from a general wage payment subsidy which allows the continuation of ...... A template for a contract document is contained in Annex ...... obligations set out in this Contract and shall not be construed in anyway as a waiver of ..... the Employer shall be conditional upon the Operator submitting to the Employer the Final.
Developing Public Transport in Sri Lanka Ken Gwilliams
Assisted by Amal S. Kumarage D.S. Jayaweera
January 2005
EXECUTIVE SUMMARY This report summarizes the contents of the four reports required by the terms of reference, contained as an annex to this summary. Three major problems have been identified in the operation of the bus transport sector in Sri Lanka. (i)
A high and increasing budget burden, which is the consequence of uncontrolled deficit financing of the publicly owned operators. While the specific subsidies discussed in (iii) below are part of this, the majority arises from a general wage payment subsidy which allows the continuation of excessive levels and inappropriate structure of staff in the public companies. The continued existence of the SCLTB and RTBs, which have no significant continuing functions, exacerbates this.
(ii)
Poor operator behavior, which includes lingering, racing and other dangerous driving behavior by buses (mostly the private sector) and undisciplined behavior by crews. The private sector buses do not usually issue tickets. Failure to operate scheduled services is predominantly a problem of the public sector, but is generally hidden by the availability of excess capacity in the private sector.
(iii)
Poor targeting of subsidies, which includes the payment of school transport subsidies from the Ministry of Education exclusively to the public sector operators for services which are generally not provided; and the exclusive channeling of unremunerative service subsidies also through the public companies without any role being performed by the relevant authorities (the provincial councils and the NTC) and without adequate independent audit of the subsidy claims.
The generic solutions suggested to meet these problems are as follows: (i)
Commercializing operations and eliminating deficit financing of the selected state operators will stimulate efficiency and reduce the budget burden.
(ii)
Ensuring that all operators supply services under contractual agreements with the relevant authority, which will be rendered invalid in the event that they fail to meet their contractual obligations, will enable the authorities to require and enforce responsible behavior.
(iii)
Channeling all social subsidies through the legally competent authorities (the NTC in the case of inter-provincial services and the Provincial Councils for intra-province services), on the condition that the authorities have developed a strategy for unremunerative service procurement, will enable better targeting of available finance for support of social services.
The instruments for the achievement of these solutions are as follows: (i)
Reconstitution of the NTC as a non-political commission on the pattern of the Public Utilities Commission.
(ii)
Enforcement of current legal provisions, including the requirement of all operators to have permissions from the relevant authorities.
(iii)
Preparation of comprehensive timetables for all services, including the provision of services at unremunerative times, and the withdrawal of those permissions from operators who do not properly implement services under them.
(iv)
Introduction of competitive tendering of franchises on a progressive basis, gradually extending to all services on a route basis.
(v)
Assistance to all parties (public regulatory authorities, public and private operators) to adjust to the requirements of the more commercial regime.
As such radical change is inevitably difficult, a very clear and consistent policy framework will be required. It is suggested that this should contain (i) a statement of policy vision and enactment of a supporting law; (ii) a step by step introduction of the changes; and (iii) a timetable for the changes. The statement of policy vision It is recommended that the statement of policy vision should include the following: (i)
Depoliticisation of the management of the sector. The first step should be a clear statement that the current institutions of the industry should cease to be used primarily as an instrument of political patronage. That would include a commitment to issue operating permits only to the extent determined by the responsible authorities on technical grounds and the selection of operators through an objective system of merit. The reconstitution of the NTC is the key to this.
(ii)
Commercialization of operations. Associated with the depoliticisation of the regulatory system, it should be clearly stated that all operators, including any remaining in the public sector, would be required to act commercially,
receiving subsidy only through winning subsidized contracts from the responsible authorities (the NTC and the Provincial Councils) (iii)
Responsibility of the legal authorities for procurement of services. All services should be operated only on a commercial basis and/or on the basis of a contract with the responsible authorities.
(iv)
Procurement of services by competitive tender. In the long term all services should be procured by the competent authorities on competitive tender.
(v)
Restructuring of the industry. In the long term services should be provided by efficient and independent commercial corporate management units of the necessary size and competence to enter into contractual arrangements taking on the responsibility for the proper performance of the contractual obligations. This would imply an end to the deficit financing of any remaining publicly owned companies and a consolidation of the fragmented private sector into larger operating units.
All of these elements should be included in a framework law, which would provide for the necessary institutional changes, repeal redundant provisions, and empower the competent authorities to undertake competitively tendered franchising. An outline for such a law is contained in Report 1. The steps to reform It is well understood that these changes cannot be achieved overnight, and will require a phased introduction. The steps in the introduction of reform, discussed in Report 1, might include the following; (i)
Publication of the strategic vision as set out above. This should be accompanied by a clear “road map” of the processes of reform so that all operators, public and private, can clearly see what changes are necessary in order to survive and prosper in the new order
(ii)
Enforcement of the existing law on permissions. All operators must have valid permissions under current law for their current operations and must be subject to the loss of those permissions where they fail to operate them. In the event that the public sector companies are given permissions allowing them a greater freedom to transfer vehicles between routes than the private sector, the total number of permissions that a company should be allowed to retain should be limited to the number of vehicles that it had regularly put on the road at the peak during the previous three months.
(iii)
Preparation of an institutional structure for the new regulatory regime by each competent authority. This should indicate the internal arrangements proposed for implementation of the new system; the number and categories of
staff required; the relation between the new arrangements and the existing arrangements and the perceived training needs for staff. (iv)
Rerouting of the subsidy provisions. On the submission of adequate institutional plans by the competent authorities, all subsidy for unremunerative routes and educational services to be channeled through the competent authorities, with services provided by those authorities on the basis of the best value for money.
(v)
Preparation of a route network plan. Each competent authority should be required, as a condition for receipt of the subsidy finance and the powers to tender services, a route network plan and proposed operating schedule for that network. This network plan should be applied to existing permission holders (including the public sector companies to the extent of the vehicle output levels which they can demonstrate to have achieved in the preceding period).
(vi)
Pilot competitive tendering. An initial set of services should be selected for competitive tendering by the competent authorities. These might include new services, school contract services, unremunerative routes, and unremunerative time of day services.
(vii)
Publication of draft contract documents. This should be done after consultation with the various stakeholders about the details of the provisions. The documents published should include a draft invitation to tender, and a draft contract (or set of contracts in the event that a framework contract/specific contract structure is used). These are discussed and examples of contract documents provided in Report 2.
(viii)
Publication of a plan for the completion of the tendering process. This should indicate the time period within which various tranches of service would be put out to competitive tendering.
(ix)
Conversion of permissions into contracts. This should involve the conversion of existing permissions into contracts with units of appropriate size for the ultimate implementation of route franchises. The terms of the initial contracts should be negotiated by the competent authorities with the operators, within the financial capability of the authorities. All negotiated contracts should be of limited duration, to be replaced at their termination by tendered contracts.
(x)
Completion of the first round of tenders. This should be planned for the completion of the five year plan period
The steps in this program should be constructed to offer incentives to the various stakeholders to participate enthusiastically in the change. The major links to be made might include the following:
(i)
Linking the creation of responsible of route associations with the introduction of timetables protecting the associations against further uncontrolled grant of competing permissions to operate;
(ii)
Linking the imposition of a requirement for the competent authorities to prepare and implement comprehensive timetables to the channeling of subsidy funding through them;
(iii)
Linking the long term commitment to competitive tendering to a protected period of preparation through negotiated contracts;
(iv)
Linking all institutional changes with the provision of appropriate training and assistance.
The program of assistance In order to facilitate the major changes in this program some major restructuring of the institutions would be required, as discussed in Paper 4. It is recommended that a program of assistance should be instigated, to be managed by the NTC, to include the following: (i)
A training program in planning and procurement of services to be made available to officials of all the competent authorities.
(ii)
A program on the development of management skills in commercial bus operation, to be made available to management of both private associations and companies (including the cluster companies)
The timetable A draft timetable for the plan, discussed in Report 3, might be as follows. Date March, 2005 Sept, 2005 Sept, 2005 Sept, 2005 Sept, 2005 March, 2006 Sept, 2006 Sept, 2006 Sept, 2006 March, 2007 March, 2007 March, 2008 March, 2010
Action Publish strategic vision Enactment of tendering law Permissions to be enforced Publication of draft contract documents Pilot tenders implemented Completion of institutional revision Completion of network plans Transfer of subsidies to competent authorities Powers granted for comprehensive tenders Publication of schedule for tendering Completion of negotiated contracts Commencement of comprehensive tendering Completion of first round of tenders
Responsible Cabinet Cabinet NTC, Provinces, Police NTC NTC, Provinces NTC, Provinces NTC, Provinces Cabinet Cabinet NTC, Provinces NTC, Provinces NTC, Provinces NTC, Provinces
ANNEX Terms of Reference for Public Transport Consultancy
Objectives of the Consultancy To assist in defining a new regulatory framework for public passenger transport in Sri Lanka, including specifying the role of the regulatory or procurement agency, and other central or provincial authorities, including the Public Utility Commission. Tasks Involved 1.
In association with government officials, and after consultation with interested parties, identify a revised regulatory framework for the bus industry in Sri Lanka, appropriate to the circumstances of the country, and providing a role for the existing private sector. Identify the necessary institutional arrangements and skills to implement the selected regulatory model. Assist in the preparation of the legal and contractual documentation for the revised arrangements.
2. 3.
Deliverables 1.
2.
3. 4. 5.
The consultant shall deliver a reasoned report on the selection of a new regulatory regime, based on international experience as well as on consultations with local stakeholders. The consultant shall deliver a preliminary draft of necessary documentation such as draft laws, invitations to tender or contract documents, appropriate to the regulatory model selected. The consultant shall deliver a phased schedule for the reforms. The consultant shall deliver a brief report on the necessary institutional arrangements, skills and staffing requirements for the revised regime. All deliverables shall be delivered within six weeks of the commencement of the consultancy.
Client Obligations 1.
The client shall arrange the necessary local consultations, including the following: a. The Minister of transport and or senior ministerial staff b. Other interested government departments and agencies c. Private and public sector operators d. Transport trade union representatives e. Consumer organizations or representatives
2.
.
The client shall provide existing data on the following: a. Bus ownership b. Bus patronage c. Accounts and performance statistics of public operators
Developing Public Transport in Sri Lanka Report 1. Choice of Regulatory Regime TABLE OF CONTENTS 1
Introduction
2 2.1 2.2 2.3 3
The perceived problems and aspirations 3.1 Outcomes and processes 3.2 Outcomes 3.2.1 Budget cost 3.2.2 Operational behavior 3.2.3 Social service provision 3.2.4 Safety 3.3 Processes 3.3.1 Subsidy mechanisms 3.3.2 Private sector licensing mechanisms 3.3.3 Private sector operational arrangements 3.3.4 Behavioral control mechanisms
4 4.1 4.2 4.3 5 5.1 5.2 5.3
6
The statistical and legal background The permission system Fare control Decentralization
Analysis The subsidy issue The behavior issue The licensing issue Options for reform Derestricting entry Reconstituting a dominant public sector Franchising 5.3.1 Package size 5.3.2 Gross v net cost 5.3.3 Contract duration
Recommendations on choice of system 6.1 The long term objective 6.2 The purposes of franchising 6.3 The tendering procedures 6.4 The interim arrangements 6.5 The need for a new law
Annex 1. Annex 2 Annex 3
A draft law Terms of reference List of those consulted
1 Introduction This report has been commissioned by the Secretary to the Ministry of Finance, through the National Council for Economic Development. The general purpose is to identify possible solutions to the problems of the public bus transport sector as presently perceived in Sri Lanka. Particular attention was to be given to lessons that might be learned from international experience. The terms of reference for the work are set out in Annexe 2. The immediate cause of government concern is the large and growing deficit of the public sector companies. An attempt by the previous government to privatize 6 of the 13 cluster companies, under terms which required the maintenance of the existing staff and service structures of the companies, having failed for various reasons, the government has indicated that it does not see the solution simply in terms of privatization. But it has not identified any alternative plan for which a budget is available. I agree with the view that the solution to the problems will not be found in a simple change of ownership. In a previous mission, undertaken on behalf of the World Bank in 2001 I was severely critical of the then proposed privatization plan as fatally flawed, and likely to cost even more money to the budget without significantly improving service. In particular I argued that the problem was not an insufficiency of buses, to be solved by a government guaranteed investment in the privatized public companies but a failure to properly organize the resources already in the sector. I therefore advised that the solution would have to be found in a much more comprehensive regulatory reform which recognized that bus transport in Sri Lanka was already a predominantly private sector business. Since that time, the general trends which I observed have continued. The public sector share of total service has fallen from one third to less than a quarter, while the budget burden has increased further. The output capability of the cluster companies has further diminished. There are, however, some encouraging features. In at least one province (Southern), and in the NTC, attempts are being made to limit the overcapacity of the sector and to organize the capacity available more effectively through the introduction of comprehensive timetables. For those authorities, allocations of permissions to operate are also being based on assessed need rather than as an instrument of political patronage. Fare adjustments are now made on the basis of a predetermined adjustment formula and not by political negotiation. The evidence seems to be that the problems are already less intense in the parts of the sector where these policies have been pursued. The present mission to collect data and to consult with interested parties took place from October 8th to 23rd, 2004. I am grateful to all those who gave valuable time to inform me and to discuss the issues. I am particularly grateful to the Secretary of Transport, Dr
Jayaweera and the Chairman of the National Transport Commission, Professor Kumarage, making the arrangements for me to meet the relevant interest in the sector and for facilitating my work. A list of those consulted during the mission is appended as Annex 3 to this report.
2 The statistical and legal background 2.1 A summary of the current status 2.1.1 The statistical picture. Bus services in Sri Lanka are provided by about 9000 private owners of 18,000 vehicles, which provided for 76% of passenger trips, and 13 publicly owned “cluster companies” which carry 24%. In addition to the total current operational fleet size of approximately 22,500, there are a further 6,500 vehicles registered but not operational in the public sector. Public and private sector operators operate in different ways and under different constraints. The public companies operate vehicles usually on a two shift basis, with two crews, while the private sector typically operate a single shift. Partly as a result of this, and partly because, with an excess of private bus permissions granted, the use of the private buses is restricted in various ways, the average mileage per day per vehicle is about 200 for the public sector, but only about 130 for the private sector. The private sector buses operate on a commercial basis, without subsidy except for a very tiny amount of subsidy being paid on contracted services in the Southern Province. They also pay taxes. In contrast, the public sector companies showed an accounting loss, before depreciation, of 4,738 million rupees and after depreciation of 6,206 million rupees in the last full year (2003). Those figures are expected to increase to 6,557 million and 8,200 million respectively in 2004 based on performance in the first three quarters. In addition, the costs of the SLCTB add a further 480 million to the budget burden of the public sector buses. Only one third of costs before depreciation are projected to be met by fares in 2004.
The rapid deterioration of the situation of the cluster companies is shown in Table 1 which compares the accounting data or the companies between 2001 (actuals) and 2004 (estimates based on results to date). Table 1. Cost and revenue structures for the Cluster Bus Companies, August 2004 2001 REVENUE Waybill Season ticket sales Special hires Season ticket reimbursement Uneconomic route subsidy Salary increase subsidy Other TOTAL REVENUE EXPENDITURE Salaries EPF and ETF Other fixed costs Fuel Other materials Overtime Other variable costs TOTAL COST Loss before depreciation Depreciation Loss after depreciation
5,841 230 212 225 294 581 195 7,576
2003 Million rupees 4,801 221 156 226 228 940 151 6,719
2,566 381 520 3,241 1,284 432 1,044 9,469 1,893 1,170 3,063
3,105 462 629 3,921 1,554 523 1,263 11,458 4,738 1,467 6,206
2004 3,901 201 144 196 188 1,280 147 6,047 3,416 507 692 4,313 1,709 575 1,390 12,603 6,557 1,644 8,200
The public sector services receive a number of explicit and hidden subsidies, the estimated size of which is shown in Table 2. In addition to the explicit subsidies shown in the accounts of the companies, the cluster companies have had the benefit of direct purchase of tires, and some other parts on the Ministry of Transport budget. These should be added to the accounting losses of the companies in estimating the total cost of the public sector buses to the economy. Table 2. Subsidies to Public Sector operations SUBSIDY ITEM
EXPLICIT SUBSIDIES Wage subsidy Uneconomic routes Scholar fare passes Costs of SLCTB Direct purchase of tires HIDDEN SUBSIDIES Unpaid permission fees Unpaid terminal fees Uncovered depreciation and operating losses
SOURCE OF SUBSIDY
ESTIMATED AMOUNT, 2004 (M.RS/ANNUM)
Ministry of Finance budget Ministry of Finance budget Ministry of Education budget Ministry of Finance budget Ministry of Transport budget
1,280 188 196 480 45
Provincial Councils/NTC Provincial Councils Ministry of Finance value of assets
25 25 8,200
Total Real budget burden Total Explicit Subsidy
10,389 2718
The argument presented for sustaining this burden is the extra social service provided by the public sector buses. This is addressed later in this report.
2.1.2 Organization The responsible authorities for strategic management of the sector are the National Transport Commission (NTC) which is responsible for inter-provincial services and general policy advice to the Minister, and the Provincial Councils, which are responsible for intra-provincial services (see 2.2 below). The private sector consists of about 9000 private vehicle owners of about 18,000 vehicles. For the most part these vehicles are operated by employed drivers and conducters receiving about 500 rupees per day each, but often also a share of the fare revenues. They typically operate on the basis of a single shift, which explains the current unwillingness of the private sector to operate evening services. The public sector consists of 13 companies. 11 of these were formed from the amalgamation of the 94 peopleized operating companies, in turn formed by the
corporatization of the former state owned Regional Transport Boards. The remaining two are a more recently formed company and a remaining peopleized company which did not join the other clusters. They are formally independent legal companies. The Regional Transport Boards and the Sri Lankan Central Transport Board, which was formerly the holding body for the regionalized state operations remain in existence though having virtually no residual duties. The peopleized companies were originally structured with 50 % of their shares owned by the government and 50% by the employees. Subsequent government direct provision of capital has been embodied in increased public sector share ownership. 90% of the shares are now owned by the state, with the state shareholding administered through the Secretary of Finance who can appoint (and dismiss) members of the boards of the companies, with the concurrence of the Minister of Transport. The responsibility for administering the state interest has recently been transferred to the SEMA.
2.2 The relevant statutes In order to establish what actions are currently permissible by law and constitution, and by implication what changes of law would be necessary to support a reform, the relevant statutes are described below, and their implications discussed.
2.2.1 The Motor Traffic Act, 1951, as amended This act, together with its amendments, contains the basic provisions for the licensing of vehicles and drivers, insurance, behavior on the road etc. Most of the provisions of nthe act apply to all classes and users of vehicles. All buses require the specified licenses, which can only be granted to carriers with the appropriate permits issued under other legislation (below). Certificates of fitness are also required for all vehicles. The CTB and RTBs were originally exempt from the requirement for a stage carriage permit, though this provision was repealed under the NTC Act (below), and given the right of self certification of vehicle fitness.
2.2.2 The Motor Transport Act, No.48., 1957 The Motor Transport Act, 1957 nationalised the existing bus sector in Sri Lanka, and established the Ceylon Transport Board with the duty of “providing efficient regular omnibus services in Ceylon” in co-ordination with rail services. To that end it had the power to acquire all the necessary assets under terms of compensation specified in the Act, subject to an appeals tribunal. The Act also established a separate fares Board to advise the Minister on the approval of fare adjustments proposed by the CTB. The Motor Traffic Act was amended to terminate (with minor and temporary exceptions for Colombo Municipality) the grant of permissions to other operators.
2.2.3 The Transport Board Law, 1978 This act repealed the Motor Transport Act, 1957, establishing a Sri Lanka Central Transport Board and nine Regional Transport Boards basically to perform the same
activities as the former CTB, but under a decentralized structure. The new SLCTB was to be responsible for general planning and advice to the regional transport boards, coordination of services, import and purchase of motor vehicles and spares and civil engineering services. The Regional Transport Boards were to be responsible for the provision of services. Under this Act the SLCTB had powers to purchase construct, manufacture or repair equipment for the purpose of the regional boards. It is under these powers that major workshops have remained to this day under the direct control of SLCTB.
2.2.4 The Private Omnibus Services Act, No. 44.,1983 and amendment, 1985. This act created a Director of Private Omnibus Transport, with powers to issue permits to operate bus services to private companies for a duration of three years, and to set fares and other conditions of operation of the private bus operators. All private operators were required to be members of the appropriate District Association which was required to lay down service schedules and enforce them, to appoint stand keepers, checkers and other control staff to ensure the disciplined operation of the private sector buses. A National Federation was established to co-ordinate the activities of the District Associations, and to make recommendations to the Director concerning changes of route suggested by the District Associations. The amendment reduced the period of the permissions from three years to one and required all permit holders to be members of a district association which would keep record of those in the sector.
2.2.5 The Conversion of Public Corporations or Government Owned Business Undertakings into Public Companies Act, No. 23, 1987. This act provided for the conversion of the government owned Regional Transport Boards or parts of them into commercial companies incorporated under the Companies Act of 1982. with the share capital of the companies allotted to the Secretary for the treasury on behalf of the state..
2.2.6 The 13th Amendment to the Constitution The 13th Amendment to the constitution was concerned with the general devolvement of governmental powers to the provinces. Among the subjects reserved for the new provincial councils in List 1 of the ninth Schedule of the Amendment was “Regulation of road passenger carriage services within the province and the provision of intra-provincial road transport services”.
2.2.7 The National Transport Commission Act, No. 37.,1991 This Act created a National Transport Commission to advise the government on national policy relating to omnibus services, to monitor the quality and availability of services, to prescribe the form and conditions to be attached to the issue of permissions by
Authorized persons (the provincial councils for intra-provincial services and the NTC itself with respect to inter-provincial services). It also gave to the NTC the function of ensuring the provision of services on unremunerative routes by entering into competitively tendered contracts, and to liaise with government departments in respect of the provision of student services on concessionary rates. The preamble to the act stated that it was the policy that all services should be provided by the private sector, but specifically provided, in section 18, that this should not exclude the grant of permissions to the peopleized companies. However, it did not exempt the peopleized companies from the need to obtain permissions, and specifically provided for the winding up of any peopleized company which failed to provide the services for which it was authorized over a period of three months (section 45).
2.2.8 The National Transport Commission (Amendment) Act No. 30 1996. This act provided for the creation of new cluster companies by the amalgamation of peopleized companies, and specifically provided that the cluster companies, should, like their predecessor peopleized companies be eligible to receive permissions, notwithstanding the state shareholding in the companies. The act specified that, after five years from the date of a relevant ministerial order, permissions would only be issued to companies with 50 or more vehicles, and provided for the minimum size of vehicle permitted to be set at 40 seats, on subsequent ministerial order. The first provision was dated by an order to commence the period on 1 March 1998, but revoked in February 2004 before it could come into effect..
2.3 The legal position and the reality 2.3.1 The public sector Although the SLCTB was originally the parent company of the regional operating companies, on peopleization into independent legal entities, and subsequent amalgamation of these into cluster companies, SLCTB ceased to have any legal standing in the management of the operating companies. However it has remained in operation, and has been the channel through which compensation for student fare concessions and financial contributions to the cluster companies pass. It also produces comparative statistics for the cluster companies and acts as an advisory body to the cluster companies on policy matters. SLCTB retained management responsibility for the workshops which were not privatized, and which are operated on budgetary contributions from central government. The services of these main workshops are provided free of charge to the cluster companies and form part of the budget burden of the public sector operations. SLCTB has a total staff of 4000 and an annual budget of about 450 million rupees. The reality of current operations of the public sector differs from the legal position, as described above, in some important respects, namely:
•
•
The cluster companies operate without permissions as required by sections 8 (k) and 21 of the NTC Act in respect of inter provincial services and equivalent requirements for intra-provincial services. This also frustrates the legal requirement for the companies to operate the permitted services on pain of winding up, as specified in section 45 of the NTC Act. The cluster companies receive subsidies for provision of unremunerative services without facing the competition required by section 8 (j) of the NTC Act. Similarly education subsidies are paid directly to the SLCTB rather than through the liaison between the Department of Education and the NTC as specified in section 8 (h) (ii) of the NTC Act. They also receive direct wage subsidies.
2.3.2 The permission system According to the relevant statutes all services should be provided under permissions, either from the NTC (in the case of interprovincial services) or the relevant provincial departments (in the case of intra-provincial services). There is no exemption contained in the relevant statutes applying to the cluster companies. In 2001 a Ministerial directive clarified the legal position that cluster companies should obtain permissions from the relevant authorities, But this directive has been ignored by the cluster companies and not enforced by the responsible authorities. The companies have thus continued to operate services which were in operation at the time of the statutes, and have instituted some amended service without obtaining permissions. The cluster companies, though not legally exempt from regulations controlling vehicle conditions and staff qualifications have also self administered controls over crew and vehicle standards. There is a general perception that political intervention has led to an over issue of permits to private operators, to the extent that two control mechanisms on the use of vehicles are now employed, namely: • •
Permissions limit the number of days per month on which vehicles can be operated, and in some cases the number of trips per day that a vehicle can perform Marshals control the dispatching of vehicles to try to ensure a fair distribution of the available business between operators. There is a suggestion that the marshals are sometimes subject to corrupt or criminal influence.
2.3.3 Fares control The relevant authorities, the Minister on the advice of the NTC and the provincial Ministries of Transport, have the rights to control fares. Until late 2000, fares control was exercised on an ad hoc basis in response to requests from operators for fare increases. This was always a controversial issue, and because of the complexity of the faree structures any decision took a long time to administer and implement. In 2000 the private sector operators themselves supported the development by the NTC of a fares adjustment mechanism embodied in the report of a Ministry of Transport Committee on Fares Policy, of August 2001.
The aim of the fares policy revision was to take the issue of fare adjustment out of the arena of political negotiation and progressively to better reflect costs in the fares structure. A number of existing anomalies were to be addressed, including differences in the fixed element (the “step-on fare”), gaps in the fare table, inconsistent fare stage lengths and imperfect reflection of the structure of costs in the initial fare table. The output of the committee was a computerized fare adjustment formula reflecting changes in the main cost elements. Over a period of time this would iron out the initial anomalies as well as giving an automatic application to individual routes. New fare tables, of a very simple and easy to understand kind can be printed out for immediate display and application. That appears to have been appreciated both by passengers and by operators. The same fare structure is applied to private and public sector operators on any specific route. It is calculated from 12 inputs, and calculated on the costs of a “reasonably efficient’ publicly owned operator (not allowing for gross overstaffing) with average daily vehicle mileage attainable by the public sector operator (but typically not attainable by private sector buses). The fare levels thus do not guarantee profitability for an actual cluster company operational cost structure, but are probably higher than would be necessary for an efficiently scheduled private operator. Although they can in principle be enforced only for routes run on NTC permissions in practice they are adopted also by both the provincial transport departments for their permitted services and by the cluster companies for services run without permissions.
2.3.4 Decentralization Under the 13th amendment to the constitution responsibility for intra-provincial transport was delegated to the provinces. The responsibility for transport is usually vested in the Chief Minister’s office. Each province has a regulatory body called a Provincial Transport Authority with a Director General directly appointed by the Chief Minister in his function as minister responsible for transport. Formally the responsibilities of the PTA include the issue of permissions to operate to all operators. In practice, as with the role of the NTA for inter-provincial services, the cluster companies have ignored the formal requirement and continued to operate such services as they wish, without permissions. More recently some provincial authorities have attempted to develop joint timetables for both public and private sector buses. Even where that has been done, however, the failure of the cluster companies to fulfil the slots allocated to them has undermined the efficiency of the joint timetable by requiring the provision of private stand-by vehicles.
3 The perceived problems and aspirations 3.1 Outcomes and processes A distinction is made in this report between outcomes, which are the qualitative and quantitative results of the operations of the companies, and processes, which are the administrative mechanisms through which the outcomes are generated. For example, the
maintenance of unremunerative services, or low general fare levels, or the subsidization of certain categories of consumers, are viewed as outcomes, whereas the maintenance of a publicly owned supply sector and the channeling of subsidies through that sector agency is viewed as a process or instrument. It will be argued that the major concerns of government are – and should be – about the outcomes.
3.2 Outcomes 3.2.1 Budget cost The publicly owned bus sector, comprised of the SLCTB and the cluster companies imposes charges on the budget in several main ways: • They receive payment for the provision of season tickets to students at 10% of the normal ticket price. A flat sum of 20 million rupees per month is paid by the Ministry of Education in compensation. • They receive compensation of 200 million rupees per annum, channeled through the NTC for the provision of defined unremunerative services • They receive “compensation for salary increases” amounting currently to 158 million rupees per month, or approximately 1900 million rupees per annum. • The services of the SLCTB owned workshops are provided free of charge to the cluster companies. • In addition to the costs of workshops, the administrative costs of the Board are met directly from a budget allocation. Taken together these items amount to just under 500 million rupees per annum. • Where vehicles are provided through budget allocations they are not charged as costs to the companies. There does not appear to have been any such provision since 2001. The private sector operates without direct government subsidy, but does not carry any of the social obligations of unremunerative services or passenger categories.
3.2.2 Operational behavior and safety The classical behavior of “lingering” and “racing”, common wherever there are multiple operators on a route, are common in Sri Lanka. They apply particularly to private sector buses, but increasingly also to the public sector buses as they begin to use the incentive of crew keeping part of the farebox revenue. Overloading is rife, though this again appears to be more common on the private than public sector buses. Crews are often untrained and both driving behavior and behavior of conductors towards passengers is a source of frequent complaint.
3.2.3 Social services provision The main social services formally provided for are the maintenance of certain designated unremunerative routes and the provision of bus services to schoolchildren on season tickets at fare levels only about 10% of the full fare.
In practice, some unremunerative services are being provided by the cluster companies on routes other than the designated unremunerative routes. These would include some evening services as well as some rural services not on the designated list. Under present arrangements, however, neither the cost nor the extent of such services is known. Moreover, the security of such services depends on operational decisions made by the management of the cluster companies quite independent of any guidance or instruction from the designated authorities (NTC and the provinces) and without any clear policy guidance from SLCTB. Given the low mileage operated by the private sector companies and the high costs of the cluster companies it is in any case likely that the most cost effective supplier of such subsidized services might be a private rather than a public company, For school children, monthly passes are sold by the cluster companies at a price which would be approximately 10% of the full fare if used for 42 trips per month. As all season tickets are sold at a discount of 35% this means that in principle there is a subsidy of 55% of the full fare payable on student trips. SLCTB have calculated a cost of 619 million rupees per annum on this basis. The Ministry of Education pays an annual sum of 225 million rupees in compensation, suggesting an under compensation of 384 million rupees. However, consumer representatives have pointed out that cluster company crews, incentivised by the fact that they are allowed to keep a proportion of their takings, often refuse to pick up schoolchildren where they could fill their bus with full fare paying passengers. Moreover, as only about one quarter of the services are provided by the public sector, and their scheduling is uncertain children are often forced to pay the full fare. There is no information on the proportion of trips by pass holders which actually use the public sector services, but it has been estimated to be as low as 15 to 20% in urban areas. It is likely to be much higher in rural areas, and particularly on unremunerative routes where there is no private sector service. Because of the weaknesses in the subsidy system, and its applicability to only a quarter of the services operated, many schools have pressed for school only services. NTC has a budget for the procurement of such services in the next financial year. In Colombo, the problems of schoolchildren has given rise to the development of a fleet of vans believed to be between 3000 and 5000 carrying schoolchildren for payment believed to average about 1000 rupees per month. Little is known about this sector, which contributes to urban congestion and carries children without insurance cover.
3.3 Processes 3.3.1 Subsidy mechanisms The education pass subsidy is channeled through, and distributed by the SLCTB, as is the wage subsidy and any capital subsidies on through vehicle purchase. The unremunerative route subsidy, though in practice only applying to services operated by the cluster companies is channeled through the NTC. The NTC also has a budget for the procurement under competitive tender of some specific school student services.
3.3.2 Private sector licensing mechanisms Permissions are issued to private sector operators by the competent authorities. The relevant statutes give discretion to the authorities – deriving originally from the Private Omnibus Services 1983 Act, but inherited by the successor authorities – to grant or refuse an application for a permission in the light of the need for the service, the appropriateness of the route, the extent to which the needs are already adequately served and considerations of co-ordination with other modes. In practice many authorities, encouraged by their political leaders, have issued permits as an instrument of political patronage. Only recently have some of the authorities begun to limit the number of permissions issued and to use their discretion to secure larger and better vehicles. This requires a strong initial commitment to the principle of need and steadfast commitment to it.
3.3.3 Private sector operational arrangements In most provinces the operational arrangements consist of the use of limitations contained in the permission on the number of days on which a particular route permit can be used, or the number of turns for which it is valid, together with on-the-road allocation of turns by marshals, originally appointed by district associations under the 1983 Act but now operating very much as a law unto themselves. This system is generally acknowledged to be associated with corruption and mafia like activities. More recently some authorities (the NTC, the Southern and Western Provincial Councils) have introduced combined timetables for all operators, with the timekeeping undertaken at the stands by employees of the authority. That appears to work well in a few main terminals where it is practiced but would require a very large public authority staff to implement comprehensively. It should be observed, however, that there is a great deal of redundant labor in the public sector engaged in less productive activities than ordered scheduling.
3.3.4 Behavioral control mechanisms There is very little effective monitoring of on-the-road behavior of operators, either private or public. The consumer representative organizations appear to be weak and, by their own admission, often unable to obtain redress, particularly from the cluster companies. NTC operates a complaints “hotline” advertised through the media, and does appear to get some success in obtaining penalties on bad behavior. But there is still a general perception that behavior of operators is extremely undisciplined.
4 Analysis 4.1 The subsidy issue
One of the main arguments for the maintenance and refurbishment of the cluster companies is the fact that only the cluster companies carry concessionary fare passengers or provide unremunerative services. Although both of these categories of obligation are the subject of direct compensation SLCTB argues that this is inadequate. It argues that the real revenue loss of carrying the students, calculated by multiplying the number of season tickets by 90% of the full fare, is over 50 million rupees per month and that the “undercompensation” for this obligation thus amounts to about 370 million rupees per annum. Similarly they argue that the actual losses on provision of unremunerative services amounts to 444 million rupees compared with a compensation payment of 200 million. Taking these two items together SLCTB argues that there is an under compensation of about 620 million rupees per annum, which forms the justification for the continued maintenance and further support of the cluster companies. There appear to be three major weaknesses in this position. First, the calculated undercompensation for students is based on the assumption that, if the concessionary fare were not offered the cluster companies would receive the full fare from all of the students presently using the season ticket. This is highly unlikely to be the case, as, if students had to pay the full fare many of them would actually choose to use private sector buses which are available (and usually more frequent) than the public sector buses. As private buses provide about 75% of the service, the lost revenue would thus only be about one quarter of that calculated by SLCTB. The lost revenue calculated on this basis is thus 155 million rupees per annum, which is actually less than the compensation actually paid! Second, even on the SLCTB calculation, the total appropriate compensation amounts to 1065 million rupees, compared with a total subsidy to the cluster companies (adding up the five categories in section 4.2.1 above) of 2850 million rupees – a lost revenue to cost ratio of only 0.37. On the less favorable figures implied by the paragraph above this ratio falls even further to 0.21. Third, and most critically, if the interest is in achieving specific outcomes in terms of maintenance of services or subsidy of selected classes of passenger, the proper question to ask is whether one is using the most cost effective means of achieving the outcome. Given that the cost per vehicle kilometer private sector vehicles would be substantially lower than that of the public sector vehicles if both were operating the same daily mileage, the cost per unremunerative route mile or subsidy cost per student trip would be reduced substantially if private sector suppliers were used rather than the existing public sector supplier for producing these services.
The solution to the problem of getting good value for the subsidies provided is to put provision of services, particularly subsidized services, in to a contractual form subject to competitive tender.
4.2 The behavior issue There is little doubt that bus passengers are dissatisfied by operators’ behavior in a number of ways, including: • “Lingering” and “racing”, which have been mainly associated with the private sector, but are now beginning to apply also to public sector operations as the crew obtain part of their income through a share of the farebox revenues • Failure to pick up schoolchildren when there are full fare passengers to serve, which is exclusively a problem of the public sector buses which have almost exclusive rights and responsibilities for concessionary fare passengers. Only in the Southern province are there some concessionary fare arrangements for children operated by the private sector; these arrangements work well and have been very much appreciated by the schools. • Overloading, which is also claimed to be particularly a problem of the private sector buses. All of these aspects of behavior are symptomatic of a bus sector which lacks effective discipline. In the private sector this stems from the fragmentation of ownership and the competition between vehicles on the road. In the public sector it reflects a lack of effective management control over operations on the road. It is interesting that the consumers representatives who were consulted stated that it was in fact easier to get response to flagrant breaches by the private sector through the control exercised by the relevant authorities in permission renewal and withdrawal powers than through approaches to management of the public companies operating without permissions. Overloading of private buses is particularly anomalous. The average miles per vehicle of the private sector are at present substantially below those of the public sector, as a result of the regulatory constraints on private sector miles per vehicle offered. Overloading is thus not a result of inadequate total capacity but of the way in which the regulatory system currently works. This could be completely remedied by the introduction of a competitively tendered franchising system, which would reduce the costs of the private sector (by increasing vehicle utilization) and of the public sector (by enforcing reductions of costs in order to survive). In all cases the solution must be to introduce incentives to improved behavior. The introduction of a franchising system would do this effectively by putting conditions of behavior within the franchise contract. This would put the contract, and hence the livelihood of the supplier and his staff, at risk on evidence of persistent failure to perform to contract.
5 Options for reform 5.1 Reconstituting the public sector
The public sector cluster bus companies have some advantages in terms of physical premises. Most units have adequate garaging facilities and there are seven major repair workshops, operated by SLCTB, which have a capacity to accommodate a much larger fleet than presently exists. Following the aborted attempt of the previous government to privatize the cluster companies while at the same time maintaining the full staff complement, it is the declared policy of the present government not to privatize the companies. The transport cluster within SEMA has engaged consultants with the terms of reference to seek ways of reducing the budget burden of the cluster companies by improving the efficiency of their management. The declared strategy of the recently appointed Chairman of SLCTB involves an ambitious refurbishment strategy, including the development of a Central Stores Complex, making the existing workshops fully operational, and enhancing the fleet and ticket control systems. He also wishes to use the assets of the Board to develop new income generation projects. None of these ambitions have yet been costed either in capital or operational cost terms, and there is no budget line allocated for them. Nor is there any legal basis for the role which the SLCTB aspires to play in the operation of the cluster companies. While adding vehicles might spread the staff overheads, and reduce costs per vehicle kilometer, the fact that, despite a total staff complement of nearly 10 per vehicle operated, even the present available fleet is not fully deployed suggests severe management problems within the sector. Moreover, for the sector as a whole there are more than sufficient vehicles due to the low average daily operating miles of the private sector. Public sector investment in new vehicles would simply further exacerbate the general problem of oversupply of in the sector and be wasteful to the economy. There appears to be very little incentive to efficiency in the public sector, and making further investments without addressing the critical questions of regulatory mechanisms and incentives to efficiency would probably reduce rather than increase the incentive to manage economically. It would therefore appear that any reconstitution of the public sector, which constitutes about one quarter of the supply of bus services would be at the cost of the other three quarters. While it is certainly desirable to try to address existing deficiencies in the management and operational capability of the existing public sector it would almost certainly increase the budget burden further without bringing about any significant improvement in the efficiency of either the public or private sectors. It is not the main purpose of this report to address the specific problems of the public sector companies. Those are being addressed by the transport sector cluster within SEMA, which has the brief of finding ways to improve the performance of the companies and reducing the demands of the sector on the budget. But some brief observations can be made.
First, the cluster companies have claimed ever-increasing subsidy on the basis of their performance of certain ever-diminishing social duties which are not undertaken by the private sector. Because there has been no explicit attempt to measure the extent and value of the social service performed there has been no self enforcing limit on the drain on resources involved in meeting them. The cluster companies in fact appear to have an incentive to maintain the pretension that they can fully perform all necessary social service duties by maintaining a skeleton presence on all routes, and thinking in terms of a TTR which was calculated years ago when there was a much smaller private sector presence. A much more focused attention to performing well over a more limited range of services would probably improve the efficiency of their operations. Second, the main disadvantage of the public sector is that it is already grossly overstaffed, and has operating costs substantially in excess of revenues, even before depreciation. If, as a matter of public policy, or law, it is decided to keep the redundant staff in public employment, then it is suggested that this should be done through a shell company, with no operating responsibilities. For example, if experienced managers could be appointed with the power to retain only the staff deemed necessary for operations, excess staff of the cluster companies could be transferred to the books of the regional transport boards or the SLCTB. Third, it appears likely under present conditions that any attempt to improve the efficiency of the companies will be frustrated by the power of the transport unions to secure deficit finance for inefficient operation. One of the factors which has contributed most to increasing the efficiency of the public sector in other countries has been the introduction of some competitive pressures. That has involved formally constituting the companies as commercial companies subject to the bankruptcy constraint under normal company law. That does in fact appear to be the legal situation under the Conversion of Public Corporations or Government Owned Business Undertakings into Public Companies Act, No. 23, 1987., though a succession of government subsidies has prevented the emergence of commercial discipline into the companies. It is therefore recommended that: (i)
(ii)
(iii)
the future role of the public sector should be part of a general strategy for improving the efficiency of operations and resource utilization in the sector as a whole, and not as part of a plan to re-establish a dominant public sector at all costs. all social services for which the cluster companies claim support should be identified and fully compensated, but only on the basis of open competitive tendering of the services required the government should assist the restructuring of the cluster companies to allow them to operate commercially in the market without the encumbrance of redundant staff and assets. All staff cost subsidies should be transferred to a shell company in which the redundant staff, including that of the SLCTB and the RTBs should be vested.
(iv)
the cost effectiveness of any plans to refurbish the public sector companies by further capital grants or operating subsidies should be subject to very careful scrutiny in the context of its role in a broader sector strategy.
5.2 Derestricting entry Some of the perceived problems, such as overcrowding at particular times and locations, are a result of the way in which the current regulatory system works. In most provinces private buses do not operate to managed timetables, despite the operation of “marshals” ostensibly appointed by district associations under the provisions originated in 1983. But vehicles are not fully deployed due to the restrictions put on permissions and through the dispatching procedures used to ensure an equitable distribution of revenues between those which are in operation. Complete deregulation might lead to a greater concentration of vehicles at the times and locations where demand is highest. But it would also tend to exacerbate the problems of behavior discussed above. Experience in other countries where there has been complete deregulation, such as Lima Peru, is that increased unregulated supply may be secured at a high cost in terms of service quality and behavior. Moreover, the experience of quasi-legal self regulation as in the minibus market in apartheid South Africa, is that it tends to be associated with violence and mafia type control. Because that is already perceived to be a serious problem of a similar kind in Sri Lanka, complete deregulation is not advised here.
5.3 Commercial operations supplemented by tendered social services A more constructive approach, which would appear to be consistent with the present structure of the private sector in Sri Lanka, is that being progressively adopted in the Southern Province. This involves the combination of three elements: •
• •
Preparation and implementation of a joint timetable within which all operators are included and the schedules rotated to ensure a fair distribution of the more profitable and less profitable slots. Restriction of the number of permissions issued to the number of vehicles necessary to run the required services. Identification and direct subsidization of social services.
A system rather like this has worked reasonably well in the United Kingdom, where free entry to the commercial services market is supplemented by competitive tendering of subsidized services required for social policy reasons. There are some limitations of this system which would need to be overcome for application in Sri Lanka. •
Where only the unremunerative services are tendered the authorities require a source of funds to support purchases; at the moment the explicit subsidies are not available to the authorities but channeled directly to the public sector operators.
•
•
•
•
This can, of course, be overcome if the competent authorities are able to auction the rights to provide the profitable services. With a fragmented operating structure the system needs a great deal of supervision and monitoring. The Southern Province PTA has shown that this can be done at the major terminals (for example at Mathara) but it is much more difficult to achieve for dispersed locations and on the road. The rotation of turns between operators in order to equitably distribute revenue makes less efficient use of capacity than would a scheduling of services by a company not subject to this constraint. So long as the cluster bus companies claim slots in the timetables which they are failing to fill, the regulator needs to maintain a larger pool of spare vehicles than is really economic. It does not encourage the development of management skills in the private sector which are found in all of the better private sector operated systems in the world.
For the above reasons it may not be desirable for this arrangement to be the ultimate objective for Sri Lanka, but introducing competitive tendering for selected slots or services only does promise significant improvement over the present situation in most provinces, and may be a sensible step in the development of a longer term strategy
5.4 Franchising The solution to the problem of reconciling the creation of the efficiency incentive of competition with the desire to maintain public sector strategic control over fares, service structures and budget cost that many countries have already adopted, and an increasing number are preparing to adopt is the introduction of competition “for the market” rather than “in the market”. Competitive tendering of temporary monopoly rights within some part of the market enables the public sector to define the required outcomes while providing a good mechanism for the selection of the most cost effective suppliers of the services required. By separating the responsibility for planning and procuring services from that for operating them, it also eliminates the tendency for management of the system to be exercised in the interests of the suppliers or their employees rather than the passengers. Given the nature of the problems in Sri Lanka, and the aspirations of government to take control of the balance between fares, service quality and budget cost, some form of franchising arrangement appears appropriate. However, there are many different variants of franchising, between which a choice needs to be made. There are three main dimensions in the variety of franchising system, namely the size of package franchised, the duration of franchises, and the basis of contracting.
5.4.1 Package size 5.4.1.1 The single vehicle permission
In principle, the size of the package put out to tender could be as small as an individual vehicle. That would make it very similar to the existing permission system with the exception that the number of permits would be limited to the number required to operate the service with full vehicle utilization and the selection of the providers would be subject to competition. It would involve the least structural change for the private sector. In the context of the application of a combined timetable in which all vehicles, private and public, are assigned specific slots to operate, the Southern Provincial Passenger Transport Authority has already experimented with contracting for some specific services, namely: •
School services. This has been done by identifying those schedules which are appropriate to serve the main educational establishments and allocating to a single operator who is required to carry students at half fare and not to carry full fare passengers. The rights to these services is restricted to operators already within the schedule on the route. 14 routes have so far been treated this way. Two have been put to competitive tender and 12 negotiated on the basis of payment by the authority of the estimated fuel costs for those trips. For one of the tendered schedules the operator actually pays a premium, while for the other the subsidy cost payable, 1000 rupees per month, is much less than the fuel cost. $ of the existing six private operators on the route bid that schedule. This system has been much appreciated by the users, compared with the previous arrangement where children could obtain passes at a nominal 10% of the fare with the public bus company.
•
Unremunerative late evening services have also been tendered in some cases to the private sector. The contracts cover only one return trip per route, and the general principle followed has been to award a contract so long as the best bid costs not more than the estimated cost of the fuel.
•
“Office services” , which are the most remunerative slots in the schedule have been auctioned in the case of 13 vehicles. In one case a contract covers 4 buses, making a total of eight trips. This generates extra revenue for the authority.
•
New permissions have also been auctioned for a “once-for-all” payment. This practice was discontinued immediately before the recent election, but is to be reintroduced. The authority is also considering going to auctions for five year permissions, to be re-tendered on conclusion of the period. The danger of this is that it might create rights which are inconsistent with the later introduction of competitive tendering.
The Southern Province has thus used both positive and negative tenders to secure unremunerative social services partly financed by profitable services, and appears to have been successful both in respect of securing the objectives of the process and its stability.
It would be possible, in principle, to extend this approach further, tendering all permissions, with the management of operations in the hands of the authority. Certainly the introduction of a timetable, and the limitation of the issue of permissions to the number appropriate to a route improves the efficiency of operation, the quality for the customer and the cost for the authority. But the use of the single vehicle as the unit of contract has some significant disadvantages. • •
It does not encourage the development of a professional disciplined industry It needs a large enforcement effort, not only in terminal dispatching (which appears to have been done effectives in terminals such as Mathara or Ambalangoda), but on the road.
The recommendation therefore is that, while the move to fully scheduled operations, with co-ordinated timetables covering all operators and strategic auctioning of specific slots, may be a short term improvement, it should not be the long term objective. The various aspects of this approach, however, have an important role to play in the phased approach suggested in later sections of this report. 5.4.1.2
The area franchise
At the other extreme the package might be all of the services in a city or an area. This has the advantage of reducing the need for co-ordinating effort, but requires relatively large companies with high management skills to implement. It is common in some countries in Western Europe (notably France) and in some Australian states where the starting point was a public sector area monopoly. The initial structure of the private sector in Sri Lanka is very fragmented. For this reason it would probably limit the number of competitors and be resisted by the bulk of the small scale operators presently in the market. It is not recommended for that reason. 5.4.1.3 The route franchise In between the extremes is the option of franchises issued on a route by route basis. The contract would specify the route and the required frequency or timetable and it would be the responsibility of the management of the franchisee to ensure that service was performed to contract. Because some routes would require very few vehicles it would give scope for operators of different sizes, with larger operators able to win several contracts and to grow as they display their relative efficiency in performance to contract. It is likely, however, that for the majority of routes a number of vehicles would be required in excess of the size of current ownership structure. Hence even a route based franchising system would require the creation of companies or associations of operators. For those reasons a decision to introduce a route based contracting system would need to be associated with a strategy to assist the development of companies or legal associations with accreditation to bid for contracts. It would also probably be advisable to have a carefully phased plan for the progressive introduction of franchising so that experience could be gained and transmitted.
5.4.2 Gross v net cost There are two main variants of contract type used in other countries. Gross cost contracts involve the revenue accruing to the franchising authority with the service suppliers bidding on the cost at which they would be willing to provide the service. This is particularly appropriate in systems with many modes or suppliers for which interchangeable and through ticketing is desired. It has worked very well in London. But it requires a very secure system to ensure that all revenue collected on bus is passed on to the authority and very detailed monitoring to ensure that the contracted service is actually performed. Net cost contracts involve the revenue being collected and retained by the franchisee with service suppliers bidding on the amount that they are willing to pay for, or require to be paid, to undertake the contract. Where there are overlapping routes it will still be necessary to monitor behavior to ensure that operators do not race for business. It may also be necessary to monitor that the most unremunerative (early morning or late evening, etc.) schedules are maintained. But the penalty of loss of contract gives a considerable incentive to good behavior.
5.4.3 Contract duration When route franchising was introduced in the U.K. the normal duration of a contract was three years. In other European countries the duration was typically somewhat longer. There is now an E.U. regulation which requires contracts of a minimum of five years. This is viewed as a long enough period for operators to make reasonable arrangements for the financing or leasing of vehicles, but a short enough period for there to be continuous competitive pressure on operators. The ready availability of lease financing for standard vehicles in Sri Lanka on a five year term suggests that this might be an appropriate duration for franchise contracts in the country.
6 Recommendations on reform 6.1 Statement of long term objective A number of defects of the existing situation have been demonstrated above, including: • • •
Low average daily kilometrage of private sector vehicles due to nature of permission system Public sector imposing high budget burden due to very high labor cost Subsidies poorly targeted
Consideration of possible regulatory reforms has shown that all of these can be addressed through the introduction of a system of competitive tendering of route based franchises. Within this system the existing legally competent authorities would have the
responsibility to ensure provision of an adequate, efficient and economic supply of services, both for remunerative and unremunerative activities, through the exercise of their powers to contract with suppliers of services from either the private sector or the cluster companies. The achievement of this outcome should be stated as the objective of a reform of the system.
6.2 The purposes of franchising The essence of a franchising system is that all relationships between the competent authorities and suppliers of service are put on a contractual basis, with services provided under specific transport service contracts. Transport Service Contracts governing the operation of public transport services are a proven mechanism used in many countries and have been demonstrated to be effective in controlling and stabilising the level of operating revenue support needed for public transport services. The separation of publicly-owned operators from direct inclusion in the budget and the strengthening of the competent authority’s capability to plan and monitor the public transport network supports the introduction of such contracts. The Transport Services Contract system can also include incentives to improve productivity that can be measured by service outputs and resource inputs, and could include: • • • • • • •
Increasing the proportion of total fleet in peak passenger service; Increasing revenue earning vehicle-km per day per vehicle; Increasing revenue earning vehicle-km per driver; Reducing the ratio of number of staff : peak vehicle numbers; Increasing fare paying passenger numbers per revenue earning vehicle-km Increasing the number of passengers transported per day per staff member employed. Increasing service reliability, vehicle comfort and cleanliness, and customer opinion
6.3 The tendering procedures In applying a competitively tendered franchising system some basic principles need to be established, namely: • • • •
The selection process needs to obtain the best value for money possible. The competitive process needs to get the best possible price, while preserving the desired quality Selection processes must be fair and trusted, the maximum use should be made of objective criteria, and decisions should be taken openly and never by individuals. Contracts must be carefully designed to ensure that all parties understand clearly what should be provided, that there are sufficient incentives for the operator to perform, and that there are adequate intervention and corrective mechanisms
•
The expenditure is incurred throughout the contract life. There must be good contract management and administration systems in place to ensure that the right payments are made, and that the contracted services and quality levels are achieved.
6.4 The interim arrangements It is recommended that along with the commitment to the introduction of comprehensive competitive tendering of service franchises as the long term solution, there should also be a commitment to a phased program of change involving: •
•
Some pilots in tendering of new routes, unremunerative services and school schedules, as a way of introducing all parties to the concept of competitively tendered franchises Conversion of vehicle permissions to route contracts, initially on a negotiated basis, to get all parties accustomed to the unit of management becoming the route instead of the individual vehicle.
The way in which a program might be phased is dealt with in detail in Report 3
6.5 The need for a new law As the early sections of this report have shown, the current regulations applying to the bus sector are contained in a number of statutes. Some tendering has already taken place under these provisions, normally relying on the requirement of the NTC Act 1991 that subsidized services should be procured through a competitive process. In some respects, however, the statues are confusing – for example, the SLCTB and RTBs were left in existence even though their main functions had disappeared. The separation of the regulation of the private sector from the existing arrangements in the public sector in 1983 initiated a tendency to treat the sector as two separate sectors which continued even after the formal legal position had changed in this respect. Hence, even laws that are clear are not always strictly observed and applied – for example, the nonobservance by the cluster companies of the obligation to hold permissions to operate. And some administrative actions, such as the progressively increasing deficit financing of the cluster bus companies, also appear to be inconsistent with the formal position that these are commercial companies. All of these elements, if they continued would be capable of undermining the development of a franchising policy. For this reason alone it would be desirable to have a single law which deals comprehensively with the regulatory arrangements for the whole of the bus sector. That legal basis thus needs extending and clarifying in a number of ways, including: (i)
Given the fact that the cluster companies have operated outside the existing law, and that the aim of the reform would be to bring all activities within a
(ii)
(iii) (iv)
(v) (vi)
(vii)
new legal framework, the status of the cluster companies within a revised regime would need to be specified. Given the ultimate intention to extend the application of competitive tendering of franchise contracts widely, the rights and obligations of the competent authorities need to be precisely specified. The competent authorities for tendering need to be re-iterated with the appropriate amendments of existing legislation. The competent authorities must be required to have a service network plan, which must be publicly available as a condition to qualify for the right to engage in competitive tendering of route franchises. The channeling of all finance for the support of .social services through the competent authorities needs to be asserted. Any remaining companies in which there is a public ownership share must be clearly established as commercial companies under the general law of the country, with the consequences that: a. They should not be subject to any requirement to supply unremunerative services except under the terms of a contract freely entered in to between the company and a competent authority b. They should not be in receipt of any indirect subsidy or deficit financing when operating in competition for franchises The sources of revenue available to the competent authorities need to be clearly and fully specified, including the right to general revenues through the letting of contracts for which a premium is paid to finance subsidized services.
It is therefore recommended that there should be a new transport law which will supercede all of the existing laws, clarifies the roles of the existing institutions and creates the basis for the introduction of competitively tendered franchising of services. An outline of a draft law on regulatory reform of the bus industry is contained in Annex 1 to this report.
Annex 1
Outline of a draft law Public Road Passenger Transport Regulation Act of 2005
AN ACT TO PROVIDE FOR THE RECONSTITUTION OF THE NATIONAL TRANSPORT COMMISSION; FOR THE BETTER REGULATION OF ROAD PASSENGER TRANSPORT SERVICES THROUGH THE INTRODUCTION OF THE COMPETITIVE TENDERING OF ROUTE SERVICE FRANCXHISES BY THE COMPETENT AUTHORITIES; FOR THE IMPROVEMENT OF BEHAVIOR AND PERFORMANCE OF SUPPLIERS OF BUS SERVICES; FOR THE BETTER TARGETING AND MORE EFFICIENT PROVISION OF SUBSIDISED SOCIAL SERVICES WITHIN THE FINANCIAL CAPABILITY OF THE COMPETENT AUTHORITIES; AND FOR THE INTRODUCTION OF FAIR COMPETITION BETWEEN SUPPLIERS OF SERVICES IN A REGULATED MARKET. WHEREAS the current law for the regulation of public road passenger transport is to be found in numerous statutes and their amendments; and the laws regulating different categories of suppliers are to be found in diverse sources; and the provisions of some existing statutes have not been enforced in recent years, and; WHEREAS the government wishes to remove confusion and provide the basis for an improvement of the quality of public transport provided for the citizens of Sri Lanka through the consistent application of a single regulatory framework applying to all suppliers of public transport service; and WHEREAS the government wishes to seek the improvement of service to the public whilst limiting the burden on the budget by improved targeting of subsidies for social services and more effective organization of viable commercial services through competitive procurement of supplies BE IT ENACTED THAT;
1.
This Act may be cited as the Public Road Passenger Transport Regulation Act of 2005
Part 1. Determination of Competent Authorities 2.
The provisions of this act shall apply to all services provided by public service vehicles on fixed routes at separate fares (hereafter referred to as bus services). It shall not apply to charter services for which separate fares are not charged, or to unscheduled taxi services.
3.
The responsibility for ensuring the supply of adequate, efficient and properly integrated bus services shall rest solely with the “competent authorities”, as defined by this act.
4.
The competent authorities for the implementation of the provisions of this act shall be deemed to be the National Transport Commission in respect of the general rules and conditions of service provision under contracts and competitively tendered franchises, and for the implementation of contracts and franchises for inter-provincial services and the Provincial Councils in respect of the implementation of contracts and franchises for intra- provincial service.
5.
No other authority shall be recognized for purposes of authorizing bus operations, procurement of services or management and monitoring of service provisions.
6.
In the light of its responsibility for general regulatory strategy issues, and to protect it from short term political pressures, the National Transport Commission shall be reconstituted in a form parallel to that of the Public Utilities Commission as set our in clauses 2 to 10 of the Public Utilities Commission of Sri Lanka Act, No 35 of 2002.
Part 2 The Initial Implementation Conditions 7.
An “initial implementation date” for the provisions of this Act shall be determined by the government on the advice of the National Transport Commission, to be published in the Official Gazette at least three months in advance of implementation.
8.
After the “initial implementation date”, no public transport service shall be provided except under the terms of a permission issued by the competent authorities or under a contract between a supplier of transport services and the relevant competent authority.
9.
Failure to supply any service under the terms of a permission or contract for a period exceeding one month, or persistent failure to meet the full conditions of the permission or contract over a period of three months, shall be grounds for the competent authority to withdraw the permission or terminate the contract.
10.
After the “initial implementation date” and before the “contracting date”, as defined in clause 14 below, each competent authority shall prepare a route network plan and outline timetable including all services in its jurisdiction.
11.
On completion by a competent authority of the network plan and outline timetable as described in clause 8 above, no subsidy shall be paid to any operator for the provision of any public transport service, or for the grant of any concessionary fare arrangement, within the jurisdiction of that competent authority except through the conditions of a valid permission or contract administered by the competent authority.
12.
Any operator who has been providing service on a route, but has not hitherto obtained a permission from the competent authority may request one at any time prior to the initial implementation date. The competent authorities must issue such a permission subject to; :(a) Proof that such service has been provided in the year preceding the application (b) Affirmation by the applicant that he has the capability of supplying the service requested in the permission (c) Acceptance by the applicant of the conditions for continuation of a permission or contract set out in clause 6 above.
13.
Part 3
During the implementation period and thereafter any permissions or contracts to operate new routes, or new services (such as school services) not previously separately treated shall only be issued on the basis of competitive tendering in accordance with interim tendering guidelines to be prepared by the National Transport Commission. Contracting of services
14.
A “contracting date” for the provisions of this Act shall be determined by the government on the advice of the National Transport Commission, to be published in the Official Gazette at least three months in advance of implementation. The contracting date shall be not later than 12 months after the initial implementation date as defined in clause 3 above.
15.
After the “contracting date” no public bus service shall be supplied except under the terms of a contract between the supplier and the competent authority.
16.
Where an application for a route contract is made by a company or association which has been supplying the majority of the service on that route in the year prior to the contracting date, that contract shall be granted to the said applicant.
17.
All contracts under clause 15 above shall cover all services on at least one whole route.
18.
Any supplier of services under a contract as defined in clause 15 above must show that he has the following competences: (a) That he is either a company, incorporated under Sri Lankan law, or meets such other conditions of association as may be determined by the government for the purposes of this act (b) That he employs a designated transport manager who will be responsible for ensuring the provision of the services required under the contract,
under the penalty of loss of contract as provided for in clause 5 above. In the case of an association of independent owners, any penalty for breach of the conditions of the contract shall apply to all of the members of the contracting association 19.
For the purposes of forming associations to qualify as contractors under clause 15 above, existing permission holders may by mutual consent request the competent authorities to exchange permits between existing permit holders at any date prior to the contracting date. The competent authorities shall be obliged to accede to such requests on evidence that there is mutual consent by the applicants.
20.
All contracts issued under clause 15 shall be of a limited duration not to be less than one year nor to exceed 5 years. During that period no further contracts shall be issued or permissions granted which increase the capacity on the route except by mutual agreement between the contractor or the competent authority to increase the capacity on the route.
21.
At the conclusion of the period of the initial contract, a competition shall be held for the franchise to operate the route for a further period, as set out in clause 23 below.
Part 4
Competitive tendering
22.
A “competitive tendering date” for the provisions of this Act shall be determined by the government on the advice of the National Transport Commission, to be published in the Official Gazette at least three months in advance of implementation. The “competitive tendering date shall be not later than 3 years after the contracting date or 4 years after the initial implementation date as defined in clauses above.
23.
After the competitive tendering date no contract shall be issued for any service except on the basis of a qualifying competitive tendering procedure
24.
Before the competitive tendering date, the National Transport shall, after consultation with provincial councils, the Consumer council, the Public Utilities Commission and representatives of operators and consumers, prepare guidelines on competitive tendering to be observed by all competent authorities in the issue of contracts under the terms of this act.
25.
The guidelines on competitive tendering shall include provisions for monitoring and enforcement of contracts which shall be considered. These guidelines shall be promulgated by Ministerial order and published in the Official Gazette.
.
Report 2 Documentation for a Reformed system TABLE OF CONTENTS 7 7.1 7.2 7.3
The franchising documents. Invitations to tender and contracts Scope of Contracted Transport Services Positive and negative cost contracts
8 8.1
Principles for contract construction Allocation of Risk 8.1.1 Production Efficiency Risk 8.1.2 Loss of production. 8.1.3 Revenue Risk. 8.1.4 Force majeure
9 9.1 9.2
Defining the Scope of Transport Services Infrastructure responsibilities Allocation of Initiative
10 Contract Design 10.1 The design process 10.1.1 Determining what is required from the contract 10.1.2 Getting local legal advice 10.1.3 Testing the logic of the contract 10.1.4 Consulting with the operators 11 11.1 11.2 11.3 11.4 11.5 11.6 11.7 11.8
11.9 11.10 11.11 11.12
Contract Structure The standard contract Provision for Variations Contract Schedules Sub contracting of service Termination Bonds and Forfeiture Arbitration and disputes Specification of the Service Outputs 11.8.1 Route and service specification 11.8.2 Vehicle Specification 11.8.3 Ticketing Bonuses and penalties 11.9.1 Bonus systems 11.9.2 Penalties Payment timing Miscellaneous Obligations on the supplier Information provision 11.12.1 Standard information provision 11.12.2 Requirement to Notify 11.12.3 Monitoring 11.12.4 Entitlement to Inspect
Annex 1 Annex 2
Template of a Standard Contract and Schedules A set of draft contract documents
Note This paper draws heavily on work previously undertaken for the Russian Urban Passenger Transport Reform Center, both by the author and by Brendan Finn of CIE Consult. I am grateful to those who have contributed to that work.
12 The franchising documents. 12.1 Invitations to tender and contracts Potential suppliers must be made fully aware of the conditions under which they may operate services. Hence all of the conditions which are to be included in the eventual contract document must be specified clearly in the invitation to tender. Because of the parallel nature of these two documents the subsequent discussion in this paper concerns the content of contracts, on the understanding that the same detail will be contained in the invitation to tender. The main difference between the two is that the contract will specify the financial terms on which the contract is to be undertaken, which will result, of course, from the competitive process. A template for a contract document is contained in Annex 1 to this report, and a complete set of contract documents, recently prepared for Hanoi, Vietnam is in Annex 2. The body of this report discusses the elements of the documents.
12.2 Scope of Contracted Transport Services Transport Service Contracts could cover a wide range of situations. In the strategy that has been suggested in this report, contracts can be as small as a few work or school specific trips, while the ultimate objective, route contracts, can vary from one to several hundred vehicles. This section of the report will focus on typical route based contracts, but much of the prescriptions will also be applicable to the smaller interim or pilot activities. The role of the Contract is formalize the agreement so that the rights and obligations of the parties to the contract are established and enforceable in law. The Transport Service Contracts considered here will normally be established following a Competitive Tendering process, discussed in the next section. However, they are equally applicable under other circumstances which can include: • •
Formalization of the relationship with an incumbent operator with previous direct provision as a budget unit or one with “grandfather rights” under permit. Negotiated contracts with preferred operators selected through mechanisms other than competitive tendering.
The important point is that the Contract is the formalization of the relationship, regardless of how the Operator has been selected or the negotiation process. To this end: • • • •
The client must be a competent authority with the legal right to enter into contract procurement of services. The supplier must be an operator who is properly accredited to provide public transport services and legally competent to enter into binding contracts. The Transport Authority and the Operator have equal standing in law. Both the Transport Authority and the Operator must understand and accept the terms of the contract and must enter into the Contract of their own free will,
•
The provisions of the Contract are legally binding and are enforceable
In law the Client cannot demand from the Supplier any more than the commitments within the Contract. This means that the Client must foresee the possible requirements throughout the Contract life, and provide for these within the Contract. Within the contract specification there
should be; • •
Provisions and penalties for non-performance of the contract Where possible, incentives for the Supplier to exceed the minimum requirements of the Contract.
12.3 Positive and negative cost contracts Where, as is proposed in Sri Lanka, the contracts are of the net cost type, they can involve either a payment by the Authority to the supplier (a negative cost contract) or a payment by the supplier to the Authority (a positive cost contract). The competent authority can determine the balance between the two through the fares which are specified – normally a higher fare will make contracts generally more profitable. It can therefore to some extent determine the amount of revenue which it will have with which to finance unremunerative services or fares concessions. Continuously reviewing its policy in this respect is an important task of the competent authority.
13 Principles for contract construction 13.1 Allocation of Risk Normally, risk should assigned to the party best able to mitigate it. Failure to identify the main risks will inevitably cause loss to one or other party, and will lead to disputes. All foreseeable risks should therefore be allocated clearly to one party to the contract. The party to whom the risk is allocated should have the responsibility and the authority to mitigate that risk, and this should be reflected in the Contract. However, where the other party has the possibility to influence the level of a risk, there should be incentives or obligations to assist in mitigating actions. The main areas of risk which should be addressed in the contract are as follows:
13.1.1
Production Efficiency
Responsibility for cost over-runs associated with the way in which services are supplied should generally fall on the supplier, and not be subject to compensation by the authority. However, cost over-runs due to general cost inflation should be the responsibility of the client and should be allowed for by the inclusion in the terms of the contract a fare and contract payment inflation formula. The fares inflation formula already constructed by the NTC provides a useful basis for these adjustments.
13.1.2
Loss of production.
Responsibility for loss of production should also generally be assigned to the supplier, and penalties provided in the contract for any lost production. However, some part of this risk may relate to the external operating environment (e.g. traffic congestion, roadworks) or the availability of facilities or services from other entities. The contract may include provisions for adjustment of the terms of the contract to adjust for such factors beyond the control of the operator.
13.1.3
Revenue Risk.
This generally falls to the supplier who will have estimated the expected revenues in bidding for a contract. However, in making a bid, a supplier should be given reasonable information on the network context in which a particular service is provided. It is thus important that the competent authority draws up, and makes available to bidders, a service network. If the profitability of the operation is subsequently adversely affected by unilateral actions of the authority ( for example by the creation of new parallel routes which abstract traffic from the supplier) then the supplier should be eligible for some compensation
13.1.4
Force majeure
‘Force majeure’ covers significant events outside the control of the Contractor that prevent him from achieving the Contracted Service. Obviously, it is not possible for a contract to cover all the possible circumstances of force majeure – war, natural disaster, epidemics, civil unrest, etc. Three areas which should be explicitly covered are: •
• •
Whether, and to what extent, force majeure is applied in the event of strike or other industrial dispute within the organization of the Contractor, however, collaborative action between suppliers to withdraw service should explicitly be treated as a breach of contract not covered by force majeure; The responsibility of the Contractor to co-ordinate and/or co-operate with replacement services; The requirement of the Contractor to assist or to lead Contingency Planning for various scenarios in which force majeure is applicable.
The general scope of the force majeure clauses should be taken from the normal contract practice of the country. Among other things, it should specify : • • •
The period of grace under force majeure after which the Transport Authority may consider the Contract to be suspended or terminated; The right of the Transport Authority to engage others to provide the services during the applicable period of force majeure; The obligation on both parties to take all reasonable preventive or mitigation steps;
•
How to handle the financial matters both during the period of force majeure and in the recovery (or termination) period afterwards.
The means of moving from a period of force majeure to termination should be explicit.
14 Defining the Scope of Transport Services 14.1 Infrastructure responsibilities The Transport Authority will decide who is responsible for the various aspects of the Transport Services provision. While it is obvious that the operation of the services is the role of the Operator, the Transport Services Contract should also clearly assign responsibility for other aspects of supply. In Sri Lanka it is recommended that the contractor should normally be responsible for: • •
Operations management and control; Ticket sales and distribution.
Initially, at least, the competent authority should be responsible for; • • • •
Operation of information kiosks and help desks; Preparation, printing and distribution of travel and other information leaflets; Bus stop erection, maintenance and cleaning; Network planning and route design.
14.2 Allocation of Initiative A critical question in contract design is to define who has the right to determine or change the characteristics of the passenger transport services. This can include the network design, timetables, vehicle type and allocation, fare products, pricing, customerfacing services, marketing initiatives etc. Legal or effective rights of initiative can occur at two stages : •
During the bidding process, when either all aspects are specified by the Transport Authority, or the bidder has freedoms to propose service characteristics – either as the main proposal or as variations to the Transport Authority specification.
•
During the Contract life, where the Operator has either the responsibility or the right to seek change some or all of the service parameters.
In Sri Lanka it is suggested that the right of initiative on all of the major details of service should rest with the competent authority, but that two elements of freedom should be allowed, namely • •
The Operator may request modification to contract, but requires permission from the Transport Authority for all changes. Financial incentives may be used to stimulate the Operator to exceed the minimal service requirements of the contract. Incentives may reward passenger growth (payment per passenger), service provision (payment per kilometre or trip), or quality improvement (improvement of vehicles).
15 Contract Design 15.1 The design process The Contract design phase should be undertaken very carefully, even if importing as a template a contract which has been successfully used elsewhere.
15.1.1
Determining what is required from the contract
The various functions within the Transport Authority (planning, operations, business development, finance) need to define in depth what they wish to achieve from the Contract. This must include the service characteristics, the payment basis, performance criteria, operational aspects, monitoring, information flows and administration, market development, and regulatory/safety requirements on the Operator. It is a good idea to look at Contracts from elsewhere, but the specification of requirements should be specific to the Transport Authority’s own circumstance.
15.1.2
Getting local legal advice
Based on these requirements, the competent authority’s legal advisers should draw up a draft contract. In Sri Lanka it is suggested that this should be the primary responsibility of the National Transport Commission, with the right of provincial PTAs to adjust the general formulation to reflect specific provincial needs. They NTC should familiarize itself with Transport Services Contracts from international sources as well as looking carefully at the experience of initial efforts to introduce competitively tendered contracts in the bus sector in Sri Lanka. They should base their draft on other transport experiences, and definitely not on typical local contracts for purchase of goods, hire purchase agreements etc.
15.1.3
Testing the adequacy of the contract
The draft Contract(s) need to be tested in terms of its adequacy in dealing with different external circumstances and different behavior of the parties. For example,
• • •
if the operator fails to operate certain trips, are there mechanisms to detect this, to quantify it, to discuss it with the Operator, and to achieve correction ? if ridership increases or decreases by 10%, what impacts does this have on the financial flows, is the impact unfairly distributed ? Are the necessary information flows defined, and are there means of gaining access to extra information in exceptional circumstances?
It is suggested that, as part of the design process the draft contract should be tested in this way against a long list of possible circumstances
15.1.4
Consulting with the operators
The draft Contract should be discussed in an open way with Operators. If they do not fully understand the purpose of various aspects of the contract they are likely to oppose the introduction of tendering. If they cannot understand the details of the Contract, there are likely to be difficulties in implementation. If they feel that terms are unfair, they are likely to price accordingly or enter into contracts with the intention of evading the provisions they feel are unfair.
16 Contract Structure 16.1 The standard contract It is strongly recommended that contracts should be designed in a modular way. A Standard Contract, or Framework Contract, should contain all of the main provisions, obligations and mechanisms for the agreement between the City and the Operator. The elements which can vary from one contract to another (description of the services, payments, quality conditions, applicable tariffs) can then be contained in separate route contracts or in schedules to the standard contract. Using only one type of Contract avoids unnecessary administration and risk of confusion. The Standard Contract will have been thoroughly assessed by the NTC legal advisers. By using only the Standard Contract, a Provincial Transport Authority will avoid problems caused by legally unqualified (even if well-meaning) people agreeing contract clauses which could incur costs to the Province or prevent it from properly exercising its rights. The Contract therefore consists of two main sections : 1) The Standard Conditions of Contract common to all Contracts 2) The Schedules applicable to the specific Contract to be signed (Note here that “Schedule” is used in the legal sense of an attachment, and not in the transportation sense of a timetabled set of events).
The Standard Contract remains fixed from one Contract to the next. Some lines are left open such as the names of the parties, dates, name of the piece of work, etc. Otherwise, changes should not be made on a case-by-case basis. If change is needed, then it should be escalated upwards to seek a revision of the Standard Contract. By using a Standard Contract, the Operators can become familiar with the conditions and will not need to try to understand the implications from one contract to the next. All parties understand how the system is meant to work, and there is consistency. An example of the construction of a standard contract is contained in Annex 1 to this report. The Standard Contract is normally a short document, perhaps 6-8 pages in length, focusing on the scope and functioning of the contract, the relationships and obligations among the parties, and the mechanisms for changes, resolving disputes, termination and extension.
16.2 Provision for Variations Route franchise contracts are typically for a minimum of 5 years. Over the lifetime of the contract it is quite possible that there will be a need to change some aspects of the service specifications. In addition, the tariffs, tickets, customer services and marketing elements are quite likely to change. Mechanisms must therefore be built into the Standard Contract to facilitate changes of the following nature: a) Network level changes which could have a substantial impact on the required volume of work or the revenues; b) Route-specific changes in the volume of work in response to changes in the demand; c) Quality of service changes as part of innovation or continuous improvement; d) Operational changes in response to changes in the operating environment, new infrastructure, or new technologies; e) Ongoing changes in tariffs and fare products. The enabling mechanism should normally be in the Standard Contract which allows for changes in certain aspect of the Contract Schedules during the Contract life.
16.3 Contract Schedules Contract Schedules will typically form the major part of the documentation. They can include among other things: • • • •
A full description of the routes, timetables, stopping places, interchange points; A full listing of all tariffs to be applied, tickets to be accepted, and how these are to be handled; Operations and customer support requirements; Performance indicators and quality measures, including how the measurements will be done, and target levels;
• • • • • •
Vehicle specifications; Information to be provided to the Transport Authority, including standard reports; The payment basis, amounts and means of calculation, and basis for deduction; The basis and details for incentive regimes; Health, safety, and environmental obligations; Livery and other network-related requirements.
16.4 Sub contracting of service Sub-contracting of services should not normally be allowed except with the explicit permission of the Transport Authority. Where the contractor is an association of independent owners there should be a designated manager with control over the availability and scheduling of all vehicles offered for the contract. Any failure to meet the terms of the contract shall carry penalties for the whole association, and not just to the individual defaulting owner.
16.5 Termination Termination of Contract needs to be explicitly covered in the Contract. As a minimum, the Contract must state : • • • • •
The normal Termination date of the Contract; The circumstances under which the Contract can be terminated early; The mechanisms for terminating the Contract; The penalties, forfeitures and other financial aspects; The obligations on the Parties prior to, at, and subsequent to termination.
The Transport Authority can specify from the outset that it is offering the Contract for an initial period plus an automatic extension subject to satisfactory performance. This is usually done to motivate the Contractor throughout the Contract life, to be able to retain an excellent Contractor, and to avoid an unnecessary competitive process. All bids are made in the knowledge that the longer Contract period is available, and this can encourage them to offer lower prices. Automatic Contract extension is usually only given once. The Contract must define clearly the following : •
•
•
The performance criteria conferring automatic extension rights to the Contractor, which would be set targets higher than the minimum acceptable performance in the contract; The mechanisms for the extension, identifying the occasion on which the Contractor may exercise a right of Contract extension, review, and negotiation processes; The duration of the extension, typically the same period as the original contract;
•
The financial basis for the extension period, and where relevant the arbitration process, including financial ranges in which the Transport Authority is obliged to accept the Contractor’s offer, or at which the Transport Authority is entitled to seek alternate bidders.
16.6 Bonds and Forfeiture The Contractor may be required to arrange Performance Bonds. The amount of these Bonds and the basis for their full or partial forfeiture should be clear in the Contract. The Contract should also oblige the Contractor to pay for the Bond(s)s, and to maintain them through the Contract life. The value of the Bond(s) should be sufficient to fully cover the costs incurred by the Transport Authority due to non-performance.
16.7 Arbitration and disputes It is inevitable that there will be some disagreements arising from interpretation of the Schedule of Work or of Payment; from the Transport Authority wanting to change the scope of work or means of operating; or from circumstances that had not foreseen in the Contract. Ultimately any contractual dispute may culminate in Court action. But the Contract should try to forestall this by defining a mechanism for arbitration.
16.8 Specification of the Service Outputs The required service outputs should be clearly defined in one or more dedicated Schedules. There are usually three main areas to be covered :
16.8.1
Route and service specification
The detail within the description will depend on the allocation of initiative between the Transport Authority and the Operator. Where the Transport Authority assumes the major right of initiative it defines all details of the service, and the Operator must comply with these. It will cover some or all of the following parameters : • • • • • • •
Listing of the route numbers Detailed description of the routing to be followed, including all variants Definition of terminal points, stopping places Definition of timing points Definition of interchange and timed transfer points Detailed timetable First and last trip times (as alternative to detailed timetable)
• • • • • • • • • • •
Service intervals by time of day (as alternative to detailed timetable) Additional special works and schools trips Days on which the services are or are not to be provided Days in which special services apply Periods of increased or decreased services (holiday period, school terms) Vehicle type to be assigned by route, trip, time of day or section of work Service kms, total kms to be operated Peak vehicle requirement Level of standby vehicles as hot reserve or available on request Whether route is eligible for various operational, tariffing or subsidy schemes Whether driver-only or requiring conductor
In some cases the Transport Authority may go even further and require the Operator to make resources available which will then be directed by the Transport Authority or its Agent. In such cases the Schedule will cover the following parameters : • • • • • •
The number of vehicles to be provided by time of day The type of vehicle Description of any specific needed facilities, equipment or documentation Specific start times Any specific driver skills The location to which the vehicle or resource must start or report
16.8.2
Vehicle Specification
The vehicle requirements should be defined in a dedicated schedule. The most practical way is to identify the vehicle type in the Transport Service Schedule (assuming that there are difficult vehicles required or permitted), and to use the Vehicle Description Schedule to define the general requirements for all vehicles and the specific requirements for nominated vehicles. The specific requirements can include : • • • • • •
Vehicle length and manoeuvrability Engine output performance Minimum capacity – total or seated Emission and noise characteristics Engine type (e.g. Euro 2, Euro 4) or fuel type Stowage/luggage facilities
General requirements can include the following, although some may vary by vehicle type • • •
Vehicle age – average or maximum Vehicle technical condition Internal and external lighting
• • • • • • • • • • • •
Livery Information Display of licences, certificates etc. Destination and route number displays Handrails and other internal support Visibility of steps, handrails and other items Climate control, including air conditioning Entrance/exit layouts, step heights Low-floor area Facilities for disabled and mobility impaired Wheelchair lifts, parking and restraining points Emission and noise characteristics
16.8.3
Ticketing
Except where the Operator has all rights of initiative (which may be allowed for some premium services), the Contract will need one or more Schedules covering : • • • • •
The applicable tariffs Fare collection processes A full listing of all the ticket types that are to be issued and/or accepted A detailed description of how each ticket type is to be processed, including conditions of use, means of identification, and information to be collected A full listing of all concessionary travel and discounted fares to be applied, what restrictions apply, and what information should be collected
The Contract must present the explicit formulation for the payments, including all variations for different operational circumstances, and exclusions where additional payment is not warranted. It is suggested that these less restrictive conditions might apply to air conditioned express services between the major cities. In a number of countries such services are virtually unregulated, except for quality.
16.9 Bonuses and penalties Operators need motivation to achieve excellent performance. The Transport Authority needs to understand that Operators will not willingly accept the extra cost or management effort associated with extra quality, and that many Operators will avoid even basic costs if they can do so. At worst, contract termination may be used to eliminate really bad performance and performers. But a system of continuing bonuses or penalties is likely to be more effective than simple reliance on the threat of the ultimate action of contract termination. Hence it is recommended that some system of bonuses and penalties be developed. The bonus/penalty system should have a positive construction, and should not be designed as a primarily punitive measure to dominate the Operator.
16.9.1
Bonus systems
Bonuses need to be carefully designed bearing in mind the motivation of the operators, the extent to which changes in outcome are the result of operator actions (e.g. if the Transport Authority puts extensive bus priority in place, the Operator should not get bonuses for improvements in operating speed or reliability) and the financial capability of the authority. The amount of the payment is usually calculated on • • • • • • • •
the baseline payment plus bonuses plus payment for concessionaries and other travel passes plus share of integrated ticketing plus revenue share per agreement less deductions less penalties less transferable portion of integrated ticket sales
The formula for the payment should be clearly defined in the Contract, including the method of calculation, exceptions, and default to use in the absence of information (if permitted
16.9.2
Penalties
Penalties provide negative incentives to the Operator by punishing poor performance. Financial penalties reduce the Operator’s revenue, and hence the profitability. This will normally get the Operator’s attention and encourage them to correct the causes of underperformance. However, sometimes the Operator can actually benefit more from poor or non-performance than the level of penalty applied. Other times, there is an organisational disconnect within the Operator so that the penalties do not come to the attention of the person who is most interested. To overcome these cases, a nested form of penalty is recommended : •
Deductions are made for each under- or non-performance. Where the Operator should self-report, a heavy escalation should be added for faults which are wrongly or not reported (e.g. increase the deductable amount by 5 or 10 times).
•
An escalation is made when the cumulative level passes the unacceptable performance threshold. This leads to a step change in the level of deduction. For example, a $20 penalty may be applied to an early departure, but if more than 10 occur in a week, the 11th and subsequent are charged at $200.
•
A penalty point system is operated in parallel which triggers either step-down payments or formal warnings. This can be in the format of a number of points for each occurrence of specified events, which remain in force for a given period of time. If the cumulative number of active penalty points exceeds a threshold, a warning is issued to the Operator.
In some cases there is no service-related payment, for the reason that the financial support is directed to the concessionary travel and other ticket support. In other cases,
there is a formulation covering the output-related payment plus bonuses and less deductions and penalties.
16.10 Payment timing Any service-related payments usually occur on a fixed date of each calendar month or 4week/period basis. Payment is usually made based on invoices received from the Operator and approved by the Transport Authority. In order to facilitate prompt payment of any sums due under the contract, the following arrangement may be used: • •
•
•
The first month payment is made based on full operation of the contracted service, without penalties or deductions. The second and subsequent months are paid on the basis of the Operator’s invoice, paying it as though it was correct and complete, but not presuming acceptance of it The Operator’s invoices are verified, and bonuses/deduction/penalty information are transmitted from the monitoring and other sources. The net value of the adjustment (plus or minus) is calculated and applied to the current Operator’s invoice payment (effectively 2–3 months in arrears). A final reconciliation is made after the last Operator’s service-related invoice under the Contract is received. It is recommended to close this on the usual schedule. If it is wished to retain some funds, it should be done under a different mechanism (see next section).
The contract may allow the Transport Authority to retain part of the initial payment as a guarantee against poor performance or future claims. This may be used instead of a performance bond.
16.11 Miscellaneous Obligations on the supplier At the Contract level, it can be stated very simply that the Operator shall participate in the various schemes as described in “Schedule X”. The detail must then be contained in the various Schedules. The main areas that might be covered are : • • • • • •
A full listing of all the ticket types that are to be issued and/or accepted A detailed description of how each ticket type is to be processed, including conditions of use, means of identification, and information to be collected A full listing of all concessionary travel and discounted fares to be applied, what restrictions apply, and what information should be collected Customer support services, including passenger assistance and lost property services Operation of help desk or obligation to provide support to a central help-desk Provision of timetables and leaflets on vehicles and at specific locations
• • • • • •
Provision of notices (including safety notices) in the vehicle Provision of passenger information both about regular services and during diversions and disrupted service conditions Participation in marketing and promotion actions Observing a brand identity or livery Fitting of specified communications or ticketing equipment Environmental requirements (engine type, emission standards)
All contracted operators should meet the standard requirements for vehicle and crew certification, insurance and permission to operate, as specified under existing legislation.
16.12 Information provision The Transport Authority requires a substantial amount of information to allow the payments, performance monitoring and revenue systems to function properly. For the Transport Authority, it makes sense to place the reporting burden on the Operator, with a clear specification of the information to be provided, and penalties for failing to do so properly.
16.12.1
Standard information provision
The Contractor should be required in the contract to maintain management information and data collection systems capable of providing information necessary for calculation of the due payments, deductions, bonuses and penalties, as well as monitoring of the performance measures of the Contract. The Contractor should therefore be required to furnish the data to the Transport Authority at specified intervals. Typical data elements include : a) Route kilometres operated : i) ii)
Total for the period Classified by day type - Monday to Friday - Saturday - Sunday
b) Scheduled kilometres not operated : i) ii)
iii)
Total for the period Classified by cause
- staff shortage - failure of staff to attend - mechanical or vehicle failure - traffic incidents or congestion - other (to be specified by the Contractor) Classified by day type - Monday to Friday - Saturday
- Sunday c) All trips or part trips not operated : For each trip
- date - route - scheduled trip time (or number) - portion of trip lost - kilometre lost - by cause
16.12.2
Requirement to Notify
There should be an explicit clause in the Contract that requires the Operator to notify the Transport Authority immediately in the event of the following occurrences : •
Failed and missed inspections of vehicles;
• • • •
Action by police or inspection agencies against vehicles or drivers; Accidents involving serious personal injury or death to passengers or third parties; Environmental incidents, especially spillages or release of harmful substances; Other serious incidents relating to the Contracted Services.
Each of these occurrences exposes the Transport Authority as the Contracting Agency to liability, and they need to know so that they can mitigate the risk. Failure to notify must carry a significant penalty
16.12.3
Monitoring
The Contract must also establish the right of the Transport Authority to monitor the performance of the Operator. The rights should be placed in the Contract rather than in the Schedules (although details could be in the Schedules) and should assert that the Transport Authority and any of its agents shall have the right to carry out any monitoring of the route(s) in the Schedule of Work as it sees fit, with or without the prior knowledge of the Contractor, including monitoring and analysis of the quantity of service, adherence to schedule, headway control, safety, driving quality, staff attitude to customers and general performance of the service. It should also authorize the Transport Authority to carry out passenger and other surveys and to audit any of the information supplied by the Contractor. The Contractor should provide reasonable access to the Transport Authority and its authorized agents to relevant premises, records, accounts, and equipment and all the relevant data therein for the purpose of such audit. The Transport Authority has the absolutely right to use information gained from all such monitoring and audits for the determination of deductions, penalties, issuance of warnings, and termination of Contract.
16.12.4
Entitlement to Inspect
The Contract must contain a general entitlement for the Transport Authority to inspect the facilities and vehicles of the Operator at zero- or short-notice, and to examine all relevant documentation at short-notice.
Annex 1 Template of a Standard Contract and Schedules This template was constructed as part of the work undertaken by CIEconsult for the Russian Urban Passenger Transport Reform Center in 2002. I am grateful to Brendan Finn for the preparation of this template.
Section One:
Standard Conditions of Contract
Part 1 Part 2 Part 3 Part 4
Preamble, introduction of parties, definitions Duration of contract, effective date Description of the work – reference to Schedules 1, 2 Description of the obligations of the Operator – reference to Schedules 3, 4 Payment basis – reference to Schedules 5 and 6 Obligations of the Authority Reporting requirements, rights to information, access, monitoring, inspection Mechanisms for review, notification of unsatisfactory performance, requirements for corrective action, warnings, intervention, replacement Mechanisms for changes to schedules of work and associated payments Mechanisms for roll-over of contract Termination of contract Settling of disputes
Part 5 Part 6 Part 7 Part 8
Part 9 Part 10 Part 11 Part 12 Section Two:
Schedule of attachments defining the specific conditions applicable to route or service [Details of the name, number, identifier of route or service]
Schedule 1
Specification of the Route to be Operated and the Level of Service to be provided Minimum Vehicle Capacity and/or Vehicle Specification Specification of Standard Tariffs to be applied Monitoring of Service Performance and compliance with revenue collection and tariff procedures Calculation of any Service Support Payments payable to the operator for the satisfactory operation of the contracted services
Schedule 2 Schedule 3 Schedule 4 Schedule 5
Annex 2 An example set of franchise documents from Hanoi, Vietnam The following is the full set of documents prepared for the introduction of competitive tendering of route franchises in Hanoi, Vietnam. They are based on a much fuller set which are used in bus franchising in London. I am grateful to Gordon Nielson for the preparation and provision of these documents. Section A. Invitation for Bids (IFB) [The Hanoi People’s Committee] [Transport Urban and Public Works Service] Provision of Public Bus Services in Hanoi, Route: [Insert No and Name of Route] Date: IFB No.: 1. In order to encourage and mobilize potential resources in the society to invest and develop public bus services in Hanoi and simultaneously to create a healthy competitive environment for transport enterprises in Hanoi, the Hanoi Transport Urban and Public Works Service organizes bid for the Route as specified in the IFB Data Sheet. Bidding is open to all bidders that are registered transport enterprises [in Hanoi] under the current Enterprise Law and the State-owned Enterprise Law of the Socialist Republic of Vietnam. 2. The Employer, as specified in the IFB Data Sheet, invites sealed bids from eligible bidders for the provision of the Services as specified in the IFB Data Sheet. 3. Bidding documents may be purchased at the office location as defined in the IFB Data Sheet and upon payment of a non-refundable fee as specified in the IFB Data Sheet, for each set. Interested bidders may obtain further information at the same address. 4. Bids shall be valid for the period of time after bid opening as specified in the IFB Data Sheet and must be accompanied by a security in the amount and currency as specified in the IFB Data Sheet. The bid shall be delivered to the address as specified in the IFB Data Sheet on or before the time and date as specified in the IFB Data Sheet, at which time they will be opened in the presence of the bidders who wish to attend.
Section B. Invitation for Bid Data Sheet The following information is the Invitation for Bid-specific data for the provision of standard bus services.
IFB Data Sheet Para. 1.
The Route is the bus route: [Insert number and name of Route].
Para. 2.
The name of the Employer is Hanoi Transport Management and Operation Center and its relationship to the Government of the Socialist Republic of Viet Nam is: a non-productive administrative division having revenues of the Transport Urban and Public Works Service of Hanoi.
Para. 2
The Services is standard public bus services operated on the Route No. [Insert number and name of Route]. The Employer will reimburse the operating costs for the provision of standard bus services on the Route and all earned revenues thereof will be collected and handed over to the Employer.
Para. 3.
The name and mailing address of the office is: 16 Cao Ba Quat Street, Ba Dinh District, Hanoi, Vietnam Tel: 84-4-7470023 / 7470029; Fax: 84-4-7470024
Para. 3.
The amount and currency of the non-refundable fee for each copy of the bidding documents is: three hundred thousand Vietnamese Dong (VND300,000)
Para. 4.
Bids shall be valid for [120] days after bid opening.
Para. 4.
The amount and currency of the bid security is: thirty million Vietnamese Dong (VND 30,000,000)
Para. 4.
The address where the bids shall be delivered is: Hanoi Transport Management and Operation Center 16 Cao Ba Quat Street, Ba Dinh District, Hanoi, Vietnam Tel: 84-4-7470023 / 7470029; Fax: 84-4-7470024
Para. 4.
The time and date by which bids must be delivered is: [Insert time and date: ]
SECTION 1. INSTRUCTIONS TO BIDDERS A. General 1.
Scope of Bid
1.1 The Employer as defined in the Contract Data, invites bids for the provision of the Services, as described in the Conditions of Contract. 1.2 The successful Bidder will be expected to provide the Services within the Term of the Contract as specified in the Conditions of Contract. 2.
Eligible Bidders
2.1 This Invitation for Bids is open to all bidders that are registered transport enterprises [in Hanoi] under the current Enterprise Law and the State-owned Enterprise Law of the Socialist Republic of Vietnam. 3.
Qualification of the Bidder
3.1
All bidders shall provide in Section 2, Qualification Information, as specified.
3.2 In the event that prequalification of potential bidders has been undertaken, only bids from prequalified bidders will be considered for award of Contract. These qualified bidders should submit with their bids any information updating their original prequalification applications or, alternatively, confirm in their bids that the originally-submitted prequalification information remains essentially correct as of the date of bid submission. The update or confirmation should be provided in Section 2. 3.3 If the Employer has not undertaken prequalification of potential bidders, all bidders shall include the following information and documents with their bids in Section 2: (a) copies of original documents defining the constitution or legal status, place of registration, and principal place of business; written power of attorney of the signatory of the Bid to commit the Bidder (if necessary); names, and addresses of all company directors and full details of company’s shareholding identifying all shares in state ownership. (b) total monetary value of transport services performed (turnover) for each of the last number of years as specified in the Bidding Data; (c) experience in the provision of transport services of the last number of years as specified in the Bidding Data, and details of transport services under way or contractually committed; and clients who may be contacted for further information on those contracts; (d) qualifications and experience of key management personnel proposed for the execution of the Contract; (e) reports on the financial standing of the Bidder, such as balance sheets, profit and loss statements and cash flow statements together with auditor's reports if any for the past number of years as specified in the Bidding Data;
(f) evidence of adequacy of working capital for this Contract (access to line(s) of credit and availability of other financial resources); (g)
authority to seek references from the Bidder's bankers;
(h) information regarding any litigation, current or during the last number of years as specified in the Bidding Data, in which the Bidder is involved, the parties concerned, and disputed amount. 3.4 Bids submitted by a joint venture of two or more firms as partners shall comply with the following requirements: (a) the Bid shall include all the information listed in Sub-Clause 3.3 above for each joint venture partner; (b)
the Bid shall be signed so as to be legally binding on all partners;
(c) all partners shall be jointly and severally liable for the execution of the Contract in accordance with the Contract terms; (d) one of the partners will be nominated as being in charge, authorized to incur liabilities, and receive instructions for and on behalf of any and all partners of the joint venture; and (e) the execution of the entire Contract, including payment, shall be done exclusively with the partner in charge.
3.5 To qualify for award of the Contract, bidders shall meet the following minimum qualifying criteria: (a) annual volume of transport services turnover of at least the amount specified in the Bidding Data; (b) experience in the provision of passengers transport services over the last number of years as specified in the Bidding Data; (c) Managers with the number of years' experience in transport services as specified in the Bidding Data, including no less than number of years as Manager as specified in the Bidding Data; and (d) liquid assets and/or credit facilities, net of other contractual commitments and exclusive of any advance payments which may be made under the Contract, of no less than the amount specified in the Bidding Data. A consistent history of litigation or arbitration awards against the Applicant or any partner of a Joint Venture may result in disqualification. 3.6 The figures for each of the partners of a joint venture shall be added together to determine the Bidder's compliance with the minimum qualifying criteria of Sub-Clause 3.5(a) and (d); however, for a joint venture to qualify, each of its partners must meet at least 25 percent of minimum criteria 3.5 (a), (b), and (d) for an individual Bidder unless otherwise specified in the
Bidding Data, and the partner in charge at least 40 percent of those minimum criteria unless otherwise specified in the Bidding Data. Failure to comply with this requirement will result in rejection of the joint venture's Bid. Subcontractors' experience and resources will not be taken into account in determining the Bidder's compliance with the qualifying criteria, unless otherwise stated in the Bidding Data. 4.
One Bid per Bidder
4.1 Each Bidder shall submit only one Bid, either individually or as a partner in a joint venture. A Bidder who submits or participates in more than one Bid (other than as a subcontractor or in cases of alternatives that have been permitted or requested) will cause all the proposals with the Bidder's participation to be disqualified. 5.
Cost of Bidding
5.1 The Bidder shall bear all costs associated with the preparation and submission of his Bid, and the Employer will in no case be responsible or liable for those costs. 6.
Route Survey
6.1 The Bidder, at the Bidder's own responsibility and risk, is encouraged to survey and examine the Route and obtain all information that may be necessary for preparing the Bid and entering into a contract for performance of the Services. The costs of surveying the Route shall be at the Bidder's own expense.
B. Bidding Documents 7.
Content of Bidding Documents
7.1 The set of bidding documents comprises the documents listed in the table below and addenda issued in accordance with Clause 9: Section 1 Instructions to Bidders and Bidding Data 2 Forms of Operator’s Bid 3 Conditions of Contract and Schedules 4 Contract Data 5 Forms of Securities 8.
Clarification of Bidding Documents
8.1 A prospective Bidder requiring any clarification of the bidding documents needs to notify the Employer in writing or by cable (“cable” includes telex and facsimile) at the Employer's address indicated in the invitation to bid within 05 days as from the date of purchasing bidding documents. The Employer will respond to any request for clarification received earlier than a number of days prior to the deadline for submission of bids as specified in the Bidding Data. Copies of the Employer's response will be forwarded to all purchasers of the bidding documents, including a description of the inquiry, but without identifying its source. 9.
Amendment of Bidding Documents
9.1 Before the deadline for submission of bids, the Employer may modify the bidding documents by issuing addenda. 9.2 Any addendum thus issued shall be part of the bidding documents and shall be communicated in writing or by cable to all purchasers of the bidding documents. Prospective bidders shall acknowledge receipt of each addendum by cable to the Employer. 9.3 To give prospective bidders reasonable time in which to take an addendum into account in preparing their bids, the Employer shall extend, as necessary, the deadline for submission of bids, in accordance with Sub-Clause 19.2.
C. Preparation of Bids 10.
Language of Bid
10.1
All documents relating to the Bid shall be in the language as specified in the Contract Data.
11.
Documents Comprising the Bid
11.1
The Operator’s Bid shall comprise the following: (a) Bid Price and Undertaking (As specified in Form A in Section 2); (b) Qualification Information (As specified in Form B in Section 2); (c) Operating Costs Pro Formas (As specified in Form C in Section 2); (d) Bid Security (As specified in Form A in Section 5); (e) Other documents and information including:
(f)
(i)
Details of the buses proposed for the provision of the Services as specified in Schedule II in the Conditions of Contract;
(ii)
Details of proposed maintenance and overnight parking areas including location, area and facilities;
(iii)
Details of the proposed maintenance schedule for buses to be used for the Services;
(iv)
Description of the proposed organizational structure for performance and management of the Services and gearing up plan from award of tender to operation;
(v)
Details of the route control centre including location, staffing, communications and other facilities;
Alternative offers where invited;
and any other materials required to be completed and submitted by bidders as required by the Employer later. 12.
Bid Prices
12.1 The Contract shall be for the whole Services, as described in Sub-Clause 1.1 and the Contract Price for the performance of the Services shall be taken from the Operating Costs Pro Formas submitted by the Bidder. 12.2 The Bidder shall offer a Contract Price in the form of a Lump Sum for the provision of the Services and, for the purposes described in the Conditions of Contract, shall fill in expenditures and fees for all items listed in the Operating Costs Pro Formas. 12.3 All duties, taxes, and other levies payable by the Operator under the Contract, or for any other cause shall be specified with the basis for calculation and included in the Contract Price submitted by the Bidder. 12.4 The Contract Price quoted by the Bidder shall be subject to adjustment during the performance of the Contract if provided for in the Bidding and Contract Data and the provision of Clause 27 of the Conditions of Contract. The Bidder shall submit with the Bid all the information required under the Contract Data and Clause 27 of the Conditions of Contract. 13.
Currency of Bid and Payment
13.1 The Contract Price shall be quoted by the Bidder in the currency as specified in the Bidding Data and payments will be made in the same currency. 14.
Bid Validity
14.1
Bids shall remain valid for the period specified in the Bidding Data.
14.2 In exceptional circumstances, the Employer may request that the bidders extend the period of validity for a specified additional period. The request and the bidders' responses shall be made in writing or by cable. A Bidder may refuse the request without forfeiting the Bid Security. A Bidder agreeing to the request will not be required or permitted to otherwise modify the Bid, but will be required to extend the validity of Bid Security for the period of the extension, and in compliance with Clause 15 in all respects. 15.
Bid Security
15.1 The Bidder shall furnish, as part of the Bid, a Bid Security in the amount and currency as specified in the Bidding Data. 15.2 The Bid Security shall, at the Bidder's option, be in the form of a bank guarantee or surety in Vietnam or directly from a foreign bank or surety which has been determined by the Bidder to be acceptable to the Employer. The format of the Bid Security should be in accordance with the form of Bid Security included in Section 5 or another form acceptable to the Employer. Bid Security shall be valid for 15 days beyond the validity of the Bid. 15.3
Any Bid not accompanied by an acceptable Bid Security shall be rejected by the Employer.
15.4 The Bid Security of unsuccessful bidders will be returned within 15 days of the end of the Bid validity period specified in Sub-Clause 14.1. 15.5 The Bid Security of the successful Bidder will be discharged when the Bidder has signed the Agreement and furnished the required Performance Security.
15.6
16.
The Bid Security may be forfeited (a)
if the Bidder withdraws the Bid after Bid opening during the period of Bid validity;
(b)
if the Bidder does not accept the correction of the Bid price, pursuant to Clause 26; or
(c)
in the case of a successful Bidder, if the Bidder fails within the specified time limit to sign the Agreement; or
(ii)
furnish the required Performance Security.
Alternative Proposals by Bidders
16.1 Bidders shall submit offers that comply with the requirements of the bidding documents. Alternatives will not be considered, unless specifically allowed in the Bidding Data. If so allowed, Sub-Clause 16.2 shall govern. 16.2 If so allowed in the Bidding Data, bidders wishing to offer technical alternatives to the requirements of the bidding documents must also submit a Bid that complies with the requirements of the bidding documents. In addition to submitting the basic Bid, the Bidder shall provide all information necessary for a complete evaluation of the alternative by the Employer, including technical specifications of buses, breakdown of expenditures and other relevant details. Only the technical alternatives, if any, of the lowest evaluated Bidder conforming to the basic technical requirements shall be considered by the Employer. 17.
Format and Signing of Bid
17.1 The Bidder shall prepare one original of the documents comprising the Bid as described in Clause 11 of these Instructions to Bidders, bound with the volume containing the Form of Bid, and clearly marked “ORIGINAL”. In addition, the Bidder shall submit copies of the Bid, in the number specified in the Bidding Data, and clearly marked as “COPIES”. In the event of discrepancy between them, the original shall prevail. 17.2 The original and all copies of the Bid shall be typed or written in indelible ink and shall be signed by a person or persons duly authorized to sign on behalf of the Bidder, pursuant to SubClauses 3.3(a) or 3.4(b), as the case may be. All pages of the Bid where entries or amendments have been made shall be initialed by the person or persons signing the Bid. 17.3 The Bid shall contain no alterations or additions, except those to comply with instructions issued by the Employer, or as necessary to correct errors made by the Bidder, in which case such corrections shall be initialed by the person or persons signing the Bid.
D. Submission of Bids 18.
Sealing and Marking of Bids
18.1 The Bidder shall seal the original and all copies of the Bid in two inner envelopes and one outer envelope, duly marking the inner envelopes as “ORIGINAL” and “COPIES”. 18.2
The inner and outer envelopes shall
(a) (b) (c)
be addressed to the Employer at the address provided in the Bidding Data; bear the name and identification number of the Contract as defined in the Contract Data; and provide a warning not to open before the specified time and date for Bid opening as defined in the Bidding Data.
18.3 In addition to the identification required in Sub-Clause 18.2, the inner envelopes shall indicate the name and address of the Bidder to enable the Bid to be returned unopened in case it is declared late, pursuant to Clause 20. 18.4 If the outer envelope is not sealed and marked as above, the Employer will assume no responsibility for the misplacement or premature opening of the Bid. 19.
Deadline for Submission of Bids
19.1 Bids shall be delivered to the Employer at the address specified above in Sub-Clause 18.2, no later than the time and date specified in the Bidding Data. 19.2 The Employer may extend the deadline for submission of bids by issuing an amendment in accordance with Clause 9, in which case all rights and obligations of the Employer and the bidders previously subject to the original deadline will then be subject to the new deadline. 20.
Late Bids
20.1 Any Bid received by the Employer after the deadline prescribed in Clause 19 will be returned unopened to the Bidder. 21.
Modification and Withdrawal of Bids
21.1 Bidders may modify or withdraw their bids by giving notice in writing before the deadline prescribed in Clause 19. 21.2 Each Bidder's modification or withdrawal notice shall be prepared, sealed, marked, and delivered in accordance with Clauses 17 and 18, with the outer and inner envelopes additionally marked “MODIFICATION” or “WITHDRAWAL”, as appropriate. 21.3
No Bid may be modified after the deadline for submission of Bids.
21.4 Withdrawal of a Bid between the deadline for submission of bids and the expiration of the period of Bid validity or as extended pursuant to Sub-Clause 14.2 may result in the forfeiture of the Bid Security pursuant to Clause 15. 21.5 Bidders may only offer discounts to, or otherwise modify the prices of their bids by submitting Bid modifications in accordance with this clause, or included in the original Bid submission.
E. Bid Opening and Evaluation 22.
Bid Opening
22.1 The Employer will open the bids, including modifications made pursuant to Clause 21, in the presence of the bidders' representatives who choose to attend at the time and in the place as specified in the Bidding Data. 22.2 Envelopes marked “WITHDRAWAL” shall be opened and read out first. Bids for which an acceptable notice of withdrawal has been submitted pursuant to Clause 21 shall not be opened. 22.3 The bidders' names, the Bid prices, the total amount of each Bid and of any alternative Bid (if alternatives have been requested or permitted), any discounts, Bid modifications and withdrawals, the presence or absence of Bid Security, and such other details as the Employer may consider appropriate, will be announced by the Employer at the opening. 22.4 The Employer will prepare minutes of the Bid opening, including the information disclosed to those present in accordance with Sub-Clause 22.3. 23.
Process to Be Confidential
23.1 Information relating to the examination, clarification, evaluation, and comparison of bids and recommendations for the award of a contract shall not be disclosed to bidders or any other persons not officially concerned with such process until the award to the successful Bidder has been announced. Any effort by a Bidder to influence the Employer's processing of bids or award decisions may result in the rejection of his Bid. 24.
Clarification of Bids and Contacting the Employer
24.1 From the time of bid opening to the time of contract award, if any bidder wishes to contact the Employer on any matter related to the bid, it should do so in writing. 24.2 To assist in the examination, evaluation, and comparison of bids, the Employer may, at the Employer's discretion, ask any Bidder for clarification of the Bidder's Bid, including breakdowns of expenditures in the Operating Costs Pro Formas. The request for clarification and the response shall be in writing or by cable, telex, or facsimile, but no change in the price or substance of the Bid shall be sought, offered, or permitted except as required to confirm the correction of arithmetic errors discovered by the Employer in the evaluation of the bids in accordance with Clause 26. 25.
Examination of Bids and Determination of Responsiveness
25.1 Prior to the detailed evaluation of bids, the Employer will determine whether each Bid (a) meets the eligibility criteria defined in Clause 2; (b) has been properly signed; (c) is accompanied by the required securities; and (d) is substantially responsive to the requirements of the bidding documents. 25.2 A substantially responsive Bid is one which conforms to all the terms, conditions, and specifications of the bidding documents, without material deviation or reservation. A material deviation or reservation is one (a) which affects in any substantial way the scope, quality, or performance of the Services; (b) which limits in any substantial way, inconsistent with the bidding documents, the Employer's rights or the Bidder's obligations under the Contract; or (c) whose rectification would affect unfairly the competitive position of other bidders presenting substantially responsive bids.
25.3 If a Bid is not substantially responsive, it will be rejected by the Employer, and may not subsequently be made responsive by correction or withdrawal of the nonconforming deviation or reservation. 26.
Correction of Errors
26.1 Bids determined to be substantially responsive will be checked by the Employer for any arithmetic errors. Errors will be corrected by the Employer as follows: where there is a discrepancy between the amounts in figures and in words, the amount in words will govern; and 26.2 The amount stated in the Bid will be adjusted by the Employer in accordance with the above procedure for the correction of errors and, with the concurrence of the Bidder, shall be considered as binding upon the Bidder. If the Bidder does not accept the corrected amount, the Bid will be rejected, and the Bid Security may be forfeited in accordance with Sub-Clause 15.6(b). 27.
Evaluation and Comparison of Bids
27.1 The Employer will evaluate and compare only the bids determined to be substantially responsive in accordance with Clause 25. 27.2 In evaluating the bids, the Employer will determine for each Bid the evaluated Bid price by adjusting the Bid price as follows: (a) (b) (c) (d) (e)
(f)
making any correction for errors pursuant to Clause 26; excluding provisional sums and the provision, if any, for contingencies in the Operating Costs Pro Formas; making appropriate adjustments subject to the quality of proposed buses, corporate experience and extent to which bid achieves objectives of introducing competition and increasing the participation of the private sector as specified in the Bidding Data; making an appropriate adjustment for any other acceptable variations, deviations, or alternative offers submitted in accordance with Clause 16; and making appropriate adjustments to reflect discounts or other expenditures modifications offered in accordance with Sub-Clause 21.5. Converting to the same scale to determine the evaluated Bid price;
27.3 The Employer reserves the right to accept or reject any variation, deviation, or alternative offer. Variations, deviations, and alternative offers and other factors which are in excess of the requirements of the bidding documents or otherwise result in unsolicited benefits for the Employer will not be taken into account in Bid evaluation. 27.4 The estimated effect of any price adjustment conditions under the Conditions of Contract, during the period of implementation of the Contract, will not be taken into account in Bid evaluation.
F. Award of Contract 28.
Award Criteria
28.1 Subject to Clause 29, the Employer will award the Contract to the Bidder whose Bid has been determined to be substantially responsive to the bidding documents and who has offered the
lowest evaluated Contract Price, provided that such Bidder has been determined to be (a) eligible in accordance with the provisions of Clause 2, (b) qualified in accordance with the provisions of Clause 3. 29.
Employer's Right to Accept any Bid and to Reject any or all Bids
29.1 Notwithstanding Clause 28, the Employer reserves the right to accept or reject any Bid, and to cancel the bidding process and reject all bids, at any time prior to the award of Contract, without thereby incurring any liability to the affected Bidder or bidders or any obligation to inform the affected Bidder or bidders of the grounds for the Employer's action. 30.
Notification of Award and Signing of Agreement
30.1 The Bidder whose Bid has been accepted will be notified of the award by the Employer prior to expiration of the Bid validity period by cable, telex, or facsimile confirmed by registered letter. This letter (hereinafter and in the Conditions of Contract called the “Letter of Acceptance”) will state the Contract Price that the Employer will pay the Operator in consideration of the performance of the Services by the Operator, as prescribed by the Contract. 30.2 The notification of award will constitute the formation of the Contract, subject to the Bidder furnishing the Performance Security in accordance with Clause 31 and signing the Agreement in accordance with Sub-Clause 30.3. 30.3 The Agreement will incorporate all agreements between the Employer and the successful Bidder. It will be signed by the Employer and sent to the successful Bidder, within 28 days following the notification of award along with the Letter of Acceptance. Within 10 days of receipt, the successful Bidder will sign the Agreement and deliver it to the Employer. 30.4 Upon the furnishing by the successful Bidder of the Performance Security, the Employer will promptly notify the other bidders that their bids have been unsuccessful. 31.
Performance Security
31.1 Within 30 days after receipt of the Letter of Acceptance the successful Bidder shall deliver to the Employer a Performance Security in the form of a Bank Guarantee in an amount specified in the Contract Data. 31.2 If the Performance Security is provided by the successful Bidder in the form of a Bank Guarantee, it shall be issued either (a) at the Bidder's option, by a bank located in the Socialist Republic of Vietnam or a foreign bank through a correspondent bank located in Vietnam, or (b) with the agreement of the Employer directly by a foreign bank acceptable to the Employer. 31.3 Failure of the successful Bidder to comply with the requirements of Sub-Clause 31.1 shall constitute sufficient grounds for cancellation of the award and forfeiture of the Bid Security.
Bidding Data Instructions to Bidders Clause Reference 3.3 (b)
Average annual monetary value for the last [three (3)] years.
3.3 (c)
Experience in transport services for the last [(three (3)] years.
3.3 (e)
Reports substantiating financial standing for the past [three (3)] years.
3.3 (h)
Information regarding any litigation, current and past during the last [three (3)] years.
3.5 (a)
The minimum required annual volume of transport services for the successful Bidder in any of the last [three (3)] years shall be equivalent to [the Contract Price].
3.5 (b)
Experience in the provision of passengers transport services over last [three (3)] years. Not required
3.5 (c)
General Manager, Operations Manager and Maintenance Manager each with [ ] years' experience and with no less than [ ] years as Manager.
3.5 (d)
The minimum amount of liquid assets and/or credit facilities net of other contractual commitments of the successful Bidder shall be equivalent to [
3.6
].
The following minimum criteria for an individual Bidder and the partner in charge in a joint venture are modified as follows: No modifications will be permitted.
8.1
The Employer will respond to any request for clarification received earlier than [insert number of days] days prior to the deadline for submission
12.1 & 12.3
The Contract Price indicated in the Operating Costs Pro Formas covers all costs of the provision of the Services as a lump sum;
12.4
The Contract Price shall be subject to the adjustment in accordance with Clause 27 of the Conditions of Contract.
13.1
The currency of the Bid shall be: Vietnamese Dong
14.1
The period of Bid validity shall be [ submission specified in the Bidding Data.
15.1
The amount and currency of the Bid Security shall be: thirty million Vietnamese Dong (VND 30,000,000)
16.1
Alternative proposals to the requirements of the bidding documents [will/will not]
] days after the deadline for Bid
be permitted with respect to the Route [Insert number and name of the Route] 17.1
The Bidder shall submit [insert number of copies] copies of the Bid
18.2
The Employer's address for the purpose of Bid submission is: 16 Cao Ba Quat Street, Ba Dinh District, Hanoi, Vietnam Tel: 84-4-7470023 / 7470029; Fax: 84-4-7470024
19.1
The deadline for submission of bids shall be: [Insert time and date:
22.1
The bid opening will take place: [Insert time immediately following bid submission deadline and date.]
27.2 (a)
Errors detected pursuant to Clause 26 shall be corrected and such corrections will be reflected in the Contract Price.
27.2 (c)
The adjustment to the Bid price shall be made as follows:
]
The Bid price offered by the tenderer shall be adjusted downwards as follows for the purpose of determining the evaluated Bid price: 1. by up to [10%] based on the quality of the buses proposed 2. by up to [5%] based on the corporate experience of the bidder 3. by up to [20%] based on the ability of the bidder to reduce the current monopoly 4. by up to [15%] based on the extent of private sector shareholding
SECTION 2. FORMS OF OPERATOR’S BID Form A – Bid Price and Undertaking Date: To: Address: We offer to execute the Contract for the provision of standard public bus services on Route [Insert number and name of the Route] in accordance with the Conditions of Contract accompanying this Bid for the Contract Price of (in words)………………………………… …………………Vietnam Dong (In figures: VND……………………….) and in consideration thereof would collect and handover Fares and Revenues to you in accordance with the Form of Agreement accompanying this Bid. This Bid and your written acceptance of it shall constitute a binding Contract between us. We understand that you are not bound to accept the lowest or any Bid you receive. We hereby confirm that this Bid complies with the Bid validity and Bid Security required by the bidding documents and specified in the Bidding Data.
(Authorized Signature and Seal)
Form B – Qualification Information1 1.
Individual Bidders or Individual Members of Joint Ventures
1.1
Constitution or legal status of Bidder [attach copy] (Place of registration) (Principal place of business) (Names and addresses of all company directors) (Full details of company’s shareholding)
1.2 Total annual volume of transport services performed in the last number of years as specified in the Bidding Data, Sub-Clause 3.3(b), in the currency specified in the Bidding Data. 1.3 Transport services provided over the last number of years as specified in the Bidding Data, Sub-Clause 3.3(c). Also list details of transport services under way or committed, including expected completion date. Name of client and contact person
Type of transport services provided with dates
Value of contract or Annual Income
1.4 Qualifications and experience of key management personnel proposed for execution of the Contract. Attach biographical data. Refer also to Sub-Clause 3.3(d) of the Instructions to Bidders. Position
Name
Years of experience (general)
Years of experience in proposed position
General Manager Operations Manager Maintenance Manager
1.5 Financial reports for the last number of years as specified in the Bidding Data, Sub-Clause 3.3(e): balance sheets, profit and loss statements, auditors' reports, etc. 1.6 Evidence of access to financial resources to meet the qualification requirements: cash in hand, lines of credit, etc.
1
The information to be filled in by bidders in the following pages will be used for purposes of postqualification or for verification of prequalification as provided for in Clause 3 of the Instructions to Bidders. This information will not be incorporated in the Contract. Attach additional pages as necessary. If used for prequalification verification, the Bidder should fill in updated information only.
1.7 Name, address, and telephone, telex, and facsimile numbers of banks that may provide references if contacted by the Employer 1.8
Information on current litigation in which the Bidder is involved. Other party(ies)
2.
Cause of dispute
Amount involved
Joint Ventures
2.1 The information listed in 1.1-1.3 and 1.5-1.8 above shall be provided for each partner of the joint venture. 2.2
The information in 1.4 above shall be provided for the joint venture.
2.3 Attach the power of attorney of the signatory(ies) of the Bid authorizing signature of the Bid on behalf of the joint venture. 2.4 Attach the Agreement among all partners of the joint venture (and which is legally binding on all partners), which shows that (a) all partners shall be jointly and severally liable for the execution of the Contract in accordance with the Contract terms; (b) one of the partners will be nominated as being in charge, authorized to incur liabilities, and receive instructions for and on behalf of any and all partners of the joint venture; and (c) the execution of the entire Contract, including payment, shall be done exclusively with the partner in charge. 3.
Additional Requirements
3.1 Bidders should provide any additional information required in the Bidding Data or to fulfill the requirements of Clause 3 of the Instructions to Bidders, if applicable.This section shall be signed and sealed below by the legal representative of Individual Bidders or individual members of Joint Ventures.
(Signed)…………………………(Name)…………………………..(Seal)…………………………………… … (Signed)…………………………(Name)…………………………..(Seal)…………………………………… … (Signed)…………………………(Name)…………………………..(Seal)…………………………………… …
16.12.5 Form C - Operating Costs Pro Formas Table 1 - Operating Costs by Cost Heading
Direct Operating Costs Driver costs Conductor costs Other traffic staff costs Maintenance staff costs Spares parts incl. batteries Fuel and Oil Tyres Tolls Other (please specify) Management and Admin Costs Management and Admin staff costs Rent and Depot Costs Vehicle Licence and insurance Other overhead costs Finance charges Depreciation Buses Other Sub total Operating Costs Profit Allowance for Taxation Total Costs incl. profit and tax Total Km Operated Total Cost per km (1) (2) Notes a) b)
Apportion ment Basis
Contact Price Adjustment Basis
Bus.Hrs Bus.Hrs Bus.Hrs Bus.Hrs Bus.Hrs Bus.Km Bus.Km Bus.Km Bus.Km
1 1 1 1 2 3 2 2 2
PVR
1
PVR PVR PVR PVR
2 2 2 n/a
PVR PVR
n/a n/a
PVR PVR
n/a n/a
Year 1
Year 2
Year 3
Average Yrs 1 – 3
This figure is the Contract Price This figure is the Penalty Rate for Non-Deductible Lost Km.
PVR = Peak Vehicle Requirement All costs should be expressed in current 2004 prices, i.e., no allowance for inflation but with allowance for any real increases in costs, e.g., increased maintenance as buses become older. c) Contract Price Adjustment Basis: 1 = wage inflation 2 = general inflation 3 = fuel price increases
(1)
(2)
n/a = not applicable – no annual increase for these items. d) Tax calculations must accompany this form Table 2 - Average Operating Costs by Basis of Apportionment (to be used in Clause 36 of the Conditions of Contract) Bus Hour Based Costs Annual Bus Hours Average annual hour- based costs Cost per bus.hr Bus Km Based Costs Annual Bus Km Average Annual Km based costs Cost per bus.km PVR Based Costs PVR Average annual PVR based costs Cost per PVR / month
SECTION 3. CONDITIONS OF CONTRACT 17
Part A. General
1. Definitions
1.1
Terms that are defined in the Contract Data are not also defined in the Conditions of Contract but keep their defined meanings. Boldface type is used to identify defined terms. Employer is the organization as mentioned in the Contract Data who employs the Operator to carry out the Services. Operator is a person or corporate body whose Bid to carry out the Services has been accepted by the Employer. Operator’s Bid is the completed bidding documents submitted by the Operator to the Employer. The Contract is the contract between the Employer and the Operator to carry out the Services. It consists of the documents listed in Clause 2.2 below. Contract Price is the annual average price for the provision of the Services as stated in the Letter of Acceptance and thereafter as adjusted in accordance with the provisions of the Contract. Party means Operator or Employer as the case may be. Parties mean both Operator and Employer.
Services are standard public bus services carried out by the Operator as stipulated in Clause 10 and the relevant Schedules. Working Timetable is the working timetable as mentioned in the Schedule I. Route is the bus service route indicated in Schedule I. Term is the term of this Contract as defined in Clause 34. Date of the Agreement is the signing date of the Agreement between the Employer and the Operator. Start Date is given in the Contract Data. It is the date when the Operator shall commence the provision of the Services. Working days means calendar days from Monday to Friday and not including holidays as provided by Vietnamese laws. Employer's Operations Director is the person named in the Contract Data (or any other competent person appointed by the Employer and notified to the Operator, to act in
replacement of the Operations Director) who is responsible for supervising the provision of the Services and administering the Contract.
1.2
All Schedules referred in this Conditions of Contract are integrated parts of this Contract.
2. Interpretation 2.1
In interpreting the Conditions of Contract, reference to the singular shall include also plural, the reference to masculine shall include the feminine and and vice versa. Heading have no significance. Words have their normal meanings unless specifically defined.
2.2
The documents forming the Contract shall be interpreted in the following order of priority: (1)
Agreement,
(2)
Letter of Acceptance,
(3)
Operator's Bid,
(4)
Contract Data,
(5)
Conditions of Contract and
(6)
Schedules and other documents listed in the Contract Data as forming part of the Contract.
3. Language and Law 3.1
The Language of the Contract and the Law governing the Contract are stated in the Contract Data.
4. Communication 4.1
Any notice or communication between the Parties that are referred to in the Conditions of Contract shall be effective only when in writing.
4.2
A notice or communication from a party to another shall be deemed duly given if delivered by hand or by pre-paid post or by facsimile and if addressed to the person at the address set out in the Contract Data or such other person or address as may be specified in writing from time to time between the Parties.
5. Assignment and Subcontracting 5.1
The Operator shall not without the prior written consent of the Employer assign its rights nor to subcontract in whole or in part any of its obligations hereunder (except in cases of temporary emergency where the Employer shall be informed as soon as is practical in the circumstances). Approval by the Employer of any subcontract shall not alter the Operator's obligations.
5.2
The Employer may at its sole discretion consent to the assignment by executing the assignment agreement and sending copies to the Operator and the New Operator.
6. Indemnity, Insurance and Performance Security 6.1
The Operator shall be responsible for and shall release and indemnify the Employer, its employees, agents and contractors from and against all liability for death or personal injury, loss of or damage to property (including property belonging to Employer or for which it is responsible and including property provided to the Operator pursuant to Clause 29) and any other loss, damage, cost and/or expense which may arise out of or in the course of or by reason of the performance or non-performance of this Contract by the Operator, it's employees or agents whether such injury, loss, damage, cost and/or expense be caused by negligence or otherwise provided always that the Operator shall not be liable to indemnify the Employer for any injury, loss, damage, cost and/or expense to the extent that the negligence of the Employer, its employees, agents or contractor is shown to have contributed to the said injury, loss, damage, cost and/or expense.
6.2
Without prejudice to its liability to indemnify the Employer under Clause 6.1, the Operator shall, at its own expense, provide in the joint names of the Employer and the Operator, insurance cover throughout the Term of this Contract, for the following in the sums as set out in the Contract Data: (1)
Public liability ;
(2)
Employers' liability ;
(3)
Motor vehicles as required by law and in the sum appropriate to reflect their use as public carriage vehicle transporting passengers as indicated in the Contract Data.
(4)
Operator's legal liability (including liability assumed under this Contract) which may arise out of or in the course of or by reason of the performance or nonperformance of this Contract.
6.3
Policies and certificates for insurance shall be delivered by the Operator to the Employer for the Employer' approval before the Start Date. All such insurance shall provide for payment in Vietnamese Dong.
6.4
If the Operator does not provide any of the policies and certificates required, the Employer may effect insurance which the Operator should have provided and recover the premium the Employer has paid from payments otherwise due to the Operator or if no payment is due, the payment of the premium shall be a debt due.
6.5
Alterations to the terms of insurance shall not be made without the written approval of the Employer.
6.6
Both Parties shall comply with any conditions of the insurance policies.
6.7
The Operator shall provide the Employer with the Performance Security no later than the Date of Agreement and the Performance Security shall be issued in an amount and form as specified in the Contract Data, and by a bank or surety acceptable to the Employer, and denominated in the currency in which the Contract Price is payable. The Performance Security shall be valid until the date as specified in the Contract Data.
7. Confidentiality
7.1
Either Party must keep confidential the documents, information and related materials supplied by the other Party without releasing to a third party, except for the information in this Contract allowed to be publicized or must be publicized by Vietnamese law. The obligations of keeping confidentiality shall remain even after the termination of this Contract.
8. Disputes and Procedures for Disputes Settlement 8.1
All disputes between the Operator and the Employer shall be first settled through amicable conciliation between the parties. Failing conciliation, disputes shall be settled by the Arbitration Rules of the Vietnam International Arbitration Center. The decision of the Arbitrator shall be final and binding upon the parties.
8.2
The place and language of the arbitration are specified in the Contract Data.
9. Force Majeure 9.1
Neither Party shall be liable for any breach of its obligations hereunder resulting from causes beyond its reasonable control including but not limited to acts of God, insurrection or civil disorder, war or military operations, national or local emergency, fire, lightning, explosion, flood, subsidence or unusually adverse weather conditions provided that lack of funds shall not be interpreted as a cause beyond the reasonable control of any Party provided that: (1)
the Party shall have taken all reasonable steps to overcome, avoid or minimize the effects of any such occurrence; and
(2)
the Party shall have notified the other Party as soon as is reasonably practicable.
(3)
Parties shall negotiate in good faith with a view of agreeing a variation (if appropriate) to mitigate the effects of any interruption to the Services arising from an event referred to in Clause 9.1.
Part B.
Services and Requirements for Services and the Operator
10. Services 10.1
The Operator shall provide the Services within the Term of the Contract and from the Start Date as specified in the Contract Data and in accordance with the terms and conditions of this Contract so as to ensure that the Working Timetable is met at all times. In the event that the Services do not commence on the Start Date as scheduled the Employer shall be entitled to impose a penalty as specified in the Contract Data.
10.2
Save as otherwise provided, the Operator shall provide the Services in accordance with the Services Details set out in Schedule I and shall not make any change of any kind to the Services without obtaining the prior written approval of the Employer except in cases of temporary emergency, whereupon the Operator shall notify the Employer's Operations Director or such other person nominated by Employer from time to time of the nature of
the emergency, its likely duration and proposals for arrangements to deal with the same as soon as is practical in the circumstances. 10.3
The Services shall be operated from the location set out in Schedule I and the Operator shall not operate the Services from any other location without the prior written consent of Employer, such consent not to be unreasonably withheld.
11. The Vehicles 11.1
The Operator shall provide the Services using only vehicles described in Schedule II which comply with the requirements set out in Schedule III. In circumstances where alternative vehicles are used on a short term basis as emergency replacements, the Employer must be advised in writing immediately. The Employer reserves the right to specify the use of other vehicles at the Operator’s expense should the emergency replacements fail in the Employer’s absolute discretion to meet the operational requirements of the Services.
11.2
The livery of the vehicles used in the provision of the Services is specified in the Contract Data. In the event that the Operator wishes to change the vehicle livery, the Operator shall apply to the Employer in writing for approval. No livery alteration may take place until the Employer has given its written consent.
11.3
Where the Employer considers that the operation of a vehicle provided by the Operator could affect the safety of passengers or the general public, the Employer may instruct the Operator not to operate that vehicle. In such circumstances the Operator shall provide at its own expense an alternative vehicle for the performance of the Services.
11.4
The Operator shall ensure at all times that all vehicles used in providing the Services are in a clean and serviceable condition (both internally and externally) and fit for the purpose.
11.5
The Operator's identity logo (or such other corporate symbol as shall be notified to the Operator from time to time) shall be clearly displayed on the front and near side of each vehicle when used in the provision of the Services in accordance with the Employer's guidelines for such display position issued from time to time. The logo must not be visible when a vehicle is being used on a route which is not run under contract to or by agreement with the Employer.
11.6
The Operator shall indicate, by a notice clearly affixed near to the entrance of each vehicle used in operating the Services (or in such other manner as shall be prescribed by the Employer from time to time) that the Services are operated under contract with the Employer and that passes issued by or on behalf of the Employer are valid for travel on the Services. This notice must be covered over when the vehicle is being used for services not provided under contract with the Employer.
11.7
''No smoking'' signs shall be clearly displayed on all vehicles so that they are clearly visible to all passengers in all parts of the vehicle. A general sign stating 'No Smoking' shall be placed at the front of the vehicle or positioned such that passengers are made aware that smoking is not allowed in any part of the vehicle.
11.8
Notices indicating priority seats (e.g. seat designated for elderly and disabled passengers) shall be displayed.
11.9
A current fare table shall be displayed or be available for inspection by members of the public on each vehicle.
11.10
There shall be a notice on each vehicle indicating where passengers may make comments or suggestions about the service provided, including the address of the Employer and other such addresses as the Employer may specify.
11.11
There shall be a notice in a prominent position visible to traveling passengers on each vehicle, indicating that Penalty Fares apply on the Services operated by that vehicle. This notice shall be removed or covered over at any time when the vehicle is being used for services not provided under contract with the Employer.
11.12
The Operator shall affix to the vehicles and display such other notices as the Operator may reasonably require from time to time, including without prejudice to the generality of the foregoing, information relating to conditions of carriage and conduct of passengers.
11.13
The items and notices referred to in Clauses 11.5 to 11.11 inclusive shall be supplied to the Operator, free of charge, by the Employer. The Operator shall only use the items and notices supplied by the Employer for the purpose of complying with Clauses 11.5 to 11.11
11.14
There shall be displayed on each bus, route and destination information as specified in Schedule III.
12. Safety Requirement 12.1
The Operator shall take all necessary measures to ensure the safety of public, passengers, employees and other road users. For the avoidance of doubt drivers must never exceed a safe driving speed irrespective of any schedule requirements.
13. The Operator’s Employees 13.1
The Operator shall employ drivers and conductors as appropriate suitably qualified in all respects and all such drivers and conductors shall comply with all traffic regulation orders made from time to time and any conditions of any licences appertaining thereto.
13.2
If in the Employer's reasonable opinion, the Operator’s employees fail to achieve adequate standards, the Employer may request the Operator to develop and implement an action plan to improve performance and the Operator shall use its best endeavours to produce, implement and comply with such a plan, keeping the Employer fully informed of progress.
14. Change in Personnel 14.1
The Operator shall notify the Employer within the number of days as specified in the Contract Data of any changes to the Operator's senior management, including without
limitation changes to any of the directors and key personnel engaged in the performance of the Services. 15. Advertising the Services 15.1
The Operator shall make available to the Employer's division set out in the Contract Data (and/or such other division/agent of the Employer notified to the Operator from time to time) all information relating to the Working Timetable, Public Timetable and route on which the Services are operated and such other information relating to the Services in such a form as the Employer may reasonably require.
16. Commercial Advertising 16.1
Subject to the current law and regulations on advertisement, the Operator is permitted to accept advertising on the vehicles used on the Services and to retain any revenues received from such advertising.
16.2
All advertisements must be approved in writing by the Employer.
17. Lost Property
17.1
Any lost property found on any buses must be handed in to the route control centre at the first reasonable opportunity. The conductor should complete a form (to be prepared) for each article handed in for which they will be given a receipt. All lost property will be forwarded by the Operator to the Employer within 24 hours together with a copy of the completed conductor’s form.
17.2
In the event that an item of lost property is claimed within the 24 hour period at the route control centre the item may be handed over if the duty officer is satisfied as to the authenticity of the claim. The claimant’s details must be taken by the Operator and provided to the Employer together with a copy of the conductors form within seven days.
17.3
The Employer will maintain a register of lost property and will provide the Operator with a telephone number to be given to members of the public for any queries concerning lost property.
18. Bus Stand, Stations and Emergency Procedures
18.1
The Operator shall use its best endeavours to ensure that its employees, agents and contractors comply with all instructions given to them from time to time by the Employer's authorised officials in respect of: (1)
the use of bus stands, bus stations, bus stops and other infrastructure owned, occupied or managed by the Employer (or its agents or contractors) and used by the operator;
(2)
emergency situations and/or diversions from the normal route;
(3)
the acceptance of passengers in an emergency with tickets which are not normally valid on the Services; and
(4)
18.2
any other safety or security related matters.
The Operator shall ensure that when a bus is parked at a bus station or stand (off or on highway) its employees shall switch off engines at all times.
Part C.
Performance
19. Kilometrage Performance
19.1
The Operator shall ensure that all Scheduled In Service Kilometrage as set out in Schedule I is operated in accordance with the Working Timetable and the Operator is expected to use its best endeavours to achieve this. The Employer recognizes that operation of the full Scheduled In Service Kilometrage is not always possible and so in such circumstances is prepared to accept the Minimum Operated Kilometrage Standard set out in Schedule I. The Operator therefore is required to meet the Minimum Operated Kilometrage Standard throughout the Term of the Contract. The Employer shall monitor cancellations and curtailments of the Scheduled In Service Kilometrage by the collection and analysis of information regarding the kilometrage that the Operator has failed to operate. The primary source of data regarding kilometrage not operated will be the returns prepared and submitted to the Employer by the Operator in Forms A and B as set out in Schedule IV.
19.2
For the purpose of determining Kilometrage Performance, Non-deductible Lost Kilometrage means the total number of kilometres that had been scheduled to operate in service in accordance with the Working Timetable that were not operated by the Operator in any Payment Period, the loss of which is determined in the reasonable opinion of the Employer as being beyond the Operator’s reasonable control. In this regard, the Operator acknowledges and agrees that the following are normally within the Operator's reasonable control: (1)
staff absences;
(2)
mechanical breakdown and lack of suitable buses; and
(3)
late departures from the Operator’s garage or depot.
It is also agreed that severe traffic congestion may be accepted as a reason beyond the Operator's reasonable control. However, the Operator is expected to manage the Services so as to minimise the impact of traffic congestion commonly encountered.
19.3
The Employer may determine to an extent which is reasonable that none or only some of the lost kilometrage which is claimed to be Non-Deductible Lost Kilometrage by the Operator is Non-Deductible Lost Kilometrage. Such determination shall be made on the grounds that the Operator has failed to take all reasonable steps to overcome, avoid or minimise the effects of any events beyond its reasonable control.
19.4
Operated kilometrage information must be recorded by the Operator and reported to the Employer using Form A as set out in Schedule IV. The time interval for making report is as set out in the Contract Data. Together with the above information details of journeys / part journeys not operated shall be also notified by the Operator to the Employer in Form B as set out in Schedule IV.
19.5
The Employer reserves the right at any time to change the reporting requirements and procedures outlined in Schedule IV in order to take advantage of the availability of new technology in improving the method of monitoring of the Operator's kilometrage performance. Any such changes will be notified to the Operator.
19.6
The Operator shall use its best endeavours to ensure that kilometrage reporting is complete and accurate. In the event that the Operator is found (by whatever means) to have inaccurately declared the extent of Deductible Lost Kilometrage, the Employer shall have the right to recover from the Operator any monies due to the Employer. The Operator shall keep all records and documentation relating to kilometrage for a minimum period as set out in the Contract Data. This documentation must include sufficient items as set out in the Contract Data.
20. Service Reliability
20.1
The Operator acknowledges and agrees that one of its primary obligations under this Contract is to provide reliable services. The Operator is therefore expected to use its best endeavours to ensure that all buses operate in accordance with the Working Timetable and depart on time or at the intervals shown, as appropriate. In addition, the Operator acknowledges and agrees that: (1)
Departure times or service intervals, as appropriate, shall be published at bus stops and elsewhere; and
(2)
Passengers expect there to be reliable services in accordance with the published information.
20.2
From the commencement of the Contract, the Minimum Service Reliability Standard for the Services shall be as set out in Schedule I. Unless otherwise adjusted or varied in accordance with the provisions of the Contract, the Minimum Service Reliability Standard shall be fixed for the Term of the Contract (and any extension thereof).
20.3
In addition to the Minimum Service Reliability Standard, a Threshold for the purposes of assessing whether the Operator is entitled to a contract extension in accordance with Clause 35 shall be as set out in Schedule I and shall unless adjusted or varied in accordance with the provisions of the Contract be fixed for the Term of the Contract.
20.4
The Operator's performance shall be monitored by surveys which shall be conducted at a frequency and at such times as the Employer considers appropriate and in accordance with the number set out in Schedule I.
20.5
The Employer shall calculate the Operator's Service Reliability Performance as specified in the Contract Data and shall provide to the Operator a Quarterly Performance Report summarising the Operator’s performance during the previous Quarter based on the results of the surveys. The Quarter Performance Report will be issued to the Operator no later than 20 Working Days after the end of the Quarter to which it relates. As a minimum the Quarterly Performance Report will include the items as specified in the Contract Data.
21. Formal Warnings
21.1
The Operator's overall performance in respect of its obligations under this Contract shall be monitored in accordance with Schedule I. If in the reasonable opinion of the Employer
the Operator has failed materially at any time to comply with any of it's obligations under this Contract the Employer shall be entitled to issue the Operator with a Formal Warning.
21.2
21.3
Without prejudice to the generality of Clause 21.1 above, the Employer may give a Formal Warning by reason of any one or more of the following: (1)
failure by the Operator to operate the Minimum Operated Kilometrage Standard as an average over any period of 12 consecutive weeks;
(2)
a persistent failure by the Operator to provide adequate Service Reliability, (the Employer shall assess whether there has been a persistent failure by reference to Schedule I);
(3)
failure by the Operator to provide safe and environmentally acceptable Services taking into account, for example: i)
the type, frequency and severity of accidents;
ii)
conviction of drivers on driving offences committed while on duty;
iii)
the results of safety checks and mechanical inspections carried out on the Operator's vehicles;
iv)
the environmental performance of the Operators vehicles; and/or
v)
the Operator's non-compliance with any relevant regulation;
(4)
failure by the Operator to ensure that the vehicles used in operating the Services satisfy the requirements of this Contract; or.
(5)
any other material or persistent failure by the Operator, its employees, agents or contractors to comply with any of the terms of this Contract,
In considering whether to issue a Formal Warning the Employer shall review the circumstances appertaining to the operation of the Services, including, without limitation, consideration of: (1)
abnormal levels of congestion;
(2)
the progress of any actions, such as recently implemented service changes, or changes awaiting introduction or any other proposed actions by the Operator to improve performance; and
(3)
the time periods relating to paragraphs (1) and (2) above.
provided that consideration of such issues shall not relieve the Operator of any of its obligations set out in this Contract and shall not be construed in anyway as a waiver of any right or remedy available to the Employer.
21.4
Without prejudice to generality of Clause 21.1 for the purposes of assessing eligibility for a Formal Warning under Clause 21.2 the performance of the Operator shall normally be reviewed monthly and each review shall cover performance in the previous three months.
21.5
If three or more Formal Warnings are given in any twelve month period the Employer shall be entitled to terminate the Contract.
18
Part D. Contract Price and Payment Schedule
22. Contract Price and Payment Schedules
22.1
In consideration of the provision by the Operator of the Services the Employer shall pay the Operator the Contract Price as provided for in the Letter of Acceptance. The Contract Price shall be fixed save where varied or adjusted in accordance with provisions of this Contract.
22.2
The Employer and the Operator shall follow the provisions on the Payment Period and Payment Method of the Contract Price as set out in Schedule V.
23. Deduction for Lost Kilometrage
23.1
In relation to each Payment Period the Operator shall declare and calculate Deductible Lost Kilometrage and Deductions for Lost Kilometrage in submission of the monthly Final Demands. If the Employer reasonably believes after consultation with the Operator that the Operator's calculations of Deductible Lost Kilometrage or Deductions for Lost Kilometrage contained therein are incorrect and/or they exclude lost kilometrage which is not determined by the Employer to be Non-Deductible Lost Kilometrage, the Employer may make a reasonable estimate of Deductible Lost Kilometrage and Deductions for Lost Kilometrage in the Payment Period concerned which shall be included in the Payment Statement and shall be payable by the Operator until such time as the Operator has provided a satisfactory explanation or the Employer has made enquiries to its satisfaction when a final determination shall be made. Deductions for Lost Kilometres shall be calculated using the Penalty Rate specified in the Contract Data.
23.2
The Employer shall notify the Operator of the reason why an estimate has been made under Clause 23.1 and the Operator shall co-operate with the Employer in providing information required to assist the Employer in making a final determination of Deductions for Lost Kilometrage. The Employer shall consider any representations made by the Operator. Provided that the Operator has given to the Employer any information required under Clause 23.2 in time to allow it to do so, the Employer shall make a final determination at least two Working Days before the next Final Payment Date of Deductions for Lost Kilometrage and the difference between the estimate and the final determination shall be included in the Payment Statement and taken account of in the net payment on the next Final Payment Date. Where the Operator fails to submit the Final Demand the Employer may make a reasonable estimate of Deductible Lost Kilometrage and Deductions for Lost Kilometrage in the Payment Period concerned which shall be included in the Payment Statement and payable by the Operator until such time as the Final Demand have been submitted. When such documents or information have been submitted a final determination shall be made and the difference between the estimate and the final determination shall be included in the Payment Statement and taken account of in the net payment on the first Final Payment Date which is at least 12 Working Days following submission of the Final Demand.
23.3
In the event that following a final determination by the Employer under this Clause the Operator is found to have failed to declare or inaccurately declared Deductible Lost Kilometrage in any Payment Period, the Employer shall be entitled to make Deductions for Lost Kilometrage for all the Deductible Lost Kilometrage undeclared or wrongly declared (as measured against any final determination in respect of Deductible Lost Kilometrage made under Schedule V) in the Payment Period in question and to deduct a sum equivalent to the same percentage of deductible Lost Kilometrage undeclared or wrongly declared for every Payment Period prior to the Payment Period in question up to (but excluding) the last Payment Period in which the Employer last verified by means of audit, inspection or other investigation the Operator declarations in relation to Deductible Lost Kilometrage, or to the commencement of this Contract to a maximum of 12 prior Payment Periods. The Employer may elect not to make such deductions for all or any of the earlier Payment Periods where the Operator demonstrates to the satisfaction of the Employer that Deductible Lost Kilometrage in those earlier Payment Periods was correctly reported. The Employer may either invoice the Operator for all such Deductions for Lost Kilometrage or set off those sums against the Monthly Payment for the next Payment Period following the calculation of all such Deductions for Lost Kilometrage or recover such sums.
24. Performance Payments
24.1
The Employer shall pay the Operator or the Operator shall pay the Employer as the case may be the Performance Payments (if any) in the manner and at the times set out or calculated in accordance with Schedule VI.
25. Sums recoverable from or payable by the Operator
25.1
Whenever under this Contract any sum of money shall be recoverable from or payable by the Operator, the same may be deducted from any sum then due or which at any time thereafter may become due to the Operator under this Contract with the Employer.
26. Tax
26.1
The Employer shall adjust the Contract Price if taxes, duties, and other levies are changed during the Term of the Contract. The adjustment shall be the change in the amount of tax payable by the Operator, provided such changes are not already reflected in the Contract Price or are a result of Clause 27.
27. Contract Price Adjustment
27.1
19
The Contract Price shall be adjusted on each anniversary of the Start Date in accordance with the Contract Price Adjustment Formula as provided in Schedule VII. Part E. Fares, Ticketing and Fares Collection Arrangement
28. Fares, Tickets and Passes Acceptance
28.1
The Operator shall charge passenger fares at the rates as specified in the Contract Data. The Employer shall be entitled to vary the fares by giving the Operator (except in
exceptional circumstances) not less than four weeks notice of any such variation and issuing a revised fares chart to the Operator.
28.2
The Operator shall accept and/or validate the tickets and passes in accordance with the fare rates, and any additional passes or tickets as notified by the Employer from time to time, and shall take any other actions as instructed by the Employer from time to time in relation to ticket and pass checking, validation and acceptance.
28.3
The Operator shall pay all fares revenue receipts in respect of fares charged and tickets issued on the Services and all sums due in respect of Fares Payment Irregularities and misallocation of revenue to the Employer in accordance with the Clause 31 of this Contract.
29. Ticketing Equipment
29.1
Within the Term of the Contract, the Employer or its agents may supply to the Operator Ticketing Equipment of such type as the Employer in its reasonable opinion considers necessary for the Operator to operate the Services.
29.2
The Operator shall not without the prior written consent of the Employer use other types of ticket issuing and/or pass recording equipment for the purposes of operating the Services or for any purposes associated therewith.
30. Fare Collection Arrangement
30.1
When carrying out its duties and obligations the Operator shall use its best endeavours to ensure that its employees and/or agents undertake in a proper manner all fare collection arrangements, ticket checking and inspection.
30.2
The Operator hereby authorises the Employer’s officials to operate on any vehicle providing the Services and to fulfill the role of Inspector.
30.3
Without prejudice to Clause 31.2 the Employer’s officials shall be permitted to board vehicles providing these services at any time for the purpose of checking that the Operator and its employees, agents and contractors are complying with the provisions of this Contract and for the purpose of checking records and Ticketing Equipment used by the Operator, its employees, agents and contractors.
30.4
The Operator shall use its best endeavours to ensure that its employees and/or agents comply with any reasonable instructions given to them by the Employer’s officials pursuant to this Contract.
31. Fares Payment Irregularities
31.1
During the Term of the Contract, the Employer and the Operator shall determine and settle the amount of Fares Payment Irregularities as provided for in Schedule VIII.
32. Penalty Fares
32.1
The Employer's Officials shall be responsible for imposing and collecting the proceeds of Penalty Fares. The Employer's Officials shall hand over the proceeds of any Penalty Fares
collected on any vehicle providing the Services to the conductor who shall issue a Penalty Fare ticket for the amount of each Penalty Fare so collected and handed over.
32.2
The Penalty Fares revenue shall be payable by the Operator to the Employer as specified in Clause 33.
33. Handover of Fares and Revenue
33.1
All monies received or collected from passengers in respect of travel on the Services and all Penalty Fares Revenue handed over by the Employer's Officials shall belong to the Employer and shall be at the Operator's risk until it is paid to the Employer in accordance with this Clause 33.
33.2
The Operator shall pay all monies by cheque or interbank transfer (as the Employer notifies the Operator from time to time) each week on the Friday following the end of the operating week to which the sums refer. All operating weeks shall run from Monday to Sunday.
33.3
The monies due to the Employer pursuant to Clauses 33.1 and 33.2 above shall be calculated as the amount of revenue receipts identified by the data provided by the tickets sold including any Penalty Fares Revenue.
33.4
All payments pursuant to Clause 33.2 above shall be supported by such documentation including identification of the Operator, the route, the day or days of operation to which the receipts refer, as the Employer may from time to time require.
33.5
If it is discovered, or the Employer has reasonable grounds to believe, that any fares revenue which should have been paid to the Employer has not been paid, then subject to Clause 33.6 the Operator shall: (1)
pay forthwith to the Employer all fares revenue (calculated in accordance with Clauses 33.3 and 33.4) which should have been handed over in respect of the Services;
(2)
indemnify the Employer in respect of all costs and expenses incurred by the Employer in checking all such previous payments, returns and information as the Employer considers necessary to ensure all fares revenue attributable to the Services has been paid; and
(3)
pay forthwith to the Employer all fares revenue which is identified by the Employer as a result of any investigation under paragraph (2) above as being attributable to the Services and which has not previously been paid over to the Employer.
33.6
For such period as the Employer is conducting any investigation and until all sums shown to be properly attributable to the Services have been paid, the Employer may withhold a reasonable proportion of the Monthly Payment.
33.7
If, as a result of any investigation it is discovered that the Operator has paid to the Employer any sums which were not properly attributable to the Services, such sums shall be set off against any sums due to the Employer under this Clause or shall be paid by the Employer to the Operator.
20
Part G. Term, Variation, Extension and Termination
34. Term of the Contract
34.1
The Term of the Contract shall commence on the Date of the Agreement and continue in force until the Expiry Date as specified in the Contract Data unless it is extended in accordance with the provisions of Clause 35 of the Conditions of Contract or unless earlier terminated pursuant to Clause 37 of the Conditions of Contract.
35. Extension
35.1
If at the end of the Term, the Services continue to be required substantially unchanged employing the existing bus type, then subject to the conditions set out in this Clause 35 and as specified in the Contract Data the Operator shall be eligible for a contract extension.
35.2
The Employer shall be responsible for monitoring the Operator's performance of the Services and shall compare the performance against the Contract Extension Criteria as set out in the Contract Data.
35.3
Subject to Clause 35.2 above, if the Operator meets or exceeds the Contract Extension Criteria during the Extension Assessment Periods as defined in the Contract Data then the Operator shall be entitled to an automatic extension of the Contract from the Expiry Date to the Extended Expiry Date as specified in the Contract Data.
36. Variation
36.1
The Employer may vary this Contract with the written consent of the Operator save where this Contract provides that variations or adjustment may be made by the Employer and the consent of the Operator is not expressly required.
36.2
Where a variation may not take effect without the Parties' agreement to that variation and the Parties fail to reach agreement as to all the terms of the variation this Contract shall (subject to the provisions in this Contract) continue to have full force and effect until the variation has been agreed in all respects.
36.3
In any month the number of operating hours and scheduled kilometrage may be varied by up to a percentage as specified in the Contract Data above or below the number in the Contract at the sole discretion of the Employer and shall be accepted by the Operator with adjustment to the Contract Price as specified in the Contract Data. Any variations greater than this number must have the consent of the Operator.
36.4
The Employer reserves the right to change routes or to move some or all of the specified buses to other parts of the Hanoi metropolitan area. In such cases, the employer will adjust the bus hours and bus kilometrage as necessary and adjust payment accordingly. In the event that the bus hours and/or bus kilometrage are reduced by more than the percentage as specified in the Contract Data in any year the Employer agrees to make payment as though the difference was limited to a percentage as specified in the Contract
Data. Adjustment will also be made to compensate for additional time and distance traveled out of service should this be the case.
36.5
In the event that operating speeds reduce to the extent that additional buses are needed to maintain the schedules, the Operator shall so inform the Employer and a test run shall be conducted to establish a new journey time. If it is agreed that additional buses are required, the Contract Price shall be adjusted in accordance with the Contract Data.
36.6
A variation shall take effect: (1) (2) (3)
from the date specified by the Employer in the written notice to the Operator where the Operator's written consent to the variation is not required; or from the date agreed by the Employer and the Operator where the Operator's written consent is required; or forthwith where no date is specified.
37. Termination
37.1
The Employer shall have the right to terminate this Contract upon written notice at any time if: (1)
The Operator commits any persistent or material breach of any provisions of this Contract and in the case of such a breach which is capable of remedy fails to remedy the same within 14 days of notification of the breach by the Employer (and in which the Employer expresses its intention to exercise its rights under this Clause);
(2)
The Operator receives three or more Formal Warnings in any period of 12 months;
(3)
An order is made by a court of competent jurisdiction, or a resolution is passed, for the dissolution or administration of the Operator (otherwise than in the course of a reorganisation or restructuring previously approved in writing by the Employer);
(4)
any step is taken to appoint a manager, receiver, administrator, trustee or other similar officer in respect of any assets;
(5)
the Operator convenes a meeting of its creditors or makes or proposes any arrangement or composition with, or any assignment for the benefit of its creditor's;
(6)
the Operator ceases or threatens to cease to carry on trading for any part of its operation;
(7)
the Operator, its employees, agents or contractors make, offer or promise any improper loan, fee, reward or advantage of any kind to any employee, agent or contractor of the Employer;
(8)
the Operator fails to comply with Clause 12; or
(9)
the Operator fails to obtain the Employer's written consent prior to any assignment or subcontracting in accordance with Clause 5.
37.2
For the avoidance of doubt, the Employer may terminate this Contract under any item of Clause 37.1 above (except item 37.1.(3)) notwithstanding that the circumstances in item 37.1.(3) above have not arisen.
37.3
The termination of this Contract under Clause 37.1 above shall be with such notice as the Employer considers appropriate in the circumstances and during such notice period the Operator shall continue to perform all of its obligations set out in this Contract including without limitation continuing to provide the Services so as to meet or exceed the Minimum Performance Standard and the Minimum Operated Kilometrage Standard and during such notice period the Operator shall co-operate with the Employer to avoid or minimise any disruption to the Services.
37.4
The termination of this Contract under this Clause 37 shall be without prejudice to any rights of either party in respect of any antecedent breach of contract by the other party.
37.5
Without prejudice to Clause 37.4 and Clause 6, in the event that this Contract is terminated under this Clause 37, the Operator shall fully indemnify the Employer for all reasonable costs losses and/or expenses incurred by the Employer in connection with or as a consequence of the termination, including without limitation the cost of engaging a replacement or temporary operator at short notice.
37.6
On termination of this Contract, the Employer shall not be liable to the Operator for any loss of profit, loss of contract or any other losses and/or expenses of whatsoever nature arising out of or in connection with such termination.
21
Part H. Validity
38. Entire Agreement
38.1
This Contract and its schedules constitutes the entire agreement and understanding of the Parties with respect to the subject matter hereof and neither of the Parties has entered into this Contract in reliance upon any representation, warranty or undertaking by or on behalf of the other Party which is not expressly set out herein, provided that nothing in this Clause 38 shall exclude liability for fraudulent misrepresentation.
39. Validity, Legality and Enforceability
39.1
If any of the provisions of this Contract is or becomes invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired.
40. Survival
40.1
The provisions of this Contract which by their nature extend beyond the expiry and termination of this Contract will survive and remain in effect until all obligations are satisfied.
SCHEDULE I: SERVICE DETAILS General Route Details specified by the Employer 1. 2. 3. 4. 5. 6. 7. 8. 9.
Route Number Terminal Points Route Description Bus Stops Layover location(s) Overnight parking location (to be specified by the Operator) Route Control Centre (to be specified by the Operator) Public Timetable Working Timetable and Scheduled Bus.Km
Days
Working Timetable Ref No.
Effecti ve Date
Mon – Fri Sat Sun, P/H
Required Minimum Number of Vehicles in Service AM Mi PM peak dPeak day
n/a n/a
Sched. Bus.Km per day Km
Sched. Bus Hours per day Hrs
No of days pa
Annual Bus.Km Km
Annual Bus Hours Hrs
n/a n/a TOTAL
Notes i) ii) iii) iv)
AM Peak is between 0600 – 0900 PM Peak is between 1600 – 1900 Scheduled Distance is total scheduled in-service kilometres Scheduled Bus Hours is total hours of service for all scheduled buses measured from start of first duty to end of last duty and shall include layover time and meal breaks but not access time to and from overnight parking places. In the event of split shift schedules each shift shall be taken as having a start and end of duty.
Performance Standards Minimum Operated Kilometrage Standard………………….[98.5%] of total km in period Minimum Service Reliability Standard ………[0.5] minutes average excess waiting time Service Reliability Threshold…………………[0.3]minutes average excess waiting time Scheduled surveys per year……………………………..[6] per year
SCHEDULE II: TENDERED VEHICLE DETAILS Vehicle Description Registered Owner Registration Number Chassis Make and Model Year of Manufacture Date of First Registration Total Km Operated Bus Length and Width Maximum Weight and Net Weight Engine Make and Type Power output Transmission –manual or automatic Suspension – air or leaf spring Body manufacturer and type Emission Standard (e.g., Euro 1, 2, etc) No of doors Entry step height Floor height Air conditioning power Interior Height Seating capacity Max total capacity ATTACHMENT: Layout showing seating plan.
SCHEDULE III: MINIMUM SPECIFICATIONS FOR TENDERED BUSES In addition to complying with all aspects of Vietnamese law, each tendered bus shall comply with the following provisions and requirements: Attribute Bus Age Capacity Climate control Ease of entry Floor height Saloon height Side windows No of Doors Seat width Seat pitch Route Information Emergency Escapes
Safety Equipment
Requirement Not more than 5 years old from date of manufacture upon scheduled start of service 80 passengers minimum Air Conditioned First step not higher than 350mm Not higher than 700mm Not less than 1900mm from floor of bus Single tint, 50% transparency minimum 2 380mm per passenger minimum 670mm minimum Route number and destination must be shown one exit, openable from inside and outside in addition to, and on the opposite side from, the main passenger door one fire extinguisher, one first aid kit, fuel cut-off tap accessible from outside the vehicle
Notes
Note 1 Note 2
Note 3
Notes 1. Standing passengers may only be carried in a vehicle which has interior headroom of at least 1900mm and adequate grab rails. The maximum number of standing passengers that may be carried shall be based on a standard of 6.0 standees per square meter of unobstructed, level floor space or on __kg per person up to the permitted gross vehicle weight of the vehicle, whichever is the lower 2. The bus shall be fitted with an air-conditioning system with ducting to distribute cooled air throughout the vehicle; The cooling system shall be capable of reducing the temperature to 24 degrees under normal operations in summer. The system shall be capable of achieving a minimum of 20 air changes per hour. 3. Buses shall display route numbers and ultimate destination. Allowance must be made for up to three alphanumeric characters for the route number. At the front of the bus the route number shall be at least 200mm high and lettering for the destination shall be at least 125mm high. The route number shall also be prominently displayed on the forward left hand side of the bus and also at the rear. All signs shall be back lit.
SCHEDULE IV: KILOMETRAGE PERFORMANCE
21.1.1.1
Operated Kilometrage Information
Operated kilometrage information must be recorded by the Operator and reported to the Employer using Forms A and B as set out in this Schedule IV. Unless agreed otherwise between the Operator and the Employer, the information shall be supplied in an electronic format acceptable to the Employer as specified from time to time. The information shall be set out under the headings listed below: i)
name of the Operator;
ii)
dates on which the week to which the information relates starts and finishes,
iii)
the route to which the information relates;
iv)
daily kilometrage derived from the Working Timetable;
v)
any agreed additional kilometres;
vi)
any agreed curtailed kilometres;
vii)
kilometres to be operated;
viii) lost kilometrage, which the Operator does not claim is Non-Deductible Lost Kilometrage classified as follows:
ix)
a)
staff
b)
mechanical
c)
other – to be specified;
lost kilometrage, which the Operator claims is Non-Deductible Lost Kilometrage classified as follows a)
traffic
b)
other - to be specified;
x)
any extra kilometres operated;
xi)
operated in-service kilometrage for the week (kilometres to be operated in paragraph vii) above less all lost kilometrage in paragraphs viii) and ix) above); and
xii)
percentage of scheduled kilometres operated.
The Operator shall provide the Employer with the above information in respect of the Services relating to each week (being each Monday to Sunday). The information shall be provided to the Employer on or before the Thursday after the end of each week or at such other intervals in respect of such periods as the Employer may require. The Operator shall provide to the Employer together with the above information details of journeys / part journeys not operated including:duty and trip number; date and start time of lost (portion of) journey; points between which kilometrage lost; kilometrage lost, to one decimal place;
category of lost kilometrage; and details regarding the reasons for lost kilometrage which the Operator claims is NonDeductible Lost Kilometrage. The Operator shall provide the information referred to above in hard copy form, and in such electronic or other form and file format as shall be specified by the Employer from time to time.
FORM A
KILOMETRAGE RETURN
Route No. _______ Week Ending dd/mm/yy Mon
Tues
Wed
Th u
Fri
Sat
Sun
Total
Scheduled in Service Kilometrage Agreed Additional Kilometres + Agreed Curtailed Kilometres Kilometres to be Operated Deductible Lost Km Staff Mechanical Other Deductible Non Deductible Lost Km Traffic Other Non-Deductible TOTAL LOST KILOMETRES KILOMETRES RUN % RUN
FORM B
Km Lost by Duty and Cause
Route No _________ Week Ending dd/mm/yy Day/Date
Time
Trip/Duty No
From – To--
Kilometres lost
Cause Code*
Details
* Cause codes: S – Staff; M- Mechanical; T – Traffic; OD – Other deductible; OND – Other Non-Deductible
SCHEDULE V: PAYMENT SCHEDULE Contract Price and Payments The Payment Period shall be monthly and each Monthly Payment shall be equal to one twelfth of the Contract Price. There shall be no adjustment to the Monthly Payment except as provided in this Agreement, and in particular and for the avoidance of doubt there shall be no adjustment to the Monthly Payment in respect of the number of days in any month. The Monthly Payment shall be made to the Operator in two instalments, an Interim Payment and a Final Payment. The Operator shall submit an Interim Demand for 75% of the Monthly Payment on the last working day of each preceding month and the Employer shall make this payment on or before the 15th day of the month. The Operator shall submit a statement of Lost Kilometrage together with the Final Demand for payment on or before the 10th day of the month following the Payment Period and payment by the Employer shall be conditional upon the Operator submitting to the Employer the Final Demand and providing information and data on tickets sold and kilometrage operated in accordance with this Contract. Payment shall be made before the end of each month. If the Contract is not in effect for the whole of the month, the payment shall be pro-rated and shall be calculated by reference to the number of days in that month for which the Contract existed. In the event that the Contract Price is adjusted, in accordance with the provisions of this Contract, effective from any day other than the first day of the month, then the payment for the month in question shall be pro-rated and calculated by reference to the number of days in that month and the number of days prior to and after the adjustment. Submission of Demands The Operator shall submit the Demands in the formats set out in Appendix A to this Schedule V. The Operator shall ensure that its Statements are complete and are certified by a Director of the Operator as being correct. The Demands shall be sent from the Operator to the Employer in such electronic or other form and layout as shall be specified in Appendix A, or as otherwise notified by the Employer from time to time. Payment Method Payment by the Employer shall be by interbank transfer to a bank account the details of which have been notified by the Operator to the Employer from time to time, or by such other method determined by the Employer. Submission by the Employer of Payment Statement. At least four Working Days before the end of the month, the Employer shall submit to the Operator a Payment Statement showing as a minimum the following information i)
the contracted monthly payment
ii) Deductions for Lost Kilometrage either as calculated by the Employer or as estimated by the Employer if full information is not provided by the Operator; and iii) the net payment due.
APPENDIX A. SAMPLE INTERIM DEMAND Operator Name: ____________________ Payment Period: ______ From ________ To_________ Route Contract No
Version No
Route No
Monthly Contract Payment (100%)
Intermediate Amount Period Due Payment (75%)
Totals:
Signed on behalf of Operator: ______________ Director
__________ Date
Notes: 1. If there has been or is to be a variation(s) to the Contract Price during the Payment Period, the Operator shall show all version numbers. SAMPLE FINAL DEMAND Operator Name: ________________________________ Payment period: ___ From __________ To _________ Route Contract No
Version No
Route No
Period Contract Payment (100%)
Intermediat e Period Payment (75%)
Final Period Payment (25%)
Deductio n Rate per km
Deductible Lost Km
Deduction for Lost Km
Amount due
Totals:
Signed on behalf of Operator: ______________ __________ Director Date Notes: 1. If there has been or is to be a variation (s) to the Contract Price during the Payment Period, the Operator shall show all version numbers.
SCHEDULE VII: CONTRACT PRICE ADJUSTMENT
The Contract Price shall be adjusted on each anniversary of the Start Date as set out below. The adjustment to the Contract Price (C2) is given by: C2=C1 ( I + R ) 100 Where: C l = Contract Price as adjusted previously or varied in accordance with the Contract R= The percentage price adjustment The percentage price adjustment (R) is given by: R = {(P1 – P2)/P2 x(1+L/100)x W1} + {(P1 – P2)/P2 x W2} + {( F1 – F2)/F2 x W3} Where: W1 =
0.35 representing the proportion of the Contract Price that is to be adjusted by movement in labour rates;
W2 = 0.25 representing the proportion of the Contract Price that is to be adjusted by movements in the Retail Price Index. W3 = 0.25 representing the proportion of the Contract Price that is to be adjusted by movements in the retail price of diesel. PI =
The Retail Prices Index published for the month that is four months prior to the anniversary of the Start Date
P2 =
The Retail Prices Index published for the month that is twelve months prior to the index P 1.
L = percentage that labour wages are assumed to have increased above the rate of inflation. For initial contract assume L = 3.0%. F1= F2 =
The average retail price of diesel fuel for the month that is four months prior to the anniversary of the Start Date. The average retail price of diesel fuel for the month which is twelve months prior to index F1.
SCHEDULE VIII: FARES PAYMENT IRREGULARITIES For the purposes of this Annex VIII: T=
total revenue reported by the Operator for month in question
A=
expected revenue on the inspected services during month
U=
total underpayment by all passengers inspected during the month being calculated as the total value of excess fare receipts and tickets issued to those passengers by the Employer's Officials (excluding any receipts and tickets for Penalty Fares)
I=
total amount of Fares Payment Irregularities for which the Employer may invoice the Operator.
and I = T * U A The Employer’s Officials may make on-vehicle inspections of the tickets held by passengers at any time without notice. For any month, if U is equal to or greater than one half of one per cent (0.5%) of A, the Employer shall invoice the Operator for the amount of Fares Payment Irregularities. The Operator shall pay any such invoice within 14 days of receipt
SECTION 4. CONTRACT DATA Conditions of Contract 1.1
The Employer is: Hanoi Transport Management and Operation Center
1.1
The Employer's Operations Director is:
1.1, 10.1
The Start Date will be:[6 months] from the Date of the Agreement
3.1
The language of the Contract documents is Vietnamese
3.1
The law that applies to the Contract is the law of Vietnam
4.2
The address of the Employer:
The address of the Operator: 6.2
For the purposes of Clause 6.2 the insurance shall cover from the Start Date to the expiry of the Term of the Contract. The minimum insurance covers shall be: · The minimum cover for public liability is: VND…………………………. · The minimum cover for Employer’s liability is: VND……………………. · The minimum cover for motor vehicle is: VND…………………… · The minimum cover for Operator’s legal liability is: VND………………..
6.7
The Performance Security shall be [two hundreds million Vietnamese Dong (VND 200,000,000)]. The Performance Security shall be valid from the issuing date until [
]
The standard form of Performance Security acceptable to the Employer shall of the type as presented in Section 5 of the Bidding Documents 8.2
The language of the arbitration is Vietnamese and the place of the arbitration is Hanoi.
10.1
For each day after the Start Date that the Services are not operated the Employer shall be entitled to levy a penalty of [VND0.5m] per day. If the Services are delayed more than [ ] days the Employer shall terminate the Contract and the Operator shall forfeit the Performance Security.
11.2
The vehicle livery is red and yellow conforming to MOT Directive No 262/CT-BG TVT of 8 July 1996..
14.1
Any changes to the Operator's key management personnel involved in the Services should be notified by the Operator to the Employer within [ ] days.
15.1
The Employer’s division is: [Operations Division]
19.4
The time interval for making report on Operated Kilometrage information is [ ] days.
19.6
The minimum period for keeping all records and documentation relating to kilometrage is: [12 months]
19.6
This documentation must include the following items: Drivers’ log sheets Terminus Regulators’ Bus Arrival / Departure Records Accident or other Incident Reports
20.5
The minimum Quarterly Performance Report shall include the following items: Kilometrage Performance for Quarter Service Reliability Performance for Quarter
20.6
The Operator’s Service Reliability Performance shall be calculated as follows: For High Frequency Routes (where the emphasis is on the provision of regular Services and the minimisation of long gaps), the average excess wait time (the average time that an intending passenger waits longer than the average scheduled wait, in accordance with the Working Timetable) shall be calculated, together with other statistics as may be appropriate. The excess wait time will be the difference between the average actual wait time, derived from the proportion of buses observed, and the average scheduled wait time, derived from the number of expected buses as set out in the Working Timetable.
23.1
The Penalty Rate for Deductible Lost Km shall be the Contract Price divided by the annual km in any year.
28.1
The fare for single journey tickets is: VND 2500 per passenger
34.1
The Expiry Date shall be [insert number of years] from the Start Date
35.2
The Contract Extension Criteria are as follows: Operator shall meet or exceed Minimum Km Standard for four quarters Operator shall meet or exceed Service Reliability Threshold for 3 of past 4 Quarters
35.3
The Extension Assessment Period will be Year 2 of the Contract
35.3
The Extended Expiry Date will be [insert number of years] from the Expiry Date
36.3
The number of operating hours and scheduled kilometrage may be varied by up to a percentage of [10%].
36.3
The Contract Price adjustments shall be as follows [_______] per bus.hour [_______] per bus .km These figures shall be subject to annual adjustment in accordance with Schedule
VII 36.4
the bus hours and/or bus kilometrage are reduced by more than a percentage of [10%].
36.4
the difference was limited to a percentage of 10%.
36.5
The Contract Price adjustment shall be [________] per additional peak bus . This figure shall be subject to annual adjustment in accordance with Schedule VII
SECTION 5. FORMS OF SECURITIES Form A - Bid Security (Bank Guarantee)
WHEREAS,
(hereinafter called “the Bidder”) has submitted his Bid dated for the provision of standard public bus services on Route [Insert name and number of Route](hereinafter called “the Bid”).
KNOW ALL PEOPLE by these presents that We of having our registered office at (hereinafter called “the Bank”) are bound unto the Hanoi Transport Management and Operation Center (hereinafter called “the Employer”) in the sum of for which payment well and truly to be made to the said Employer, the Bank binds itself, its successors, and assigns by these presents. SEALED with the Common Seal of the said Bank this
day of
THE CONDITIONS of this obligation are: (1) If, after Bid opening, the Bidder withdraws his Bid during the period of Bid validity specified in the Form of Bid; or (2) If the Bidder having been notified of the acceptance of his Bid by the Employer during the period of Bid validity: (a) fails or refuses to execute the Form of Agreement in accordance with the Instructions to Bidders, if required; or (b) fails or refuses to furnish the Performance Security, in accordance with the Instruction to Bidders; or (c) does not accept the correction of the Bid Price pursuant to Clause 26, we undertake to pay to the Employer up to the above amount upon receipt of his first written demand, without the Employer's having to substantiate his demand, provided that in his demand the Employer will note that the amount claimed by him is due to him owing to the occurrence of one or any of the three conditions, specifying the occurred condition or conditions. days after the deadline for This Guarantee will remain in force up to and including the date submission of bids as such deadline is stated in the Instructions to Bidders or as it may be extended by the Employer, notice of which extension(s) to the Bank is hereby waived. Any demand in respect of this Guarantee should reach the Bank not later than the above date. (Date) (Signature of the Bank)
21.1.2 (Seal of the Bank)
Form B - Performance Security (Bank Guarantee) To: (hereinafter called “the Operator”) has undertaken, in WHEREAS pursuance of the Agreement dated to provide standard public bus services in Ha noi, Route: [Insert name and number of Route].; AND WHEREAS it has been stipulated by you in the Contract that the Operator shall furnish you with a Bank Guarantee by a recognized bank for the sum specified therein as security for compliance with his obligations in accordance with the Contract; AND WHEREAS we have agreed to give the Operator such a Bank Guarantee; NOW THEREFORE we hereby affirm that we are the Guarantor and responsible to you, on behalf of the Operator, up to a total of , such sum being payable in the type and currency in which the Contract Price is payable, and we undertake to pay you, upon your first written demand and without cavil or argument, any sum or sums within the limits of as aforesaid without your needing to prove or to show grounds or reasons for your demand for the sum specified therein. We hereby waive the necessity of your demanding the said debt from the Operator before presenting us with the demand. We further agree that no change or addition to or other modification of the terms of the Contract or of the Services to be performed thereunder or of any of the Contract documents which may be made between you and the Operator shall in any way release us from any liability under this Guarantee, and we hereby waive notice of any such change, addition, or modification.
SIGNATURE AND SEAL OF THE GUARANTOR
(Name of Bank)
(Address)
(Date)
SECTION 6. FORMS OF ACCEPTANCE
Form A – Letter of Acceptance
Date: To:
This is to notify you that your Bid dated for execution of the Contract for the provision of standard public bus services in Ha noi, Route: [Insert name and number of Route] in accordance with the Instructions to Bidders is hereby accepted by our Agency. We also notify you that the Contract Price of (in words) (in figures ) for the provision of standard public bus services in accordance with the Conditions of Contract is hereby accepted by our Agency. You are hereby instructed to proceed with the execution of the said Services in accordance with the Contract documents.
[Authorized Signature]
[Name and Title of Signatory]
[Name of Agency]
Attachment: Agreement
Form B - Form of Agreement
AGREEMENT day of 20 , between the Hanoi Transport This Agreement, made the Management and Operation Center (hereinafter called “the Employer”) and (hereinafter called “the Operator”) of the other part. Whereas the Employer is desirous that the Operator provide standard public bus services in Hanoi, Route: [Insert the name and number of the Route] (hereinafter called “the Services”) and the Employer has accepted the Bid by the Operator for the execution and completion of such Services. Now this Agreement witnesses as follows: 1. In this Agreement, words and expressions shall have the same meanings as are respectively assigned to them in the Conditions of Contract hereinafter referred to, and they shall be deemed to form, and be read and construed as, part of this Agreement. 2. In consideration of the payments to be made by the Employer to the Operator as hereinafter mentioned, the Operator hereby covenants with the Employer to perform the Services in all respects with the provisions of the Contract. 3. The Employer hereby covenants to pay the Operator in consideration of the Services performance the Contract Price or such other sum as may become payable under the provisions of the Contract at the times and in the manner prescribed by the Contract. 4. The Operator hereby covenants to collect and handover Fares and Revenues to the Employer in accordance with the provisions of the Contract.
Signed and sealed on behalf of the Employer
Signed and sealed on behalf of the Operator
Signature: Name: Position:
Signature: Name: Position:
Report 3 The Phasing of the Reform TABLE OF CONTENTS 22
The need for a phased transition
23 The Principles of Phasing 23.1 Creating the legal basis 23.2 Use existing laws first 23.3 All measures to be consistent with a long term strategy 23.4 All changes to be accompanied by appropriate incentives to participate 24 Phase 1. – Using the existing legal framework 24.1 Using existing arrangements 24.2 Piloting the tendering process 24.2.1 Route tenders with designated funds 24.2.2 Specific service tenders 25
Phase 2- Introducing the concept of a comprehensive contract
26
Phase 3- Completing the reform
27
The timetable for the reform
28 The need for a phased transition Competitive tendering of route franchises cannot be introduced immediately because; • • •
the present competent legal authorities have neither the administrative experience nor the financial resources to administer the system; the private sector operators are not currently organized at a scale suitable for taking on route based franchises; the cluster companies are operating outside the existing legal system and have levels of cost which would make it impossible for them to compete in a market for franchises.
For those reasons it is recommended that there should be a transition to comprehensive competitive tendering of franchising through a number of phases.
29 The Principles of Phasing It is suggested that the following principles should be adopted in phasing the reforms.
29.1 Creating a legal basis The reform must be introduced and explained in a White Paper, or equivalent document, which should be the basis for the introduction of the new law proposed in Report 1. That law should be introduced into Parliament at an early date so that the steps in the reform may proceed. It may be appropriate for the reform, and its fiscal implications, to be introduced in the forthcoming budget speech.
29.2 Use existing laws first Where competitive tendering can be introduced within the existing legal framework and with existing sources of funds it should be considered immediately. If the possibilities concern new routes, or indeed any complete routes, there is no reason to delay more than the preparation of a good tendering process dictates. The NTC has a budget for the coming year for developing some new routes which should provide an ideal opportunity to pilot the tendering process.
29.3 All measures to be consistent with a long term strategy The early steps should, as far as possible be seen to fit in to a longer term strategy of introducing competitive tendering on a more comprehensive basis. For this reason it would be advisable to ensure that none of the immediate actions pre-empt the possibility of introducing route franchising in the longer term. For example, auctioning new permissions may be taken to imply the grant of rights to operate the permission in perpetuity. This should be carefully protected against.
29.4 All changes to be accompanied by appropriate incentives to participate The steps in this program should be constructed to offer incentives to the various stakeholders to participate enthusiastically in the change. The major links to be made might include the following: (i)
Linking the creation of responsible of route associations with the introduction of timetables protecting the associations against further uncontrolled grant of competing permissions to operate
(ii)
Linking the imposition of a requirement for the competent authorities to prepare and implement comprehensive timetables to the channeling of subsidy funding through them
(iii)
Linking the long term commitment to competitive tendering to a protected period of preparation through negotiated contracts.
(iv)
Linking all institutional changes with the provision of appropriate training and assistance.
30 Phase 1. – Using the existing legal framework 30.1 Using existing arrangements The initial phase, which could be started immediately, would involve the use of the existing legal framework to improve the efficiency of use of private sector capacity and give incentives to both private and cluster company sectors to prepare for the full introduction of the new system. The first phase would need to include the following activities. (i) (ii) (iii) (iv) (v) (vi)
Enforcement of the current laws on permissions on all operators, including the cluster companies; Preparation of timetables for all routes, preferably including all operators, but if not, at least including all private operators; Limitation, where possible, of the number of vehicles with permission to operate to a number that is needed and can be accommodated in an efficiently scheduled sector; Enforcement of the responsibility for the maintenance of social services on the legally competent authorities; Announcing the intention to channel of specific subsidy funds for educational services and unremunerative routes through the competent authorities; Requiring each competent authority to construct a route development plan as a condition for receiving the finance for subsidies and the power to auction franchises or permissions;
(vii)
Requiring each competent authority to identify pilots for competitive tendering, which could be either in subsidized services or new routes.
30.2 Piloting the tendering process The purpose of pilot tenders is twofold: • •
To demonstrate the practical viability of the tendering process in Sri Lanka; To encourage the provincial authorities to use their powers more widely.
In order to be able to go ahead with pilots for competitive tendering early in the reform process it is suggested that the pilots should be restricted to those which can be undertaken with the existing law and with existing channels of funding. These fall into two categories.
30.2.1
Route tenders with designated funds
Budget allocations have been made in the current year to allow the NTC to fund some new unremunerative routes. These should be used as pilots for competitive tendering. It is essential in this event that the intention to put the routes out to competitive tender as routes (i.e. not as individual permissions) should be widely publicized as early as possible to allow associations to be formed to compete for the tenders.
30.2.2
Specific service tenders
Funds may also be available, both to the NTC and to the provincial councils, for the tendering of school services. The Southern Provincial Council has already put out to tender selected slots in combined timetables on the condition that the buses serving these slots should carry schoolchildren at reduced fares. While this type of arrangement does not fit well into a longer term solution in which all routes are held as single franchises, including the obligation to carry schoolchildren at reduced fares, it may be a useful introduction to competitive tendering for the private sector, and is to be recommended as such. It should be made clear, however, that the tenders put out to bid in this way are not to be a permanent feature of the future arrangements. Similar tendering of specific slots has been used by the Southern Province PTA as a means of generating income from the most remunerative runnings – the so-called “office services”. Again, it is not desirable for single slots to be auctioned in the long term, but this experiment gives the authority the experience of identifying packages which can yield positive revenues to support other unremunerative services and gives the private sector experience in bidding for remunerative routes. These could be included in the pilots, but again under the clear understanding that they are interim arrangements only.
31 Phase 2- Introducing the concept of a comprehensive contract The major weaknesses of current private sector operations all stem from the fact that the basis for operation of a public bus service is a single vehicle permission. This accentuates the fragmentation of ownership and encourages the operators in the industry to “think small”. They have no responsibility for providing a comprehensive service, nor any incentive to operate at unremunerative times. The major objective of the second phase of the reform should be to replace the individual permission holder by a franchised route supplier. The first stage in this process should be the introduction of the requirement of private operators currently holding permissions to operate on a route to form an association with the capability to manage the scheduling and monitoring of service provision on the route. Where operators, by mutual agreement, wish to exchange permits in order to form associations with which they are more comfortable, that should be permitted by the competent authorities. The inducement to the private operators to take this step should be threefold: • • •
The replacement of the annually renewable permission by a multi-annual contract to supply service on the route; A guarantee by government that no further permissions would be issued to new entrants on the route; An initial contract granted, without competition to the incumbents, subject to the understanding that all contracts would be put to competitive tender at the end of a five year period.
During the period of the initial contracts the performance of the operators would be monitored, and the agreements enforced in the same way that competitively tendered contracts would be. It would therefore be desirable for the system of penalties and bonuses, ultimately to be applied to the contracts, should have been developed before the introduction of the first negotiated contracts.
32 Phase 3- Completing the reform The initial set of negotiated contracts should have staggered termination dates, so that not all competitions for tenders would have to take place at the same time. That could be achieved either by staggering the introduction of the negotiated contracts of the same duration (say three years), or by having initial negotiated contracts of varying duration (say between 2 years and 4 years). If the latter approach were to be adopted some objective principle would have to be established for determining the duration of the initial negotiated contracts.
For the full system it is suggested that the duration of a contract would normally be five years, possibly with an extension of two years permitted without further tendering at the discretion of the authority. Before starting the transition to comprehensively tendered franchises the competent authorities would need to have the following planning and institutional arrangements in place: (i)
A draft set of documentation. This should have been disclosed to, and discussed with, operators before its introduction in practice. It is suggested that, while the Provinces would have the right to determine the specific content of the schedules within any particular route contract, a common framework contract should be prepared by the NTC as a template for the provincial contracts.
(ii)
A network plan. This would be the basis on which bidders would be able to see the context in which the specific route is placed. The authorities would not need to commit themselves to any specific sequence of tendering, or even any specific size of package for tendering. While the individual route might be the normal basis for tendering, the authority should reserve the right to combine or split routes within a package to be put to tender in order to forestall tacit collusion among operators not to compete for each others initial contract area.
(ii)
A schedule for tendering. Both for administrative convenience of the authorities, and to ensure a steady stream of possible contracts open to individual bidders, the tendering process should be staggered, with possibly up to four competitions each year. The precise arrangements should be left to the individual authorities to administer in the light of their specific local circumstances.
(iii)
A provisional budget plan The Provincial PTAs should have an annual budget to constrain their actions, with a requirement set by the Province that the PTA manage the procurement of bus services to remain within the budget constraint. For intra provincial services the right to set fares should rest with the provinces.
33 The timetable for the reform The suggested timetable for the reform process is as follows A draft timetable for the plan might be as follows. Date March, 2005 Sept, 2005 Sept, 2005 Sept, 2005 Sept, 2005 March, 2006 Sept, 2006 Sept, 2006 Sept, 2006 March, 2007 March, 2007 March, 2008 March, 2010
Action Publish strategic vision Enactment of tendering law Permissions to be enforced Publication of draft contract documents Pilot tenders implemented Completion of institutional revision Completion of network plans Transfer of subsidies to competent authorities Powers granted for comprehensive tenders Publication of schedule for tendering Completion of negotiated contracts Commencement of comprehensive tendering Completion of first round of tenders
Responsible Cabinet Cabinet NTC, Provinces, Police NTC NTC, Provinces NTC, Provinces NTC, Provinces Cabinet Cabinet NTC, Provinces NTC, Provinces NTC, Provinces NTC, Provinces
Report 4. The Institutional Requirements for reform. TABLE OF CONTENTS 34 Introduction – the institutional reform requirements 34.1 Legal 34.2 Separation of planning and procurement from operations 34.3 The competent authorities 34.4 Governance 34.5 Finance and budgeting 35 Reform of the Public sector regulatory institutions. 35.1 The competent authorities 35.2 The goals of a Provincial Transport Administration 35.3 Allocation of initiative 35.4 The primary transport functions of the provincial administration 35.5 The planning function 35.5.1 Development of the network 35.5.2 Route development 35.5.3 Development of technical capability 35.6 Procurement 35.7 Implementation - Monitoring and enforcement 35.7.1 Stimulating Competition 35.7.2 Managing barriers to entry 35.7.3 Adapt contracted service 35.7.4 Monitoring and correction 35.7.5 Emergency : 35.8 The provincial organization 35.9 The internal organization of a PTA 35.9.1 Departmental structure, tasks and staffing levels 35.9.2 Organization of the Planning Department 35.9.3 The procurement department 35.9.4 The Contract Management Department 36 Reform of the private sector 36.1 Route associations 36.2 The operators qualification 36.3 Developing business management skills 37 Reform of the public sector 37.1 The existing situation 37.2 The preferred alternative 37.2.1 Restructuring the SLCTB and cluster companies 37.2.2 Enforcement of company law – the bankruptcy constraint 37.2.3 Establishing an initial role 37.3 Opting out 37.3.1 Removal of all direct subsidy 37.3.2 Withdrawal of indirect subsidies. 37.3.3 Preventing destabilizing interventions
.
38 Introduction – the institutional reform requirements In order for a more commercially efficient competitively tendered franchising system to be established an appropriate institutional framework needs to be established. The following elements will be required.
38.1 Legal The legal basis for the Framework needs to be established should be established in the law outlined in paper 2. This proposes that the law is largely an ‘enabling’ law, setting out the scope of the matter, supported by some further detailed regulations concerning implementation. It gives to the National Transport Commission the responsibility for preparing the reform documentation, but allows the competent authority to define the details in schedules to the contract documents. The law and the regulations establish the Transport Authority, assign to it the right to carry out the various transportation and planning functions, to award permits, franchises, concessions, etc. to operators, and to manage the associated financial matters.
38.2 Depoliticising the transport regulation process Many of the problems which have arisen in the bus transport sector in recent years have arisen as a result of the politicization of the processes of regulation. On the one han,d permissions have been granted to private operators as an instrument of political patronage, often far in excess of the needs of the services for the permissions have been granted. This has then necessitated the use of various uneconomic devices, such as restrictions on the days of operation and limitations on dispatching, to equitably distribute the limited revenue available. Only the fact that fares have been set at a level which could support such uneconomic behavior has allowed the private sector to continue its expansion. On the other hand, the legal provisions relating to the cluster companies have often been ignored, and direct subsidy provided to what are in principle commercial companies, with the consequence that there has been little incentive to efficient management of resources. As a result budget burden of these companies has increased to unsupportable levels. At the heart of this problem has been the fact that the processes of management of the sector have been seen to be a matter of political patronage, used by both political parties. That has been very damaging to the transport user. If the bus transport sector is to be improved, that high degree of reliance on patronage in the sector must cease. Even some of the Provincial have already recognized the great burden that the traditional reliance on this form of patronage puts on them.
Institutionally, a solution for this kind of problem has already been recognized in Sri Lanka in respect of the public utilities falling under the responsibility of the Public Utilities Commission. In this case, the arrangements for the powers of appointment and dismissal of the Commission members, together with the qualifications for appointment, have been designed to exclude short term political intervention for patronage purposes. It is proposed that, as part of the reform, the National Transport Commission, which fulfills the central regulatory function in the sector, should be reconstructed with a similar constitution oto that of the Public Utilities Commission.
38.3 Separation of planning and procurement from transport operation The reform also requires the complete separation between the functions of the public regulatory bodies, which are responsible for planning and procurement of services and the public or private agencies which are involved in the supply of services. In the case of Sri Lanka this means that the suppliers of transport services should not at the same time be allowed to perform, or pretend to perform, the essentially political functions of deciding what social services are required or how they are to be provided. It is absolutely essential that these functions should be vested solely in the competent authorities – the NTC and the Provinces – and not in the cluster companies or the essentially defunct SLCTB and RTBs.
38.4 The competent authorities The competent authorities for the planning and procurement of services are already defined legally in the form of the NTC and the Provincial Transport Authorities, but need to be restructured and re-skilled to perform the tasks required in a regulatory system based on comprehensive competitive tendering of route franchises. It is not sufficient to simply give the Transport Authority some new instructions. A total reform is needed which will involve the transformation of the previous arrangements into a policy-driven and accountable body, which has clear reporting arrangements to the policy makers, and the organizational capability to carry out the transportation procurement and planning functions.
38.5 Governance Governance is the formal process through which the Transport Authority is accountable to and directed by the political entity. The two key elements of governance are the downward transmission of policy (while allowing for feedback) and the upward reporting of performance. The policy needs to be coherent and capable of implementation within the available finances. It needs to provide the framework to create and implement clear objectives and tangible targets, and give the Transport Authority the powers necessary to achieve these within the regulatory framework
38.6 Finance and budgeting The competent authorities need to establish explicit financing policy, allocations and mechanisms for the financing of the urban public transport. This must have the following characteristics: • • • •
•
•
Sound and stable basis for the urban transport budget, to ensure that the transport supply is not subject to fluctuations; An explicit relationship between the funding and the authorities’ transport policy An explicit calculation of the funding, and allocation by purpose; A coherent framework which recognizes the relationships between the planned transport offer, the tariff levels, the efficiency of the system, and the subvention levels; A comprehensive framework which covers all forms of expenditure on public transport, including capital and operating funds, as well as the financing of the Transport Authority; An explicit mechanism for funding of the Transport Authority itself.
The funding framework for public transport must be based on a much longer timeframe than at present. It must be at least equal to the duration of the contracts undertaken by the Transport Authority. There should be a multi-year (normally 5 years) rolling framework which includes investment needs, within which there should be a detailed shorter term (say 3 years) budget. This is absolutely essential to allow the Transport Authority to enter into contracts for the total network of the services. Ideally, a Resolution of the Province Council should require that a balanced budget must be produced, and should require that the fiscal implications of the tariff levels, concessionary fares, and transport service levels are fully calculated, taking into account funds from the Federal level where applicable. The Resolution should require that all public funds allocated to passenger transport services (other than special investment projects) are to be disbursed through the Transport Authority, on the basis of PSO-based service contracts for the provision of the transport services. The procedures for tariffsetting should be formalized by Resolution. It is a fundamental factor in the level of subvention requirements, or in what service can be achieved for a given tariff and given subvention. Also, predictability and transparency of tariffs is important for investor and operator confidence.
39 Reform of the Public sector regulatory institutions Any effective franchising system requires an efficient customer on the one side and efficient suppliers on the other. The first step in establishing such a regime is therefore to identify, train and empower the appropriate public sector procurement and planning agencies.
39.1 The competent authorities Under existing arrangements the competent authorities for bus transport management and control are the NTC for inter-provincial transport and the provincial Councils for intraprovincial services. Separate agencies are responsible in Sri Lanka for basic safety and vehicle condition regulation and enforcement, employment law issues and competition/monopoly regulation. It is presumed that these will continue to perform their functions as at present. The provincial councils’ position in this respect was established by the 13th amendment to the constitution. While it would be possible in principle for intra-provincial services to be made the joint responsibility of the provinces concerned, this would complicate matters considerably, particularly in respect of longer distance services which traversed several provinces. It is therefore proposed that these responsibilities shall remain as they presently stand. However, it would require that the NTC is clearly constructed in two divisions, the first responsible for policy formulation and advice on regulation and the second responsible for implementation of regulation of inter-provincial services. The two divisions should operate at arms length from each other, with a requirement that no special preference is given to inter-provincial services in any financial allocation undertaken by the NTC (for example as a channel of subsidy for educational services). As the capabilities of the NTC are at present better developed than those of most provincial councils, this report will concentrate particularly on the institutional implications for the provinces.
39.2 The goals of a Provincial Transport Administration There are three primary goals which need to be assured by a Transport Authority: •
Establishment of a network of transport services which meets the needs of the citizens
•
Procurement of transport services from competent operators in a way that achieves sustainable value-for-money for services which are supported by the public purse
•
Maintenance of quality of the transport services throughout the contract, licence or concession period.
The implications of these requirements for the competent authorities are substantial. The Provinces will need to be able to specify requirements and assure service quality, independently of the operators, and will need to develop Client – Supplier relationship for the provision of financially supported or regulated public transport services. Explicit, stable, funding mechanisms will need to be developed, and other regulations may be required. To achieve all this the Province administration will need to increase its capabilities in many areas.
39.3 Allocation of initiative One of the most fundamental issues in the institutional framework is the allocation of initiative among the stakeholders, especially between the Transport Authority and the operator at the strategic, tactical and operational levels, shown in the table which summarizes the decision types at the different levels: Decision level
General Description
Strategic
Long term (5 years)
What do we want to achieve ?
Tactical Medium term (1-2 years)
Which services can help to improve these aims ?
Operational Short term (1-6 months)
How to produce these services ?
Decisions “Software”
“Hardware”
General Aims Transport Policy Market Share Profitability/Subsidy level General Service Characteristics Areas Target Groups Intermodality Detailed Service Characteristics Fares Vehicles Image Routes Additional Service Timetable
Sales Selling activities Information to the public
Production Infrastructure management Vehicle rostering and maintenance Personnel rostering and management
Source: van de Velde, 1999. Given the starting point in Sri Lanka, with a very fragmented private sector and an ineffective public sector, it is inevitable that the strategic and tactical initiative must fall with the competent authorities. The requirements which this puts on the Provinces can be taken in two stages – first identifying the functions which have to be performed and then allocating these functions to organizational units within the province.
39.4 The primary transport functions of the provincial administration There are 10 primary functions which the provincial authorities will need to perform:
Area
1
Primary Functional Area
Organisational
Definition Organise the entity such that it has the structural, personnel and financial capabilities to carry out the assigned tasks, and does so within prevailing laws and accounting principles
2
Financial
Secure, allocate and disburse the finances required for all authorised activities of the entity
3
Policy
Develop, adapt and express the transport policy for the area of coverage
Regulatory
Establish and manage the processes for regulation of the supply of passenger transport in the area of coverage
5
Planning
Develop the mobility requirements for the area of coverage, and express this as a transport offer in terms of a network, routes, detailed timetables and/or service parameters for all modes covered by the entity
6
Fares
Establish the framework for the fare system and tariffing levels for the public transport offer
4
Ref no
Functions
1.1 1.2 1.3
Administration Reporting Capability
1.4
Legal
2.1 2.2 2.3 2.4 2.5 3.1 3.2 3.3 3.4 3.5 4.1 4.2 4.3 4.4 4.5 4.6 5.1 5.2 5.3 5.4 5.5 5.6 6.1 6.2 6.3 6.4 6.5 6.6 6.7 6.8
Budgeting Sourcing/securing finance Allocation of funds Disbursement Capital expenditure Urban Policy and Land Use Transportation Policy Urban Public Transport Policy Coverage / service parameters Quality Parameters Develop regulations Assess applications Issue licences Control licenced operations Control unlicenced operations Manage licences Information gathering Quantify mobility needs High-level network design Detailed network design Forecasting Integration Set/regulate tariff levels Determine fare structure Establish fare products Fares integration Sales and distribution Revenue collection Clearing systems Revenue protection
7
Procurement
Develop and manage procedures to procure the planned or alternative transport services in accordance with pre-determined objectives
8
Intervention
Plan and implement intervention measures to align the transport offer with the entity's objectives
9
Promotional
Promote the public transport modes in political, image, operational and informational terms
10
Political
Establish and manage interfaces and outreach activities with societal stakeholders
7.1 7.2 7.3 7.4 7.5 7.6 7.7 7.8 8.1 8.2 8.3 8.4 8.5 8.6 8.7 8.8 9.1 9.2 9.3 9.4 9.5 9.6 9.7 10.1 10.2 10.3 10.4 10.5
Develop procurement strategy Develop procurement procedures Tender documentation Run tender competitions Negotiate tender contracts Negotiate non-tendered contracts Manage contracts Re-bid process Stimulate competition Alter barriers to entry Adapt contracted services Monitoring and correction Support measures Investment Restructuring Emergency Traveller information Marketing Customer-facing services Operating Environment Travel demand management Political positioning Dissemination Political lobbying Political representatives Outreach to communities Customer outreach Employers and businesses
Table 5.1 : Primary Functional Areas and Key Functions for a Transport Authority Source : Finn and Nelson (2003) Some of these functions are particularly novel for the competent authorities and need to be given special attention. These include network planning, service procurement and monitoring and enforcement.
39.5 The planning function The Planning function is one of the core functions within the Transport Authority. This defines the network to be operated, its characteristics, and its ability to meet the travel needs of the people of the Province. It also establishes the costs of operation (subject to given efficiency parameters), and provides the framework for the potential revenue to be generated by the network.
39.5.1
Development of the network
The Transport Authority will be required to provide a comprehensive network subject to determined criteria which include sustainability, citizen accessibility, and quality. The Planning function will develop the network based on both identified and projected travel requirements within the Province. In order to achieve this, the following tasks need to be performed. •
Operational Plan. An Operational Plan should be developed to cover a rolling three year time period, identifying sectors of the network to be reviewed, data collection requirements, training and analysis tool requirements, and priorities for action. The first twelve-month period will be developed to implementation plan level. The Operational Plan should be updated on a six-monthly basis.
•
Methodology for network planning. The methodology for the carrying out the network development should be established at the outset. It should identify the techniques to be used in determining the travel demand, the models or simulation software used for creating the network, the quantification methods for costs and revenue projections, and the route design tools. From this, the data requirements will be established to form the program of work for data collection, and the training needs will be identified. There is much international experience of network design which can be called upon to assist this process.
•
Data collection and identification of demand. A comprehensive data collection program should be established. The current and trend levels of urban travel should be identified through survey and other techniques. Market analysis surveys can be conducted to establish trip purposes, trip patterns, user requirements, and user preferences, to develop a model of demographic and travel demand patterns in the Province, and to predict the potential travel volumes under different scenarios. Non-numeric sources of information should also be obtained, including requests from representatives and community groups, and inputs from the transport industry.
•
Network criteria. The criteria to be used in developing the network should be derived from the Province Transport Strategy. The criteria are likely to include business and commercial factors, citizen accessibility factors, coherence and completeness of the network, integration of urban network with other transport services (including rail services), optimization of resource requirements, and ability to provide support infrastructure and services.
•
Developing the network. The network should be developed using scientific methods. This should ideally be based on computer modeling techniques which have the capacity to test many scenarios and optimize the network according to multiple criteria. The output of the process should be a detailed specification of the network, identifying capacity and frequency requirements on the various links.
•
Cost and revenue forecasting. As part of the network development capability, it will be necessary to be able to generate dependable cost and revenue forecasts for the potential routes. Costs can be relatively easily determined based on known operational costs for the different types of vehicles to be utilized on the route. The revenue forecast will be generated from the projected patronage, and the model will ideally have the capacity to estimate price elasticity and hence to approximate the effects of different market pricing options. All potential routes should be assessed according to the agreed criteria before proceeding to route design phase.
39.5.2
Route development
Potential routes which have passed the assessment criteria will be developed into specified routes, and reassessed before being offered to tender. The following tasks will need to be carried out within the Planning function. •
Developing routes and schedules. The capability for detailed route design and specification will be established within the Planning function. It is recommended that computerised scheduling techniques are adopted as this will allow optimisation of the vehicle and human resources within the route or across a group of routes. The output of the process will be a detailed route specification including route taken (including variations), departure times, journey times, interchange points, and stopping points.
•
Definition of terminal, interchange and stopping points. Based on the network and route planning processes, the Planning function will define the official terminal, stopping and interchange points for the network. This will provide part of the core data for the passenger information systems, and will also be used to formally define the route operating schedule.
•
Setting operational standards. The Transport Authority should also define the operational standards for the route, including maximum deviations from schedule. This data will form part of the Contract for the route, and will be used to monitor route performance.
•
Revision of estimated costs/budgets and re-assessment. Based on the precise route specification, the costings and potential revenue for the route should be recalculated in order to estimate what might be a reasonable bid.
•
Specification of routes for tender. For routes which are to be put out to tender, the transport Authority should prepare a detailed specification of the route according to a standard format. This will provide the Schedule of Work offered to the potential tenderers, and included within the Route Service Contract.
39.5.3
Development of technical capability
The Transport Authority will need to institute a Technical Assistance program to rapidly develop the capability, tools, database and first version of the network. This would ensure that the full network could be designed during and implemented during the transition phase. It would require additional funding, but this could be treated as a ‘one-off’ investment cost, and the Transport Authority counterparts on the team would have the know-how and techniques to evolve the network. In this approach, a specific Technical Assistance project could be established during the transition phase which would be designed to : • • • • • • •
develop the methodology for network development in the Provinces establish the data collection methodology and establish the relevant databases select and acquire appropriate network development and route scheduling tools train the Transport Authority counterparts to be fully self-sufficient in network planning develop the urban network with the assistance of the Transport Authority counterparts develop the route specifications with the assistance of the Transport Authority counterparts set in place the procedures for the ongoing analysis and network development
Given the relative lack of appropriate skilled personnel, it is likely that they will require external advice from an expert organization with substantial experience of network design and knowledge of design tools. It is suggested that the NTC should perform the function of providing a core technical assistance staff, possibly assisted by funds from one of the international institutions. However, it is essential that there is genuine skills transfer, first from the international experts to the NTC and then from NTC to the Transport Authorities.
39.6 Procurement Procurement is a special skill which traditional transport departments have not needed, but which is critical for a tendered franchising system. It contains a number of discrete tasks. Ref.
Sub-function
Elements
7.1
Develop procurement strategy
7.2
Develop
Establish core philosophy of procurement Determine unit(s) of services to be offered Determine phasing and cycles of procurement Establish market participation mechanism Establish procurement rules and probity checks Identify targets for special role (e.g. SME's, new entrants) Establish competition rules and procedures
procurement procedures 7.3
Tender documentation
7.4
Run tender competitions
7.5
Negotiate tender contracts
7.6
Negotiate non-tendered contracts
7.7
Manage contracts
7.8
Re-bid process
Turn goals and objectives into selection criteria Determine knowledge available to participants Establish and implement pre-qualification processes Prepare detailed service specifications Specify quality and vehicle requirements Document the process to prepare and submit bid Document the selection process and evaluation criteria Prepare supporting business information for bidders Prepare sample contract for the procured services Prepare documentation packs for interested bidders Establish procurement cycle and service units for each competition Publish existence of competition and notify interested parties Distribute tender documentation and information updates Run information days and provide helpdesk Examine bids for conformity, technical criteria Rank conforming bids according to selection criteria Notify winning bidder and losers Document and publish results to comply with applicable law Determine areas for negotiation and inform preferred bidder(s) Negotiate service, vehicle and quality dimensions Negotiate and finalise financial dimensions Sign and notarise contracts Determine, document scope of negotiated services Determine, document input, output, quality and payment aspects Determine, document measurement and payment variation factors Determine preferred operator(s) Negotiate and sign contract Establish and maintain contract documentation and administration Establish and operate monitoring procedures Review operational and quality performance Apply penalty/bonus payments and procedures Assure that contract responsibilities on both sides are respected Assure that all information requirements are respected Identify contracts, franchises and licences due for re-bid Assess performance of incumbent operator Decide whether to roll-over/extend contracts, franchises, licences Renegotiate terms of extended contracts, franchises, licences For non-rollover, determine changes to service/quality specification Estimate changes to revenue, costs, financial support Decide whether incumbent is excluded from re-bid
Table 5.3 : Sub-functions and elements for ‘Procurement’ Function Source : Finn and Nelson (2003) . If the procedures and selection criteria have been well defined, these actions require mostly administrative skills. However, the greater the flexibility in the operator bids or the selection criteria, the more skills and management effort will be needed for these functions.
39.7 Implementation - Monitoring and enforcement This function involves planning and implementing intervention measures to ensure that the suppliers actually do satisfy the procurement agencies objectives. There is very significant interaction between monitoring and enforcement functions and those needed for planning and procurement. It contains eight sub issues which all need to be provided for in the assignment of tasks. Ref.
Sub-function
8.1
Stimulate competition
8.2
Manage barriers to entry
8.3
Adapt contracted services
8.4
Monitoring and correction
8.5
Support measures
8.6
Investment
8.7
Restructuring
8.8
Emergency
Elements Provide information on routes, revenues, costs to all bidders Discuss concerns with losing bidders and potential new entrants Simplify bidding processes Make processes transparent and build confidence Assure that risks are properly distributed, and proportionate Make key assets (terminals) available to bidders Vary unit size of contracts to encourage small and new entrants Assist small operators, owner-drivers to form organizational units Reserve certain contracts for small or new entrants Bundling of profitable and non-profitable services Encourage bidder freedom, and positively assess innovation Take strong action on monopolist/anti-competitive behavior Specify vehicle and driver licensing, certification requirements Specify appropriate vehicle technical, quality and age requirements Minimize bond and assurance requirements Specify operator competence and prior experience requirements Release business, patronage and travel pattern data Assist in skill development, make specialist resources available Identify changes in travel demand and specify new service need Determine changes required in quality and operational parameters Assess changes requested by operators Notify operator (within permitted changes in contract) Request and negotiate changes outside original contract scope Monitor operational, quality and reporting parameters Review performance with operator Notify operator of required improvements or corrective action Implement penalties, warning measures, etc. Contract replacement services on default, encash bonds, launch re-bid Assist development of higher-order skills within the operator base Training of core staff – drivers, maintenance Make available skilled, expert personnel for planning Make available specialist facilities and equipment Depots, terminals and support infrastructure Operations support systems (bus priority, AVM/VSCS) Customer services (ticketing, traveller information) Restructure (portion of) the network Alter basic procurement units (route, area) Change authority/operator balance of initiative for service design Restructure the operator, supply-side industry Emergency and contingency planning Withdrawal of service by contracted operator
Unavailability of key infrastructure Natural disaster and severe weather Financial crisis Civil and other unrest
Table 5.4 : Sub-functions and elements for Implementation Function Source :after Finn and Nelson (2003) Some of these functions need explanation.
39.7.1
Stimulating Competition
This may be very important where the incumbents have very local interests, and may need some stimulation to bid for anything other than their own traditional area of operation. Indeed, one of the arts in designing packages of activity to put out to tender is to design these so that no operator can simply rely on a mutual agreement between operators not to compete in each other’s area of influence. This can be done by manipulating either the packages that are put out to tender or the phasing of tendering various lots.
39.7.2
Managing barriers to entry
This is particularly relevant when, as in Sri Lanka, the regulatory and/or competitive framework is being reformed. It can often be the mechanism to bring the informal sector into the formal transport offer. It will usually be necessary to work closely with other authorities and agencies when altering many of the barriers to entry. This function can also be used as an intervention mechanism either to allow new entrants to increase competition or innovation; or to force out low-grade providers if there are safety or quality problems. However, care must be taken that this is not used as a means of protecting incumbent operators.
39.7.3
Adapt contracted service
This task is fundamental to ensuring that transport supply remains well matched to consumer demand. For example, new developments may generate large increases in demand on existing routes, or demand for new routes. In the former case, the contract should include provisions for requiring the franchisee to provide increased frequency or capacity if load factors exceed some specified level. In the latter case, care will have to be taken to ensure that the introduction of new routes does not adversely affect the demand for an existing franchised supplier. Provision should be made for franchisees to appeal against any route network changes which adversely affect the basic demand on which they had originally bid.
39.7.4
Monitoring and correction
This function is relevant to all contracted or franchised services. In particular, where a contract includes some runs which may not be considered remunerative, but which were part of the contracted supply, it will be necessary to ensure that the contractor is performing according to contract. The monitoring may consist of an element of self reporting by the franchisees (with heavy penalties for false reporting), consumer information (for example through “hotlines” such as that developed by NTC) or by direct observation by inspectors. This last task may be sub-contracted to another agency, but the power of intervention should always be retained by the authority.
39.7.5
Emergency :
The authority needs to have developed a plan for dealing with emergencies. In some cases, such as natural disasters or periods of civil unrest, the problems will require collaboration with other agencies, and should be supported by ongoing emergency/contingency planning and readiness tests. Withdrawal of service by an operator is more specifically a task for the authority. The terms of each contract should make it clear that purposeful withdrawal of service by the contracted supplier constitutes a breach of the contract which may lead to termination. In any case, there should be a provision for the authority to take whatever actions are necessary to replace the withdrawn service.
39.8 The provincial organization At the provincial level it is likely that there will be some decisions which are viewed as highly political, and which therefore need to be taken at the political level, whilst others may be viewed as essentially technical and appropriate to the province administration. A sketch of that spectrum of issues, and the allocation of decision making for them is shown in the table below. Transport companies should be treated the same regardless of form of ownership. They have no right to influence the tactical layer, but they can offer variant bids in the tendering process.
Actor
Province Council
Province Administrat ion
Transport Authority
Political body
Municipal Administration
Publicly owned agency
Under democratic control
Hierarchically controlled by the political body
Mandate or franchise from Administration
Type
Relation
Private Transport Companie s Privately owned companies Contracts with Authority after
Cluster transport companies Publicly owned companies Contracts with Authority after tendering
tendering
Strategic
Tactical
Transport Policy Social Policy (approval)
(discussion)
(approval)
(discussion)
Standards of accessibility (Social) standards of mobility Fares Routes Timetables Vehicle type (discussion)
Operational
(suggestions as bid variants)
(suggestions as bid variants)
Vehicle rostering Personnel rostering Personnel management Vehicle maintenance
Vehicle rostering Personnel rostering Personnel management Vehicle maintenance
Table 4.3 :Institutional Framework for Provincewide competitive tendering Adaptation of presentation in ISOTOPE Final Report (2000) For the implementation of a competitively tendered franchising system the responsibility is usually delegated to a transport specific administrative body, the Passenger transport Authority (PTA) Such bodies already exist in the provincial administrations in Sri Lanka.
39.9 The internal organization of a PTA The organizational structure of the Transport Authority will be determined primarily by the functions to be carried out and the scale of the province. As a result, it is not possible to recommend a “best” organizational structure. For example, in a small Province it is possible that a small team of 2-4 people could handle all of the administration of the urban passenger transport. It is worth noting, however, that the number of functions is not directly related to the number of people or units required. The functions associated with procurement and competitive tendering are complex, but can often be carried out by a small, expert team. By contrast, planning or operational functions can often require much larger teams for tasks such as data collection, operations monitoring and control, or revenue protection.
39.9.1
Departmental structure, tasks and staffing levels
An interesting example of the organization of a Passenger Transport Agency (PTA) which is relevant for Sri Lanka is that of a medium-sized city in a Central Asian CIS country which operates bus and trolleybus services. As in many Provinces throughout the CIS, there is an emerging private and informal sector which is only partially integrated into the transport supply, and a deteriorated public sector bus and trolleybus service provider for the core network. The institutional framework and organizational structures are being reformed to allow the development of a more open and coherent market for bus services, based on competitive tendering. Table 6.1 shows the proposed departments of the PTA, along with the foreseen tasks and the associated staffing levels. Department Director
Staff 4
Tasks and activities • • • • • •
Establish policy under direction of Board Develop and manage the Implementation Plan Control overall budget for PTA activities Manage interaction with key stakeholders and other agencies Manage PTA staff and facilities Accounting and legal tasks
Strategic
3-4
• Review and propose amendments to the Province Transport Strategy • Analyse the cost structure of the transport operators • Assess the impacts of different tariff levels on sustainability of transport operator and on affordability of travel • Assess the impacts of different privilege travel options and the funding required • Assist the city Administration in decision-taking on financial issues relating to urban passenger transport • Identify potential and develop strategies for market growth • Develop pricing and tariff structure • Develop fare products and marketing strategies • Develop specifications for the information and ticketing systems, and select technologies • Define service, comfort and cleanliness quality standards • Promote the network and manage public relations
Planning
2-4
• • • • • • • • •
Collect relevant data on travel demand market Identify urban passenger transport requirements Establish the travel demand pattern in the Province Develop and optimize the overall network Generate cost and revenue forecasts Design routes and schedules Define operational standards Prioritize activities and allocate target budgets for each route Provide route specifications to Procurement for tendering
2
• • • • • •
Prepare tender documents and launch call for tenders Manage the tender and selection process Negotiate and conclude contracts with suitable operators Administer contracts and payments Maintain license and insurance information on Contractors Initiate actions against Contractors who are not in compliance
Procurement
• Negotiate revisions to contracts where required by Planning • Collect all data both for Procurement and for Planning
Contract management
39.9.2
20-30
• Monitor compliance with regulations • Monitor service provision levels, and report deviations from contract to Procurement • Identify service deficiencies and report to Planning • Carry out operational control • Implement revenue protection measures • Report poor revenue protection to Procurement
Organization of the Planning Department
The type of contractual arrangement proposed will require that the competent authority develops a unit with the capability to define the levels of public transport services to be procured and to enter into legally binding contracts to procure the public transport services. That implies that a dedicated agency is created with the professional capability to define and plan the public transport network required; that can foresee and finance the fiscal consequences of its plan; and that is administratively empowered to enter into legally binding contracts with operator(s) to procure the operation of the services on the network.
39.9.3
The procurement department
The procurement department deals with all aspects of the procurement of services. Administrative procedures need to be established for the contracts, which includes the following: • • • • •
Reporting from the operator and the Contract Management function Calculation of payments due to each operator in each period, including bonuses or penalties Establish payments channels and organize payments on time Reconciliation of payments on an annual basis and over contract lifetime Communications to the operator including notices, changes to the contracted work, reporting, warnings, and formal correspondence
Contract administration should be assigned to a nominated Contracts Manager. A Contracts Data Base should be established to assist in the administration, and also to identify due dates for review or renewal. Documentation procedures should be established, and all records relating to the contract should be kept through the contract life and for a specified period afterwards. The Contract needs to be specific about the information which is to be provided (type, volume, timing, to whom) and to properly support the administrative mechanisms. There must also be a clear specification of the quality to which the services are to be performed. The Transport Services Contract must explicitly support the Quality regime.
39.9.4
The Contract Management Department
Contract Management responsibility should also be clearly assigned, either to the Contracts Manager or included within the job specification of another person such as a Quality Manager. The principle task of the contract manager is to monitor the performance of the contract, and to intervene at the appropriate level if the contract is not being performed according to specification. The assigned Manager must put in place a performance monitoring regime. This is likely to consist of three elements: •
• •
Self-reporting by the operator of actual service outputs, deviations from the specified service, timekeeping, incidents, and other information as specified in the Contract. Observations and measurements of the actual service technical performance. This should mostly be to verify the operator’s reporting by sampling Subjective assessments of quality, through both expert assessment and user opinions
The Contract must ensure that the Transport Authority has the right to monitor and have access to information. It must support the intervention framework and the corrective actions. The mechanisms for escalation should be clear, practical, and consistent with local laws and business practice.
40 Reform of the private sector The introduction of franchising also requires the existence of operators with the fiscal strength, performance guarantee status, and juridical status needed to assure that the delivery of the requirements of the competent authority under a Transport Service Contract. In Sri Lanka, the present fragmentation of the private sector is a severe hindrance to disciplined performance. A number of steps will therefore need to be taken to reform the capabilities of the private sector.
40.1 Route associations One of the main objectives of the proposed reform is to restructure the private sector into units with greater levels of management competence, whether in the form of operators associations or private companies. It has been suggested in the earlier reports that the first step would consist of giving some temporary protection of the existing operators on a route in exchange for the formation by those operators of an operators association capable of acting corporately and entering into contractual arrangements with the competent authority.
Ideally, the associations which are formed should have a community of interest and purpose, and ultimately be capable of transformation into ambitious commercial companies. For this to occur the members of an association must be capable of acting collaboratively to secure their common objective. To foster this it is recommended that individual bus owners should be able to exchange permissions before the completion of the process in order to form mutually acceptable groupings. It is understood that some help had been given to owners to form legally recognizable companies or associations in connection with the earlier attempt to enforce a minimum size of 50 vehicles in all operators permissions issued after 2003.
40.2 The operators qualification It is suggested that in the first stage of the transition from individual vehicle permissions to route franchise contracts there should be some formal requirements of the operators which need to be met as a condition for entering the competition for franchises. These might include the following: •
• • •
Appointment of a designated manager to be held responsible for ensuring that the association works in a disciplines way. Eventually it is desirable that the designated manager should meet some minimum education and training requirements. Ability to control the disposition of all the vehicles required to fulfill the conditions of the contract. Maximum age of vehicles operated. Demonstration of a capability to maintain vehicles in a roadworthy condition, either in the facilities owned by the operating group or through the use of a reputable and reliable third party maintenance provider.
40.3 Developing business management skills In the longer term it is desirable that the bus operating units should transmute into company form. To this end, some training should be provided in the basis skills of bus company management, including management information systems; staff management; financial management; and network planning.
41 Reform of the public sector Although dealing with the cluster companies is not a major requirement in the terms of reference in this review, it is impossible to address the major problems of the sector without reference to them. As explained in paper 1, the cluster bus companies in Sri Lanka are already legally organized in the form of companies under the prevailing Companies legislation of the country, though 90% of the shares of these companies are
held by the state. In principle, therefore they are commercial companies which are legally appropriate for participation in a route tendering process.
41.1 The existing situation In practice, however, they have not been treated as normal commercial companies in a number of ways, including: • •
• • •
• •
Employees have been treated as state employees, with security of tenure and wages and conditions applicable to state enterprises The companies have been in receipt of direct operating subsidy from government in the form of compensation for wage increases paid to state employees The companies have received frequent capital gifts from the state in the form of new buses (though none have been received since 2001), tires and spare parts. They have also received free service in the form of major repairs undertaken by the workshops owned and operated by the SLCTB Although legally requiring permissions to operate from the competent authorities under the NTC Act of 1991, they have been permitted to continue in operation without obtaining such permissions. They have not been required to pay any contribution to the costs of use of terminals owned by the provincial councils. They have continued to provide unremunerative services, and some concessionary fare arrangements for students. Though receiving direct subsidy for these services, they have not received subsidies on a contracted basis ands have been expected to continue to provide services whether that compensation was adequate or not.
In all of these respects, the cluster companies are not subject to the same conditions as the private operators. For those reasons there does not exist a “level playing field” for direct competition for franchises between the private companies and the cluster companies. The introduction of competitive tendering must therefore be accompanied by a decision on how the cluster companies are to be treated.
41.2 The preferred alternative Given that they are already legal companies of an appropriate size to be able to offer disciplined service on a route monopoly, the preferred alternative would be for the cluster companies to be able to participate, with the other private sector suppliers who account for the great majority of services, in a competitive tendering situation. SEMA have already been entrusted with the task of suggesting means of improving their management to diminish their call on budget resources. Unfortunately, the public sector, often viewed even by government to consist of the cluster companies, the SLCTB and the RTBs are presently an operational disaster. They have twice as many staff as should really be necessary for the number of vehicles that
they are operating. Moreover, the staffing structure is administratively very top-heavy partly as a consequence of the failure to get rid of the redundant SLCTB and RTB institutions after peopleization and partly as a consequence of political intervention in the promotion and staffing policies of the companies in recent years. It is inconceivable that any simple improvement in management procedures could have enough impact to make them competitive in a franchising context. For that to occur the cluster companies would have to be; • • •
Depoliticized, with both their financial support and their business management ceasing to be treated as part of the patronage of government, Freed from any special obligations to provide unremunerative services except on contract, Denied any special preference in the competition for franchises.
Only radical action on the public sector can hope to be sufficiently effective for the cluster companies to rediscover an important role in the transport sector. In my opinion this will require severe company restructuring, proper imposition of the commercial disciplines which appear to have been largely abandoned in the management of the companies in recent years, and a new management focus on commercial activities.
41.2.1
Restructuring the SLCTB and cluster companies
The first step would need to be that of removing the burden of redundant labor from the operating companies. Given the existence of very significant redundancy within the SLCTB and RTBs, one way to do this might be to appoint well qualified business managers to each of the cluster companies with the duty, and power, to identify the staff necessary to operate a commercial bus company starting with the assets currently available, and for all that is then surplus to operational requirements to be transferred to the SLCTB, which would remain as a shell company holding all the redundant labor. The labor so transferred would be funded out of the existing wage subsidy, while the full costs of the labor employed in the slimmed down bus operation would be on the account of the operating companies. The immediate effect of that transfer would not add any new budget burden. Nor would it increase the total labor cost of the operating company (in fact it should reduce it somewhat). But it would recreate a basis from which a viable transport undertaking could be redeveloped if good management practices were adopted.
41.2.2 Enforcement of company law – the bankruptcy constraint The second step would be to create new incentives for the adoption of good management practices. This would be done by re-asserting what is believed to be already the legal situation, namely that the cluster companies are commercial companies, subject to the normal commercial discipline of the bankruptcy constraint. The new bus operations management law, which is suggested in reports 1 and 2, should reassert this. With this constraint management and organized labor would be required to behave as in any other business, seeking for efficient ways to undertake profitable activities. The experience of
bus reforms in other countries has clearly shown the great impact that the imposition of new commercial disciplines can have on former state owned enterprises.
41.2.3
Establishing an initial role
It is recognized that improvement of the performance of the cluster companies might take some time. It is therefore proposed that the cluster companies, just like the newly formed private operating units, should be given a period of grace during which they would operate under negotiated contracts, only being subject to the full rigor of competition for franchises at the end of the initial period. Making that provision will call for some inventiveness. At the moment, with the exception of some unremunerative routes on which they are the only operator, the cluster companies spread their assets very thinly over a large number of routes. Where they have been assigned the slots which they have requested within combined timetables they are failing to service them properly. The suggested solution is for the cluster companies to be given such contracts as they request, either on routes where they are currently the monopoly operator or to operate services on routes where there is also a private operator. In the latter case, the cluster company must specify the timetable that it wishes to operate, and will be held to account, in exactly the same way as a private operators association for its performance under the contract.
41.3 Opting out A less satisfactory alternative would be for the cluster companies to be allowed to opt out of the new system, just as they have effectively opted out of the legal provisions under which they are supposed to operate at present. If they were allowed to do so, however, a number of measures would need to be taken to ensure that they did not use that freedom in a predatory way to undermine the franchising system. The necessary protections would have to include the following.
41.3.1
Removal of all direct subsidy
As discussed earlier, the channeling of funding for unremunerative services through the competent authorities is an essential component of the strategy to redevelop a disciplined, comprehensive bus service. If the cluster companies were allowed to opt out of the system they would not qualify for any direct subsidy for unremunerative services, even if they chose to continue to operate routes on which they had formerly received subsidy. To allow that would completely undermine the ability of the competent authorities to ensure that social service subsidies were well targeted and efficiently implemented. However, even if they opted out from the general arrangements they might still be allowed to bid for unremunerative services under the same conditions as the private operators. However, any such permission should be subject to the condition that they were not in receipt of any form of indirect subsidy from any non-competitive source, and would be subject to the same penalties for non-performance as any other contract.
41.3.2
Withdrawal of indirect subsidies
After the initial restructuring, described above, to take redundant assets and obligations of the books of the cluster companies they should not be in receipt of any further indirect subsidy such as wage subsidy, non-payment of permission fees, non-payment of terminal use charges, etc. Only by doing this can the cluster companies be given the internal incentives to improve management of operations.
41.3.3
Preventing destabilizing interventions
Once the cluster companies had declared their network of operations, with the assets at their disposal at the commencement of the new system, they should not be permitted to reallocate vehicles to attack or undermine the profitability of any service for which a contract existed between a competent authority and a private operator. The cluster companies should be liable in law for any commercial damage resulting from any such predatory activity.
References (1) European Commission, “Improved structure and organisation for urban transport operations of passenger in Europe” (ISOTOPE Final Report), Luxembourg, 2000. ISBN 92-828-8457-0 (2) European Commission, “Quality approach to tendering urban public transport operations” (QUATTRO Final Report), Luxembourg, 1998. ISBN 92-828-5009-9. (3) Van de Velde, D., “Organisational forms and entrepreneurship in public transport” Transport Policy, 1999, Vol. 6 (3), pp. 147-157 (4) Department for International Development, “Review of Urban Public Transport Competition – Draft Final Report”, prepared by Halcrow Fox, London, 2000 (5) European Commission, “Proposal for a regulation of the European Parliament and of the Council on action by Member States concerning public service requirements and the award of public service contracts in passenger transport by rail, road and inland waterway.” COM(2002) 107 Final, Brussels, 2002. (6) Gwilliam, K., Kumar, A.J., Meakin, R.T., “Designing competition in urban bus passenger transport – lessons from Uzbekistan”, 6th International Conference on Competition and Ownership in Land Passenger Transport, Cape Town, South Africa, September 1999. (7) Finn, B., Nelson, J.D., “International Perspective on the changing structure of the Urban Bus Market”, TRB Research Record 1799, Washington, 2002 (8) Finn, B., Nelson J.D., “A Functional Model for an Urban Transport Authority”, 8th International Conference on Competition and Ownership in Land Passenger Transport, 2003.
Note : a) papers of 6th International Conference on Competition and Ownership in Land Passenger Transport are available at http://www.its.usyd.edu.au/thredbo_papers.html b) papers of 7th International Conference on Competition and Ownership in Land Passenger Transport are available at http://www.himolde.no/arrang/thredbo7/ c) European Commission papers can be accessed via http://www.cordis.lu
