Risks Involved in Transit Provision of Bus Contracts

To design and evaluate contractual arrangements for transit service delivery, it is crucial to understand the risks assumed by the actors involved. This understanding in turn clarifies the incentive structures of the contracts and their expected effects as well as explains the performance and development of public transport systems. This study examined urban bus contracts and presented a framework that grouped the risks inherent in any transit system, extended the usual dimensions of the analysis, and allowed for the examination of more complex contracts. This methodology was applied to current contracts of Transantiago, in Chile, which had been in effect since mid-2012, and showed that various contractual mechanisms transferred risks to the transit authorities. These mechanisms were shown to reduce operators’ revenue risk from 70% to around 25%, to weaken incentives, and to move the system further away from the 2012 reform objectives. This situation contributed to the persistence of a serious problem of buses skipping stops and fare evasion. In addition, a large proportion of users were captive to a single operator; this setup generated incentive issues in service planning. The analysis advised against the inclusion of demand risk reduction clauses because they might guarantee part of the operators’ income. Instead, stronger incentives could be generated by reducing the importance of the passengers transported in the payment formula while increasing that of service indicators. Complementarily, new solutions to the system’s remaining problems are suggested for further research, such as direct penalties for skipping stops or payments directly linked to fare evasion rates.