Building Melbourne's Useful Network Part 60: Metropolitan Bus Franchising - Doing it better this time

On Fridays we normally discuss planning ideas for better networks that deliver simpler, more frequent and more useful routes to more people. 

Today is about running them. Or more precisely the tendering process for the 30% of Melbourne bus routes included in the Metropolitan Bus Franchise, currently operated by Transdev. 

It's topical because the retendering process has just started. Subscribers got wind of this through an announcement via Tenders Victoria (log in to view). An industry briefing will be held later this month to give intending operators more information. 

Significance

It might only be 30% of routes but this parcel is the most important 30%. It punches above its weight on services and patronage. Main components include: 

* Three orbital SmartBuses around Melbourne (901, 902, 903), operating from early morning to midnight. 

* Four Doncaster area freeway express SmartBuses (905, 906, 907, 908), operating from early morning to midnight 

*  Eight major route corridors not branded as such but offering close to SmartBus service (200/207, 216, 220, 223, 234, 246, 250/251, 302/304)

* Assorted local routes in the Doncaster, Ringwood, Sunshine, Port Melbourne, Prahran and Sandringham areas. 

Take these away and you'd hardly have a useful bus network left, especially at night and on weekends. The orbitals serve increasingly dense middle-suburban centres while the Doncaster expresses substitute for a proposed but unbuilt train. If you want buses to carry as many people as trams (as the Department of Transport has proposed) these routes will need to do much of the heavy lifting. Hence their management and growth is important. 

Performance of the existing franchise contract

It's been mixed. The state auditor-general looked at it in 2015. They gave credit to almost $33m cost savings that were apparently achieved in 2013-14. But they found PTV were slack when it came to monitoring performance and holding the operator accountable.

The auditor-general's report was useful but did not tell the full story given what happened two years later. In particular it (i) assumed the cost savings were real and sustainable, (ii) expressed confidence that a similar tender process could increase competition and reduce costs for the remaining 70% of bus routes that were not part of this franchise, and (iii) concentrated on processes over outcomes. 

They could have saved weeks of writing if they walked two blocks to Lonsdale Street, boarded Transdev buses and taken some photos. That would have given a fresh insight into how the contract was being (or not being) managed. 

These observations might have spurred the auditor to ask PTV why it was letting Transdev skimp on bus cleaning and potentially, as became public in 2017, fleet safety and maintenance. Had the auditor-general known about these shortcuts it might not have been so accepting of the savings claimed. The real figure might have been less if cleanliness and maintenance were done properly.

Questioning along these lines might lead a vigilant auditor to discover the limitations on cost savings possible through tendering processes. Orthodoxy in finance circles seems to be that competition lowers costs. And indeed the first round of competitive tendering might elicit economies, especially if there is enthusiasm for market share with potential operators bidding low. However you can only trim so much before saving becomes scrimping (eg staff cleaning buses in their own time). 

Never mind the fine-print and the lawyers, franchising is driven by base human emotions like the greed seen in small children squabbling over toys, the slave-driving tyrant or the sickie seeking slacker. The franchisee wants to get the most money for the least work. Whereas the franchisor, like a pension day shopper in Aldi, seeks a screaming bargain to win plaudits from their finance masters. The latter may be blind to the details and risks of the deal they force. However that hardly matters if they've since been poached by a 'Big 4' consultancy so are no longer around to see it unstick.     

Since these pressures have existed since humans started working, shirking, trading and dealing, it is not surprising that there are parallels with the rail franchising we did in 1999. Again private operators bid low to win the business. They promised better services for less cost. Governments, eager to pocket savings, blithely accepted such assurances. The difference here was that when the franchisees realised they bit off more than they could chew they asked the government for cash, threatening walk-out if they didn't oblige (which National Express carried through on). Remaining operators might later negotiate successively more favourable contracts with the government (as happened in 2004 with Connex and then 2009 with Metro Trains after Connex got dumped). 

After things settle down hoped for savings may prove elusive as per this 2004 Paul Mees paper and 2009 comments from minister Lynne Kosky that franchising was 'no cheaper' but could deliver better service. And there were indeed significant improvements in service delivery from about 2012. Reversing most of the post-2003 decline, these could be attributed to improved maintenance and new, more robust greenfield timetables for historically unreliable lines like Dandenong and Frankston (though Ringwood is still waiting for its weekday upgrade, despite serving a swathe of marginal seats with its million confusing peak stopping patterns).  

Speaking of greenfield timetables, the Auditor-General mentioned this for Transdev too. As far as the public was concerned, these were to be the biggest tangible changes under the new bus franchise, with simpler routes and higher frequencies planned for 2015. However they got deferred and eventually cancelled for reasons explained in detail here.

The fate of the aborted greenfields timetable outlines a major shortcoming of the franchise model. Its proponents see bus companies as businesses that can innovate to change their services at will. However buses are also public utilities, with substantial state funding, minimum service standards (not always adopted) and limits on what can be changed. As Transdev Melbourne found in 2015 and Adelaide in 2020, political risk can snuff out even the most detailed revised plans, especially if public consultation is poor (which it arguably was).  In practice, franchisee discretion is largely restricted to day to day management matters. Private bus operators in a public network are a long way from being independent businesses free to change anything and profit (or lose) accordingly.  

What are some of the good things to happen during the last franchising term? We got some worthwhile network changes, particularly in 2014 and again last year. Before Transdev Melbourne started there was Melbourne Bus Link who ran its routes in the Sunshine, Footscray, Brighton and Sandringham areas. Their routes rarely changed. And National Bus services, which Transdev also inherited, were also simplified, including standardised public holiday timetables. The pace of network reform in Transdev's first two or three years was faster than that during the previous five or ten years.  

Timetables often reflected traffic conditions of decades past so adherence to them was poor. I'm not sure if Transdev closely checked running times before they bid for the franchise but here they inherited a dud, having to put more buses on just to retain existing service levels on busy routes eg the 220. However they have done so and  punctuality markedly improved. And, more recently, you can see how they have successfully internally advocated for improved services for Routes 302 and 304 as discussed here. 

The 2017 crisis forced Transdev Melbourne to lift its maintenance game. Fleet cleaning and presentation is also better, with the improvements from about 2018-2019. 2020's COVID epidemic has meant further attention to cleanliness by all transport operators including Transdev. 

Doing it better this time

Enough about Transdev. Whether you blame the contracts themselves or the attention paid to their management, no one can dispute that there have been problems. I'll shortly present six tips on ways we may be able to improve this time.  

I'll first declare some personal biases. It is not coincidental that many accord with current practice in Perth, arguably the nation's best planned, integrated and managed transit network. 

Public versus private operation. Both can work. Both can fail. Examples of bad public operation include the strike-plagued Met era around 1990 and, more recently, the 'rail fail' era of Queensland Rail. Good public operations might include Transperth trains and buses in Canberra (apart from inflexibilities that lead to poor weekend service). Good private operations might include bus subcontractors in Perth (including Transdev) while the same operator in Melbourne was one of the poorer examples a few years back. Even the same company can be good or bad at the same time in different states. All evidence is that other factors, like planning, resourcing and contract management are bigger determinants of service quality than operator ownership. 

Bus operator size and origin. Beyond a certain size (where there may be economies of scale) I don't think there are any special efficiencies of large operators versus small operators. That is provided that contracts are flexible enough to enable efficient routes between areas without regard to artificial operator boundaries or historic fiefdoms. Unfortunately a reluctance to reform networks means examples of inefficient multiple route overlaps persist today instead of the simple turn-up-and-go routes we should be getting on corridors such as Murray Rd near Northland, Millers Rd near Altona Gate and Footscray - Highpoint. 

Notwithstanding this PhD thesis from BusVic's current Executive Director I don't think the benefits of local family-owned versus interstate or overseas operators are worth much worrying about, especially in suburban Melbourne (network design, service levels, connectivity and reliability are all more important). But going the other extreme, I don't think it's healthy that one or even two very large operators run all of a large city's bus routes, especially if they are big enough to hold the government or department over a barrel in contract negotiations. However where there are two or more operators there needs to be a strong coordinating agency looking after activities such as service planning, integrated fares and passenger information.        

Public versus private planning. Unlike operations, I'd have to go for public planning all the way. But it must be well managed with backing from department heads. Bus operating contracts need to be supportive. And there needs to be a committed and interested minister who is not scared to make needed 'greater good' changes. 

Private planning, especially where allied with non-integrated fare systems (like what Infrastructure Victoria spruik) and operator contracts that reward patronage, can lead to buses wastefully overlapping trains and trams to poach their passengers. This is inefficient and can lead to reduced service in areas where only buses are available.  

Public planning would normally be done by a department of transport or transit agency such as previously existed with PTV. It was during this era that network planning was at its most successful in Melbourne, with reformed bus networks in areas like Point Cook, Brimbank, Wyndham, Geelong, Plenty Valley and Cranbourne being conceived around this time.

Such a body is perhaps more able to arrive at networks that are a better mix of meeting minimum service standards and frequent corridor routes than a commercially-oriented private operator. And there may be better political accountability and a greater obligation to consult. Of interest is the varying fortunes of three radical new bus networks planned for mid-2015. PTV closely planned the Wyndham and Geelong networks while the third was Transdev's Greenfields. The first two, which had better consultation processes, were successfully implemented while the latter had too many 'nasties' and got vetoed by the then minister. This experience may have lessened her appetite for subsequent large bus network reforms since. 

Who bears risks? Again I'm inclined to go public, as has been the trend with our rail franchises since the first lot collapsed. Private operators are there to make a profit. If they make a loss they will ask the government to kick in, pleading unforeseen circumstances. If the government doesn't then the private operator, not being a charity, will walk away. Other private operators will stay away unless the government offers more generous terms and/or assumes more risk. So the taxpayer ends up paying anyway. There's no such thing as a free lunch, and if there is then it's half gone by quarter time with the flies getting their feed first.  

I don't know about you but if I was a private operator I would seek a higher margin in exchange for bearing more risk. And that would go with any investment, not just a bus franchise.  Risks are harder to quantify than the relatively fixed (and similar industry-wide) costs associated with running buses such as vehicles, maintenance, fuel and wages. A prudent bidder willing but not desperate to win a contract may seek to offset their own risks by charging more than they might otherwise be willing to operate the service for. Part of that allowance might include political risk in case a network proposal key to profitability gets rejected by the minister (as has happened).    

A government that bears almost all risk may be able to offer very basic operating contracts that offer a reliable income with few risks for the operator. In return for the reliable income the government would be giving the operators a lower profit margin, as per the classic risk/reward ratio. This fits in well with integrated fare arrangements where the government keeps all fare revenue, including gains from increased patronage. That return would come in handy if it is desired to improve services further (especially given the recent ministerial statement that buses returned $3.50 for every $1.00 invested). Although most of the risk (and benefits of return) would be with the government not all need be. For instance there might still be penalties for poor performance in areas where the operator has full or almost full control such as maintenance. And when the network is performing well and the government wishes to add services then operators will benefit from a bigger 'cake'. 

Six tips

1. Learn lessons from the first franchising. Many issues discussed above. As important as the contract's wording is how well it is managed, and whether performance monitoring issues raised in the Auditor-General's report are addressed.   

2. Appropriate allocation of risk.  There are different approaches to this. I've suggested one above based on a bus contract being a stable income stream with limited up or down side and the operator being a participant in an integrated network that with other routes delivers a comprehensive city-wide service. But if you wanted to persist with a more entrepeneurial approach with both higher risks and returns then thinking will need to be different. Unfortunately this approach undermines network integration and public accountability and has succeeded neither in the UK nor here. 

3. Must support publicly-accountable service planning during the term of contract. This is important since there remain many 'loose ends' with the current network. My preference is for this to be done by an integrated transit agency or department as discussed above. And it should enable cooperation (including route sharing or swapping) with other operators so that planning can be done on an area or network basis rather than a single mode or operator basis. Public consultation is very important and if not done properly can be a basis for a minister to reject a network proposal. 

4. Extent to which operators submit new network proposals as part of their bid. Presumably aspiring franchisees would submit a bid to run the existing network so their proposals can be compared, like for like, against those from others. Depending on how the contract is structured operators might submit 'value adding' ideas including network revisions. Care is needed here since the network development process is neither open nor publicly accountable. And, if the contracts financially reward patronage there may be perverse incentives to design routes that compete with rather than feed other parts of the network.   

5. Avoiding proprietary infrastructure and systems. There is talk about the use of electric buses. This will require a whole new lot of supporting infrastructure to enable charging. When designing these it is essential to avoid proprietary systems that are incompatible with other operators, carry high development risk or involve high IP costs. A busway is being planned as part of the North East Link road project. Operator franchise contracts should not impose restrictions on other operators using it where it makes network sense to do so.  

6. Avoid expensive add-ons. One should be particularly wary where an aspiring operator puts in a low bid to run the basic service but seeks to claw it back with so-called 'value added' special services for which the state is overcharged for.   

Conclusion

 

My personal inclination is to favour a basic fee for service arrangement with relatively predictable costs, the government carrying risks, but lowish margins for the operator (but not so low that they skimp on the essentials). Performance incentives would be only a minor part of revenue and be limited to things purely within the operator’s control (eg cleaning & maintenance standards, cancellations and some customer experience measures). You might also reward punctuality noting though that road conditions can be decisive. A transport agency or department would be responsible for planning although they would be open for suggestions from and work with the operator to establish what is reasonably feasible. Care would need to be taken to avoid perverse incentives, eg padding timetables to meet punctuality targets but otherwise delay passengers. 

If you have other thoughts on bus franchising please leave them in the comments below. 

 

PS: An index to other useful networks is here.