Issues raised by competitive contracting of bus transit service in the USA

Abstract

Public agencies in the USA have been contracting with private transportation providers for public transportation services since the early 1970's. Only recently, however, have relatively large amounts of bus transit services been competitively contracted. As this strategy remains politically controversial, despite strong policy support from the federal mass transit agency, attention has been focused on several major issues associated with competitive contracting of transit services. The most prominent of these issues are the magnitude and long term durability of cost savings from competitive contacting—including such factors as administrative costs of contracted services and the length of the transition period before actual budgetary savings can be realized, the impact of contracting on service quality and safety, and the source of lower private sector costs, most notably whether lower costs are simply a function of lower wages for workers. Some information now exists from actual experiences with relatively large scale competitive contracting to illuminate these issues, although definitive conclusions are still several years away. This information clearly indicates that in most situations significant cost savings will result from competitive contracting, and that over the longer run private operator costs will remain well below public agency levels. Administrative costs of contracted services are not excessive, averaging about 6% of the value of the contract. Relatively little reliable data is available to evaluate the service quality and safety record of contracted services, and while private contractors have generally performed as well as public agencies, cases do exist of poorer performance on the service quality and safety dimensions. The labor impacts of contracting are mixed, in that private contractors invariably pay lower wages than public agencies, but most of their cost advantage stems from factors other than lower base wages, notably less generous fringe benefits, higher labor productivity, and lower overhead costs. Moreover, no public agency workers have lost their jobs or suffered a reduction in their base salaries as a result of transit contracting. Overall, current evidence indicates that competitively contracted transit services will enjoy a significant economic advantage over public agency operated services for the foreseeable future, and that the non‐economic performance of private contractors will be adequate.

Key words:

• Competition
• contracting
• costs
• labor
• bus transit
• service quality