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Reason Foundation

Competitive Contracting of Transit Services

Jean Love and Wendell Cox
March 1, 1993

Executive Summary

In the United States, transit operating costs per vehicle mile increased 418 percent from 1970 to 1990twice the rate of inflation aand two-and-a-half times the cost of similar service in the private bus industry. Two-thirds of transit costs are paid by federal, state, and, predominantly, local subsidies. The majority of the public funding has supported low and declining transit productivity and high transit wages and benefits. Transit's problem is not funding.

Nearly ten percent of regular transit bus service is competitively contracted in the United States. Savings range from 30 percent to 60 percent, and independent studies report that the safety, quality, and reliability of competitively contracted service equals or exceeds that of the public sector. Political, bureaucratic, and perceptual barriers have prevented competitive contracting of transit in many areas. And competitive contracting is slowed by legal barriers such as Section 13(c) of the federal transit act.

Under competitive contracting, the public authority retains the service franchise (ownership) and controls the service. The public authority specifies route alignments, service frequencies, fares, schedules, and any other requirements deemed to be in the public interest. Private transportation companies respond to requests for proposals from public authorities to provide specific services for a limited period of time (typically no more than five years). Winning cost proposals, final contracts, and requests for proposals are available to the public. In some cases, the public authority leases the vehicles (buses, etc.) to the successful contractor; in other cases the contractors supply their own vehicles.

The success of competitive contracting depends on three fundamental principles: public control, competition, and open access and process. First, the public authority has a responsibility to the riders and taxpayers to ensure that public services meet quantity and quality standards that are set by government. Second, contracting programs must foster the development and maintenance of a truly competitive market so that costs are kept under control. Third, these two principles are best served when all interested parties are allowed to participate and have access to records.


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