Public-Private Contractual Arrangements: Delivering Quality, Cost-Effective Management of Transit
Great things can occur when the civic-centric goals of public transit agencies combine with the entrepreneurially-driven private sector. Together, we can improve service quality, discover inefficiencies, reduce costs, increase service levels and frequency, implement digital and technological solutions and provide a better experience for passengers.
Today, the private sector helps deliver excellent public transit in hundreds of U.S. cities. Roughly 20 percent of city and county transit systems now contract out all or portions of their operations to the private sector. That’s up from less than 10 percent in 1998. It’s a growing trend for a reason: as budget shortfalls plague city/county governments and transit systems across the country, public transit agencies are stymied to find more money. Often, a private partnership can alleviate budget deficits while maintaining and improving quality. There is a significant body of evidence that validates the effectiveness of the private sector in improving safety, fleet maintenance and cost control.
Transit agencies vary in what they choose to contract depending on their circumstances and needs. Some contract out all of their transit bus service, and not their paratransit, while others do the opposite. Some contract out a portion of their bus service and operate the rest with their teams and oversight.
Still other cities, counties and states are choosing to contract out all aspects of the management of the transit agency. Transdev has pioneered this model in the U.S. In these Public-Private Operating Partnerships, the private sector oversees all aspects of managing and operating the agency, while policy control and all assets (vehicles and facilities) remain with the public sector. This unique contractual arrangement builds on the respective strengths of the public and private sectors.
Competitive contracting does not impact the workforce’s right to organize—approximately 75 percent of the U.S. private contracting transit workforce is unionized. Employees often remain members of the same unions after privatization. Agencies that contract with the private sector continue to be subsidized by federal and local grants, like all transit agencies. The government or agency manages the competitive bidding process through its normal procurement processes.
Contract Type 1:
Transit Management Contracts
In a Management Contract, the public organization contracts with a private sector company to provide top managers in senior leadership roles.
This model is often employed by transit agencies that face challenges recruiting top talent. This model delivers experienced transit management talent with technical expertise, managerial skill and industry experience.
These senior executives manage the public budget and all aspects of the agency’s performance. The most senior contracted employee typically reports to the public sector board or a very senior executive in the local government transit agency. All other employees typically remain government or agency employees. The financial risk for the operation, however, resides with the public entity, not the private company.
Contract Type 2:
Operations and Maintenance Contract
This is the most common form of contracting in transit in the U.S. today. In this model, a transit agency contracts with the private sector to operate and manage its service operations while maintaining the transit agency’s fleet. The transit agency continues to manage other key functional areas.
This means the private sector company is responsible to manage all aspects of service delivery, which includes hiring, managing and motivating employees, managing safety and building a safety culture, performing all vehicle and facilities maintenance, managing vehicle parts inventory, and working productively with labor unions. The transit agency typically keeps control of service design, scheduling, passenger information, websites, social media, ticketing, procurement, grants administration, finance, IT, legal, etc.
The private sector company is the caretaker of all the vehicles, facilities and other physical assets of the local government agency, -- but ownership of those assets remains with the public agency. The private sector company typically reports to a small team of public agency transit managers who manage and work collaboratively with the private sector.
An operating contract provides a public agency significant control over its operations, with a contractual commitment of performance, defined risks assumed by the contractor, and a specified, guaranteed cost structure. The private sector company typically assumes operating risk and cost associated with accidents and delivers service within the pricing that has been bid.
Due to their size and singular focus on transit operations, private sector companies can typically offer economies of scale and efficiencies that make service operations far more affordable than most publicly operated services. Private industry can also bring best practices, innovation and creativity from some of the world’s best operations. Leading contractors have developed the tools, systems, technology, processes and methods proven to deliver quality services consistently and within budget.
Contract Type 3:
Public-Private Operating Partnership
In a public-private operating partnership, a government or policy board delegates the management and operation of an entire transit organization to a private sector provider. This model is very common in Europe, and over the past five years, Transdev has pioneered this model in New Orleans and Nassau County, in Long Island, NY.
In this type of partnership, a transit system is fully managed and operated by a private sector operator, who is held contractually accountable to manage all aspects and functions of the transit agency, --including overseeing and executing all aspects of operations, vehicle maintenance, procurement, marketing, passenger information and communication, planning, scheduling, ticketing, finance, grants management, IT, HR, legal, and all other normal agency functions.
The City, County or Board remains responsible for setting transit policies including budgets, fare structures, short and long range planning objectives, service standards, grant purchase authorizations and other policy related matters. It oversees the contractor’s compliance with all agreed-upon performance and service metrics, which are carefully measured and reported monthly to the board and to the public.
The private sector company is responsible for implementing these policies in the most cost efficient, effective manner possible. This type of partnership brings the efficiency of the private sector and leaves policy decisions to the public sector board. There is a clear delineation of responsibilities between the policy-making entity (public board) and the operating entity (private sector contractor).
Under this model, the private contractor is responsible for outcomes and has the authority to utilize best methods to achieve those outcomes. The private operator is incented to deliver both quality and efficiencies, thus it typically assumes greater financial risk, often including responsibility to generate ridership. Because this is a risk and reward model, the contractor is typically at financial risk (penalties) for service failures, and achieves incentives when goals are met.
A public-private operating partnership creates an alignment of public and private goals using a risk and reward model. It provides the private operator the latitude to apply innovative and proven methods to achieve public policy objectives. This model creates a true partnership that brings out the best in both the public and private sectors.
Many examples from around the country show that a well-designed relationship with a private operator can deliver high-quality transit at a price that cities can afford. Primary benefits of public- private relationships with Transdev include improvements in quality, reductions in operating costs, faster program implementation, focus on efficiency and minimizing overhead, performance accountability, and careful budget management. The resulting cultures we build are focused on continuous improvement, customer service and safety.
For some transit agencies, the status quo is not sustainable. These agencies need innovative solutions to redirect the organization’s current trajectory to a model that is financially sustainable and successful in serving its constituents. If a well-crafted agreement is concluded, a quality organization is selected, and the model is carefully implemented, contractual relationships between the public and private sector can be highly productive and successful.
Contracting is not an end to itself. Rather, it is a means to assist transit agencies in achieving the goals of long-term sustainability, quality and efficiency through partnerships with private industry.
For further information about what Transdev can do for your city or agency, please contact Dick.Alexander@transdev.com