What happens when the 12-year bus rapid transit contracts come to an end? Managing the transition from negotiated vehicle operator contracts to competitive bidding processes

Abstract

South African cities implementing Integrated Public Transport Networks (IPTNs) have entered into negotiated bus operating contracts with a term of 12 years, designed to facilitate the formalisation and inclusion of existing public transport operators, and establish experienced and capacitated companies to compete for future contracts. International best practice indicates that competitive bidding for bus operating contracts typically lowers costs. This is supported by the National Land Transport Act 5 of 2009, which stipulates that the first contracts can be negotiated, but from the second round must be competitively tendered. Negotiated rates have had to build in risk premiums to incentivise existing operators to relinquish their current operations, which has led to high operating costs and contributed to the financial sustainability challenges faced by IPTNs across the country. This suggests that a competitive bidding process may help to improve financial sustainability, together with other complementary adjustments. However, there is likely to be resistance to these processes if incumbent operators are unsuccessful in winning the competitive tenders, which could result in significant challenges and delays. As such, the design of the competitive bidding process requires careful consideration. This paper reflects on the possible outcomes after the 12-year contracts end and identifies key factors to consider when designing an approach to manage the transition.