CHAPTER 5

Conclusions and Future Study

This study sought to provide an up-to-date review of the current state of performance measures used in contracted bus services in North America. The results of the literature review, survey, and case examples provide useful information about outsourcing bus service, including the prevalence of outsourced bus service, the nature of contractual arrangements, and performance measures used to manage contractor performance. This concluding chapter summarizes the main findings of this study and suggests some topics for future study.

Main Findings

The main findings are grouped by topic below.

Prevalence of Outsourced Bus Service

• According to NTD data, 376 transit agencies outsourced bus services in 2020.
• Eighty percent of outsourcing agencies were urban, and 70% of agencies outsourcing service had small bus operations (less than 26 vehicles).
• The outsourced services amounted to 10,653 peak vehicles and 31.8 million annual revenue hours.
• Outsourced bus service accounted for 20% of all bus service in 2020 (based on revenue hours).
• Most agencies that outsource their bus service outsource all of their bus service; however, 16% of outsourcing transit agencies also directly operate some of their bus service.
• The number of agencies outsourcing bus service appears to be increasing, rising from 174 agencies in 2006 to 376 agencies in 2020 (a 116% increase). Most of the increase comes from an uptick in the number of agencies with small bus operations outsourcing at least some service.

Nature of Current Contracts for Bus Service

• Based on the survey results, it was most common that both bus operations and maintenance were outsourced (86% of respondents).
• One contractor was the most common arrangement; however, 24% of respondents had two or three contractors.
• Contractors often provided additional support functions beyond operations and maintenance, including street supervision (95%), dispatching/radio room (89%), and administration (78%).
• Contractors providing revenue vehicles or facilities were rare (only reported by 5% and 19% of respondents, respectively).

• Most contracts were designed to last between 5 and 10 years (81%).
• Most contractors were paid based on a fixed fee per revenue hour or mile (69%).

Reasons for Contracting Out

Based on the survey, historical, political, or legal reasons were the most common responses regarding why agencies began and continue to outsource. However, reducing costs and obtaining staff capacity and capability were also ranked very highly, a finding that was echoed in the literature review.

Benefits of Contracting Out

• Survey respondents and case example agencies reported improved cost efficiency as a main benefit of outsourcing their services.
• Some survey respondents and case example agencies also reported the benefit of being able to be removed from day-to-day operational challenges (e.g., service delays and operator hiring).
• The literature review and case examples also suggested that outsourcing transit agencies benefited from access to the extensive expertise available from the contractor.

Challenges When Contracting Out

• The literature review, survey, and case examples uncovered some challenges associated with contracting out, which could also be reasons that transit agencies choose not to outsource their bus service. Examples include
  • A lack of direct control over the service,
  • Intensive effort associated with contract administration and monitoring,
  • Problems with contractor performance, and
  • Contractor management team turnover.
• Survey responses and case examples revealed that one of the most significant current challenges faced by outsourcing transit agencies is staff retention—especially among bus operators. Even if the responsibility for filling operator positions lies solely with the contractor, transit agencies see this as their own challenge, given that service quality suffers when operator positions remain unfilled.

Importance of Contractor Performance Management and Communication

• Survey responses, case examples, and the literature review provided evidence that effective monitoring of contractor performance can help improve the outsourcing experience.
• The literature review and case examples suggested that keeping open lines of communication between transit agencies and their contractors may enhance the quality of the working relationship and, ultimately, the service provided.
• Having dedicated oversight staff with clearly delineated lines of responsibility may help the effectiveness of contractor monitoring efforts, which are further enhanced by having objective performance measures by which to gauge contractor performance.

Typically Used Operations and Maintenance Performance Measures

• The literature review only provided a few, limited examples of performance measures used to monitor contractor performance (shown in Appendix B).

• Survey results helped uncover several commonly used revenue service performance measures, including but not limited to
  • Crash/accident rates,
  • Schedule adherence (OTP),
  • Missed trips or blocks (or percentage of service operated),
  • Complaints and complaint rates, and
  • Pull-out adherence.
• Survey results helped uncover several commonly used maintenance performance measures, including but not limited to
  • PM on-time performance,
  • Distance between mechanical failures,
  • Road calls,
  • Fleet availability, and
  • Bus washing and cleaning.
• In many cases, transit agencies were calculating performance measures instead of relying on contractors to calculate their performance.

Incentives and Penalties

• The case examples provided many examples of incentives and penalties tied to both performance measures and specific incidents/occurrences. However, there was significant variety in the operational definitions of performance measures (e.g., how on-time was defined), the performance standards (minimum performance levels) associated with each measure, and the actual monetary value of the incentive or penalty. For example, case examples had different incentives and penalties for OTP, such as the following:
  • At NICE Bus, the standard is 70% on time. The penalty is $5,000 for every quarter the standard is not met.
  • MWRTA did not have an incentive or penalty for OTP.
  • At San Diego MTS, the standard is 84 to 84.99% on time. The incentive for exceeding the standard was up to $10,000 monthly, depending on performance. The penalty for failing to meet the standard was up to $30,000 monthly, depending on performance.
  • At Sun Tran, the standard is between 92 and 94% on time. The incentive for exceeding the standard was up to $500 monthly, depending on performance; the penalty for failing to meet the standard was up to $500 monthly, depending on performance.
• Case example transit agencies indicated their satisfaction with their incentive and penalty structures in their contracts; however, some case example transit agencies found it best to levy penalties only after working with the contractor to try to resolve the problem.

Suggestions for Future Study

• Quantify the effectiveness of incentives and penalties.

  As discussed in the literature review, although incentives and penalties are generally accepted as important to maintain service quality, the actual empirical evidence is nebulous. More scientific study is needed to help answer the question of whether incentives and penalties are effective, which incentives and penalties are the most effective, and under what circumstances.

• Quantify the cost-effectiveness of outsourced bus service.

  As identified in the literature review, the evidence of whether outsourced bus service is more cost-efficient than in-house service is mixed. This divergent evidence and agency expe-

rience is likely related to many factors—some within and some outside of transit agencies’ direct control. More study is needed to carefully examine the drivers of cost efficiency in outsourced service, looking for patterns and factors that may help explain under what circumstances outsourcing or insourcing is more cost-efficient.

• Develop lessons learned and best practices from international transit systems.

  Transit systems abroad often have much different structures and contractual arrangements than those in the U.S., focusing on transit systems outside the U.S. could help identify international best practices that could be applied in the U.S.

• Develop guidelines for setting performance measures, definitions, and standards in fixed route bus contracts.

  The team did not find much guidance for transit agencies regarding what performance measures are best to use when outsourcing fixed route bus operations and/or maintenance. Although this study helps provide a picture of what transit agencies are doing today, the industry could benefit from more thorough, comprehensive guidance. This guidance could cover such topics as (1) what performance measures are best for different services provided by contractors (e.g., operations, maintenance, and scheduling), (2) how to operationally define each measure and potential ways to collect the data, (3) how to set reasonable, yet meaningful, standards for contractors, (4) how and when to set and leverage incentives and penalties, and (5) how to best work with contractors to ultimately achieve the desired levels of performance.

• Establish guidelines for fixed route bus contractor performance monitoring.

  Monitoring contractor performance can be a labor-intensive process, but doing so is critical to outsourcing success. The transit industry could benefit from research and guidance to help determine staff counts, procedures, and best practices for contractor performance monitoring. The guidance could target agencies of all sizes—with a special focus on small and medium agencies who (1) are more likely to contract out and (2) are more likely to struggle to have staff with adequate time to dedicate to contractor oversight.

• Study the evolution of performance measures and contracting with advances in technology.

  As transit vehicle and service technologies continue to develop, transit agencies and their contractors may find it difficult to leverage new technologies because of limitations in contractual language or outdated performance metrics. How will transit agencies be able to pilot automated vehicles or other technologies while still adhering to the language in the contract? The transit industry could benefit by learning best practices to balance the ability to innovate with the need to clearly define a contractor’s scope of work.

• Assess performance measures and contracting with changes in vehicle energy sources.

  With the significant increases in federal grant funding supporting the procurement of electric buses and buses using other low- or no-emissions energy sources, transit agencies and their contractors may encounter unexpected challenges in operating under existing contracts and even in negotiating new contracts. For example, how will maintenance performance measures change as more electric buses are included in transit agency fleets? Will billing procedures need to change if electric buses require more pull-outs and pull-ins than their conventionally powered counterparts? Will contractors need to increase their rates to be able to recruit and train specialized technicians for alternatively powered buses? The transit industry could benefit from guidance specifically focused on outsourcing operations and maintenance with mixed or even all-non-traditional fleets.

• Develop a full guidebook on outsourcing fixed route bus service.

  Many of the above recommendations for additional study could be synthesized into a single project to develop a guidebook for contracting out fixed route bus operations and/or maintenance. The guidebook could provide guidance for making the decision whether to outsource, what functions to outsource, how to develop an RFP, how to best establish performance measures, incentives, and penalties, best practices for working with contractors, and other key topics.