London:
Lower public transit costs, better services – all from out-sourcing operations?

Claim:

in a recent diatribe against publicly supported urban mass transit, highway industry ideologue and publicist Wendell Cox Cox cites data from London to hone his familiar axe against publicly supported transit and on behalf of private-profit transit operation (some of his major contributors are private bus companies). This is promoted under the rubric of "competitive bidding" (or "tendering") – i.e., transit agencies' out-sourcing contractual operation of public transit operations, rather than operating such services directly with agency employees.

According to Cox, "Around the world, the competitive market has been employed to substantially reduce unit costs and increase service levels."

in London, the world's largest bus transit system reduced its costs per kilometre 50% from 1985 to 2000, through the use of competitive tendering [bidding]. At the same time, service levels were expanded 32%.

in Cox's view, "Substantial benefits have been achieved" by similar out-sourcing programs in Stockholm and other major cities, and this has resulted in reducing ongoing costs and at the same time tremendously improving transit services for the public.

Response:

Proponents of the "miracle" of privatization selectively present information to make it sound like somebody has turned water to wine in the public transit industry. However, the actual facts of private-sector involvement in public transport operations are considerably more complex, and the results much less clear-cut, than Cox portrays.

British public transport expert and advocate Mike Taplin addresses Cox's claims with respect to London's public transport operations:

London's buses are operated on a franchise model. The city-owned London Buses organisation specifies the routes, schedules and fares; then the services are put out to tender [bid] and awarded to private companies to operate (with one small exception, the remaining traditional Routemasters, where the private companies own the buses and employ the staff). i do not have any figures to hand, but without doubt this system has reduced the cost/km to the public purse, though as ever with private sector involvement there have been plenty of problems along the way (bankruptcies, staff shortages, unreliability, and so on). However even "red" Ken Livingstone, the Mayor, does not push for a return to the old system of full public ownership and operation.

The subsidy cost of the London Buses franchises has increased considerably over the last five years as services have been enhanced (new routes, improved frequencies) co-incident with the introduction of congestion charging in central London (extended a couple of weeks ago to west central London). The original charge of £5 per vehicle trip within the cordon was also increased to £8. The money raised is used to meet the extra bus subsidy costs. Congestion charging has reduced private auto traffic and boosted public transit patronage.

When it comes to the rapid transit system (the Underground or "Tube") ownership and operation remain with the city (London Transport). The network was divided into three and maintenance and renewals put in private hands under public-private partnership arrangements designed to secure investment in renewals, upgrading and new trains that could not be afforded by the government. This was fought by the Mayor and his Transport Commissioner Bob Kiley (who has now retired back to the US) but pushed through by UK government. One of the three private consortia awarded, Metronet, has performed very badly and the Mayor is trying to find a way to fire them, but the agreement makes this a tortuous process.

Some of the national network suburban lines in London are to become part of the London Transport network when the existing franchise expires. These do not include the "Southern Electric" suburban network, though the Mayor would like to get his hands on some of that as well.

Finnish transit advocate Lauri Pitkänen comments that a public-private model similar to that of London "is in use in all of Sweden including Stockholm and here in Helsinki in Finland."

We run a pure gross cost tendered operation. That is, the public sector defines the routes, timetables and minimum vehicle properties and keeps all the ticket revenues. The operators are paid for vehicle days, route hours and route kilometres as per the UiTP [international Union of Public Transport] recommendations.

These three prices are quoted in bids for a set of routes with predefined timetables for a limited time period (usually 5-7 years). The compensations are of course tied to an index and the procurer has a right to change the order by 10% per year within a maximum of 20% during a single contract period without negotiations if i recall correctly. in addition to price some points are awarded depending on the offered vehicles (amount of seats, emissions levels etc) and some quality factors such as certified driver training courses.

in Helsinki this model led to an initial drop of approximately 30% in costs. it is, however, accepted that the current price level is not healthy and the final drop when compared with the original price level will probably be between 15% and 20%.

So in our case competitive tendering [bidding] has worked, but it most certainly does not mean leaving the business to the market. Much of Finland is officially run in this way, but in practice the public sector ends up spending at least as much money in subsidizing tickets on social grounds and buying necessary but unprofitable services without having much say on how things are run. i believe cities in the UK have also caught on to this scam and are demanding reregulation.

According to Pitkänen, Cox's arguments that "privatization" (out-sourcing of operations) has produced a significant modal shift from private motor vehicles to public transit are without merit. instead, major investments in urban transit and upgrading of operations are major factors which have begun to attract more ridership.

Stunning successes in changing the modal split exist in several European cities. Many other European cities already have such a high share of public transport that major shifts aren't really possible, while there is plenty of room for change in North America.

in assessing this information, and the possible application of the European "franchise" model to North America, we would recommend that urban transit planners and decisionmakers would do well to consider the following issues:

· To achieve operating cost reductions, do private contractors reduce wages and benefits of the transit workers they employ? if so, over a longer term, how would this impact performance aspects such as morale, familiarity with routes, passengers, etc., and productivity?

· Does out-sourcing of operations truly benefit public transit passengers, and the community as a whole, or does this method of financing operations ultimately represent merely a transfer of public funds into private profit-making entities, with dubious impacts in terms of longer-range workforce competence and quality?

· in transitioning from a public agency-employment model to an outsourced, contractual "franchise" model, would there be service disruptions and conflicts with existing labor relationships? if so, would these disruptions and conflicts be justified by long-term advantages?