European Transport / Trasporti Europei (2006) 33/XI

Britain offers a case in which much greater experience of competition in the public transport sector can be seen than in other European countries. Examples are drawn from this experience, showing that outcomes differ between the long-distance and local markets, price competition functioning much more effectively in the former. In many respects, the competitive bidding process may be seen as more important and extensive than direct ‘on the road’ inter-operator competition within the same mode over the same routes. Experiences from competitive tendering and franchising are reviewed. Contradictions between competition policy and wider transport policies remain to be resolved.

This article reviews the recent experience of franchising metropolitan public transport services in Melbourne, Australia, to assess the extent to which the declared objectives of the franchising have been achieved. The failure of the initial franchise process is argued to be attributable, in significant part, to shortcomings in the Government’s understanding of what was achievable from a public-private initiative of this nature, given the Melbourne context. Developments associated with the re-franchising process are summarised, the emphasis shifting towards a strong partnership relationship between purchaser and provider, with a more realistic risk allocation between the two.

Competitive tendering is a popular mechanism for the provision of local bus services when a major objective is subsidy savings. Despite uncertainties in the legal framework some competitive tendering was implemented in Italy since 1998. The evidence so far is that participants were limited in number, the incumbents were almost everywhere able to gain the franchise, whilst subsidy savings were in many cases negligible. If some “political” conditions favouring more effective tendering procedures are not fulfilled, other regimes should be considered in order to obtain substantial subsidy savings.

Competitive tendering of local public transport services has been allowed in Norway since 1994. By 2005, 28 percent of all route production in Norway was procured on the basis of tendered contracts, covering around 40 percent of all passengers. The majority of the tendered contracts were gross cost contracts, whereas historically, most Norwegian contracts have been net cost contracts. This article analyses the effect of competitive tendering on operating cost and subsidies paid. It is found that competitive tendering reduces costs by 10 percent and that most of the cost reduction has been used to reduce subsidies for public transport by local authorities. The effects of competitive tendering in Norway are smaller compared to other countries. This can be attributed to the fact that the industry had improved efficiency over a long period before competitive tendering was introduced.

During the past 15 years competitive tenders have become a common procedure to procure and organise passenger railway services in European Union member countries. Different models have been developed in different countries, spanning from the British radical privatisation and franchising of the railway services to the more incremental processes in countries like Sweden, the Netherlands and Germany. The variety of tendering models has occurred for a number of reasons. For example, EU legislation permits different models of organising tenders, member countries have had different goals with the introduction of tenders and other reforms, and within countries we find trial-and-error processes aiming at reducing earlier flaws. In this article we will describe the dominating tendering procedures, look into their theoretical rationale and discuss their possible pitfalls and advantages, drawing from the experiences of several countries. It is evident that the different tendering regimes suffer from different types of problems. In the Swedish tenders there have often been very few competing firms, in Britain the long time span of the first round of franchised contracts resulted in difficulties in making correct estimates of future developments etc. The article concludes with an overall appraisal of the different models and explores the possibilities for learning across the tendering regimes.