Privatization Issues

Competitive Bidding and Urban Public Transit Systems

Many urban public transit systems are coping with lower operating subsidies -- not by increasing fares or cutting back services, but by focusing resources on the single objective of serving riders. According to experts, their success is due to competitive bidding.

Under competitive bidding, transit agencies determine routes, schedules and fares. However, bids are sought from private companies and transit agency employees to provide service to particular routes under contracts that must be re-bid every three to five years. The bid is awarded to the lowest-cost responsible bidder.

The savings and service improvements that have been achieved are remarkable:

  • London reduced its bus operating subsidies more than 80 percent while expanding service more than 20 percent and lowering cost per kilometer by more than 30 percent relative to inflation.

  • Los Angeles services, threatened with discontinuation, were kept and later expanded with savings of 60 percent documented by Price Waterhouse, which noted that service quality and safety improved.

  • In Goteborg, Sweden, costs were reduced by half -- and much of the service is still operated by transit agency employees.

  • In Perth and Adelaide, Australia, transit agencies reduced costs per kilometer by more than 20 percent virtually overnight to prepare for competitive bidding.

  • In San Diego, competitive bidding permitted increasing bus service by more than 50 percent, allowing more resources to go to a new light rail system.

Other cities that have instituted competitive bidding include Copenhagen, Helsinki, Stockholm, Melbourne, Wellington, Christchurch, Auckland and Las Vegas.

The chief barrier to competitive bidding is union opposition, since it ends overly costly work rules and compensation in excess of that for comparable employees in the private sector. Traditional public transit costs routinely rise faster than inflation. In Toronto, for example, over the past 10 years real costs per mile have risen by $125 million over inflation.

Source: Wendell Cox and Jean Love, "Provincial Subsidy Cuts: An Opportunity to Improve Transit," Fraser Forum, March 1996, Fraser Institute, 2nd Floor, 626 Bute Street, Vancouver, BC, V6E 3M1, Canada, (604) 688-0221.

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