Designing competitive tendering systems for the public good: a review of the US experience

For two decades, most urban public transit services in the United States (US) have been provided directly by public authorities and supported by public subsidy programs. A substantial percentage of the public subsidies has been consumed by costs that have escalated well ahead of the inflation rate. Concurrently, the private bus industry experienced unit cost decreases (inflation adjusted). In response to the cost escalation of public transit and the cost control of the competitive market, some public transit authorities have competitively tendered a portion of public transit services to private bus companies. As US competitive tendering has grown, various approaches have been tried. Some public transit authorities have provided revenue vehicles for the use in tendered services; others have required private companies to supply their own vehicles. Tendering package sizes have varied from a single vehicle to more than 200. In some cases, public transit authorities have participated themselves in tendering, raising complex cost comparison and other issues. The success of or difficulties with tendering programs can be traced to such variations in competitive tendering system design. Three principles are crucial to ensure that public objectives are met by public transit competitive tendering programs: 1. Public policy control should be retained over competitively tendered services.2. A competitive supplier market should be fostered to ensure the most cost effective service.3. The entire tendering process should be open to public scrutiny. A number of guidelines flow from these principles, relating to the size of tendering packages, advertisement for tenders, public disclosure, length of contract period, participation of public transit authorities in competitive tenders (including guidelines on public‐private cost comparisons) and other issues. These principles and guidelines were used by the author in drafting two legislative proposals. The Colorado public transit competitive tendering act was the first mandatory tendering legislation passed with respect to any public service in the US. The model Public Transit Consumer Protection Act has been adopted by the American Legislative Exchange Council (an association of state legislators).