Melbourne's New Bus Contracts
1.1 Introduction
Buses are an important part of Melbourne’s public transport
system. They are especially important for travel within the city’s
middle and outer suburbs where they connect people to the radial
train services and provide for local and cross-town travel. In
2008–09, bus services carried about 20 per cent of the 480 million
passenger boardings, at a cost of $441 million to government.
Bus services started in Melbourne in 1869. The operators
developed as private, self‑funded organisations, setting their own
schedules and fares and owning the bus depots and vehicles. By 1997
bus companies were subsidised to operate exclusive routes within a
regulated fare structure using their own depots and vehicles.
The Victorian Transport Plan aims to improve public
transport and give Melburnians a practical alternative to car-based
travel. In May 2006 $1.4 billion was committed over 10 years to
develop local and cross-town bus services. The plan for improving
bus services included new bus contracts to improve the value
derived from the growing investment in bus services.
The Department of Transport (the department) was responsible for
the negotiation and the oversight of new metropolitan bus
contracts. The previous contracts expired in 2007. The department
had to prepare a reform strategy for the bus industry and then
agree new bus contracts with the operators.
The procurement aims were to improve the quality and
effectiveness of bus services, to improve value for money and to
maintain a constructive relationship with the bus industry.
In June 2008 the Minister for Public Transport announced that 29
new metropolitan bus contracts would come into effect from 1 July
2008.
1.2 Audit objective
The audit assessed the effectiveness of the new metropolitan bus
contracts by examining whether the department had:
- applied appropriate processes to negotiate
the new contracts
- assessed the extent to which the contract
requirements had been implemented
- established processes to evaluate and
improve performance.
1.3 Conclusions
The department’s performance has been mixed. It negotiated the
new contracts effectively. However, it had not finished the work
needed to manage contracts effectively by the time they became
operational. This caused some shortcomings in implementing the
contracts and evaluating operator performance.
Specifically, the department:
- had negotiated new contracts adequately,
but it’s preparation for managing them was inadequate
- implemented most, but not all, aspects of
the new contracts as intended
- had not established the critical
components of the performance management and evaluation framework
because it had not started planning in time.
The department has recognised that it needs to change its
preparation for managing new bus contracts. The deputy director bus
and regional services will oversee the negotiation of new regional
and school bus contracts and is responsible for service delivery
and contract management. This will renew the focus on contract
management during these negotiations.
1.4 Findings
1.4.1 Contract negotiation
The department succeeded in negotiating new contracts that are
likely to improve value for money. Specifically the department:
- understood the strengths and weaknesses of
the previous arrangements and used this knowledge to improve the
contracts
- followed the required policies and
guidelines for the planning, tendering and awarding of public
sector contracts, including those for assessing and improving value
for money
- demonstrated that the contracts provided
improved value for money by clearly presenting the costs, expected
benefits and trade-offs. While the new contracts have not
immediately cut service costs, they have set the framework for
improved value for money by, for example, including provisions to
competitively tender SmartBus orbital and new local bus
services.
On a less positive note, the department did not adequately
prepare for the management of the new contracts. It did not prepare
the required contract management plan, setting out the processes,
structure and resources for managing the new contracts before they
started. This is a significant omission.
The department consulted operational staff in developing the new
contracts. However, for future bus procurements, it needs to engage
these staff more effectively before embarking on new
arrangements.
1.4.2 Contract implementation
The obligations for performance reporting were only partially
applied because the necessary documentation had not been completed.
The operators’ reports on performance did not fully comply with the
contracts because the department had not finalised the
documentation to guide their reporting. The operators continued to
report against the old contracts’ benchmarks and some operators had
not provided all the required reports.
In May 2009 the department and the bus operators agreed on the
form and content of updated reports on operational performance.
These reports should address the contracts’ reporting requirements
when applied.
The new contracts also committed to developing improved
performance management, and progress had clearly been made.
However, developing the service quality regime is behind schedule
because the department did not start the work in time to meet the
contractual deadline.
In terms of contract implementation, the essential processes for
the payment of bus services and the monitoring and handling of fare
revenue are happening as intended.
1.4.3 Evaluating and improving performance
The department needs to improve how it collects and uses
performance information. This area is critical to demonstrate that
the expected increase in value for money is being realised.
Most of the indicators were relevant because they clearly
related to the objective being assessed. However, the department
did not have documents describing the analysis and rationale for
setting performance benchmarks and this made it difficult to
determine whether they were appropriate.
In reviewing the department’s performance evaluation we found
that the:
- patronage incentive regime was well
designed to measure performance
- passenger information indicators and
benchmarks were relevant and appropriate but not reported, thereby
preventing a comprehensive review
- operational performance regime needs to be
strengthened to provide greater assurance about the on-time running
information.
The department had not used the performance information to
evaluate and improve operators’ performance, partly because the
information had not been updated with the new contract
benchmarks.
1.5 Recommendations
For new bus contracts the department should:
- engage more effectively with operational
staff to complete the contract management documentation and plan
for the transition to the new arrangements before the existing
contracts expire (Recommendation 4.1).
- review its performance against the planned
time frames so it can formulate more realistic estimates
(Recommendation 4.2).
- provide early advice to government on the
strategic options and constraints for future metropolitan bus
contracts (Recommendation 4.3).
To improve the implementation of the new contracts the
department should:
- create and maintain a record of
performance against the Metlink performance indicators
(Recommendation 5.1).
- document the contract payment processes
and ask operators to submit a monthly record of missed or
additional services as the basis for adjusting monthly contract
payments (Recommendation 5.2).
To improve performance evaluation the department should:
- document the basis for its current
performance indicators and benchmarks and update this document when
the performance management system is amended
(Recommendation 6.1).
- strengthen the processes around the
measurement of on-time running by verifying that the operators’
approaches are adequate and periodically inspecting their
operational records (Recommendation
6.2).
- design processes so that information about
service changes is effectively and quickly passed to the relevant
organisations (Recommendation 6.3).