Irish Bus Industry – “preparation is the key to success”
In November 2013, the NTA announced that approximately 10% of non-commercial bus markets in Dublin and outside Dublin would be the subject of competitive tendering. Now that the decision has been made, what’s in play for the public sector and private bus operators – why bother in the first place?
- For the public sector, is it not just a costly process, with minimal savings to the taxpayer, major risks to the exchequer if a bus company goes bust, and significant impact to bus users in terms of network fragmentation?
- Likewise for bus operators, does it not represent a high cost, high risk endeavour, with limited financial gain?
Without exception, the short answer to these questions is no! And I’ll tell you why!
But first, what is NTA planning? Following expiry of existing direct award Public Service Obligation (PSO) or non-commercial contracts on 30 November 2014, Dublin Bus and Bus Éireann contracts for bus routes that are to be competitively tendered shall be extended for a two year period. NTA will have completed competitive tendering processes for these services before the end of November 2016, and awarded new five-year contracts. Further information on the bus services that are to be tendered have been published on NTA’s website, and in summary represent:
- a portion of Dublin City services (local and orbital services);
- a portion of Dublin commuter services; and
- Waterford City services.
Based on information provided in the Autumn 2013 consultation, it is understood that contracts will be awarded on gross cost basis with incentives, mirroring the London bus market model.
Now, returning to the fundamental question of whether competitively tendering bus services is good for private and public purses? Over €83 million per annum of savings in state subvention are achievable, which could be used elsewhere or re-invested in improving bus services. How? The key benefits of competitive tendering within the bus industry can be summarised as follows:
- International research, summarised in NTA’s Autumn 2013 consultation documents, indicates that unit cost reductions in a competitively tendered environment in the range of 20%-30% (and up to 50%) are achievable.
- According to analysis by Transport Insights of bus operating costs in the Irish market, private bus unit operating costs are approximately 30% lower than those of Bus Éireann.
- Translating this through to Bus Éireann and Dublin Bus operations, where state subventions are currently running at €36.90 and €69.47 million per annum respectively, savings of over €83 million per annum are achievable, which could be used elsewhere or re-invested in improving services.
- NTA, within its Autumn 2013 consultation documents, noted “evidence of service improvements in the studies reviewed and the Competition Authority has noted the potential benefits in this regard.” In a properly regulated environment, whereby service specification, vehicle livery, ticketing, information etc. are specified by a single public authority, network fragmentation concerns can be overcome in their entirety.
Minister Varadkar, in his recent speech to the Transport Ireland Conference stated: “Contracts will go to the tenderers that can provide the best service, be they Dublin Bus, Bus Éireann or any other provider. This is not about saving money, but rather it is about providing a better service for passengers at the same cost to the taxpayer.” So the priority is NOT to save money! This is of interest not only to bus users given opportunities to enhance bus service provision, but to bus operators given the prospects for securing competitively tendered bus contracts at sustainable profit margins.
Analysis by Transport Insights indicates a combined value of bus markets within and outside Dublin to be in the region of €350-€400 million per annum. Although current plans represent a modest (10%) market opening, successfully securing one of the bundles of services to be tendered remains a highly attractive proposition, with big rewards for successful bidders. Additionally, despite the absence of a roadmap to more comprehensive opening of the bus market, shrewd operators will no doubt have their eye on the much greater prize of further or complete opening of the Irish bus market in the medium term by NTA – but only if initial tendering proves worthwhile.
Evidence from elsewhere demonstrates that operator success in a competitive tendering process is dependent on their degree of preparedness in advance of the ITT. The period ahead represents a unique opportunity for private bus operators to consider their strengths and weaknesses in relation to a competitive tendering process, with a view to addressing identified performance gaps. Such gaps include meeting / exceeding the required quality standards, and identifying opportunities to maximise financial competitiveness for specific route bundles.
- Institutional barriers and vested interests – Dublin Bus, Bus Éireann, their unions and staff.
- Legislative barriers – TUPE (Transfer of Undertakings, Protection of Employee’s Rights).
- Lack of a unified political will within government.
- Infrastructure – bus infrastructure, in particular depots (capacity, location relative to tendered routes etc.) and bus fleet (ownership issues, suitability for tendered routes).
- Market attractiveness – extent of market opening, bus routes selected, lack of a roadmap beyond 2016 etc.
- Limited private operator information in relation to specific tendering proposals (contract type, incentives etc.)
- Relatively limited time prior to launch of competitive tendering to overcome the above (and other) barriers, and compressed tender timescales for bidders to respond.
NTA, with Minister Varadkar’s support, has created the opportunity – which of our private operators are streetwise enough to rise to the challenge and reap the benefits? Although uncertainties regarding the specific nature of tendering proposals remain outstanding, and NTA must overcome a range of barriers in the period ahead, the burning question is which of the bus operators are willing to do their homework? To quote Alexander Graham Bell, “before anything else, preparation is the key to success.” Should they fail to grasp this opportunity, the better prepared incumbent state bus operators, with a better understanding of NTA’s performance expectations, will no doubt prevail. And that would ultimately pose the question for NTA – why did we bother?