Competitive tendering as a contracting mechanism for subsidising transport - The bus experience

Competitive tendering (CT) is a popular mechanism for the provision of transport services where a major objective is the containment of the cost to government of service provision. Although the primary focus is recognised as cost efficiency, whereby the cost outcome should be conditional on a given level of service, difficulties in establishing appropriate tests for service level compliance has become a cause of concern regarding the effectiveness of the CT paradigm as a value for money initiative. This paper reviews the international successes and failures of CT as a subsidy reduction strategy within the bus sector, and promotes the idea of Performance Based Contracts as a way of recognising the real role of subsidy under the umbrella of a value for money objective.