Losses

• Reduced revenue

Procurement Risk Risk that the buses are not delivered on time or as per specification • Delayed Service

Financial Risk Risk that the project isn’t able to raise debt or achieve financialclosure

• Additional Funding Costs

• Delayed Service

Operating Risk Risk that adversely affects the day-to-day operations • Reduced revenue

• Losses


Performance Risk Risk that the operator is not able to meet availability andperformance standards

• Deficient services

• Reduced revenue

• Losses

Force Majeure Risk Risk that unanticipated acts delay the project or destroy the assets ofthe project


• Reduced Revenue

• Losses

Change in Law Risk Risk that legal framework of the project will be affected • Cost of compliance withnew regulations

For further reading, kindly refer “Model Contract Guidelines for City Bus Transport – MoHUA”

2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


34



Commission Risk

Revenue Risk

Procurement Risk

Performance Risk

Force Majeure Risk

Change in Law Risk

Financial Risk

Operating Risk

Authority

Authority

Authority/Operator

Operator

Authority/Operator

Authority

Authority/Operator

Operator

RISK TYPE GCC NCC

Authority

Operator

Authority/Operator

Operator

Authority/Operator

Authority

Authority/Operator

Operator


2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


35



The risks so identified need to be classified into retained risks (with the authority), transferable risks

(transferable to the operator), and shared risks (shared by both parties).

These risks then need to be detailed and categorized as per “Degree of Risk” and “Likelihood”. For example:



AS 4360:1999 Qualitative measure of CONSEQUENCE

LEVEL DESCRIPTOR DESCRIPTION

1 InsignificantLittle negative impact on system

operation or image

2 Minor

Affects reliability and convenience

of passengers as well as system

reputation

3 ModerateA compromise on service quality

and systemcredibility

4 Major

Major event requiring urgent

attention; threatens system

integrity

5 Catastrophic

Affects total system with massive

financial or political impact, or

future of operations

AS 4360:1999 Qualitative measure of LIKELIHOOD


A Almost certain Expectedto occur

B LikelyWill probably occur during normal

circumstances

C PossibleCould occur under certain

circumstance

D UnlikelyWould not be expected to occur

under most circumstances

E RareCould occur under unusual

circumstances

The risks which are of lesser degree and lesser

likelihood are generally retained by the

authority. An indicative matrix is depicted in the

adjacent figure. The risk needs to be distributed

as per the risk appetite.

2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


36



• Determining the contract period not only ensures timely commencement of services but also generates interest among the operators.

• The authority should decide upon the length of the contract which is most suitable to its objectives and

requirements, such as availability of bidders, recovery of costs, and favorable investment horizon.

• Ideally, the length of the contract should be equal to the economic life of buses (as shown in the case

study on the next page) since prior to that the maintenance cost of the bus would increase. (Additional

charges related to change and maintenance of buses that become old and causes more discomfort to

passengers should be included in the new contract, etc.)


Shorter contracts provide an opportunity to test market prices frequently, to inject new blood and renew the fleet and

technology

Private operators remain motivated to maintain high standards of performance and maintain the fleet

Increases competition and the authority may re-tender the project frequently to get the best price


Short contracts are costly, disruptive, as operators change often, and may not deliver anticipated benefits. Short term contracts

are less attractive from operators’ perspective and results in few bidders

The interest of contractors towards building the business may deteriorate if they do not see themselves as long-termoperators

The value for money or lifecycle cost may not meet the expectations of the authority. Not suitable if operator is required to

invest in infrastructure

2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


37



Contract length in Bogota, Colombia

The term of contract for TransMilenio in Bogota (Colombia) depends on the time the operator takes to recoup

its investment. The regular operation period of the contract is between the start of regular operation as determined

by TransMilenio S.A. and the time at which average mileage of fleet usage reaches 850,000 kilometers. A higher

mileage every year leads to a shorter contract while smaller mileage allows for longer contracts giving the

private operator time to recoup its investment.

Inference: A traditional approach for the length of the contract term is to align it with the asset life of the vehicle.

Achieving higher mileage would require good maintenance of buses which would ensure high quality service. In

Bogota, a bus approximately runs 235 kms a day which makes 85,000 kms a year making a general contract length

of 10 years.



2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


38





• Execute depot license agreement with the operator

• Procure water, sewage, electricity at bus depot / parking space

• Procure bus permits

• Grant approvals, permissions, and authorization within competence of

the authority

• Execution of Escrow Accounts

• Handing over the bus depot


• Sign the agreement within specified days of letter of acceptance

• Submit a performance guarantee in the form of a bank guarantee

• Certify that all representations and warranties are true and correct

• Deliver the initial lot of buses according to the bus delivery schedule

2

• Conditions precedent are the items and obligations the respective parties must fulfil prior to the contract coming into

effect.

• These typically have a material impact on the effectiveness of the contract and could include necessary permissions,

availability of facilities, necessary preparation, etc.

If either party is unable to fulfil the conditions precedent, there is a provision to extend the period to fulfil conditions

precedent. However, the party failing to achieve conditions precedent is liable to a penalty. Further, if the party is not

able to fulfil the conditions precedent even within the extended period, the other party has the right to terminate the

contract.



2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


39


Conditions precedent; Buses; Infrastructure (Notes for Trainer)

Notes for Trainer: Contractual Formulation (Conditions precedent)

• The instructor should focus on inclusion of conditions precedent in the contract for both the Authority and

the Operator. Both parties should fulfil certain conditions prior to the commencement of the contract.

Notes for Trainer: Contractual Formulation (Buses)

• The instructor should focus on key considerations related to buses.

• The details include asking questions such as “Who shall set technical specifications”, “Who shall select the

type and number of buses”, “Who shall procure the finalized buses”, etc.

Notes for Trainer: Contractual Formulation (Infrastructure)

• The instructor should focus on analyzing the infrastructure and setting necessary clauses.

• Within each infrastructure, utilities should be finalized properly, such as drainage, electricity and power

backup, water facilities, etc.

2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


40



Buses

• Authority shall use the latest bus specifications prepared by MoHUA

• Ticketing equipment specification set by the authority

• Authority to identify fleet size based on demand and service requirements

• Authority to select bus type suitable to service design and passenger expectations

• Investment on buses made either by the authority or the private operator

• Defined time period set in contract for delivery of buses

• Defined time period set in contract for commencement of bus services

Who shall procure and what shall be the timeframe?

Who shall select the type and number of buses?

Who shall set the technical specifications?

Decisions related to fleet procurement are key to provisioning of bus services. These decisions impact theefficiency of operations, financials, service level, environment, public service objective of bus operations,etc.

It should be noted that technical specifications should not be manufacturer specific since it

limits the availability of fleet due to the specified design with limited manufacturers.

2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


41



Successful bus operations and contract viability are reliant on availability of key infrastructure facilities.

• All bus contracts require the specification of

a bus depot to manage the functions of

parking, fleet repair and scheduled

maintenance, fueling, washing and cleaning

administration, and management of

operations, etc.

• Bus depots are generally provided by the

authority. Utilities used in operations and

maintenance should be brought by the

operators.

• The location and size of bus terminals are determined on

the basis of route network structure and function

especially if multi-modal functions are needed, and are

usually at places where a number of routes and modes

converge or intersect.

• Ownership of terminal is under the authority. The

operation and maintenance may be outsourced to private

operator under a contract.

From an operator’s viewpoint, bus stops are an important

element in the contract because the revenue is directly

affected by the provision or lack of bus stops.

• Planning of bus stops: The authority should plan the

locations of bus stops, based on route assessment.

• Construction and maintenance of bus stops: This task can

be done by;

• Authority / Third party contract via authority’s

permission

• Private contractor / operator (operator received

incentive to maintain the bus stops)

• ITS helps authorities and operators control

and monitor the system to improve services

and the reliability and efficiency of operations.

• The construction and operation of control

center must lie with the authority. However,

the authority should share real time ITS

information with the operator.


IT Systems

Bus Stop

Bus Terminal

01 02

03 04

Prasanna purple was having an issue with the maintenance of buses. The bus depot was encountering a drainage

problem due to which the buses were not maintained properly. Since the drainage problem was unaccounted for, there

was a delay in fixing the problem. As a result of this problem, only 12 out of 35 buses were running on the roads.

2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


42



Performance standards comprise Minimum Service Level (MSL) benchmarks, which should cater to the basic

demands and requirements of the passengers. Further, exceeding these benchmarks / falling below these

benchmarks may result in incentives / penalty as per the contract. Specified performance parameters

enable standardization of performance among different operators within a city.

• The authority should understand that the penalty should not be considered a source of revenue. Itshould be applied as a corrective measure for deviant behaviour.

• If the penalty has to be applied, it should be equitable. Example: In a contract of INR 100 crores, apenalty of INR 1000 is not considered as equitable.

• While the penalty is important in performance standards, certain incentives should also be awarded forabove benchmark performance. An example for London performance standard is provided in the nextslide.

MoHUA provides service level benchmarking for urban transport and are available at

“http://mohua.gov.in/upload/uploadfiles/files/Service_level.pdf “

2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


43


Performance linked incentives – Transport for London (TFL), TraffiQ (Frankfurt)


• In London, the gross cost contracts are subject to financial incentives based on the quality of

service provided. For example, the reliability incentive.

• Every contract specifies a 'Minimum Performance Standard' which sets targets for service levels

and percentage of on-time arrivals and departures.

• Bus companies are then eligible for a bonus equivalent to 1.5% of the contract price for every 2%

improvement in on-time percentage.

• Similarly, they may face a 1% deduction for every 2% reduction in on-time performance below the

Minimum Performance Standard.

• Similar incentives exist for percentage of scheduled bus kilometers operated, vehicle condition,

driver performance, and customer service.




• TraffiQ, the organizing authority responsible for local public transport services within the city of

Frankfurt, tendered a 6-year Gross Cost Contract with environmental incentives for a sub-

network (3.3 million timetable-km/year) in 2006.

• One main policy aim within the tendering procedures was the reduction of air pollution by

demanding high anti-pollution standards to fulfil the European anti-pollution regime.

• The operator of this bundle now uses vehicles already fulfilling the EEV-standards for gas emission.

2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


44


Performance standards, Payment, Dispute resolution/Contract flexibility (Notes)

Notes for Trainer: Contractual Formulation (Performance Standards)

• The trainer should focus on setting the performance standards for the operator to comply.

• The key point in this slide is that the penalty for non-compliance should not be used as a source of

revenue. This measure is only meant as a corrective measure for deviant behaviour. It is suggested that

non-compliance to the performance standard should be discussed with the operator and experts (if

required).

Notes for Trainer: Contractual Formulation (Performance Standards – Case study)

• These case studies focus on incentives for the operator.

• In London, the operator would receive incentives for quality of service by performing above “Minimum

Performance Standard”

• In Frankfurt, the operator would receive incentives for performing within environmental constraints and

contribution to reduction in air pollution by fulfilling the EEV standard.

Notes for Trainer: Contractual Formulation (Payment mechanism)

• The payment mechanism for the operator should be added carefully. This may be used to elaborate on

revenues other than fare box revenue.

Notes for Trainer: Contractual Formulation (Dispute resolution and Contract flexibility)

• The trainer should focus on inclusion of contract flexibility and dispute resolution in the contract.

• In the dispute resolution, the trainer should ensure that during the arbitration process the expert should

not be related to either party.

2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


45



Payment Mechanisms

The payment mechanism in the contract acts as a primary motivator of operator behavior.

• Fare box revenue (User charges)

• Availability payment (Fee per km)

• Quality performance payments (Incentives)

• Non fare box revenues (Advertisements, grants, etc.)

A combination of these payment mechanisms are used in various Contract Models.

Illustrative Contract Models combining different payment mechanism

Hybrid GCC

• Fee per kilometer, to be paid by the authority• Part of fee/km is fixed and remaining is variable • Variable dependent on increase in ridership

Hybrid NCC

• Operator retains fare box revenue collected• System Management Fee payable to the authority or Grant payable to Operator• Bonus fee for certain non-commercial and unprofitable routes

GCC • Fee per kilometer, to be paid by the authority

NCC• Operator retains fare box revenue collected from passengers• System Management Fee payable to the authority or Grant payable to Operator

2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


46




The payment is linked to the number of passengers carried (user charges). Further, the authority, in order to

reduce the operators’ risk, provides a guaranteed payment for reduction in demand. If actual demand differs from

the reference figure, the operators receive a drop (or increase) in their income representing 10% of the demand

change. Thus, a 10% drop in user charges would only impact operator’s revenue by 1%.



• The bank should notify the authority in case the amount in escrow account is less than the amount

agreed to in the contract.

• The authority should pay as per the contract timeline. Authority must understand that if the payment

record is not as per the contract, then it may happen that the cost of bid goes high.

2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


47



Contract Flexibility

The contract needs to contain certain conditions that enable actions to address changes in operating environment

such as varying demand. Some examples can be:

• Flexibility to assign vehicles across network

• Adjusting fleet size to meet travel demands

• Network expansion

• Fare adjustment in case of increased competition in the market affecting contract viability

Dispute Resolution

This contractual parameter is required so that disagreements can be aired and resolved amicably. A methodology

outlining how disagreements shall be resolved enable maintaining a good client-supplier relationship. The person

identified for the following should not be related to either party. Disputes may be resolved through:

• Conciliation – Either party may call upon the other to arrive at an amicable settlement thereof

• Arbitration – Held in accordance with the rules in Arbitration and Conciliation Act, 1996

• Adjudication – In case of constitution of a statutory Regulatory Authority or Commission with powers to

adjudicate upon disputes between the Operator and the Authority


In Indore initially, each operator is required to operate minimum two buses on routes assigned to them. Once

they exceed the capacity in terms of passenger kilometers served, there is provision for increase in number

of buses. In such a case, the first opportunity to deploy buses is given to the existing operator. In case they refuse,

opportunity will be given to a new entity.

Germany – Contract Flexibility

In Elmshorn (Germany), the Authority can demand changes to the service up to an amount of 10% of the

contract volume. The price for the additional services is fixed in the contract.



2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


48


Early termination of contract; Operator and Authority Default; Transition Plan

Termination

During the implementation of the contract, a situation may arise when it becomes necessary for either partyto terminate the contract. The termination of contract may arise due to force majeure, due to default or atthe convenience of the authority. This termination clause enables management of various risks andconcerns of parties to the contract.



Operator and Authority Default

• During the implementation of the contract, a situation may arise when it becomes necessary for the parties

to terminate the contract. The termination of contract may arise due to force majeure, due to default.

• The contract clause should define the specific conditions on fulfilment of which the above termination

situations will be initiated. The clause will also list the consequences for the contracting parties once the

contract is terminated.

• One very important component of the termination of contract is the rights and obligations of the

parties at termination. The obligation of the private operator on termination is usually to hand over the

project back to the authority in a specified condition.

Transition Plan

A transition plan is required to be put in place to deal with a situation where the contract’s term iscompleted, or it is terminated prematurely.

2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


49


Termination; Operator / Authority default; Transition Planning (Notes for Trainer)

Notes for Trainer: Contractual Formulation (Termination)

• The termination of contract contains guiding principles such as reason for triggering the decision of

termination, Operator’s and Authority’s default, and compensation provision.

Notes for Trainer: Contractual Formulation (Operator and Authority Default)

• The Operator’s and Authority’s default provides insight into the obligations for the operator and the

authority, both, if the contract is terminated.

Notes for Trainer: Contractual Formulation (Transition Planning)

• The mechanism for ordinary exit (completion of contract) and emergency exit (termination of contract)

should be focused upon.

2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


50



The contractual parameters highlighted in this sub-module (3B-3L) must be honoured by both the

Authority and the Operator. It is to be noted that by entering into the agreement, both the Authority

and the Operator has made a commitment to deliver bus operations. Further, fostering a professional

relationship with your contractor (s) improves the sustainability of performance of the overall bus

operations.

The Authority must understand that the motive of the operator is to make profit in order to sustain

the operations. Example: In case there is a cause for penalty, to be imposed on the private operator,

the Authority must inform the private operator immediately, so that there is room for correction,

instead of conveying the message through penalty.

1

2

3

Shared risk – assigning of risk to where it can be best-managed

The risk needs to be assigned properly to the person / organization which

can best manage it. This exercise is explained in Section 3B of this module.

Contracts are financially viable for both parties

The contract should be drafted in a way which is viable for both

the Authority and the Operator.

Aiming for a win-win outcome

The purpose of forming a partnership is to ensure that commitments made

by both the Authority and the Operator are honoured.

2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


51



The Operator should respect and share updates on a regular basis. A

monthly meeting to share information would foster the mutual

partnership.✔


authority must understand that motive of the Operator is to make a

profit in order to sustain the operations. A delay in payment may impact

the sustainability of operations and deteriorate quality of service.✔

The Authority should understand that Operators are partners, and

should discuss the possibilities of corrections prior to taking actions

(Example: Imposing penalty). The Authority and the Operator must

honor their commitment made at the time of signing the contract.✔

Below are some tips for the authority and the operator that can aid them in developing a

good partnership.

2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


52


Developing client supplier relationship – Notes for Trainer

Notes for Trainer: Contractual Formulation (Client Supplier Relationship)

• The trainer must focus on the fact that the Authority and Private Operator run on a partnership basis and

must have mutual professional respect.

• A progressive client-supplier relationship ensures innovation and interest.

• Regular meetings ensure regular communication, which in turns keeps both the parties updated on

recent activities.

• The Authority must pay the operator as per the contract, so that the operator can recover its cost.

• The Authority must understand that the motive of the operator is not to run the buses, but to make a

profit.

• The Private Operator must share updates regularly with the Authority. Sharing of information ensures

fostering the mutual professional relationship.

2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


Notes for Trainer: Contractual Formulation (Contract Management Capacity)

• ‘Market sounding’ exercise can be used by the authority to test the level of interest and availability of

potential private operators. It can be done by issuing an EOI, conducting a workshop and conducting

road shows.

• The Authority should understand their commitment to operators, commuters, vendors, etc. by taking the

responsibility to ensure bus services run in the city. The Senior Manager must be aware about its

strength and capability to honor the contract. They can be assessed via financial planning, infrastructure

planning and planning for monitoring & control.

53





Key Takeaways










department, etc.




2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


54

















2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


55


Notes for Trainer








2. Contract Models



Module Notes

This module provides information on bid process management.


The trainers should focus on the fact that the activity of managing the bid process should be

done by a transaction advisor, which the authority dealing with outsourcing should temporarily

recruit.


• Why should the authority hire a transaction advisor for managing the bid process?

• What type of bid process is recommended to be followed for outsourcing (one stage, two

stage, etc.)?

56










2. Contract Models



• Toolkit on Contracting Urban Transport – UNDP/SUTP/MoHUA/IUT


It is strongly recommended to engage a transaction advisor considering the scale of the project. The

transaction advisor would be beneficial to the authorities because of the following reasons:

1. Transaction advisor provides different types of skill set such as legal, PPP, Bus operations, financial

modeling, feasibility assessment, etc., while drafting the contract. Therefore, hiring a transaction advisor is

highly recommended. Furthermore, the contract layout price is usually very high and the transaction

advisor would be well equipped to handle these projects.

2. The transaction advisor would be well equipped to handle high price contracts and would possess

demonstrable experience.

3. The transaction advisors would contribute to vendor knowledge and innovation in the bidding process.

Since the Transaction Advisor is a neutral party, he/she will provide unbiased opinion on the viability and

responsibility of both the authority and the private operator.

The Authority and the bidders are entering into high value and long term commitments involving

reputation risks apart from other risks.

57










2. Contract Models









18.0 19.8 21.8 24.0 26.4 29.0 31.9 35.1







58


Standard RfP Provision; Bid Process Management (Notes for Trainer)








2. Contract Models

Notes for Trainer: RfQ and RfP Issuance (Standard RfP Provision)

• A transaction advisor is strongly recommended as it would bring an un-biased opinion on the viability and

responsibilities of the government and the operator.

• The transaction advisor would focus on getting the RfP details correct the first time, which saves a lot of

money.

• A dedicated person to manage the concession agreement would ensure smooth functioning of the

organization.

• Sample calculation for GCC: The trainer must focus on the outlay of the agreement in order to make the

Authority understand the thinking perspective of the Private Operator.

Notes for Trainer: RfQ and RfP Issuance (Bid Process Management)

• Under bid process management, the authority must understand the impact of setting the ratio of

technical to financial. Example, 70:30 ratio and 60:40 ratio have a huge impact financially.

59



• Competition is

expected to

provide

transparency to

the process.

• The competitive

bidding process

can either be

one stage or

two stages.

Single-stage process (RfP)

• This process is appropriate for projects

when the scope of the project is well

defined, and there are relatively fewer

bidders.

Two-stage process (RfQ + RfP)

• This process is appropriate when the

project scope is not clear and

discussions are required to finalize the

service options, and the number of

bidders is large. This process is highly

recommended for the authority.

• Quality cum Cost Based Selection

(QCBS): This method scores technical

capacity, skill and experience of the bidder.

A minimum technical score is required for

the bid to be considered for financial bid

evaluation. This is used when quality is the

prime concern.

• Least cost method: This method is

preferred when cost is the prime concern

and the minimum standard required from

the bidders can be easily identified with no

differentiation among the bidders.

Competitive Bidding

Deciding between one stage and two stage bidding process

Types of bid evaluation







2. Contract Models

• Early market engagement in pre-procurement phase may bring perspective of prospective bidders,

relevant stakeholders (such as transport department, existing transport agencies, development authority,

etc.) and ensure that procurement process is successful.

• Multiple early market engagements ensures that the decision makers are clear on interest from potential

bidders and potential issues in later stages are discussed with potential bidders.

• Since a typical 8 year contract costs ~305 crores (As per the calculation on previous slide),

comprehensive planning for RfP is recommended.


The distribution of Technical to Financial score is generally kept 70:30 (Technical is always higher). This isbecause the authorities should choose the best candidate in terms of delivering capability and then see thefinancial quotes of the operator. Example: If the authority chooses the operator with the lowest bid, it mayhappen that the quality of the bus operations reduces.


following material


Transport – MoHUA


UNDP/SUTP/MoHUA/IUT


60









2. Contract Models



following material


Transport – MoHUA


UNDP/SUTP/MoHUA/IUT


With an increase in the

electronic content in busesand higher sophistication of

tools needed, it wasbecoming increasingly

difficult for DTC to maintainthe vehicles on their own.


To ensure consistent

performance of buses onroad, the maintenance of

the buses were outsourcedto the supplier of buses.


Since specific tools and

parts can only be providedby specific bus

manufacturers. The multi-year contract was

negotiated with the existingmanufacturers to maintain


NEGOTIATION

OF CONTRACT THROUGH


61


Evaluation of bids

Bid evaluationA





• The criterion has to be stringent enough to ensure that only serious bidders qualify, but not so high such

that only few bidders qualify. It should be depend on market appetite and should provide level playing

field and fair competition

• Relevant experience (recommended to be within previous 3-5 years) is a good qualifier especially having

performed similar services previously, or with a skill set that clearly qualifies their involvement.



• The bidder should have sufficient capability to undertake the financial burden of the project. The

financial capability would depend on the annual turnover (related to project value), turnover criteria for

last few years, etc.

• Usually, this is checked on the basis of average annual turnover and net worth.

• Authority should consider both turnover from relevant experience and other services, but higher

weightage should be given to turnover from relevant experience.




2. Contract Models

The technical qualification takes into consideration not only bus operators but transport operators capableof running buses (such as trucks and taxis). Furthermore, it analyses the operators based on the capacityof the buses, number of vehicles and number of months of operations.

The operator must score the minimum evaluation score in order to be considered for the next round.


following material


Transport – MoHUA


UNDP/SUTP/MoHUA/IUT


Notes for Trainer: Bid Evaluation

• The trainer should focus on setting

the criteria for technical and financial

evaluation.

• The crucial parameters within

technical and financial evaluation

should be explained

62

Contract Monitoring

Notes for Trainer





2. Contract Models







Module Notes

This module focuses on the importance of monitoring activities which are outsourced. It is

recommended that monitoring is handed over to an independent agency.


The trainers should focus on the importance of daily service monitoring and outsourcing the

activities of monitoring to an independent agency.


• How should the authority monitor the activities which are outsourced for operations and

management?

63

Contract Monitoring


The monitoring framework should be comprehensive and should consider all issues that might arise in the projectlifecycle, with due provision for review and update at any point of time.

▪ Regular evaluation

of the monitoring

procedures, as well as the level of

monitoring, will

assist the

authority to assess its effectiveness

Review and update the performance

monitoring system

▪ ITS (or agreed

reporting structure)

should provide all necessary data to

enable sufficient

monitoring

▪ Regular meetings

of all concerned

officials (including private operator

and related parties)

must be conducted

at agreed intervals to discuss any

performance

related issues


▪ For managing a

contract to deliver

service quality, the main KPI aspects

are:

• Failure to

perform a

service;

• Compliance with

operating rules

and service specifications;

• Meeting vehicle standards of

cleanliness and

condition; etc.


▪ Decide the level of

monitoring which is

most efficient considering the

cost and availability

of resources

▪ Example: ITS

generated data,

physical inspection, etc.

Evaluate existing processes and tools

▪ Determine all

parameters on

which the private operator will be

evaluated for the

quality of the

project

▪ Consider:

• Which data

sources to use

• In what form is

information

available or to be specified

Collection and analysis of information 1 2 3

45

During the development of the contract During the monitoring period1. Deciding on outsourcing




2. Contract Models





following material


Transport – MoHUA


UNDP/SUTP/MoHUA/IUT




64

Contract Monitoring




• https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/254392/tendering-road-

passenger-transport-contracts.pdf





2. Contract Models





Monitoring by Strathclyde Partnership for Transport (SPT) (Outsourced Monitoring)

SPT undertakes a range of activities to keep the bus network under review.

Action

Monitoring activities include:

• SPT Compliance Inspectors monitor bus services noting potential violations of traffic regulations and

preparing reports for the Traffic Commissioner. Figures are presented on a monthly basis.

• SPT prepares reports for its Operations Committee. For example, reports are prepared including patronage,

scheduled versus actual mileage, passengers per mile and lost mileage. The report also details the trend of

four-weekly passenger patronage on SPT’s MyBus (Demand Responsive Transport) services.

• Nearly 3,000 vehicle checks have been undertaken. SPT’s Compliance Inspectors also carry out monitoring and

report instances of non-compliance, including engine idling, parking issues or missing information.

• The Compliance Inspectors work with drivers and draw to their attention whenever possible any failures that

are found. Based on these findings, reports are submitted to the Traffic Commissioner as and when required.

• MyBus services are monitored by SPT officers to ensure that the service being provided by operators meets

with the expected standards.

• Monitoring arising from local service complaints that the Compliance Inspectors are requested to investigate

are also included in these figures reported to the Operations Committee.

Impact

• There has been a significantly reduced level of non-compliance recorded since SPT’s Compliance Inspectors

started work. (Third party inspection)

• The high level of compliance is reflected by the very low number of breaches found and specific monitoring is

undertaken after complaints have been received.

65

Contract Monitoring

Monitoring framework; KPI; Daily monitoring (Notes for Trainer)





2. Contract Models





Notes for Trainer: Contract Monitoring (Monitoring Framework)

• The Authority should understand the importance of Monitoring and Evaluation.

• Since it is the duty of the Authority to ensure that bus services run efficiently in the city, the

responsibility of proper monitoring lies with the Authority.

• Case study of Strathclyde Partnership for Transport (SPT): In this case study, proper monitoring ensured

significant reduction in the level of non-compliance.

Notes for Trainer: Contract Monitoring (KPIs and their outcomes)

• This slide showcases the outcomes and the KPIs.

• The monitoring framework should focus on all these parameters to ensure efficient monitoring of the

private operator.

• This is a sample framework for a single KPI (Example: Outcome=Quality of Service, KPI=Regularity).

• The instructor should focus on what all the Authority has to look within a single KPI. Example: Level of

service, frequency of monitoring, monitoring tools, etc.

Notes for Trainer: Contract Monitoring (Daily service monitoring)

• The daily service monitoring covers crucial parameters such as breakdown response, malfunctioning,

emergency response, etc.

• Case study of TfL (London): In the case study, the monitoring structure of London bus services is

operated by TfL. The financial incentives linked in GCC contract is depicted in the case study.

66

Contract Monitoring


Outcomes







Customer value• Frequency of

service• Average speed• Behavior of crew• Comfortability• Skipping bus


per route defined

Efficiency of service• Fleet utilization • Vehicle utilization• Crew utilization• KMPL of fuel• Tyre

consumption



Quantitative • Cost/Kms• Variable cost• Fixed cost

• Depreciation• Insurance• Taxes• Overhead




transport buses

per lakh population







Pollution


to other modes

Women safety



From the customer’s perspective, the outcome “Quality of Service” is dependent on “Regularity” and“Punctuality”.





2. Contract Models





67

Contract Monitoring


The Key performance indicators have to be analyzed before implementation. The training material on“Monitoring and Evaluation” details out the Key Performance Indicators. Below is a template in which theKPIs should be Benchmarked.





Slab 1 <1, 2, 3, 4, etc.>

Slab 2 <1, 2, 3, 4, etc.>

Slab 3 <1, 2, 3, 4, etc.>

Slab 4 <1, 2, 3, 4, etc.>






Senior Manager











2. Contract Models





68

Contract Monitoring


Daily Service Monitoring:

• This enables timely identification of any variations from specifications by the authority and the operator.

• This task requires a Control Centre which (with ITS), can be abreast with the daily service performance.

• This Control Centre may also be involved in service planning, both strategic service plan (setting overall parameters) and may also govern the daily scheduled service.

• The Control Centre will have in place standard operating procedures to cover areas such as:

Control procedures


Emergency or accident

response



procedures


Quality inspection

procedures


items


Contract Management Procedures:

• For contract management, the authority will have to develop a comprehensive and agreed set of procedures and processes under which it will administer the control and management of the bus operator contract. It could be named as Contract Management Procedures Manual (CMPM).

• It would aim to provide explicit and clear guidance to reduce the amount of ad hoc and arbitrary decisions that need to be made with individual operators and to build confidence in the regulatory process.

• This manual would address control and monitoring issues not contained in the contract, and may be changed and adapted as new situations arise.

Monitoring and evaluation is covered in detail in the training session of Monitoring and Evaluation.


following material


Transport – MoHUA


UNDP/SUTP/MoHUA/IUT






2. Contract Models





69

Contract Monitoring

Monitoring and supervision in London

Monitoring and supervision London (GB): Financial incentives in a Gross Cost Contract


• The “Quality Incentive” contract payments are based on a monitoring regime that primarily measures

the reliability of the buses. The contract dedicates an entire detailed section to reliability. It states for

example at which location and what frequency monitoring will take place.

• In addition, customer satisfaction surveys are carried out, measuring waiting time and riding,

driving standard, cleanliness, information at bus stops, etc.

• Other monitoring mechanisms include: Mystery travelers, driving standards reporting, accident

and incident reporting and environmental reporting.

• Operator league tables are published for reliability and excess wait time. Other quality indicators

are reported at network level only.

• Presently, monitoring is undertaken manually with a hand held device. However, TfL is in the

process of introducing GPS in the future. This tracking system would have additional benefits, such as

passenger information.







2. Contract Models





70

Thank You !

Time for Discussion

71

Annexures

72



Max. Score

Parameter Max Score



18 3 54

• Below 30% 3


• More than 60% 1


• More than 20% 3


• Less than 10% 1

• No overlap 0



4 3 12


4 3 12


10 3 30

• Metro/Mono rail

• IPTs

• Any other

Annexure 1



73


Annexure 1


Max. Score

Parameter Max Score



10 3 30

2 Provision of dedicated funding Have any funding provisions been created such as Urban Transport Fund and/or is there a resolution from the Urban Local Body/State Govt. for funding? If yes, rate 3 or else 0.

18 3 54


4 3 12

• BBB and above 3


• Less than B 1

• No rating 0



4 3 12



18 3 54





Max. Score (A+B+C) 300

74

Reference table

A. 7-10

B. 11-16

C. 17

D. 18

E. 19

F. 20

A. 8-12

B. 13-15

C. 16

D. 17-18

E. 19

F. 20

A. 7-8

B. 9-11

C. 12

D. 13

E. 14

F. 15-16

Delivery

PPT

Trainer

manual

Participant

Manual

A. 21-24

B. 25-28

C. 29-30

A. 21-24

B. 25-27

C. 28-29

A. 17-19

B. 20-23

C. 24-25

Contract

Model




2

Deciding on

outsourcing







1

Contract

formulation








standards



3

A. 31

B. 32-35

C. 36-38

D. 39

E. 40

F. 41

G. 42-44

H. 45

I. 46-47

A. 30-32

B. 33-35

C. 36-37

D. 38-39

E. 40

F. 41

G. 42-44

H. 45-46

I. 47

A. 26

B. 27-29

C. 30-31

D. 32

E. 33

F. 34

G. 35-36

H. 37-38

I. 39

75

Reference table

J. 48

K. 48

L. 48

M. 49-51

N. 52-53

J. 48-49

K. 48-49

L. 48-49

M. 50-52

N. 53-54

J. 40

K. 40

L. 40

M. 41-42

N. 43-45

Delivery

PPT

Trainer

manual

Participant

Manual

A. 54-56

B. 57-58

A. 55-58

B. 59-60

A. 46-47

B. 48-49

A. 61-63

B. 64-65

C. 66-67

A. 62-65

B. 66-67

C. 68-69

A. 51-52

B. 53-54

C. 55-57

Contract

formulation




M. Partnership


3




Evaluation and


Contract

Monitoring




6


A. 59-60 A. 61 A. 50

A. 69-71 A. 71-73 A. 59-61

76

















requirements.







Participant Manual

1

December 2020December 2020




PARTICIPANT’S NOTES – OUTSOURCING FOR SENIOR MANAGERSPARTICIPANT’S NOTES – OUTSOURCING FOR SENIOR MANAGERS

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PrefaceThe Efficient and Sustainable City Bus Services (ESCBS) project was introduced to improve the efficiency and attractiveness of city






(MoHUA).

Policy Advocacy for

Senior Managers


Managers

Monitoring and


Managers


Middle Managers


Middle Managers


Managers

Bus Operations for

Middle Managers


Managers

1 2 3 4

5 6 7 8





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About the Module

It is strongly recommended that participant’s manual is referred prior to the training session.

This training on “Outsourcing of Bus Operations” provides guidance on the decision making process foroutsourcing activities and selection of an appropriate contractual model for Senior Managers. Thissection discusses the intricacies, parameters, and issues that must be evaluated by SeniorManagers before outsourcing and deciding upon the appropriate contractual model. The moduleexplains in detail that the Authorities may consider outsourcing portions of or the entire bus operations toone or more contractors, as alternative to in-house operations. In addition, the training content will enableparticipants to formulate strategies needed for executing and monitoring of contracts of outsourced busoperations.

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Learning Objectives

✓ Identifying segments of bus operations which can be outsourced

✓ Taking decision on whether or not to outsource the identified segments or services

✓ Selecting appropriate / suitable contractual model suitable as per the requirements

✓ Overview of key contractual parameters

✓ Appreciating the two-way relationship between the client and the supplier

✓ Understanding the contours of bid process management

✓ Appreciating the importance of monitoring and developing a monitoring framework

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Table of Contents

Contract Model




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1





D. Conditions precedent for the authority and the operator






3

6

Table of Contents





M. Partnership


3


A. Market Sounding

B. Assessing In-House Capacity

C. Standard RfP Provision

D. Bid Process Management

4


Contract Monitoring




6


7



2. Contract Models












The city bus system comprises of the following elements:

Route Planning

Using ICT systems to improve route planning

methodology

Time table designing

Designing the time table on the basis of demand

on planned routes and

bus availability

Fleet and Crew

Scheduling

Mapping fleet and crew as per the time table

designed

Operations of Services

Operating the buses onthe basis of planned

routes, timetable, and scheduled data

Assessment of the prevailing practices used in planning and designing bus operations and related aspectsAssessment of the prevailing practices used in planning and designing bus operations and related aspects

Planning Framework


Monitoring of bus services should be based on the following indicators:

• Readiness assessment (Setting the baseline)

• Service Level Benchmarking (Benchmarking various elements)

• Evaluation (Evaluating the elements based on benchmarks)

• Reporting and Finding (Reporting actual value & deviation from benchmarking in order to take necessary action)

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The authority should understand that it’s objective is not to run the buses

but to see that the buses run.

The objectives should be very specific and clear before outsourcing an activity.

This objective should be explained to the private operator before

outsourcing the activity

2. Contract Models












The primary objective of bus transport organizations is to manage bus transport system i.e., satisfying the

demand of the citizens. At the same time, the overall objective of the Authority include:

• Generate/Sustain/Increase modal share of public transport• Decreasing the congestion in the city

Citizen Centric

Objectives

Environmenta

l Objectives

Social

Objectives

Adequacy

Regularity

and Reliability

Comfort and

Convenience

Affordability

Accessibility

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6

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3

2

1

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3 Passenger fare Authority / Specialist

4 Procurement Authority / Private Operator














Activities that can be outsourced and the respective mechanisms are provided below:

Pla

nnin

gB

uses

Infr

astr

uctu

reM

onit

ori

ng and

Contr

ol

Authority:

Specialist:

Private Operator:



Authority may outsource the activity to Private Operator

2. Contract Models












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Seoul – Outsourcing of Bus Services

Context


• Private bus companies were allowed to provide services on any routes they deemed commercially viable,

subject to obtaining an easily available license from the public authority.

• The Seoul Metropolitan Government (SMG) had very little control over the system aside from setting fare

levels.

Problem

• Most significantly, the SMG played no role in route or system planning.

• Since there was no overarching organization of the bus network, this resulted in a highly inefficient and

disorganized system with many overlapping and circuitous routes, low service levels in some areas and

excessive supply in others, and poor integration between the various bus routes and other transport

modes.

Action

• The major change in this regard was to switch from a mostly deregulated market to a 'semi-public' or

'quasi-public' system.

Impact

• Under this new approach, private bus operators continue their role as service providers, but all decisions

regarding route planning, schedules, fare levels, and overall system design are now under the control of

the SMG.

• The private bus companies have to participate in a competitive tendering process in order to win the right to ply

on specific routes.

• Bus companies that succeed in winning tenders provide services according to strict contractual specifications

stipulated by the SMG.

• The Seoul bus system transitioned from a 'passive franchise' model to a 'proactive planning with service

contracts' model.


• https://wrirosscities.org/sites/default/files/Bus%20Karo%20-%20Guidebook%20on%20Planning%20and%20Operations.pdf

2. Contract Models












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Chandigarh Transport University (CTU) – Outsourcing of Bus Maintenance

Action

• The Chandigarh Transport Undertaking (CTU) decided to recruit employees for various branches through

outsourcing mode.

• It was also decided to outsource the maintenance of two depots of the CTU, which would soon float tenders for

the same. The department had already outsourced the maintenance of Depot No. 4. Under the agreement, the

company looks after the maintenance of buses and provides all kinds of spare parts.

• Except electricity and water charges, all maintenance, including expenditure on account of tyres, replacement

of batteries, bus charging stations, spare parts, suspension, running, and major and minor repairs of the

buses during the period of the contract has been made the responsibility of the successful bidder.

Impact

• The quality of maintenance activity has improved considerably after making the decision to outsource. It is

because the private party brings in innovative mechanisms and experience.


• https://www.tribuneindia.com/news/chandigarh/ctu-to-hire-staff-on-outsourcing-basis-40769

2. Contract Models












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*The organization may choose to outsource entire or certain aspects of bus operations, even when it has in-house capacity to deliver the same. Example: The Authority may decide that operator may operate busesmore efficiently, the decision of in-house does not align with the vision of the authority (SPV), etc.

In order to make the decision to outsource an activity or conduct it in-house, the authority needs to look at

two important factors. They are as follows:

Infrastructure – The authority should look at infrastructure availability for carrying out the

activity which is under consideration for outsourcing. Example: It should not happen that the

operations of buses in a particular region / route is outsourced without the availability and proper

functioning of the supporting infrastructure such as bus depot, bus shelters, etc.

Skilled People – The authority should look at availability of skilled people for conducting the

activity which is under consideration for outsourcing. Example: For equipping buses with ITS

system, availability of skilled people for data analytics and ITS experts is necessary.

✓ In order to make the decision to outsource, the authority should understand that the business mind

should never be outsourced. The responsibility for business decisions must lie with the authority and not

be assigned.

✓ The outsourcing should be availed from an organization / person with a reputation risk. This would

ensure effective outcome on the outsourced task no matter the situation.

✓ It is highly recommended that the authority should have a transaction advisor. In order to make the

decision for outsourcing, drafting the RfP and modifying as per the response from bidders, the

transaction advisor is highly recommended to facilitate a balanced view.

In the absence of the above elements to an appropriate level, the authority needs to develop on these

before making the decision to outsource any activity.

2. Contract Models












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Infrastructure

The authority should assess the existing infrastructure in place and make the necessary amendments

before outsourcing bus operations. The infrastructure in bus transport consists of Bus Depot, Bus Terminal,

Bus Stops, and Control Center (for Monitoring and Evaluation).





INFRASTRUCTURE






An as-is assessment of the existing activities of the authority is conducted to identify gaps in services and

infrastructure. Example: the as-is assessment may include analysis on the availability of bus depot, bus

terminal, bus stops, control center; utilities in the infrastructure, issues in the current infrastructure, etc.

As part of gap identification, the following aspects should be covered:

• Understanding current and future service needs in bus operations

• Understanding availability of infrastructure for provisioning of services across, such as fleet, passenger

amenities, bus depots and bus terminals.

2. Contract Models












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Skilled manpower

Authorities should assess the availability of skilled manpower in the organization to deliver bus transport

services and facilitate decision making for outsourcing, training, and recruitment of staff.

Skilled manpower must be available for deployment, in the absence of which, the following steps can beundertaken to fill the gap.

Recruit / Train

This option should be explored when a long-term task is to be performedby the authority. The authority may recruit skilled manpower or train theexisting manpower to make them efficient in a particular task.

Outsource

This option should be explored when a difficult short-term task is to beperformed by the authority. This option may also be explored if theobjective of the authority would be to run on outsourcing model.

BEST Undertaking stopped the recruitment of employees for several years. When the recruitment began,

the new recruiters were unskilled, while the existing skilled manpower was about to retire. This created an

age gap in employees suggesting that the HR policy was not implemented properly.

The authority should understand the need for skilled manpower retention, which includes data analytics

expert, ITS expert, etc.

2. Contract Models












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Financial Capacity

An analysis of the financial status of bus transport organizations can help authorities identify the

constraints within which they have to operate their bus services. This analysis also allows decision makers

to understand the extent to which costs of public transport needs to be recovered from users and/or non-

users.

Analysis of financial capacity in a bus transport organization

• Assessing the financial capacity in a bus transport organization requires analyzing its financial statements such as

Income statement, Balance sheet, and Cash flow statement.

• Financial constraints can be further assessed by employing various Key Performance Indicators (KPIs).

• Organizations can assess revenue and cost breakdowns to identify key revenue and cost drivers, respectively. In

addition to these, there are certain KPIs which can aid the assessment of operational efficiency and fare levels.

• These KPIs include

• Operating cost per km, Operating cost per passenger-km, Operating cost per passenger

• Revenue per km, Revenue per passenger-km, Revenue per passenger

• Profit / Loss, Operating Ratio

• Traffic and Non-Traffic revenue as a % of Total Revenue

• Passengers per effective vehicle km

• Revenue earning kilometers

• Operating Cost components (such as fuel and lubricants, tyres and spares, and staff) as % of Total Cost

• Non-Operating Cost components (such as depreciation, interest, etc.) as % of Total Cost, etc.

While the authority has to bear the cost, it may choose to pay it up-front or pay it on an annual

basis with the interest rate to be recovered from the users.

This training material discusses Operations and Management activities through four Contract Models.

2. Contract Models












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Key Takeaway

2. Contract Models












• The objective of the authority should be in place before taking the decision to outsource.

• Before outsourcing an activity, the authority should be clear on the activities it needs to

outsource and the ones it may perform in-house.

• The decision to outsource is based on two parameters:

• Availability of existing infrastructure

• Availability of existing skilled manpower

• Apart from these, financial capacity analysis should also be performed.

Note that it is the responsibility of the authority to pay for bus transport services. Outsourcing

is an option for paying down the line instead of paying up-front.

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Contract Models






2. Contract Models

Four types of Contract Models which may be used to outsource operations management activities are discussed in this training program.

Types of

Contract Models

Gross Cost Contract (GCC) Hybrid Gross Cost Contract (Hybrid GCC)

Net Cost Contract (NCC) Hybrid Net Cost Contract (Hybrid NCC)

• In GCC, the authority takes the major role ofmanaging the network, by contracting the operatorsand paying them to provide a set level of servicesunder set quality standards. The authority carries the

revenue risk, plans overall services, manages thecontract for Level of Service (LOS) and quality, and isresponsible for customer service.

• Under a hybrid GCC (a variant of the GCC), theauthority carries the prime responsibility forpassenger service outcomes and sets explicitMinimum Service Level (MSL). The authority also

incentivizes the operator through additional paymentfor ridership growth.

• In NCC, the authority performs a more regulatoryrole, and the operator carries the revenue risk.Service planning is mostly done by the operator,although Minimum Service Level and KPIs are set asconditions for awarding the NCC.

• In Hybrid NCC (a variant of the NCC), the authoritysupports non-commercial routes where service on theroutes needs to be provided as a public serviceobligation.







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Contract Models

The Hybrid GCC Contract Model in Adelaide – Incentives linked to increased ridership

Key Features of Hybrid GCC Contract Model in Adelaide

a. Operator’s payment is divided into two components - a fixed monthly sum and a patronage-related

incentive amount, calculated according to the change in patronage from the base year, at a rate

of $0.50 per passenger boarding, plus $0.10 per passenger kilometer. Incentive component is typically

around 50% of contract payments.

b. The contracts are area-based giving operators’ exclusive rights within their service area and are

awarded through a competitive bidding process. A set of minimum service standards are

prescribed, both metropolitan-wide and specific to each contract area.

c. The initial term of the contract is five years which can be extended to another five years by way of

negotiations depending on performance satisfaction. The contracted operator has the primary

responsibility for developing proposals for service enhancements and variations. Any proposed

changes needs to be approved by the transport authority.

d. The fleet deployment plan is prepared by the transport authority. The operators had the

provision to submit a proposal, to amend the fleet deployment plan in accordance with their tactical

measures to improve services. However, proposals for these changes were subject to approval by

the authority.







2. Contract Models





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Contract Models

Net Cost Contract - Indore

Atal Indore City Transport Services Limited (AICTSL), an SPV formed by Indore Municipal

Corporation and Indore Development Authority, operates their buses under the Net Cost Contract.

Key features:

• 18 routes with highest ridership in the city

are outsourced.



• Fleet procured and owned by private

operator.

• 90% of revenue from advertisements on

buses available to the operator.

• First Right of refusal is given to the operator

for additional requirement of fleet due to

demand increase.



• http://www.citybusindore.com/images/tender/NITANDTENDERDOCSECONDCALL.pdf





2. Contract Models





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Contract Models





2. Contract Models





Context

Outcome

Critical Success Factors• GCC model has been adopted to ensure greater focus on service quality, which is also endorsed by the judicial system.

• Procurement, monitoring, and management of bus operations is now done by a professional agency called DIMTS (a joint venture of GNCTD and IDFC).

• DIMTS revamped the entire existing structure and re-grouped the 657 routes of Delhi into 17 clusters using digital models.

• In place is also a robust performance management system with incentives to reward or penalize the operator on the basis of quality of services delivered.

• 100% electronic ticketing through online ETM machines, deployment of special ticket checking squad, availability of real time tickets and traffic situation data, GPS installation in all cluster buses which are monitored in the control room.

1948-1992

Bus services in Delhi were

completely owned and operated by

the Delhi Transport Undertaking

(DTU).

1992-2001

To supplement DTC operations,

new scheme for private bus service

in Delhi was launched under Stage

Carriage Permits.

2011 Onwards

The bus transport market in Delhi

has transitioned from competition

‘in-the market’ to competition ‘for-

the-market’ through corporatization of private stage

carriage using the cluster approach.

Private operator running the buses alongside DTC in the ratio of

60:40.

Some of the key challenges during

their operations were high

operating costs, revenue

leakages, and inefficient

operations.

Key challenges were fierce

competition ‘in–the-market’

which led to negligent and rash

driving, leading to fatal accidents

and other operational weaknesses.

Successful operations of more than 2400 buses under the cluster scheme which carries

average daily passenger load of about 831 passengers per bus (a total of 10.6 lakh passengers every day)

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Case Study - Delhi

Contract Models





2. Contract Models





Delhi: Outsourcing of Bus Services

• The first modified GCC with corporate sector operators

• Began with a Designated Account maintained & managed outside the

Treasury by the city government’s Programme Manager (PM) company

(private company).

• Its function defined as IM (Integrated Mechanism) which manages the entire

service, including FCM (Fare Collection Management), payment to Bus

Service Concessionaires & other vendors

• The Designated Account case itself bears a brief mention as it has stood the

rigors of audit scrutiny (both central & state/UT level) on the grounds that

the fare paid by pax is a user-charge and is a government receipt (not

revenue) which is meant to remunerate the service-provider.

• Made creative use of the MV Act, 1988 as it was in 2009-10 & not only

withstood judicial scrutiny but got strong judicial endorsement of the

Business Model and the method of its operation, monitoring & control.

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Suitability of the

contract

• Authority has

maximum control

• Authority has more

control and intends

that operator shares some revenue risk


control

• Higher revenue risk for operator


on routes


control, but less than

NCC• Revenue risk for

operator is lower than

NCC

• Limited competition on routes

Revenue risk


• Base cost by

authority• Ridership increase by

operators

• Operator • Operator, subsidy by

authority on un-viable

routes

Degree of

operator’s incentive

to increase ridership

• Nil

• Fixed payment

irrespective of ridership

• Moderate

• Bonus on increase in

ridership

• High


linked to ridership

• High

• Revenue directly linked

to ridership

Monitoring and

penalty regime

• Requires strong

and consistent

monitoring with penalty for

service below

benchmark

performance

• Higher level of

monitoring than GCC

because of greater economic incentive

for performance

• Less monitoring

• Only service quality

parameters monitored

• Level of monitoring is

higher than NCC.

• In addition to service level parameters,

monitoring of movement

of bus on un-viable

routes

Access to Finance

• Guaranteed

income with

reduced credit risk

• Part of income

assured; lower risk

• Increases credit risk

especially if no track

record or demand is uncertain

• Risk should be

quantified

• Reduces revenue risk as

non-commercial routes

are supported. • Improves credit-

worthiness, but lower

than GCC

Contract Models

Access to finance (Bankability) should not be the sole criterion for selection of a business model. Hence, extreme caution must be adopted while considering access to finance as one of the key parameters.





2. Contract Models





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Moving to a new bus contracting model - Lessons from London - Video

Contract Models





2. Contract Models





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Selection of the most appropriate contract model

Rating Weight Score

Low 4% 1

Med. 10% 2

High 18% 3


Equal & Above 210 Gross Cost Contract

Between 150 & 210 Depends on inflection points

Below 150 Net Cost Contract

Contract Models

• Service Plan identifying the role of the

authority vis-à-vis the operators.

• Financial Capacity that deals with financingarrangements of contracting authorities for

operations.

• Institutional Capacity that captures the

ability of contracting authority to manage the

contract.

• Based on the Total Score, most appropriate

Contract Model is selected.

• Each of the above parameters may be rated

Low, Medium or High based on their relativeimportance in contract selection and

accordingly assigned a weight.

• Each parameter is further scored on a

1-3 point scale based on theassessment for that parameter.


Calculating Scores


Selecting Contract Model

01 02

03 04




selection of appropriate contract model.





2. Contract Models





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Key Takeaway

Contract Models





2. Contract Models





• The authority should be aware of various Contract Models and related features.

• Before finalizing the contract, the type of contract itself needs to be finalized

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Part 1: Preliminary

1. Definitions & Interpretations

2. Performance Security

3. Scope of Work

4. Grant of Contract

5. Conditions Precedent

6. Obligations of the operator

7. Obligations of the authority

8. Representations and Warranties

9. Disclaimer

Part 2: Operations

1. Buses

2. Bus Depot

3. Entry of respective lot of buses into commercial service

4. Operations

5. Maintenance

6. Monitoring of Operations and Maintenance

Part 3: Financial Covenants

1. Payment to the Operator

2. Escrow Account

3. Insurance

4. Accounts and Audit

Part 4: Force Majeure and Termination

1. Force Majeure

2. Change of Scope

3. Termination

4. Transition Phase and Handback of Project Facility

Part 5: Other Provisions

1. Assignment and charges

2. Change in Law

3. Liability and Indemnity

4. Rights and title over the project facilities

5. Dispute Resolution

6. Disclosure

7. Redressal of Public Grievances

8. Miscellaneous

9. Definitions

Part 6: Schedules

Covered in this training

session



• http://mohua.gov.in/cms/model-citybus.php - Draft contract template

2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


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Commission Risk

Revenue Risk

Procurement Risk

Performance Risk

Force Majeure Risk

Change in Law Risk

Financial Risk

Operating Risk

Authority

Authority

Authority/Operator

Operator

Authority/Operator

Authority

Authority/Operator

Operator

RISK TYPE GCC NCC

Authority

Operator

Authority/Operator

Operator

Authority/Operator

Authority

Authority/Operator

Operator


2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


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The main tasks in managing and mitigating risks are:

• To identify them and assess their likely impact (consequence).

• To conduct an assessment of likelihood (how likely is the occurrence of such an event).

Analyzing these risks would help in avoiding or dealing with consequences such as increased costs, delayed

time etc. Risk is best allocated to the party which can manage that risk.

Risk Explanation Consequence

Commissioning Risk Risk that the authority or the operator, or both, might not receive allapprovals needed to provide the services


• Delayed Service

Revenue Risk Risk which affects the overall profitability or viability of services, orthe level of public subsidy required to support services

• Losses

• Reduced revenue

Procurement Risk Risk that the buses are not delivered on time or as per specification • Delayed Service

Financial Risk Risk that the project isn’t able to raise debt or achieve financialclosure

• Additional Funding Costs

• Delayed Service

Operating Risk Risk that adversely affects the day-to-day operations • Reduced revenue

• Losses


Performance Risk Risk that the operator is not able to meet availability andperformance standards

• Deficient services

• Reduced revenue

• Losses

Force Majeure Risk Risk that unanticipated acts delay the project or destroy the assets ofthe project


• Reduced Revenue

• Losses

Change in Law Risk Risk that legal framework of the project will be affected • Cost of compliance withnew regulations

For further reading, kindly refer “Model Contract Guidelines for City Bus Transport – MoHUA”

2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


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The risks so identified need to be classified into retained risks (with the authority), transferable risks

(transferable to the operator), and shared risks (shared by both parties).

These risks then need to be detailed and categorized as per “Degree of Risk” and “Likelihood”. For example:



AS 4360:1999 Qualitative measure of CONSEQUENCE


1 InsignificantLittle negative impact on system

operation or image

2 Minor

Affects reliability and convenience

of passengers as well as system

reputation

3 ModerateA compromise on service quality

and systemcredibility

4 Major

Major event requiring urgent

attention; threatens system

integrity

5 Catastrophic

Affects total system with massive

financial or political impact, or

future of operations

AS 4360:1999 Qualitative measure of LIKELIHOOD


A Almost certain Expectedto occur

B LikelyWill probably occur during normal

circumstances

C PossibleCould occur under certain

circumstance

D UnlikelyWould not be expected to occur

under most circumstances

E RareCould occur under unusual

circumstances

The risks which are of lesser degree and lesser

likelihood are generally retained by the

authority. An indicative matrix is depicted in the

adjacent figure. The risk needs to be distributed

as per the risk appetite.

2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


30



• Determining the contract period not only ensures timely commencement of services but also generates interest among the operators.

• The authority should decide upon the length of the contract which is most suitable to its objectives and

requirements, such as availability of bidders, recovery of costs, and favorable investment horizon.

• Ideally, the length of the contract should be equal to the economic life of buses (as shown in the case

study on the next page) since prior to that the maintenance cost of the bus would increase. (Additional

charges related to change and maintenance of buses that become old and causes more discomfort to

passengers should be included in the new contract, etc.)


Shorter contracts provide an opportunity to test market prices frequently, to inject new blood and renew the fleet and

technology

Private operators remain motivated to maintain high standards of performance and maintain the fleet

Increases competition and the authority may re-tender the project frequently to get the best price


Short contracts are costly, disruptive, as operators change often, and may not deliver anticipated benefits. Short term contracts

are less attractive from operators’ perspective and results in few bidders

The interest of contractors towards building the business may deteriorate if they do not see themselves as long-termoperators

The value for money or lifecycle cost may not meet the expectations of the authority. Not suitable if operator is required to

invest in infrastructure

2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


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Contract length in Bogota, Colombia

The term of contract for TransMilenio in Bogota (Colombia) depends on the time the operator takes to recoup

its investment. The regular operation period of the contract is between the start of regular operation as determined

by TransMilenio S.A. and the time at which average mileage of fleet usage reaches 850,000 kilometers. A higher

mileage every year leads to a shorter contract while smaller mileage allows for longer contracts giving the

private operator time to recoup its investment.

Inference: A traditional approach for the length of the contract term is to align it with the asset life of the vehicle.

Achieving higher mileage would require good maintenance of buses which would ensure high quality service. In

Bogota, a bus approximately runs 235 kms a day which makes 85,000 kms a year making a general contract length

of 10 years.



2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


32





• Execute depot license agreement with the operator

• Procure water, sewage, electricity at bus depot / parking space

• Procure bus permits

• Grant approvals, permissions, and authorization within competence of

the authority

• Execution of Escrow Accounts

• Handing over the bus depot


• Sign the agreement within specified days of letter of acceptance

• Submit a performance guarantee in the form of a bank guarantee

• Certify that all representations and warranties are true and correct

• Deliver the initial lot of buses according to the bus delivery schedule

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• Conditions precedent are the items and obligations the respective parties must fulfil prior to the contract coming into

effect.

• These typically have a material impact on the effectiveness of the contract and could include necessary permissions,

availability of facilities, necessary preparation, etc.

If either party is unable to fulfil the conditions precedent, there is a provision to extend the period to fulfil conditions

precedent. However, the party failing to achieve conditions precedent is liable to a penalty. Further, if the party is not

able to fulfil the conditions precedent even within the extended period, the other party has the right to terminate the

contract.



2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


33



Buses

• Authority shall use the latest bus specifications prepared by MoHUA

• Ticketing equipment specification set by the authority

• Authority to identify fleet size based on demand and service requirements

• Authority to select bus type suitable to service design and passenger expectations

• Investment on buses made either by the authority or the private operator

• Defined time period set in contract for delivery of buses

• Defined time period set in contract for commencement of bus services

Who shall procure and what shall be the timeframe?

Who shall select the type and number of buses?

Who shall set the technical specifications?

Decisions related to fleet procurement are key to provisioning of bus services. These decisions impact theefficiency of operations, financials, service level, environment, public service objective of bus operations,etc.

It should be noted that technical specifications should not be manufacturer specific since it

limits the availability of fleet due to the specified design with limited manufacturers.

2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


34



Successful bus operations and contract viability are reliant on availability of key infrastructure facilities.

• All bus contracts require the specification of

a bus depot to manage the functions of

parking, fleet repair and scheduled

maintenance, fueling, washing and cleaning

administration, and management of

operations, etc.

• Bus depots are generally provided by the

authority. Utilities used in operations and

maintenance should be brought by the

operators.

• The location and size of bus terminals are determined on

the basis of route network structure and function

especially if multi-modal functions are needed, and are

usually at places where a number of routes and modes

converge or intersect.

• Ownership of terminal is under the authority. The

operation and maintenance may be outsourced to private

operator under a contract.

From an operator’s viewpoint, bus stops are an important

element in the contract because the revenue is directly

affected by the provision or lack of bus stops.

• Planning of bus stops: The authority should plan the

locations of bus stops, based on route assessment.

• Construction and maintenance of bus stops: This task can

be done by;

• Authority / Third party contract via authority’s

permission

• Private contractor / operator (operator received

incentive to maintain the bus stops)

• ITS helps authorities and operators control

and monitor the system to improve services

and the reliability and efficiency of operations.

• The construction and operation of control

center must lie with the authority. However,

the authority should share real time ITS

information with the operator.


IT Systems

Bus Stop

Bus Terminal

01 02

03 04

Prasanna purple was having an issue with the maintenance of buses. The bus depot was encountering a drainage

problem due to which the buses were not maintained properly. Since the drainage problem was unaccounted for, there

was a delay in fixing the problem. As a result of this problem, only 12 out of 35 buses were running on the roads.

2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


35



Performance standards comprise Minimum Service Level (MSL) benchmarks, which should cater to the basic

demands and requirements of the passengers. Further, exceeding these benchmarks / falling below these

benchmarks may result in incentives / penalty as per the contract. Specified performance parameters

enable standardization of performance among different operators within a city.

• The authority should understand that the penalty should not be considered a source of revenue. Itshould be applied as a corrective measure for deviant behaviour.

• If the penalty has to be applied, it should be equitable. Example: In a contract of INR 100 crores, apenalty of INR 1000 is not considered as equitable.

• While the penalty is important in performance standards, certain incentives should also be awarded forabove benchmark performance. An example for London performance standard is provided in the nextslide.

MoHUA provides service level benchmarking for urban transport and are available at

“http://mohua.gov.in/upload/uploadfiles/files/Service_level.pdf “

2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


36


Performance linked incentives – Transport for London (TFL), TraffiQ (Frankfurt)


• In London, the gross cost contracts are subject to financial incentives based on the quality of

service provided. For example, the reliability incentive.

• Every contract specifies a 'Minimum Performance Standard' which sets targets for service levels

and percentage of on-time arrivals and departures.

• Bus companies are then eligible for a bonus equivalent to 1.5% of the contract price for every 2%

improvement in on-time percentage.

• Similarly, they may face a 1% deduction for every 2% reduction in on-time performance below the

Minimum Performance Standard.

• Similar incentives exist for percentage of scheduled bus kilometers operated, vehicle condition,

driver performance, and customer service.




• TraffiQ, the organizing authority responsible for local public transport services within the city of

Frankfurt, tendered a 6-year Gross Cost Contract with environmental incentives for a sub-

network (3.3 million timetable-km/year) in 2006.

• One main policy aim within the tendering procedures was the reduction of air pollution by

demanding high anti-pollution standards to fulfil the European anti-pollution regime.

• The operator of this bundle now uses vehicles already fulfilling the EEV-standards for gas emission.

2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


37



Payment Mechanisms

The payment mechanism in the contract acts as a primary motivator of operator behavior.

• Fare box revenue (User charges)

• Availability payment (Fee per km)

• Quality performance payments (Incentives)

• Non fare box revenues (Advertisements, grants, etc.)

A combination of these payment mechanisms are used in various Contract Models.

Illustrative Contract Models combining different payment mechanism

Hybrid GCC

• Fee per kilometer, to be paid by the authority• Part of fee/km is fixed and remaining is variable • Variable dependent on increase in ridership

Hybrid NCC

• Operator retains fare box revenue collected• System Management Fee payable to the authority or Grant payable to Operator• Bonus fee for certain non-commercial and unprofitable routes

GCC • Fee per kilometer, to be paid by the authority

NCC• Operator retains fare box revenue collected from passengers• System Management Fee payable to the authority or Grant payable to Operator

2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


38




The payment is linked to the number of passengers carried (user charges). Further, the authority, in order to

reduce the operators’ risk, provides a guaranteed payment for reduction in demand. If actual demand differs from

the reference figure, the operators receive a drop (or increase) in their income representing 10% of the demand

change. Thus, a 10% drop in user charges would only impact operator’s revenue by 1%.



• The bank should notify the authority in case the amount in escrow account is less than the amount

agreed to in the contract.

• The authority should pay as per the contract timeline. Authority must understand that if the payment

record is not as per the contract, then it may happen that the cost of bid goes high.

2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


39



Contract Flexibility

The contract needs to contain certain conditions that enable actions to address changes in operating environment

such as varying demand. Some examples can be:

• Flexibility to assign vehicles across network

• Adjusting fleet size to meet travel demands

• Network expansion

• Fare adjustment in case of increased competition in the market affecting contract viability

Dispute Resolution

This contractual parameter is required so that disagreements can be aired and resolved amicably. A methodology

outlining how disagreements shall be resolved enable maintaining a good client-supplier relationship. The person

identified for the following should not be related to either party. Disputes may be resolved through:

• Conciliation – Either party may call upon the other to arrive at an amicable settlement thereof

• Arbitration – Held in accordance with the rules in Arbitration and Conciliation Act, 1996

• Adjudication – In case of constitution of a statutory Regulatory Authority or Commission with powers to

adjudicate upon disputes between the Operator and the Authority


In Indore initially, each operator is required to operate minimum two buses on routes assigned to them. Once

they exceed the capacity in terms of passenger kilometers served, there is provision for increase in number

of buses. In such a case, the first opportunity to deploy buses is given to the existing operator. In case they refuse,

opportunity will be given to a new entity.

Germany – Contract Flexibility

In Elmshorn (Germany), the Authority can demand changes to the service up to an amount of 10% of the

contract volume. The price for the additional services is fixed in the contract.



2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


40


Early termination of contract; Operator and Authority Default; Transition Plan

Termination

During the implementation of the contract, a situation may arise when it becomes necessary for either

party to terminate the contract. The termination of contract may arise due to force majeure, due to

default or at the convenience of the authority. This termination clause enables management of various

risks and concerns of parties to the contract.



Operator and Authority Default

• During the implementation of the contract, a situation may arise when it becomes necessary for the

parties to terminate the contract. The termination of contract may arise due to force majeure, due to

default.

• The contract clause should define the specific conditions on fulfilment of which the above termination

situations will be initiated. The clause will also list the consequences for the contracting parties once the

contract is terminated.

• One very important component of the termination of contract is the rights and obligations of the

parties at termination. The obligation of the private operator on termination is usually to hand over the

project back to the authority in a specified condition.

Transition Plan

A transition plan is required to be put in place to deal with a situation where the contract’s term is

completed, or it is terminated prematurely.

2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


41



The contractual parameters highlighted in this sub-module (3B-3L) must be honoured by both the

Authority and the Operator. It is to be noted that by entering into the agreement, both the Authority

and the Operator has made a commitment to deliver bus operations. Further, fostering a professional

relationship with your contractor (s) improves the sustainability of performance of the overall bus

operations.

The Authority must understand that the motive of the operator is to make profit in order to sustain

the operations. Example: In case there is a cause for penalty, to be imposed on the private operator,

the Authority must inform the private operator immediately, so that there is room for correction,

instead of conveying the message through penalty.

1

2

3

Shared risk – assigning of risk to where it can be best-managed

The risk needs to be assigned properly to the person / organization which

can best manage it. This exercise is explained in Section 3B of this module.

Contracts are financially viable for both parties

The contract should be drafted in a way which is viable for both

the Authority and the Operator.

Aiming for a win-win outcome

The purpose of forming a partnership is to ensure that commitments made

by both the Authority and the Operator are honoured.

2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


42



The Operator should respect and share updates on a regular basis. A

monthly meeting to share information would foster the mutual

partnership.✔


authority must understand that motive of the Operator is to make a

profit in order to sustain the operations. A delay in payment may impact

the sustainability of operations and deteriorate quality of service.✔

The Authority should understand that Operators are partners, and

should discuss the possibilities of corrections prior to taking actions

(Example: Imposing penalty). The Authority and the Operator must

honor their commitment made at the time of signing the contract.✔

Below are some tips for the authority and the operator that can aid them in developing a

good partnership.

2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


43





Key Takeaways










department, etc.




2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


44

















2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


45


Key Takeaway

• The key contractual parameters should be carefully thought-out and focused on separately.

• While finalizing the contract, the authority should also keep in mind the perspective of the

private operator.

• The authority must consider the private operator as their partner and build a healthy and

professional client supplier relationship.

2. Contract Models



Length of contractC



BusesE

InfrastructureF



TerminationJ


Transition PlanL




Payment MechanismH


PartnershipM


46





• Toolkit on Contracting Urban Transport – UNDP/SUTP/MoHUA/IUT


It is strongly recommended to engage a transaction advisor considering the scale of the project. The

transaction advisor would be beneficial to the authorities because of the following reasons:

1. Transaction advisor provides different types of skill set such as legal, PPP, Bus operations, financial

modeling, feasibility assessment, etc., while drafting the contract. Therefore, hiring a transaction advisor is

highly recommended. Furthermore, the contract layout price is usually very high and the transaction

advisor would be well equipped to handle these projects.

2. The transaction advisor would be well equipped to handle high price contracts and would possess

demonstrable experience.

3. The transaction advisors would contribute to vendor knowledge and innovation in the bidding process.

Since the Transaction Advisor is a neutral party, he/she will provide unbiased opinion on the viability and

responsibility of both the authority and the private operator.

The Authority and the bidders are entering into high value and long term commitments involving

reputation risks apart from other risks.








2. Contract Models

47











18.0 19.8 21.8 24.0 26.4 29.0 31.9 35.1














2. Contract Models

48



• Competition is

expected to

provide

transparency to

the process.

• The competitive

bidding process

can either be

one stage or

two stages.

Single-stage process (RfP)

• This process is appropriate for projects

when the scope of the project is well

defined, and there are relatively fewer

bidders.

Two-stage process (RfQ + RfP)

• This process is appropriate when the

project scope is not clear and

discussions are required to finalize the

service options, and the number of

bidders is large. This process is highly

recommended for the authority.

• Quality cum Cost Based Selection

(QCBS): This method scores technical

capacity, skill and experience of the bidder.

A minimum technical score is required for

the bid to be considered for financial bid

evaluation. This is used when quality is the

prime concern.

• Least cost method: This method is

preferred when cost is the prime concern

and the minimum standard required from

the bidders can be easily identified with no

differentiation among the bidders.

Competitive Bidding

Deciding between one stage and two stage bidding process

Types of bid evaluation

• Early market engagement in pre-procurement phase may bring perspective of prospective bidders,

relevant stakeholders (such as transport department, existing transport agencies, development authority,

etc.) and ensure that procurement process is successful.

• Multiple early market engagements ensures that the decision makers are clear on interest from potential

bidders and potential issues in later stages are discussed with potential bidders.

• Since a typical 8 year contract costs ~305 crores (As per the calculation on previous slide),

comprehensive planning for RfP is recommended.

The distribution of Technical to Financial score is generally kept 70:30 (Technical is always higher). This isbecause the authorities should choose the best candidate in terms of delivering capability and then see thefinancial quotes of the operator. Example: If the authority chooses the operator with the lowest bid, it mayhappen that the quality of the bus operations reduces.


following material


Transport – MoHUA


UNDP/SUTP/MoHUA/IUT









2. Contract Models

49




following material


Transport – MoHUA


UNDP/SUTP/MoHUA/IUT


With an increase in the

electronic content in busesand higher sophistication of

tools needed, it wasbecoming increasingly

difficult for DTC to maintainthe vehicles on their own.


To ensure consistent

performance of buses onroad, the maintenance of

the buses were outsourcedto the supplier of buses.


Since specific tools and

parts can only be providedby specific bus

manufacturers. The multi-year contract was

negotiated with the existingmanufacturers to maintain


NEGOTIATION

OF CONTRACT THROUGH









2. Contract Models

50


Evaluation of bids

Bid evaluationA





• The criterion has to be stringent enough to ensure that only serious bidders qualify, but not so high such

that only few bidders qualify. It should be depend on market appetite and should provide level playing

field and fair competition

• Relevant experience (recommended to be within previous 3-5 years) is a good qualifier especially having

performed similar services previously, or with a skill set that clearly qualifies their involvement.



• The bidder should have sufficient capability to undertake the financial burden of the project. The

financial capability would depend on the annual turnover (related to project value), turnover criteria for

last few years, etc.

• Usually, this is checked on the basis of average annual turnover and net worth.

• Authority should consider both turnover from relevant experience and other services, but higher

weightage should be given to turnover from relevant experience.




2. Contract Models

The technical qualification takes into consideration not only bus operators but transport operators capableof running buses (such as trucks and taxis). Furthermore, it analyses the operators based on the capacityof the buses, number of vehicles and number of months of operations.

The operator must score the minimum evaluation score in order to be considered for the next round.


following material


Transport – MoHUA


UNDP/SUTP/MoHUA/IUT


51

Contract Monitoring


The monitoring framework should be comprehensive and should consider all issues that might arise in the projectlifecycle, with due provision for review and update at any point of time.

▪ Regular evaluation

of the monitoring

procedures, as well as the level of

monitoring, will

assist the

authority to assess its effectiveness

Review and update the performance

monitoring system

▪ ITS (or agreed

reporting structure)

should provide all necessary data to

enable sufficient

monitoring

▪ Regular meetings

of all concerned

officials (including private operator

and related parties)

must be conducted

at agreed intervals to discuss any

performance

related issues


▪ For managing a

contract to deliver

service quality, the main KPI aspects

are:

• Failure to

perform a

service;

• Compliance with

operating rules

and service specifications;

• Meeting vehicle standards of

cleanliness and

condition; etc.


▪ Decide the level of

monitoring which is

most efficient considering the

cost and availability

of resources

▪ Example: ITS

generated data,

physical inspection, etc.

Evaluate existing processes and tools

▪ Determine all

parameters on

which the private operator will be

evaluated for the

quality of the

project

▪ Consider:

• Which data

sources to use

• In what form is

information

available or to be specified

Collection and analysis of information 1 2 3

45

During the development of the contract During the monitoring period1. Deciding on outsourcing




2. Contract Models





following material


Transport – MoHUA


UNDP/SUTP/MoHUA/IUT




52

Contract Monitoring




• https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/254392/tendering-road-

passenger-transport-contracts.pdf





2. Contract Models





Monitoring by Strathclyde Partnership for Transport (SPT) (Outsourced Monitoring)

SPT undertakes a range of activities to keep the bus network under review.

Action

Monitoring activities include:

• SPT Compliance Inspectors monitor bus services noting potential violations of traffic regulations and

preparing reports for the Traffic Commissioner. Figures are presented on a monthly basis.

• SPT prepares reports for its Operations Committee. For example, reports are prepared including patronage,

scheduled versus actual mileage, passengers per mile and lost mileage. The report also details the trend of

four-weekly passenger patronage on SPT’s MyBus (Demand Responsive Transport) services.

• Nearly 3,000 vehicle checks have been undertaken. SPT’s Compliance Inspectors also carry out monitoring and

report instances of non-compliance, including engine idling, parking issues or missing information.

• The Compliance Inspectors work with drivers and draw to their attention whenever possible any failures that

are found. Based on these findings, reports are submitted to the Traffic Commissioner as and when required.

• MyBus services are monitored by SPT officers to ensure that the service being provided by operators meets

with the expected standards.

• Monitoring arising from local service complaints that the Compliance Inspectors are requested to investigate

are also included in these figures reported to the Operations Committee.

Impact

• There has been a significantly reduced level of non-compliance recorded since SPT’s Compliance Inspectors

started work. (Third party inspection)

• The high level of compliance is reflected by the very low number of breaches found and specific monitoring is

undertaken after complaints have been received.

53

Contract Monitoring


Outcomes







Customer value• Frequency of

service• Average speed• Behavior of crew• Comfortability• Skipping bus


per route defined

Efficiency of service• Fleet utilization • Vehicle utilization• Crew utilization• KMPL of fuel• Tyre

consumption



Quantitative • Cost/Kms• Variable cost• Fixed cost

• Depreciation• Insurance• Taxes• Overhead




transport buses

per lakh population







Pollution


to other modes

Women safety



From the customer’s perspective, the outcome “Quality of Service” is dependent on “Regularity” and“Punctuality”.





2. Contract Models





54

Contract Monitoring


The Key performance indicators have to be analyzed before implementation. The training material on“Monitoring and Evaluation” details out the Key Performance Indicators. Below is a template in which theKPIs should be Benchmarked.





Slab 1 <1, 2, 3, 4, etc.>

Slab 2 <1, 2, 3, 4, etc.>

Slab 3 <1, 2, 3, 4, etc.>

Slab 4 <1, 2, 3, 4, etc.>






Senior Manager











2. Contract Models





55

Contract Monitoring


Daily Service Monitoring:

• This enables timely identification of any variations from specifications by the authority and the operator.

• This task requires a Control Centre which (with ITS), can be abreast with the daily service performance.

• This Control Centre may also be involved in service planning, both strategic service plan (setting overall parameters) and may also govern the daily scheduled service.

• The Control Centre will have in place standard operating procedures to cover areas such as:

Control procedures


Emergency or accident

response



procedures


Quality inspection

procedures


items


Contract Management Procedures:

• For contract management, the authority will have to develop a comprehensive and agreed set of procedures and processes under which it will administer the control and management of the bus operator contract. It could be named as Contract Management Procedures Manual (CMPM).

• It would aim to provide explicit and clear guidance to reduce the amount of ad hoc and arbitrary decisions that need to be made with individual operators and to build confidence in the regulatory process.

• This manual would address control and monitoring issues not contained in the contract, and may be changed and adapted as new situations arise.

Monitoring and evaluation is covered in detail in the training session of Monitoring and Evaluation.


following material


Transport – MoHUA


UNDP/SUTP/MoHUA/IUT






2. Contract Models





56

Contract Monitoring

Monitoring and supervision in London

Monitoring and supervision London (GB): Financial incentives in a Gross Cost Contract


• The “Quality Incentive” contract payments are based on a monitoring regime that primarily measures

the reliability of the buses. The contract dedicates an entire detailed section to reliability. It states for

example at which location and what frequency monitoring will take place.

• In addition, customer satisfaction surveys are carried out, measuring waiting time and riding,

driving standard, cleanliness, information at bus stops, etc.

• Other monitoring mechanisms include: Mystery travelers, driving standards reporting, accident

and incident reporting and environmental reporting.

• Operator league tables are published for reliability and excess wait time. Other quality indicators

are reported at network level only.

• Presently, monitoring is undertaken manually with a hand held device. However, TfL is in the

process of introducing GPS in the future. This tracking system would have additional benefits, such as

passenger information.







2. Contract Models





57

RfQ and RFP Issuance + Evaluation + Contract Monitoring

Key Takeaway





2. Contract Models





• RfQ and RfP issuance should follow a procedure and the methodology should be finalized.

• The authority should realize the importance of transaction advisor and need of it’s

expertise.

• During evaluation of contracts, the authority should finalize the break-up between Technical

and Financial proposal.

• A key step for the authority in an outsourcing model is monitoring of the contract. The

authority should have a proper framework for monitoring.

• The authority should have proper KPI’s which they need to monitor, but at the same time,

they should understand that professional discussions are the key to solving problems faced

by either party.

58

Thank You !

Time for Discussion

59

Annexures

60



Max. Score

Parameter Max Score



18 3 54

• Below 30% 3


• More than 60% 1


• More than 20% 3


• Less than 10% 1

• No overlap 0



4 3 12


4 3 12


10 3 30

• Metro/Mono rail

• IPTs

• Any other

Annexure 1



61


Annexure 1


Max. Score

Parameter Max Score



10 3 30

2 Provision of dedicated funding Have any funding provisions been created such as Urban Transport Fund and/or is there a resolution from the Urban Local Body/State Govt. for funding? If yes, rate 3 or else 0.

18 3 54


4 3 12

• BBB and above 3


• Less than B 1

• No rating 0



4 3 12



18 3 54





Max. Score (A+B+C) 300

62

Reference table

A. 7-10

B. 11-16

C. 17

D. 18

E. 19

F. 20

A. 7-8

B. 9-11

C. 12

D. 13

E. 14

F. 15-16

Delivery PPTParticipant

Manual

A. 21-24

B. 25-28

C. 29-30

A. 17-19

B. 20-23

C. 24-25

Contract

Model




2

Deciding on

outsourcing







1

Contract

formulation








standards



3

A. 31

B. 32-35

C. 36-38

D. 39

E. 40

F. 41

G. 42-44

H. 45

I. 46-47

A. 26

B. 27-29

C. 30-31

D. 32

E. 33

F. 34

G. 35-36

H. 37-38

I. 39

63

Reference table

J. 48

K. 48

L. 48

M. 49-51

N. 52-53

J. 40

K. 40

L. 40

M. 41-42

N. 43-45

Delivery PPTParticipant

Manual

A. 54-56

B. 57-58

A. 46-47

B. 48-49

A. 61-63

B. 64-65

C. 66-67

A. 51-52

B. 53-54

C. 55-57

Contract

formulation




M. Partnership


3




Evaluation and


Contract

Monitoring




6


A. 59-60 A. 50

A. 69-71 A. 59-61

64

















requirements.







Pre-Training Questionnaire

Outsourcing for Senior Managers: Pre-Training Questionnaire

The questionnaire will only take 10 minutes of your time to get filled.

The purpose of this questionnaire is to understand what you already know about the training theme.

We will ask you to complete another questionnaire at the end of the training so that we can assess

what you have learnt and how the trainers have performed at conveying the key points.

Organization and Individual Details

Name of Organization

Name

Designation

Contact Number

Email Address

No. of buses run by your organization

No. of staff in your organization

Knowledge and Expectation Assessment

Q1. What are your expectations of this training? What do you hope to gain by participating?

A1.

Q2. What is the one thing that you would most like to learn during this training?

A2.

Q3. Please rate your knowledge / skill on the following learning objectives.

A3. Learning Objective Highly Proficient

Proficient Neutral Slightly

Proficient Not

Proficient

Identifying segments of bus operations which can be

outsourced

☐ ☐ ☐ ☐ ☐

Taking decision on whether or not to outsource the identified

segments or services ☐ ☐ ☐ ☐ ☐

Selecting appropriate / suitable

contractual model suitable as per the requirements

☐ ☐ ☐ ☐ ☐

Overview of key contractual

parameters ☐ ☐ ☐ ☐ ☐

Appreciating the two-way relationship between the client

and the supplier ☐ ☐ ☐ ☐ ☐

Understanding the contours of bid process management

☐ ☐ ☐ ☐ ☐

Appreciating the importance of

monitoring and developing a

monitoring framework

☐ ☐ ☐ ☐ ☐

Q4. Kindly provide any additional comments for this training.

A4.



Post-Training Questionnaire

Outsourcing for Senior Managers: Post-Training Questionnaire

The questionnaire will only take 10 minutes of your time to get filled.

The purpose of this questionnaire is to assess the capacity building, assess the trainer, training

material and the training programme. Kindly f ill this questionnaire with respect to your experience

from the training session.

Organization and Individual Details

Name of Organization

Name

Designation

Contact Number

Email Address

No. of buses run by your organization

No. of staff in your organization

Assessment of the Training Session

Q1. Please rate your knowledge / skill on the following learning objectives.

A1. Learning Objective Highly Proficient

Proficient Neutral Slightly

Proficient Not

Proficient

Identifying segments of bus

operations which can be outsourced

☐ ☐ ☐ ☐ ☐

Taking decision on whether or not to outsource the identified

segments or services ☐ ☐ ☐ ☐ ☐

Selecting appropriate / suitable

contractual model suitable as per the requirements

☐ ☐ ☐ ☐ ☐

Overview of key contractual parameters

☐ ☐ ☐ ☐ ☐

Appreciating the two-way relationship between the client

and the supplier ☐ ☐ ☐ ☐ ☐

Understanding the contours of bid process management

☐ ☐ ☐ ☐ ☐

Appreciating the importance of monitoring and developing a

monitoring framework

☐ ☐ ☐ ☐ ☐

Q2. Please rate the training material on the following parameters.

A2. Parameter Very High High Neutral Low Very Low

Extent of coverage ☐ ☐ ☐ ☐ ☐

Relevance of contents ☐ ☐ ☐ ☐ ☐

Practical applicability of case studies

☐ ☐ ☐ ☐ ☐

Easy to understand ☐ ☐ ☐ ☐ ☐

Usefulness of reference material ☐ ☐ ☐ ☐ ☐

Understand the contours of bid process management

☐ ☐ ☐ ☐ ☐

Monitor the contract based on a contract monitoring framework ☐ ☐ ☐ ☐ ☐

Assessment of the Training Session

Q3. Was the trainer able to achieve the stated learning objectives of the session?

A3. ☐ Yes ☐ No Reasons ________________________________________

Q4. Please rate the trainer on the following parameters.

A4. Parameter Very High High Neutral Low Very Low

Knowledge of the subject ☐ ☐ ☐ ☐ ☐

Communication skills ☐ ☐ ☐ ☐ ☐

Organized and structured approach

☐ ☐ ☐ ☐ ☐

Interactive and engaging ☐ ☐ ☐ ☐ ☐

Q5. Do you think your knowledge / skill / ability on the subject has improved after attending the training session?

A5. ☐ Very High ☐ High ☐ Neutral ☐ Low

☐ Very Low Reasons ________________________________________

Q6. What are your top 3 takeaways from the training you attended today?

A6. 1.

2.

3.

Q7. Please rate the training session on the timing and duration of each module.

A7. ☐ Very Effective ☐ Effective ☐ Neutral ☐ Slightly Effective

☐ Deficient Reasons ________________________________________

Q8. What is your preference of location for this training session?

A8.

Q9. What should be the duration of this training session?

A9. ☐ 0.5 days ☐ 1 days ☐ 1.5 days ☐ 2 or more days

Q10. What should be the frequency of this training session at your level?

A10. ☐ Quarterly ☐ Semi-annually ☐ Annually ☐ Every 2 years

Q11. Kindly provide any areas in which the training requires improvement / Other additional comments

A11.



Group Activity

Outsourcing for Senior Manages – Group ActivityOutsourcing for Senior Manages – Group Activity

Part A – Ice Breaker Question

Part B – Group Exercise

Part C – Case Study

From your perspective, what are the key activities that one should outsource in a bus transport organization and why?

Try to cover as many activities to outsource

as possible

What are the challenges faced by you while outsourcing bus operations? What are the possible solutions of those challenges?

Substantiate with observation / experience

Challenges

Problem Statement: In the city of “Riverdale”, the people have demanded regular and reliable bus services. In

order to satisfy this demand, a company “TransRiverdale” was formed. Your group members are the key members

of this company. What are the key parameters you shall consider and overall approach for addressing the same? Try to

think creatively and cover as many parameters as possible. You may refer to participant’s notes provided to you. Keep

in mind the requirement of your customers and bringing the private operator on the same page as the objective set.

Solutions

You are required to form a group of 3-5 participants in order to complete this activity. Time required for completion is 40 minutes. Furthermore, 15 minutes would be given to each group to present their outcome.

Documents

Outsourcing for Senior Managers