Investigating the Savings from Competitive Tendering: an Example from the Norwegian Bus Industry



Investigating the Savings from Competitive Tendering: an Example from the Norwegian Bus Industry

Authors

F Longva, N Fearnley, O Osland, Institute of Transport Economics, NO

Description

The paper evaluates the subsidy savings from competitive tendering in the Norwegian bus industry, and discusses whether they imply real efficiency gains or merely a transfer of resources from one public budget to another.

Abstract

It is a common finding that competitive tendering improves inefficiency and produce cost savings for the government. Reports of cost savings have however been followed by raising concerns of side effects and unforeseen consequences of the changes made. This paper sets out to discuss whether the admittedly positive effects of competitive tendering on subsidy savings have been outweighed by rising costs from a socio economic point of view due to:
?« Rising administrative costs, i.e. transfer of resources from the private operator to the authorities
?« Deteriorating labor standards, i.e. falling wage and pensions levels, heavier work load and rising sickness rates for workers
?« The restructuring of the network from district to urban areas, i.e. lowering mobility for non-urban community members
The paper evaluates the use of competitive tendering of local bus services in Norway during the last decade, investigating the sources of the ten percent cost savings reported in previous studies. The paper is based on a study conducted for the Ministry of Transport in Norway.
Competitive tendering is associated with transfer of responsibilities from operators to authorities. This is mainly attributable to the fact that the introduction of competitive tendering is associated with a move from net contracts to gross contracts. In a net contract regime, planning expertise is typically located at the operators, whereas in the gross cost, competitive tendering regime this function is transferred to the local authority. The paper shows that transfer of resources represents only a marginal cost increase for the procuring body, since competitive tendered contracts are considerably less demanding to administrate during the contract period than annually negotiated net cost contracts.
There is no evidence in our data that driver salaries deteriorate with the introduction of competitive tendering. Developments of wage levels and labor standards are ultimately linked to national variations in labor market regimes and bargaining systems. Hence in Norway, competitive tendering in the bus sector is introduced within a labour market regime generally considered to be a highly centralized and well regulated one, hampering the use of local wage levels as a competitive factor. There is nevertheless some evidence to indicate increased workload for the drivers, which perhaps may lead to rising levels of sick leave and disablement in the long run. The evidence to support this is however sparse and remains to be seen in a long-term view.
What we do find is a tendency that competitive tendering is associated with service improvements in central areas, and that the opposite applies in sparsely populated areas. Some of the cost savings on the regional level may thus be attributed to the restructuring of the route network, from highly subsidised services in rural areas to services with lower subsidy shares in the city centres.
Finally, our paper sums up the theory and evidence, and gives recommendations for future competitive tendering processes so as to safeguard real economic gains. To our knowledge, the paper provides the first general and systematic overview over the effects of competitive tendering in the bus industry, bringing the different aspects of the cost savings into consideration.

Publisher

Association for European Transport