Service contracting is a tool that government can use to improve transit service quality for riders and better position transit agencies to succeed in today’s dynamic transportation industry. Public agencies must strongly align the private sector’s profit motive with the public sector’s goals in order to unlock this potential using financial incentives in contracts and market competition during the bidding process. Public officials and transit agencies who identify this opportunity and use it to advance their long-term goals will have a powerful strategy at their disposal to improve transit for the communities who rely on it.
Contracting does not inherently yield better or worse transit service, and contracting is not “privatization.” A litany of government-managed and government-funded services are delivered by private-sector contractors working for the government, according to contracts that the government has written to hold private companies accountable for delivering those services. Clear accountability and public oversight, effective management, and carefully designed incentives differentiate the most successful contracting regimes from their less successful counterparts.
It is essential that public-sector leaders pursue contracting strategically as a means to further the public interest, without assuming that contracting automatically leads to better service quality or lower cost. Cities and countries where transit contracting is most effective tend to have strong labor protections in place that ensure wages, benefits, and employment are preserved through changes in the contracted operator. Poorly written or otherwise ill-conceived contracts can lock public agencies into bad contracts that erode the status quo and miss opportunities for improvements.
Contracting implementation presents an opportunity not only to improve quality of service, but to rethink the fundamental responsibilities of the transit agency itself.
Contracting implementation presents an opportunity not only to improve quality of service, but to rethink the fundamental responsibilities of the transit agency itself. Agency leaders are hungry for new ways to respond to changing demographics, emerging technologies, and unpredictable political dynamics. Contracting can help strengthen the industry’s footing when used strategically to address these issues and create structural changes.
Contracting is best supported by management structures that are different from the US transit industry’s typical, vertically integrated, government-operated model. Changing the traditional operating model is challenging, but several of this report’s cases show that strong political leadership, good management, and a commitment to improved transit service quality—not a focus on cost-cutting—can lead to progress. In this report, TransitCenter and the Eno Center for Transportation present six case studies—three in Europe (London, Stockholm, and Oslo) and three in North America (New Orleans, Vancouver, and Los Angeles). The research team interviewed more than 70 expert stakeholders from these cities’ transit agencies, city and regional governments, private contractors, researchers, advocates, and labor unions in order to tell these stories.
From these case studies’ common lessons and themes, the report concludes that effective contracting depends on applying three key lessons learned:
The first lesson is that government cannot contract out the public interest. Government is uniquely positioned to prioritize high-quality, affordable, equitable, sustainable, and safe transit access to its citizens. While transit is publicly subsidized around the world to meet these goals, private companies must strive for profitability—a fundamentally different operating model. Labor protections in place at the national level provide foundational ground rules for contracting in all three European case studies. Cases in New Orleans and Los Angeles show that successful contracting requires a clear vision and articulation of the public sector’s goals as well as the agency expertise required to manage large, complex contracts.
Finally, particularly savvy local government leaders can leverage contracting as a strategic opportunity to facilitate more transformational governance change, as agencies in Oslo, Stockholm, and London did. Contracting should be designed to expand, rather than constrain, government’s ability to advance the public interest.
The second lesson is that clear contracts can align contractors’ profit motive with agency goals. Public agencies that contract must clearly articulate their goals and set specific performance standards for private contractors to meet when those contractors seek to profit from public investments. Cases in London, New Orleans, and Los Angeles demonstrate the importance of learning from peer agencies and refining contracts over multiple iterations.London’s use of excess wait time to evaluate bus route reliability and Los Angeles’ use of Vision Zero–related contract incentives are examples of aligning agency goals with strong and measurable performance metrics. Vancouver’s Canada Line contract shows the importance of preserving operational flexibility within the contract itself. Each case study also reflects various context-specific approaches to defining contract-term length, asset ownership structures, and the overall structure of the contracting relationship.
The third lesson is that symbiotic agency-contractor relationships can improve operations and foster innovation. While strong public oversight is a precondition for successful contracting, contractors should also be cultivated as allies in serving the public interest. Agencies in Oslo and Los Angeles show the value of engaging contractors on strategic issues, not just operations, especially because contractors can bring valuable knowledge from the other cities in which they work. The Stockholm case provides an example of an agency setting clear expectations around how the agency will assess financial bonuses and penalties, which is part of fostering a mutually respectful, professional relationship. Stockholm also presents one of the clearest cases of staffing changes intended to complement contractor skills—staffing changes that can enable agencies to focus more on policy and planning to benefit their riders while contractors serve as the agency’s “eyes and ears” in daily operations.
This report presents key operational and strategic insights throughout the six case studies and summarizes those insights in a checklist of concrete actions that city and regional government leaders should take when contracting for private service operations. Contracting out effectively is hard work requiring specialized skills, but transit agencies that internalize and heed this report’s recommendations will gain powerful management strategies—and transit riders will be the key beneficiaries.