Horses for Courses Pros and cons of various

Horses for Courses: Pros and cons of various service provision models The Victorian Bus Approach Chris Lowe, Melbourne Australia

Contents 1. Context • Contracting Scope • Historical Imperative 2. Underpinning Rationale 3. Process pursuant to negotiating performance based contracts 4. Conclusion

1. Context – Contracting Scope 8 Year Re-contracting Project • Metropolitan (route) bus services – Negotiations held 2003 -2008 – Contracts commenced 1 July 2008 • School Bus services – Negotiations held 2008 -2009 – Contracts commenced 1 January 2010 • Regional & Urban Country (route) services – Negotiations held 2009 -2011 – Contracts will commence 1 July 2011 • Special School Bus Services – Negotiations commenced October 2010 – On track for a June 2011 completion & July 2011 commencement

Context Operating Environment • Australia - always had significant private sector presence in bus service provision: NSW, VIC, SA, WA, QLD • Victorian Industry – Govt service delivery contracts is made up of – Route: country and metropolitan bus operators with asserted ‘grandfather’ rights, operating with exclusivity rights – School: mostly country operations contracted at end of WWII, seen by Govt as supplementary to route services and are being rationalised

Context Historical Imperative • Most route bus services in Victoria initiated before the State started regulating them and the issue of ownership is sensitive • The State does not legally recognise ‘grandfathering’ and operators don’t say they own the service: even handed understanding

2. Underpinning Rationale • ‘Contracting Regimes for Bus Services: What Have We Learnt after 20 Years’ (Stanley & Hensher, 2008) • ‘Delivering Trusting Partnerships for Route Bus Services: A Melbourne Case Study’ (Stanley, 2008) – The Case for Negotiation – Trust is Fundamental – Tactical Level Planning

3. Negotiation Process 1. Obtain commitment from State to procure via method of negotiation with industry rep 2. State to obtain all inter-governmental approvals to procure consistent with this method 3. Agreed rules of engagement: • frequency of negotiation meetings • who bears negotiation costs etc

3. Negotiation Process 4. Commercial modelling agreed: – Opex – labour, fuel, other fixed & variable costs – Capex – capital funding for bus – Margin – variable, with a limit – KPI’s – OPR, QPR, patronage

3. Negotiation Process 5. Cost validation and aggregation process 6. Industry bid benchmarked and submitted – Offer accepted and new contract offered – State requests justification for increase – Offer rejected and negotiation continues

3. Negotiation Process 7. Contemporaneously, drafting is done for service contracts, deeds and associated correspondence are tabled, scrutinised and agreed 8. State sends contract offers 9. Industry Representative educates operators on contract compliance prior to contract commencement 10. Contracts commence

3. Negotiation Process - Outcomes • Shared and agreed goals • Improved performance – 28% growth in bus patronage – 26% growth in service kilometres over 4 years

4. Conclusion • Negotiating Performance Based Contracts = Value for money • A trusting partnership is likely to lead to an even handed contract and improve service delivery outcomes • 2 papers referenced are available • Thank you