Introduction

Authorities of an urban area with regulatory control over the mass transport have to decide whether to operate the service with a publicly owned agency, contract the service to private companies, or create a framework for a deregulated market. This decision is necessary in both developing cities transitioning from an informal mass transport sector and developed cities exploring deregulation of existing public services. There are technical components, but the decision primarily takes place in the political realm.

As explained in Chapters Three and Four Bus Rapid Transit (BRT) is being used as a tool to formalise informal bus services in developing cities. But how to phase that transition and what to do with the existing informal operators is politically complicated. These complications play into the decision of whether to operate the service publicly or to contract it to private companies. Even if the authorities decide to contract the service, the way they handle the incumbents and include them (or not) in the tendering process may affect the success of a new bus service.

While BRT is not possible under completely informal conditions, contracting operations to private operators is not necessary. In developed and developing countries there are BRT services operated by public operators. Many factors, such as the role of incumbents, institutional and regulatory capacity of the government, and the legal and political context, play into the decision. However, contracting service to private operators is part of the model of BRT service being promoted around the world by various nonprofits and development banks.

This makes the issue of contract design central and relevant for BRT decision making in both developing and developed cities. Contracting is complex since it seeks to align public and private interests and it should be done carefully because renegotiating is expensive and complicated. After the initial round of contracts, the incumbent operators have advantages that can make competitive rebids difficult.

Why contracts are necessary

Contracting between the public and the private sector in order to provide a public service has been employed in a wide range of projects in the transport sector (Bernardino et al 2010; Galilea and Medda 2010; Medda and Carbonaro 2007).