Project on London Bus

success story

Prepared by: Neeraj Mandloi

Supervised by: Dr. Martin Lodge

Course: 15th Chevening Gurukul Program 2012

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London Bus : A Success Story…

A study of the evolution of The London Bus tendering system

and role of various Governmental organs  

with a special focus on the unique features

of the current system of tendering  Leading to overall improvement in various

performance parameters.

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London Buses: Some Facts- I

Total Number of Buses Approx. 7000

Passengers per Day Over 6 Million per day

Operating Routes 748 ( and growing)

2.5 Billion Passenger trips per year 500 Million Kilometers of total travel

for these passengers

500 Million Kilometers of total travel for these passengers

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London Buses: Some Facts-II

YEAR Annual Government Subsidy

2000 £ 41 million

2004 £560 Million

2011 £690 Million

2018 £414 milion (40% reduction Planned)

Like Most Public Transport systems, it is not a commercially viable activity

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A Chequred path towards creation of outstanding organs

1933London’s Public transport was brought together for

the first time under London Public Transport Board

(LPTB).

1970

The London Public transport Board was reorganized into a new organization

called London Transport (LT).

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A Chequred path towards creation of outstanding organs

1984The London Regional transport act was passed which set up subsidiary companies to run

buses. This subsidiary company was called London Buses

Limited (LBL).

1986All the bus services outside London were deregulated,

meaning any licensed operator could, on his own initiative, run any route at a

schedule of his choice. However, the Bus system within London remained

reregulated.

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A Chequred path towards creation of outstanding organs

1992LBL was still operating about 60% of routes through its 13 subsidiary companies where

each was a profit center in itself while the private operators were

running about 40% of routes

1999Greater London Authority

Act (GLA Act) was passed which led to the replacement of London Transport (LT) with the now popular Transport

for London (TfL) authority in 2000.

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Transport For London (TFL)

Transport for London (TfL) is mandated to

a) Plan,

b) Procure

c) Manage

the public transport system in London.

The GLA act provides for promoting fair and sustained competition for the same.

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Transport For London (TFL)

TfL has a specialized arm called London Bus Limited (LBL) to look after the bus transport in general and the following aspects in particular;

Plan RoutesSpecify service levelsMonitor service qualityDevelop and maintain bus

stop infrastructureConceive , execute and run

the tendering system

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A balance of Beaurocrats, Civil Society and People’s representatives

London Assembly: Elected reps.

Greater London Authority: Mayor (Chair pereson) and 25 elected London Assembly Reps

Travel for London (TFL): Mayor (Chair person) and professionals and experts headed by Commissioner.

London Travel Watch (LTW): A civil Society funded and supported by London assembly but independent.

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London Buses: Evolution of Privatization1985-1995

Gross cost contracts. This meant that the authority was taking the entire risk and private operators were given payments for the tendered amount to run bus services as per the service level agreements.

Positives:A good first step.

Built Confidence.

Built Capacities.

Negatives:No incentive to perform better.

Lack of modern IT systems.

Accounting of revenue.

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London Buses: Evolution of Privatization1995-2000

Net cost contracts. The net subsidy regime requires

operators to estimate the difference between operating costs and revenues and bid accordingly.

This was not subject to competition and the entire ticket revenue was retained by LBL.

Positives:Incentive to improve revenue

Shift of partial risk on operator

Further capacity building

Negatives:Not tendered but negotiated

For LBL subsidies, it was block grant.

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London Buses: Evolution of Privatization2000 onwards

Finally, in 2000, TfL, armed with the new mandate under the act, went for the most innovative and successful Quality Incentive Contracts (QIC).

In the present reference, it is important to define tendering as:

The allocation [by government agency] of a protected or exclusive right to exploit or carry out an activity” such that “consumers or the public gain an advantage .(Baldwin and Cave, 1999)

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QUALITY INCENTIVE CONTRACTS:

UNIQUE FEATURES-I Contracts provide incentives to operators to improve quality.

Routes, although tendered individually, are clubbed in clusters to help operators develop bases and strengths in preferred localities.

The initial period of contract if five years with an incentive extension of two years.

Each year, about 20% of routes are tendered so at any given time, TfL has all variations of lengths of contracts running and provides a unique and continuous nature of activity by introduction of new contracts every year.

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QUALITY INCENTIVE CONTRACTS:

UNIQUE FEATURES-IIThere is an elaborate system of prequalification of

potential

Tenders are evaluated first on viability and non workable rates are rejected thereby eliminating any possibility of compulsive undercutting by the contractor.

Primary financial evaluation is on the basis of mileage operated and overall service parameters offered.

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QUALITY INCENTIVE CONTRACTS:

UNIQUE FEATURES-III

Service parameters mainly include frequency and timings.

Safety is usually not an evaluation criteria because it is non negotiable and has a zero tolerance policy.

LBSL complies with the EU procurement directives for transparency and fair competition which are the world standard in public procurement.

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QUALITY INCENTIVE CONTRACTS:

UNIQUE FEATURES-IVPayment procedure and deductions LBSL operates a 4 week accounting cycle. 75% of the contracted amount is paid by LBSL at the end of 4th week without any questions asked as long as the operator is running buses.

The remaining calculation of incentives or deductions is done within next 4 weeks based on the data and records and the balance payment is made within that time frame.  

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QUALITY INCENTIVE CONTRACTS:

UNIQUE FEATURES-VClear demarcation of responsibilities 

A clear division of responsibilities between LBSL and the private operator is another feature, which has been instrumental in cementing a lasting relationship.

An outstanding example of single window service

LBSL has also taken the task to coordinate with any government or public authority regarding anything to do with London Buses, thereby protecting the private operators to individually pursue their cases with other public authorities.

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QUALITY INCENTIVE CONTRACTS:

UNIQUE FEATURES-VIMatter of Faith in Partnership:

The overall concept of putting faith on the private operator and treating him as a partner rather than a contractor who has to deliver and the government only has to monitor.Examples:Clear shouldering of responsibilities of coordination with public authorities TfL supports and maintains an entire transport operational command unit, which is a dedicated team of metropolitan Police force to deal with any enforcement or crime/accident related issues.TfL supports and maintains an efficient ambulance and medical assistance service system The trust is also evident in the deductions clause of contract.

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QUALITY INCENTIVES-I

Quality Incentives:  The Quality Incentive provisions of the Contracts have two parts of financial incentive to the private operator.  The first part remains his main bid amount which covers primary performance monitoring systems. These are; Mileage operated.

Reliability (Adherence to agreed schedule).

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QUALITY INCENTIVES-II

The second part of the incentive payment is based on the extra performance delivered by the private operator over and above the minimum performance norms. These are;Driving Quality : This program is build on Mystery Traveller surveys deployed by LBSL and based on the objectively monitored criteria, the driving quality is assessed on a numerical scale.

Vehicle Quality Monitoring: This program is based on pre announced as well as surprise inspection of vehicles and takes into account the corrective and preventive maintenance procedures adapted by the operators.

Customer Satisfaction:The three London Buses customer satisfaction surveys (CSS) done annually give marks to the operators and the incentive is linked to the performance.

QUALITY INCENTIVES-III

Currently, the private operators Currently, the private operators generate 70% to 80% of their generate 70% to 80% of their revenues through the routine revenues through the routine performance and 20% to 30% performance and 20% to 30% through incentive payments.through incentive payments.

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Conclusions and Lessons for India

FROM:FROM:

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Lessons for India

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London Bus : A Success Story…Lessons for India-I

It is vital for the authority to maintain workable rates for tenders and reject any bids that seem to be unviable right at the beginning. 

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London Bus : A Success Story…Lessons for India-II

The service to be supplied must be specified, at least in part, in advance. Less precise specification leads to difficult implementation issues giving rise to complaints and disputes.

Ideally, revenue risks should be shared between the authority and the operators.

It must be possible to monitor the performance of the operators at reasonable cost.

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London Bus : A Success Story…Lessons for India-III

A continuing program of letting tenders, as in London’s method of basically tendering approx. 20% of the network each year seems sound.

Smaller tenders are to be preferred to bigger tenders except when there is the possibility of packaging tenders into joint bids.

Capacity building needs to be done on both sides, the public authority as well as private operators. This does not happen overnight

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London Bus : A Success Story…Lessons for India-IV

As in any democratic system, there shall be turf war between people’s representatives and technocrats/experts regarding decision making processes.

More so in case of public transport because the decisions affect citizens directly and involve big sums of money.

London has shown a way to create systems and organisations to handle this in a mature manner.

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London Bus : A Success Story…

Thank You