Tendering of Metropolitan Bus Contracts

Tabled: 6 May 2015

3 Tendering the MMBF

At a glance


The Melbourne Metropolitan Bus Franchise (MMBF) was established using a competitive tender process. This Part of the report examines the planning and conduct of the MMBF tender.


The former Department of Transport's strategic planning was clearly focused on producing a value-for-money outcome, but did not fully comply with the required policies and guidance. Public Transport Victoria's (PTV) competitive tender process was guided by the appropriate procurement principles and resulted in a contract that is capable of delivering value for money.


  • The former Department of Transport did not prepare a business case for the MMBF or finalise a strategic procurement plan.
  • Despite this, value for money was considered from the start of strategic planning, and directly informed the development of the MMBF tender and contract.
  • The tender evaluation process was well managed and focused on achieving value for money for the state.
  • PTV managed most probity requirements effectively, however, the independence of the probity auditor at times was at risk of being compromised.


  • That the Department of Economic Development, Jobs, Transport and Resources and Public Transport Victoria develop a business case for future bus service procurement
  • That Public Transport Victoria and the Department of Treasury and Finance use the lessons from the targeted improvement process and develop guidance.

3.1 Introduction

The state chose an open tender process to establish the Melbourne Metropolitan Bus Franchise (MMBF) to advance reform of Melbourne's bus industry, and to maximise value by increasing competition in the Victorian bus market.

The former Department of Transport (DOT) managed the strategic planning and most of the tender planning, until Public Transport Victoria (PTV) became operational in April 2012. DOT personnel involved in tender planning were transferred to PTV, which assumed responsibility for the remaining tender planning and the tender conduct. The Department of Treasury and Finance (DTF) was also directly involved throughout the planning and procurement stages, with representatives sitting on the project and tender steering committees, as well as the tender evaluation panel.

PTV employed a two stage approach to market, involving an expression of interest (EOI) followed by a request for tender (RFT) issued to shortlisted applicants. The MMBF's value and its significance to the state as a critical element of Melbourne's public transport network led the state to apply additional scrutiny to the tender under the High Value High Risk (HVHR) process. PTV also committed to complying with Victorian Government Purchasing Board (VGPB) requirements to ensure the tender was run in accordance with better practice.

Figure 3A provides an overview of the MMBF procurement process.

Figure 3A

The MMBF procurement process



Preliminary approval

In July 2010, the government endorsed using an open tender to establish new contracts for the Orbital SmartBus services, and services run by the National Bus Company (NBC) and Melbourne Bus Link (MBL). Endorsement was subject to additional pre-procurement work.

Approval of project

On 22 September 2011, the government approved the joint tender of the NBC, MBL and Orbital SmartBus services. The project was intended to improve the state's contracting of bus services by delivering reform and was also formally brought under the HVHR framework.

Expression of interest

Expression of interest documents were issued to the market on 6 June 2012 following the Treasurer's approval. Responses closed on 19 July 2012 and were evaluated by PTV in conjunction with DTF.

Request for tender

Request for tender documents were issued to five shortlisted bidders following the Treasurer's approval on 29 October 2012. However, two of the shortlisted bidders subsequently withdrew, and three submitted a proposal. Responses closed on 31 January 2013 and were evaluated by PTV in conjunction with DTF.

Targeted improvement process

The evaluation panel recommended this process to seek adjustments in specific areas of risk allocation and cost. The process was undertaken with all three bidders. It was approved by the project steering committee on 14 March 2013 and issued to each bidder on 19 March 2013.

Improved bids were received on 5 April 2013 and re-evaluated. The ranking of the bids did not change, however, the risks to the state and the cost of all proposals were reduced.

Tender award endorsement

The project steering committee endorsed the evaluation panel recommendation to award the tender to the preferred bidder on 22 April 2013. The Minister for Public Transport also approved the preferred tender decision on 22 April 2013.

Treasurer approval

On 24 April 2013 the Treasurer approved the preferred bidder.

Source: Victorian Auditor-General's Office.

3.2 Conclusion

Strategic planning for the MMBF tender was clearly focused on producing a value‑for‑money outcome, but did not fully comply with the required VGPB policies and guidance. Despite this, our assessment of supporting documentation indicates that the key costs, benefits, risks and options were adequately identified and considered.

The competitive tender process was guided by the appropriate procurement principles and probity requirements, and resulted in a contract that is capable of delivering value for money.

While the targeted improvement process (TIP) introduced at the end of the RFT assessment was not planned for, it contributed to achieving a value-for-money outcome for the state.

3.3 Strategic planning for the procurement

VGPB sets policies and minimum standards for departments' procurement of non‑construction goods and services. These cover procurement planning, conduct, awarding of contracts, and contract management.

VGPB has recently moved to more principles-based policies under the procurement reform process. However, the MMBF procurement was planned and implemented between 2010 and 2013 and was subject to the more prescriptive VGPB policy requirements in place at that time.

3.3.1 Approach to government and procurement options

DTF has provided advice to successive governments since the 1990s on the need to seek competitive reform of the bus industry to deliver better services for commuters and better value for money for the state. Its advice to the Treasurer and government during 2011 clearly demonstrated the case for competitively tendering the MMBF procurement. This advice also outlined the strategic advantages of tendering these bus services to support longer-term reform—including plans for the future tendering of the remaining 70 per cent of metropolitan bus services.

DTF and the former DOT considered a range of procurement options, including direct negotiation with incumbent operators, and tendering the services provided by NBC, MBL and SmartBus as individual packages. In March 2011 these options were presented to government, along with a recommendation to proceed with an open tender. The government did not initially accept this recommendation and instead sought additional advice on the merits of negotiating with the incumbent operators.

In September 2011, after considering additional advice from DTF and the former DOT, the government approved the use of an open tender and the application of the HVHR process. It also approved the reform agenda—a series of reform goals that the MMBF project was to pursue. Responsibility for future MMBF project approvals was also delegated to the Treasurer and Minister for Public Transport. This decision marked the end of strategic planning and the start of project development.

3.3.2 Developing a business case

The former DOT did not develop a business case or a final strategic procurement plan (SPP) for the MMBF. VGPB policy in place at the time required an SPP for procurements over $10 million, and for high risk or complex acquisitions regardless of value.

The SPP is intended to detail how the project will meet the identified business needs, and is supported by a business case. The business case should contain all the information needed to decide whether to support a proposed procurement activity, including the costs and benefits of the project, the proposed procurement method and conduct, and how the project intends to achieve the best value for money.

Our 2009 audit, Melbourne's New Bus Contracts, stated that for new major bus procurements the former DOT should use VGPB guidance to develop a business case as part of the SPP, because the business case format is a clear and disciplined way to compare the costs, benefits and risks of the procurement options.

This departure from VGPB requirements created a risk that government decisions on the procurement project were not based on comprehensive advice. However, our assessment of MMBF-related Cabinet and ministerial submissions indicates that key costs, benefits, risks and options were properly identified and considered. In particular, the final approved submission to Cabinet in September 2011 contained the critical elements of an SPP, including a description of how the procurement meets the business need, procurement options for achieving the desired outcomes, details of stakeholders and departmental resources, and risk management issues.

This informed the development of the EOI and RFT documentation.

3.4 Procurement planning

Between project approval and the release of the EOI in June 2012, the former DOT, DTF and PTV continued planning the practical conduct of the tender. This was informed by the approved reform agenda, VGPB and HVHR policy requirements, and a market sounding exercise undertaken in November 2011. This culminated in the development of a procurement conduct plan (PCP) as an overarching framework for managing the tender process.

3.4.1 Procurement conduct plan

The PCP was approved by the steering committee in May 2012. It documented the governance structure, and the required procurement processes to be followed to achieve an impartial, transparent and accountable tender process. It provided an adequate framework for addressing probity risks, as it described the need to engage a probity auditor and clear processes for dealing with conflicts of interest and for ensuring the confidentiality of submitted tender information. It also documented communication protocols with tenderers and related information management requirements.

A project management plan was also developed providing an additional reference for the project team on required procedures that was in accordance with the PCP.

PTV also established a risk management framework, consisting of a risk and issues management plan, risk register and risk action plans in accordance with HVHR requirements. There is evidence to indicate that the risks were monitored by the project team, recorded on the risk register and were regularly reported to the steering committee.

3.4.2 Market sounding

The former DOT canvassed interest from potential bidders in a market sounding exercise undertaken in November 2011. Through this process DOT sought comments from potential tenderers on risks and issues the project team had identified and to gauge the level of market interest. The market sounding exercise confirmed that the open tender could deliver a contract that met the reform agenda objectives.

3.4.3 Governance

Project governance should set a firm framework to guide project success, create transparency and confidence in decision-making, and provide clarity around roles and responsibilities. The PCP and project management plan clarified governance arrangements for the Metropolitan Bus Services Project (MBSP). These were implemented as intended, however, the independence of the probity auditor was at risk of being compromised at times, as the auditor also provided probity advice. This issue is discussed in Section 3.5.5. The governance arrangements are outlined in Figure 3B.

Figure 3B

MBSP governance structure



Treasurer and Minister for Public Transport

Overall responsibility for approval of the preferred tenderer and final contract.

Project steering committee

Responsible for business and resourcing issues including:

  • approval of changes to the project and its supporting documentation
  • monitoring and review of the project and its risks
  • assistance to the project when required
  • resolution of escalated issues and conflicts
  • formal approval of project deliverables.

It was comprised of staff from DTF, the Department of Premier and Cabinet, and PTV.

Project director

Accountable to the steering committee and Chief Executive Officer of PTV for the delivery of the project, including:

  • reporting on progress
  • stakeholder management and communications
  • managing budget and scope
  • managing project activities and resources.

Project team

Responsible for preparing project documentation, including EOI and RFT drafting, providing supporting analysis and recommendations to evaluation teams/panel and the project steering committee.

Probity auditor

Responsible for ensuring adherence to the procurement conduct plan and for providing an independent assessment of the procurement process.

Source: Victorian Auditor-General's Office from information provided by Public Transport Victoria.

3.4.4 External review and approvals

Under the HVHR framework, a project is required to undergo two Gateway reviews during the procurement stage. It also requires projects to obtain the Treasurer's approval at key points of the process, including the issuing of EOI and RFT documents to the market.

Evidence reviewed indicates that PTV complied with the HVHR requirements and underwent reviews at Gate 3 and Gate 4. The gate reviews did not raise any substantive issues. The Treasurer approved the release of the EOI and RFT documentation and the preferred tenderer prior to contract award.

3.5 Procurement conduct

In open tender processes VGPB policy emphasises the importance of ensuring all bidders are treated fairly, have access to the same information, and that standards of probity, confidentiality and information security are applied.

PTV had sound processes in place for the EOI and RFT phases, and the unanticipated TIP was adequately managed and did not compromise the tender process. The TIP is examined in Section 3.5.3.

The key VGPB requirements for an open tender process and PTV's compliance with these is summarised in Figure 3C.

Figure 3C

Key VGPB procurement policy requirements



Open or selective tendering is the preferred method of approaching the market for procurement valued in excess of $150 000

Tenders must be advertised in the Herald Sun and published on the Victorian Government Tenders website at a minimum

The open tender period should provide sufficient time for suppliers to prepare a tender submission. The suggested tender periods for high value high complexity procurements is in excess of 21 working days

A procurement conduct plan should be developed to outline the standards of conduct for the process

Tenderers must be provided with the same information

Proposals must be assessed against the evaluation criteria specified in the tender documentation

Information must be securely managed to maintain confidentiality

A project director accountable for project delivery should be appointed

There should be a process to identify and manage conflicts of interest

A probity auditor should be engaged to provide an independent assessment of the procurement conduct


Source: Victorian Auditor-General's Office.

3.5.1 Expression of interest process

The EOI evaluation plan approved by the steering committee in May 2012 accords with VGPB policy. It set out the requirements for the EOI evaluation process—including evaluation roles and responsibilities, document control procedures, criteria and methodology, and reporting and debriefing requirements. The plan also documented arrangements for managing probity such as conflicts of interest, receipt and registration of responses and respondent communication. EOI documents were issued to the market on 6 June 2012 following the Treasurer's approval as required under the HVHR process. Responses closed on 19 July 2012.

The initial EOI evaluation panel report was prepared in August 2012 consistent with the requirements set out in the EOI evaluation plan. It ranked the respondents and documented a recommended shortlist comprising the four highest ranked submissions. The report included evaluation panel scores and a high-level summary of evaluation team findings against each of the criteria. The steering committee considered the report on 20 August 2012, and directed the evaluation panel to refine its assessment, particularly in relation to the fourth, fifth and sixth ranked submissions, as the basis of their ranking was unclear.

Further analysis led to a re-ranking of the bids, which did not materially alter the outcome for the previously four highest ranked bids. However, this further analysis improved the rank of the tenderer who would later be selected as the operator from fifth to equal fourth. A supplementary assessment report was prepared which recommended shortlisting the five highest ranked responses. The steering committee approved the panel's recommendation on 23 August 2012.

The RFT was released to the five shortlisted parties on 29 October 2012. Two of the parties withdrew from the process—due to the parties being awarded contracts in other jurisdictions, meaning they no longer had capacity to commit to the MMBF—resulting in three proposals being submitted.

3.5.2 Request for tender process

VGPB guidance provides that an RFT evaluation plan should be prepared and approved prior to the close of the tender period. While the MMBF RFT evaluation plan was prepared and approved by both the project director and steering committee chair, final approval of the plan was on 1 February 2013, one day after the RFT period closed. However, PTV took the appropriate steps to mitigate any probity breach in this instance. Project team members were not given access to submissions until after the evaluation plan was approved by the steering committee chair. The probity auditor also noted that the version of the RFT evaluation plan approved by the chair was unchanged from the version approved by the project director.

The RFT evaluation plan was prepared in accordance with VGPB guidelines. However, the plan did not include the TIP, as it was not part of the planned evaluation process and was added after the evaluation commenced.

3.5.3 Targeted improvement process

The TIP involved inviting shortlisted bidders to reconsider certain cost areas that PTV assessed were capable of improvement. In presenting the TIP to the steering committee, the evaluation panel outlined the following stages:

  • Stage 1: Targeted improvement—all shortlisted respondents were given tailored areas specific to their proposal to focus on and each given a two-week response period.
  • Stage 2: Clarification—focused exclusively on the highest ranked proposal and on ensuring the draft contract was close to being executable.

By engaging all shortlisted bidders during this evaluation stage, the TIP maintained competitive tension and assisted with optimising value for money from the bids. The steering committee and probity auditor endorsed this approach in March 2013.

3.5.4 Approval of preferred tenderer

The RFT Final Evaluation Report was prepared and endorsed by the steering committee in April 2013. The report showed the panel's overall rank for each respondent at the completion of the initial evaluation process, and after the TIP. The probity, legal and financial aspects of this outcome was also independently scrutinised and assured.

The tender process concluded on 24 April 2013, when the Treasurer approved selection of the preferred bidder following endorsement of this recommendation by the PTV board and Minister for Public Transport.

3.5.5 Probity

PTV effectively managed most probity requirements for the project. Established procedures largely conformed to guidelines set out in the VGPB policy for the Conduct of Commercial Engagements. Specifically, PTV:

  • developed a PCP which adequately outlined the standards of conduct for the process
  • provided tenderers with the same information
  • established clear processes for identifying and managing conflicts of interest
  • engaged a probity auditor to provide an independent assessment of the procurement conduct.

The tailored approach adopted with tenderers during the TIP process did not breach VGPB guidelines, as the information sought from individual tenderers was commercially sensitive.

PTV's PCP outlined how VGPB's probity principles were to be applied to the procurement. Figure 3D outlines how PTV complied with these.

Figure 3D

Application of probity standards




Equal treatment of bidders

  • Bidders were provided with the same information, this includes tender documents, addendums and clarification notices. However, this did not extend to the TIP process due to the confidential nature of information specific to each submission.
  • An electronic data room (EDR) was also established, which respondents were able to access.

Document control procedures

  • Procedures relating to document distribution, storage and communication protocols were clearly documented in the PCP, and evaluation plans.
  • RFT documentation was accessible through an EDR. A user guide for the EDR was developed.
  • Information related to the MBSP and password protected USBs were securely stored in locked compactus. Documents were also filed in secure folders in PTV's document management system.

Managing conflicts of interest

  • Conflict of interest declarations were completed by project team members, the evaluation panel and the steering committee.
  • In all instances where conflicts were declared these were investigated further to determine what action would be taken.
  • A mitigation and management strategy was prepared which documented a recommended action based on an evaluation of the conflict.
  • Probity briefings were provided and attended by the MBSP team.

Independent probity assessment


  • A probity auditor was engaged to assess the implementation of the MBSP and provide a limited review of the process. However the probity auditor on occasion also provided advice on the process, weakening the independence of their auditor role.

Source: Victorian Auditor-General's Office.

Probity auditor

The probity auditor's terms of reference were to provide a limited or negative assurance review of the process. The probity auditor provided two limited assurance reviews covering 15 November 2010 to the end of the EOI stage, and from 19 September 2012 to the selection of the preferred bidder.

PTV did not separate the probity advisor and probity auditor roles. The probity auditor also provided probity advice including:

  • providing probity briefings to project team members
  • advice on managing conflict of interests
  • advice on probity requirements in steering committee meetings.

Although VGPB policy and associated guidelines allow the probity auditor and probity advisor roles to reside with a single entity, VAGO believes combining these roles weakens the perception of independence. This is consistent with our finding in VAGO's 2009 performance audit of Melbourne's New Bus Contracts.

Future bus service procurements should engage a separate probity auditor and probity advisor.


  1. That Public Transport Victoria and the Department of Economic Development, Jobs, Transport and Resources develop a business case assessing the cost and benefits of alternative reform options and related strategies for all future bus service procurements in accordance with Victorian Government Purchasing Board guidance.
  2. That Public Transport Victoria separates the role of probity auditor and advisor on future procurements.
  3. That Public Transport Victoria and the Department of Treasury and Finance use the lessons from Melbourne Metropolitan Bus Franchise's targeted improvement process to develop guidance on how it may be applied more broadly in future procurements.

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