Exit of Sullivan Buses from the Transport for London (TfL) bus market with a few hours’ notice follows a jump in the number of mid-term contract terminations exercised by operators in the capital. Rising costs are cited for this shift in behaviour.
Meanwhile, another business outside London complains that the pace of award of home-to-school contracts for the coming academic year is too slow. That is not a new occurrence. A similar, and disastrous, situation was seen in Strathclyde two years ago.
The contracted market has long been seen as a safe harbour by many in the industry; margins may not match what is achievable on some commercial work, but risk was largely removed. If the service is delivered in accordance with specifications, payment follows. The likelihood of a public body ‘forgetting’ to pay or going bankrupt is as good as non-existent.
The latter is still the case, but risk is now present in spades thanks to an unpredictable financial environment. So does the approach to local authority transport contracts need to change to reflect the position that tenderers and providers of those services now find themselves in?
One operator familiar with such work observes that a bidder could reasonably be expected to honour its price for the duration of the contract. Reasonable risk should – in theory – be priced in, and if costs were to drop across the life of the agreement, it is unlikely that an operator would offer a rebate to the tendering body.
However, the escalations of recent years could never reasonably have been predicted if a business was preparing a five-year submission in 2019. Diesel lifting to peak at over 50% above what had been the norm would never have been on any radar. Nor would some of the uplifts in wages and other expenses that have been seen since 2020.
How to square that circle? A heeded call for long-term contracts of seven or more years to permit investment in vehicles would be no help where costs spike, although such durations look likely to become unavoidable where a tendering body wants zero-emission. That is already the case for TfL.
Awarding contracts as batches of routes rather than individual services is equally unproductive when unpredictable cost fluctuations are considered. That approach may drive efficiencies in bidding and operation, but it could count out smaller participants from the get-go.
A cost escalator would seem a fair and equitable solution, although how keen cash-constrained local authorities would be to expose themselves to the financial unknown is easy to predict. Their general fiscal position after years of cuts to funding is no secret.
Regardless, an argument can be made that how local service and home-to-school transport contracts are procured and awarded is well overdue an overhaul, both locally and centrally. Forming that position is easy. Finding a solution to it would be anything but.
