MINISTRY OF URBAN DEVELOPMENT GOVERNMENT OF INDIA

MINISTRY OF URBAN DEVELOPMENT

GOVERNMENT OF INDIA

MINISTRY OF URBAN DEVELOPMENT GOVERNMENT OF INDIA

MAY 2016

CONSULTANCY SERVICES FOR PREPARING GUIDELINES &

MODEL CONTRACT FOR CITY BUS PRIVATE OPERATIONS PC1B 8

GUIDELINES FOR PARTICIPATION BY PRIVATE OPERATORS IN THE PROVISION OF CITY BUS TRANSPORT SERVICES

4

Guidelines for participation by private operators in the provision of city bus transport services May 2016 Consultancy Services for Preparing Guidelines & Model Contract for City Bus Private Operations

Page | 2 © 2016 Deloitte Touche Tohmatsu India LLP

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Table of Contents

1. INTRODUCTION .............................................................................................................................. 10

1.1 BACKGROUND ......................................................................................................................................... 10 1.2 PURPOSE OF THE GUIDELINES DOCUMENT ................................................................................................... 11 1.3 OVERVIEW OF THE GUIDELINES DOCUMENT ................................................................................................. 11 1.4 STRUCTURE OF GUIDELINES DOCUMENT ...................................................................................................... 12

2. ASSESSING THE BUSINESS ENVIRONMENT ...................................................................................... 15

2.1 REVIEW OF CURRENT OPERATING ENVIRONMENT ........................................................................................... 15 2.2 ANALYSIS OF FACTORS AFFECTING BUS TRANSPORT SERVICES ........................................................................... 26 2.3 TRANSFORMING INFERENCES INTO IMPLEMENTABLE ACTIONS .......................................................................... 27

3. PLANNING THE BUSINESS MODEL ................................................................................................... 28

3.1 STAGES OF PLANNING THE BUSINESS MODEL ............................................................................................... 28 3.2 IMPLEMENTATION PLAN ........................................................................................................................... 34 3.3 NETWORK AND SERVICE PLANNING ............................................................................................................ 35 3.4 OPTIONS FOR BUS OPERATOR ENGAGEMENT ............................................................................................... 38 3.5 REVENUE MODEL AND COLLECTION ............................................................................................................ 39 3.6 MANAGING FINANCIAL PRESSURES AND FARE INCREASES ............................................................................... 42 3.7 MONITORING AND CONTROL ..................................................................................................................... 44 3.8 MARKETING AND BRANDING OF SERVICE ..................................................................................................... 46 3.9 FINANCIAL MODEL................................................................................................................................... 47 3.10 SUMMARY.............................................................................................................................................. 48

4. CHOOSING THE RIGHT CONTRACT ................................................................................................... 49

4.1 OVERVIEW OF CONTRACT OPTIONS ............................................................................................................. 49 4.2 BUS OPERATION BY A PUBLICALLY-OWNED ENTERPRISE/STATE TRANSPORT UNDERTAKING (STU) ......................... 49 4.3 FULL PRIVATISATION OF BUS OPERATIONS ................................................................................................... 51 4.4 PPP CONTRACTS ..................................................................................................................................... 52 4.5 SALIENT FEATURES OF A GROSS COST MODEL .............................................................................................. 55 4.6 SALIENT FEATURES OF A HYBRID GROSS COST MODEL ................................................................................... 58 4.7 SALIENT FEATURES OF A NET COST MODEL .................................................................................................. 61 4.8 SALIENT FEATURES OF HYBRID NCC ............................................................................................................ 63 4.9 SELECTING THE ‘MOST SUITABLE’ CONTRACT TYPE FOR YOUR CITY ................................................................... 64

5. DEVELOPING PPP CONTRACT PARAMETERS .................................................................................... 68

5.1 RISK IDENTIFICATION AND ALLOCATION ....................................................................................................... 68 5.2 TRANSITION PLAN.................................................................................................................................... 71 5.3 CONTRACT INSTRUMENTS ......................................................................................................................... 72 5.4 FLEET SELECTION AND PROCUREMENT ........................................................................................................ 76 5.5 LENGTH OF CONTRACT ............................................................................................................................. 83 5.6 INFRASTRUCTURE FACILITIES ...................................................................................................................... 86 5.7 CONTRACT TERMINATION & ARBITRATION ................................................................................................... 93

6. PROCUREMENT GUIDELINES ........................................................................................................... 96

6.1 CHOOSING THE RIGHT PARTNER ................................................................................................................. 96 6.2 PROCUREMENT STRATEGY ......................................................................................................................... 97 6.3 PREPARATION OF BIDDING AND CONTRACT DOCUMENT ............................................................................... 101 6.4 PROCUREMENT MANAGEMENT ................................................................................................................ 106 6.5 SIGNING OF CONTRACT ........................................................................................................................... 107

7. POST AWARD CONTRACT MANAGEMENT ......................................................................................108

7.1 THE MONITORING FRAMEWORK .............................................................................................................. 108



7.2 MONITORING DURING THE COURSE OF OPERATIONS .................................................................................... 109

8. IN LIEU OF A CONCLUSION .............................................................................................................112

ANNEXURE I - DRAFT STRUCTURE OF MODEL CONTRACTS .....................................................................115

ANNEXURE II – GUIDANCE NOTE ON USE OF MODEL CONTRACT ............................................................130

ANNEXURE III - GUIDANCE NOTE ON USE OF REQUEST FOR PROPOSAL ..................................................149

ANNEXURE IV - RESPONSIBILITY ALLOCATION MATRIX ..........................................................................154

ANNEXURE V – FLEET ...........................................................................................................................157

ANNEXURE VI – INFRASTRUCTURE ........................................................................................................167

ANNEXURE VII– OPERATIONS ...............................................................................................................181

ANNEXURE VIII – REVENUE ...................................................................................................................189

ANNEXURE IX – PERMITS ......................................................................................................................196

ANNEXURE X – PLANNING & CONTRACTUAL ISSUES ..............................................................................200

ANNEXURE XI – SERVICE QUALITY PARAMETERS ...................................................................................203

ANNEXURE XII – LIST OF INFRACTIONS AND PENALTIES .........................................................................211

ANNEXURE XIII – FARE FIXATION, STRUCTURING AND REVISION ............................................................223

ANNEXURE XIV – BLOCK COST ESTIMATES .............................................................................................238



Table of Exhibits

EXHIBIT 1-1 KEY CHALLENGES FACED IN CITY BUS PRIVATE OPERATIONS ...................................................................................... 10 EXHIBIT 1-2 ACTIVITIES AND KEY DECISIONS IN BUSINESS MODEL PLANNING ................................................................................ 12 EXHIBIT 2-1 FACTORS INFLUENCING BUSINESS ENVIRONMENT .................................................................................................. 15 EXHIBIT 2-2 PROCESS OF ASSESSING THE BUS SERVICE ENVIRONMENT ........................................................................................ 15 EXHIBIT 2-3 REVIEW PARAMETERS AND SOURCE OF DATA ........................................................................................................ 16 EXHIBIT 2-4 PARAMETERS AND THEIR POSSIBLE EFFECT ........................................................................................................... 17 EXHIBIT 2-5 ACTS / LAWS GOVERNING BUS TRANSPORT ......................................................................................................... 18 EXHIBIT 2-6 INSTITUTIONAL ENVIRONMENT AFFECTING BUS TRANSPORT ..................................................................................... 19 EXHIBIT 2-7 AGENCIES AND THEIR RESPONSIBILITIES ............................................................................................................... 20 EXHIBIT 2-8 COMPARISON OF A TRADITIONAL REGULATORY APPROACH AND A MORE COMMERCIAL APPROACH TO MANAGING BUS

SERVICES ................................................................................................................................................................ 22 EXHIBIT 2-9 ASSIGNMENT OF RISK IN A SHARED RISK MODEL .................................................................................................... 24 EXHIBIT 2-10 SWOT ANALYSIS FOR REVIEW OF BUSINESS ENVIRONMENT .................................................................................. 26 EXHIBIT 3-1 CONSIDERATIONS FOR GOAL SETTING .................................................................................................................. 29 EXHIBIT 3-2 SETTING GOALS FOR CITY BUS TRANSPORT ........................................................................................................... 30 EXHIBIT 3-3 STAKEHOLDER CONSULTATIONS ......................................................................................................................... 32 EXHIBIT 3-4 TYPE OF PERMITS AND THEIR MERITS/DEMERITS.................................................................................................... 36 EXHIBIT 3-5 ADVANTAGES OF A PPP CONTRACT .................................................................................................................... 39 EXHIBIT 3-6 REVENUE COLLECTION ..................................................................................................................................... 40 EXHIBIT 3-7 THE FARE ESCALATION FORMULA IN HONG KONG ................................................................................................ 43 EXHIBIT 3-8 FARE ADJUSTMENT FORMULA IN SINGAPORE ....................................................................................................... 43 EXHIBIT 4-1 GUIDING PRINCIPLE AND OPTIONS FOR MODEL CONTRACTS ................................................................................... 49 EXHIBIT 4-2 FEATURES OF GCC, NCC AND HYBRID CONTRACT ................................................................................................. 54 EXHIBIT 4-3 FLOW OF FUNDS FROM ESCROW ACCOUNT.......................................................................................................... 57 EXHIBIT 4-4 THE HYBRID CONTRACT MODEL USED IN ADELAIDE ............................................................................................... 58 EXHIBIT 4-5 SAMPLE MONTHLY LOAD FACTOR AND BONUS PERCENT VALUES ............................................................................... 60 EXHIBIT 4-6 CONTRACT DECISION FRAMEWORK PARAMETERS .................................................................................................. 64 EXHIBIT 4-7 DECISION CRITERIA FOR CONTRACT SELECTION ..................................................................................................... 65 EXHIBIT 5-1 ADDRESSING CONTRACT PARAMETERS ................................................................................................................ 68 EXHIBIT 5-2 TYPES OF RISK IN CITY BUS OPERATIONS ............................................................................................................. 68 EXHIBIT 5-3 DEGREES OF RISK............................................................................................................................................ 69 EXHIBIT 5-4 EVALUATING RISK ........................................................................................................................................... 70 EXHIBIT 5-5 RISK ALLOCATION MATRIX ............................................................................................................................... 71 EXHIBIT 5-6 REVENUE PROTECTION IN SANTIAGO, CHILE......................................................................................................... 72 EXHIBIT 5-7 FACTORS IN SELECTION OF FLEET ........................................................................................................................ 77 EXHIBIT 5-8 FRANKFURT/M. (D): TENDERING OF BUS ROUTE BUNDLE CONTRACTS WITH ENVIRONMENTAL INCENTIVES ....................... 78 EXHIBIT 5-9 DECISION FRAMEWORK FOR FLEET PROCUREMENT ................................................................................................ 80 EXHIBIT 5-10 RESPONSIBILITY FOR FLEET PROCUREMENT ......................................................................................................... 82 EXHIBIT 5-11 CHALLENGES FACED IN DECIDING CONTRACT DURATION ........................................................................................ 83 EXHIBIT 5-12 CONTRACT LENGTH IN BOGOTA, COLOMBIA ...................................................................................................... 83 EXHIBIT 5-13 PROS AND CONS OF SHORT DURATION CONTRACTS .............................................................................................. 84 EXHIBIT 5-15 FACTORS AFFECTING NUMBER OF DEPOTS .......................................................................................................... 87 EXHIBIT 5-16 PLANNING FOR BUS DEPOT FACILITIES ............................................................................................................... 88 EXHIBIT 5-17 RESPONSIBILITY FOR CONSTRUCTION OF BUS DEPOTS ........................................................................................... 88 EXHIBIT 5-18 DECISION FRAMEWORK FOR BUS STOPS ............................................................................................................. 90 EXHIBIT 5-19 PLANNING FOR BUS STOPS .............................................................................................................................. 90 EXHIBIT 5-20 PLANNING FOR BUS TERMINALS ....................................................................................................................... 92 EXHIBIT 5-21 EXAMPLE OF GULBARGA BUS TERMINAL ........................................................................................................... 92 EXHIBIT 6-1 PROCESS FOR PROCUREMENT ........................................................................................................................... 96 EXHIBIT 6-2 BID PROCESSES .............................................................................................................................................. 99 EXHIBIT 6-3 ADVANCE INFORMATION TO OPERATORS DURING THE BIDDING PROCESS .................................................................. 101 EXHIBIT 6-4 EXPERIENCE WEIGHTS ................................................................................................................................... 103 EXHIBIT 6-5 MULTIPLYING FACTOR ................................................................................................................................... 104 EXHIBIT 6-6 BID PARAMETER BY TYPE OF CONTRACT ............................................................................................................ 105 EXHIBIT 7-1 PERFORMANCE MONITORING, REPORTING & REVIEW FRAMEWORK ...................................................................... 108



EXHIBIT 7-2 MONITORING AND SUPERVISION LONDON (GB): FINANCIAL INCENTIVES IN A GROSS COST CONTRACT .......................... 110 EXHIBIT 7-3 ENFORCEMENT IN AMSTERDAM (NL): DIRECT AWARD WITH COMPETITIVE THREAT ................................................... 111



List of Abbreviations

AFC Automated Fare Collection

AMC Annual Maintenance Contract

AMRUT Atal Mission for Rejuvenation and Urban Transformation

ATSC Adaptive Traffic Signal Control

BEST Brihanmumbai Electric Supply & Transport

BRTS Bus Rapid Transit system

CCTV Closed Circuit Television

CDP City Development Plan

CMP Comprehensive Mobility Plan

CNG Compressed Natural Gas

CPI Consumer Price Index

CPM Contractual Management Procedures Manual

CTTS Comprehensive Traffic and Transportation Studies

DIMTS Delhi Integrated Multi-Modal Transit System

DSCR Debt Service Coverage Ratio

EI Energy Index

EOI Expression of Interest

ETVM Electronic Ticketing Vending Machine

GCC Gross Cost Contract

GPS Global Positioning System

IETT Istanbul Electricity, Tramway and Tunnel Company

IPT Intermediate Public Transport

IRR Internal Rate of Return

IT Information Technology

ITS Intelligence Transport System

JnNURM Jawaharlal Nehru National Urban Renewal Mission



JV Joint Venture

KPI Key performance Indicators

LED Light Emitting Diode

LF Load Factor

LOS Level of Service

LPG Liquefied Petroleum Gas

MKBA Mean kilometres operation between accidents

MKBF Mean kilometres travelled between bus failures

MRT Mass Rapid Transit

MSL Minimum Service level

MTRCL Mass Transit Railway Corporation Limited

NCC Net Cost Contract

NGO Non-governmental organisation

NMT Non-motorised transport

NOC No objection certificate

NPV Net Present Value

NUTP National Urban Transport Policy

O-D Origin - Destination

PIS Passenger Information System

PPP Public Private Partnership

PSO Public Service Obligation

PT Public Transport

PTA Public Transport Agency

PTO Public Transport Operators’

QCBS Quality cum Cost Based Selection

RFP Request for Proposal

RFQ Request for Qualification



RTO Regional Transport Office

SPV Special Purpose Vehicle

STU State Transport Undertaking

SWOT Strength Weakness Opportunity Threat

TfL Transport for London

ULB Urban Local Body

WI Wage Index



1. INTRODUCTION

1.1 BACKGROUND

Urban transport has been identified as a vital lifeline which supports the growth of an economy.

A well-planned and integrated transportation system acts as an efficient and effective facilitator

to the development of regional, economic and social activity. Transport services need to be

efficient and affordable for maximising their use, and at the same time, must generate sufficient

revenues for their financial viability to continue meeting the ever expanding demand for urban

transport. This need for efficiency, affordability and viability influences transit ownership, business

processes, planning and investment patterns.

While State Transport Undertakings (STUs) have provided transportation services for several

decades, the focus of Urban Local Bodies (ULBs) on city bus transport started gaining

prominence with the advent of Jawaharlal Nehru National Urban Renewal Mission (JnNURM).

JnNURM envisaged a number of reforms at the city and state levels for achieving effective,

efficient and sustainable development of urban infrastructure including that of urban public

transport (PT) system. One of such reforms for PT was formation of Special Purpose Vehicles

(SPVs) for the operation of city bus transport services in an efficient, economic and sustainable

manner. SPVs may seek active participation of the private sector in investments, or management,

of PT services.

However, experience also shows that private operators focus mainly on the maximisation of

returns on investment and fail to maintain or provide a desired level of service quality. There is

also a deficiency in public sector performance in efficient and effective transit network planning.

Failures on both sides have led to a persistent conflict between maximisation of profit and serving

of public interest. The key issues in city bus operations are highlighted below.

Exhibit 1-1 Key challenges faced in city bus private operations

To address these challenges, and improve city bus transport services, a number of cities are

encouraging private sector participation to gain access to stronger managerial capacity, new

technology, and specialised skills via Public Private Partnerships (PPPs). Although operational,

PPPs have been experiencing difficulties due to lack of well-designed contractual and institutional

frameworks, impacting the revenues, cost and service quality. Deficiencies in existing contracts

include lack of clauses for conditions precedent, inadequate identification and allocation of

business risks, limited monitoring framework, ill-defined payment and performance monitoring

mechanisms, etc. Many of the contracts also lack sufficient incentives to influence the behaviour,

responsibility and obligations of contracting parties.



This guidelines document for development of model contractual framework outlines the process

of preparing a comprehensive bus contract suitable to the context and environment of the

concerned authority. The document examines various structures and alternatives for the

participation of private bus operators; it also presents different forms and contents of a PPP

contract and provides procurement and management guidelines.

1.2 PURPOSE OF THE GUIDELINES DOCUMENT

The purpose of this document is to provide a strategy to develop a contract for bus operations

for a city, subject to the city's unique circumstances and requirements. Since each city is unique

in its institutional structure, existing infrastructure, stakeholder capacity, and finance availability,

a generic contract model would be inadequate for all cities. The document attempts to identify

and classify these differences and develop a strategic approach for choosing the type and

elements of the contract essential to deliver efficient public transport services. The document

proposes four types of contracts, namely, Gross Cost, Gross Cost Hybrid, Net Cost and Net Cost

Hybrid, that may be customised for a particular city. The key features of each of these contracts

are described in Chapter 4, and the corresponding term sheets are provided in Annexure I.

1.2.1 Use of the Guidelines Document

These guidelines are intended to be used by city authorities to help them choose the appropriate

business model and contract type for city bus private operations, based on a broad understanding

of existing business environment and desired outcomes.

The document examines various types of contracts possible and provides a clear understanding

of the pros and cons associated with each type of contracting modality. Further, the document

also explores the role of PPP contracts in the business landscape.

The document should be updated periodically with experience gained during the implementation

of existing or new city bus projects and new developments.

1.2.2 Limitations of the Guidelines Document

The guidelines document spells out a strategic process that the city authority may follow to

develop a suitable contract and does not include detailed technical and financial parameters apart

from contract related parameters. It highlights the activities to be undertaken for efficient delivery

of bus transport services but does not capture details regarding operationalising the sub-tasks.

The document does not intend to provide detailed engineering or operational recommendations,

nor does it present detailed design-level advice. City authorities are advised to engage a

transaction advisor considering the scale of the project.

1.3 OVERVIEW OF THE GUIDELINES DOCUMENT

Cities may encourage participation of private operators to improve service performance and wider

public objectives. While the contract structure mainly drives the operator engagement, contract

success is driven primarily by its business model. A business model with distorted incentives, or

one that promotes negative behaviour, can never be effective in delivering the intended results.

This document helps city authorities avoid these mistakes and assists them to develop efficient

business models relevant to the situation at hand.



Exhibit 1-2 Activities and key decisions in business model planning

The exhibit above illustrates the business model elements and key decisions. The business

model needs to be cognitive of the business environment affecting bus transport system, city

conditions, expectations of various stakeholders, and financial sustainability while providing legal

protection to the bus operators. The business model should also delineate the roles and

responsibilities of the parties involved in regards to infrastructure, fleet ownership and

investments, risks, planning, monitoring and control, etc.

1.4 STRUCTURE OF GUIDELINES DOCUMENT

The document is structured as follows:

Chapter 2 discusses the assessment of the external business and operating environment.

A city’s geographic layout, demographics, travel demand and travel characteristics affect its bus

service design. Similarly, the policy and regulatory scenario, nature of competition between

service providers, and the service quality and segmentation, determine the functional financial

models. Also, to develop services suitable to that market, assessment and understanding of the

business environment in the city is required. The evaluation focuses on parameters like existing

travel modes, dependency on public transport, competitive scenario, potential customers, etc.

Chapter 3 describes the preparation of the business plan; it assesses factors like bus transport

services, the partnerships, essential infrastructure, fleet ownership, risk assignment, planning,

and control, etc.

Chapter 4 assists in selecting the appropriate contract. It evaluates the merits and demerits

of different contract type while considering the objectives of the city and the situation at hand.

The chapter also focuses on the relationship between the relevant city authority and the private



bus operator, depending on the contract category and issues like asset ownership and

procurement, risk management, payment mechanisms and control and monitoring methods.

Chapter 5 discusses and evaluates contract parameters. The chapter focuses on the

contractual structure and parameters to help the city authorities develop a clear picture of the

challenges associated with the contract. The chapter also offers practical guidelines to manage

the contract specific issues and assists in further developing various contract components.

Chapter 6 describes procurement guidelines and assists the user in selecting the appropriate

procurement strategy. The chapter also provides details regarding procurement strategies like

one-stage or two-stage bidding and describes aspects related to bid evaluation method,

preparation of bid and contract documents, and signing of the contract.

Chapter 7 focuses on monitoring during the post-award phase. The chapter captures the process

of setting performance indicators in the contract and outlines the city authority’s responsibilities

and obligations, as well as specific performance criteria to be complied with during the operation

of the service.

Chapter 8 explores methods and models that may evolve in the future but have not been included

in the current contractual framework.

Annexure I captures the draft structure of the four model contracts. It outlines the main terms

and conditions of the agreement between the authority and the operator.

Annexure II aims at establishing a link between the guidelines document and the model

contracts. It includes a description of the process to be followed by city managers to customise

the model contract to city-specific contract.

Annexure III includes a description of main chapters captured within the Request for Proposal,

and, describes the components that are more important from the perspective of the city manager.

Annexure IV defines the responsibility for different aspects of city bus operations for the four

model contract types.

Annexure V outlines the responsibility for fleet planning between the authority and the operator.

It also identifies activities essential for the fleet planning process and the requirement assessment

process. The possible options for fleet ownership, investment, operation and maintenance, along

with the preferred options, are also highlighted in the Annexure.

Annexure VI delineates the responsibility for infrastructure planning between the authority and

the operator. It highlights the activities required during the infrastructure planning process and

the requirement assessment process. The Annexure also captures the options for asset

ownership, investment, operation and maintenance, and the preferred option.

Annexure VII demarcates the responsibility for bus operations between the authority and the

operator. It also identifies various activities and actions essential for bus operations.

Annexure VIII outlines the responsibility for revenue activities between the authority and the

operator. It also captures the key activities involved in the revenue collection.

Annexure IX delineates the responsibility for permits between the authority and the operator.

Annexure X defines the responsibility for planning and contractual issues between the authority

and the operator.

Annexure XI details the Service Quality Parameters along with proposed weightage of

parameters and the potential data sources for performance parameters.



Annexure XII provides the List of Infractions and Penalties, including their categories,

applicable damages, and the time require to resolve the infraction, applicable in the contract.

Annexure XIII provides practical guidance on fare fixation and the basis for revision of fare in a

Net Cost Contract.

Annexure XIV provides practical guidance on potential cost heads and presents block cost

estimates for the same under different contract types.



2. ASSESSING THE BUSINESS ENVIRONMENT

Urban transport, and in particular bus transport, is a complex subject, and cannot be viewed in

isolation from the environment in which it operates. Although there are some broad

commonalities in bus operations across Indian cities, each city is unique in its institutional

structure, existing infrastructure, stakeholder capacity, and finance availability. These particular

circumstances have an influence on the business environment of the city and do not permit the

use of a single contract type across all cities. A city authority needs to undertake detailed

groundwork before developing the business model and finalising on the type of contract to be

adopted for its bus operations.

Each city needs to follow a defined process for assessing the business environment within which

its bus services operate. The factors that influence the business and operating environment of a

bus in a city are shown in Exhibit 2-1.

Post the analysis of these factors, the city also need to develop an implementable action plan as

defined in the following sections.

2.1 REVIEW OF CURRENT OPERATING ENVIRONMENT

The first step in mapping the current operating environment would be to collect the data on the

basis of points captured in Exhibit 2-3. Most of these data elements, for example, geographical

Exhibit 2-1 Factors influencing business environment

Review of current operating

environment

Analysis of factors affecting bus

transport services

Transforming inferences into implementable

actions

Exhibit 2-2 Process of assessing the bus service environment



and demographic profile may be collected through secondary data,1,2 however, some points

might require sample surveys.

Exhibit 2-3 Review parameters and source of data

Parameters Source of Data

Geographical layout of the city

Size of city

Length of road network

Type of roads (motorised v/s non-motorised, arterial v/s

feeder)

Census of India

Urban Local Body

National Highways Authority of

India

State Highways Authority

Public Works Department

City Development Authority

Demographic profile

Population of the city

Spatial distribution of population

Occupational distribution

Income distribution

Age structure of the population

Census of India

City Master Plan

City Development Plan

Comprehensive Mobility Plan

Urban Local Bodies

Policy & Regulatory Framework

Laws/Acts/Policies at national level affecting bus

transport

Laws/Acts/Policies at state level pertaining to bus

transport

City level policies affecting bus transport

Various central and state level

legislations

Institutional Structure:

Key authorities, whose purview could impact bus

operation, include:

Public Works Department

Transport Department

Development Authorities

Pollution Control Board

Municipal Government

Traffic Police

Key officials of various entities

Existing Transit System City Development Authority

1 Comprehensive Mobility Plan Preparation Toolkit - Institute of Urban Transport India

2 Urban Bus Toolkit - World Bank



Parameters Source of Data

Alternative modes of transport

Areas not connected by the existing system

Reasons for passengers not choosing bus transport

Existing Bus Infrastructure in the city (depots, terminals,

bus shelters)

Urban Local Bodies

Transport Authority


Operational Plans and strategies affecting bus

transport, including:

Comprehensive Mobility Plan


City Master Plan/ Zonal Development Plan

Comprehensive Traffic and Transportation Studies

City Development Authority

SPV (if any)

Department of Transport

Department of Urban

Development

Operators and Trust Environment:

Current bus operators in the city (STUs or private

operators)

Financial strength of these operators

Relationship between the city government and existing

operators

Transport Authority

Non-government stakeholders

2.1.1 Geographic and Demographic Profile of the City

The geographic layout of the city, citizens’ demographic profile and their travel pattern will have

an indirect influence on the design of the bus transport system. These parameters assist in

estimating the demand for public transport and reveal the ‘affordability’ of public transport for the

public. Surveys like stated preference survey may be used to assess passengers’ travel patterns

and their dependency on public transport. The demographic profile of the potential user of the

bus service on factors like income level and affordability should also be assessed. The relevant

data and their possible effect are summarised in Exhibit 2-4. The prime objective of this analysis

is to ensure the envisaged services cater to the needs of the transport users.

Exhibit 2-4 Parameters and their possible effect

Parameter Possible Effect

Spatial distribution of

population

Concentrated areas induce higher ridership and hence need a

higher frequency of services, compared to sparsely populated

areas. Spatial spread of the cities implies more demand for longer

distance trips, which calls for greater investments in infrastructure

and vehicles.

Income distribution

The income bracket of passengers will affect the market

condition. Premium services that exploit the willingness to pay for

higher quality are options that may be considered.



Occupational

distribution

The occupational status of the passengers will decide the

amenities and other features required in the bus transport

system, for example, business users might require features like

Wi-Fi and enabled ITS services. On the other hand, student

travellers might require subsidised travel, and the impact of

subsidy on operators’ revenue needs to be considered. The

service frequency may also need to be tailored for periods of peak

and off-peak demand.

Age structure of

population

The passengers’ age bracket would help in planning the routes,

type of service and infrastructure.

Available road network Route planning would have to consider the availability of roads of

suitable dimension for bus operation.

2.1.2 Policy and Regulatory Environment

The bus transport in India is currently governed by various Central, State and Municipal laws,

policies, and guidelines as shown in Exhibit 2-5. City authorities must study these legislations in

detail and analyse their effect on city bus operations.

The Motor Vehicles Act is one of the most important

central-level acts directly affecting bus transport. The

Road Transport Corporation Act, 1950, for example,

specifies that it shall be the general duty of a road

transport corporation to exercise its powers as

progressively to provide or secure or promote the

provision of an efficient, adequate, economical and

properly coordinated system of road transport

services in the State or any part of the State for which

it is established.

Municipal laws which lay down the structure and

powers of the local municipal governments are also

present in almost all states.

The regulatory environment in a city/state impacts the

development of the bus system and requires a

detailed study by the city authority to understand the

impact of policies and regulations on system design.

For example, the policy in Haryana excludes private

players from participating in the delivery of city bus operations, while Delhi policies prohibit

operations of diesel buses.

Exhibit 2-5 Acts / Laws Governing

Bus Transport



Apart from laws, acts and policies, different schemes launched by the Government of India can

also impact on the contracts of bus operations in cities. An example of the same, is captured

below:

Jawaharlal Nehru National Urban Renewal Mission (JnNURM) is a large-scale city-

modernisation scheme launched by the Government of India under the Ministry of Urban

Development. JnNURM provided funding for urban renewal including funding for bus transport.

Before JnNURM, most STUs owned and operated an ageing fleet without considering the PPP

models. Post JnNURM, several city-specific Special Purpose Vehicles (SPVs) were formed and

an increasing number of cities have adopted PPP models.

Atal Mission for Rejuvenation and Urban Transformation (AMRUT) is a new scheme by the

Government of India, which supersedes JnNURM. This scheme is available for 500 cities with a

population of over 1 lakh and provides funding for projects envisaged to improve service coverage

of urban transport.

2.1.3 Institutional assessment

2.1.3.1 Institutional Structures

Exhibit 2-6 captures various agencies associated with urban transport in India at Central, State,

and Municipal level. These agencies perform functions like land acquisition, route planning, etc.,

that are essential for public transport. However, their intertwined roles often lead to lapses in

major functional roles and create a very complex institutional framework for bus transport.

Exhibit 2-6 Institutional environment affecting bus transport

City authorities need to consider the roles of these bodies and their impact on bus transport

services. For example, the provision of permits by the transport authorities varies from state to

state. In Kerala, permits are allotted on the basis of area, while in Madhya Pradesh, they are

allotted on the basis of routes. These specific city characteristics change the dynamics of the

Motor Vehicles Act is a Central Law, which:

Mandates registration of all motor vehicles Provides for licensing of drivers Stipulates that no public service vehicle can operate without a ‘permit’ Empowers the state governments to control road transport Creates an institutional mechanism to regulate road transport Makes provisions for payment of compensation to accident victims and Regulates the working conditions of drivers (along with the Motor Transport Workers Act)

Motor Vehicles Act is a Central Law which:

Mandates registration of all motor vehicles Provides for licensing of drivers Stipulates that no public service vehicle can operate without a ‘permit’ Empowers the state governments to control road transport Creates an institutional mechanism to regulate road transport Makes provisions for payment of compensation to accident victims Regulates the working conditions of drivers (along with the Motor Transport Workers Act)



contracts between authorities and bus operators. Exhibit 2-7 captures a broad list of agencies

along with their functions, affecting the operation of bus transport in India.

Exhibit 2-7 Agencies and their responsibilities

List of Agencies Role and possible impact on bus transport

Ministry of Urban

Development

The Ministry of Urban Development is responsible for overall urban planning

and development, including that of urban transport. The Ministry may require

cities to comply with certain terms and conditions to avail funding under its

schemes. For example, the Ministry guidelines specify the preparation of a

Comprehensive Mobility Plan, City Development Plan, and Unified

Metropolitan Transport Authority for every city (with a population above 1

million) that wants to avail funding. The Ministry also lays down guidelines on

bus specifications that need to be adhered by the cities.

Ministry of Road

Transport &

Highways

The Ministry of Road Transport & Highways undertakes transport research and

formulates and administers policies for road transport and highways. These

policies have a direct impact on bus operations. For example, the Road

Transport and Safety Bill affects the bus specifications, vehicle registration and

driver licensing.

Ministry of

Environment &

Forests

The Ministry of Environment & Forests specifies emission norms for motor

vehicles and administers the Environment Protection Act. It also specifies the

noise pollution norms for commercial vehicles and provides no-objection

certificates for urban transport projects coming under forest areas in the city.

Ministry of Finance

The Ministry of Finance approves funding for various centrally sponsored

schemes. Understanding of these schemes may help the planners provision

the financing mechanism accordingly.

State’s Urban

Development

Department

The urban development department of the state is responsible for the overall

urban development of the state including urban transport development. The

policy and plans prepared by the department may have an impact on the overall

bus transport system.

Department of

Transport (State

level)

The transport department of the state issues drivers’ licenses and vehicle

permits, conducts vehicle inspection and fixes the motor vehicle tax rates. The

department also issues route permits, and determines the fare fixation and

revision mechanism.

Public Works

Department

The State Public Works Department constructs and maintains major roads.

The Department can provide data on the road network in a city, the width and

length of roads, and road categories. This information would help in deciding

the bus dimensions best suited for the city.

Traffic Police

The State Traffic Police enforces traffic laws and manages and regulates traffic

in the city. No-objection certificates are required to be obtained from the Traffic

Police Department at the time of renewal of permits for commercial vehicles.

State Transport

Undertaking

The state transport agencies are responsible for the operation of buses in the

state (both intercity and intra-city) either on their own or through private

operators.



List of Agencies Role and possible impact on bus transport

Town and Country

Planning

Department

The Town and Country Planning Department of the state prepares various

spatial development plans at state, and local level and the city bus services

need to be aligned with these plans. For example, the bus connectivity to

proposed commercial, residential, or industrial hub needs to be ensured.

Urban Local Bodies

In some cities, the urban bodies are responsible for overall management and

planning of bus transport and are key stakeholders in special purpose vehicles

set-up for city bus operations.

City Development

Authority

City development authorities conduct land use planning and regulate planned

growth of the city, with transport forming an important part of such planning.

They also oversee maintenance and construction of bus depots and bus stops.

Bus transport should be planned in line with the proposed land use plan

formulated by the development authorities at the city level.

2.1.3.2 The Role and Capacity of the City Authority

City authorities need to define the nature of business model and develop the same, regardless

of the type of contract adopted. However, the tactical role of the city authority will differ depending

on the type of business model adopted. For city authorities to be an effective partner in a PPP, it

is necessary to evaluate their current role in bus operations and their capacity to contribute to

planning and oversight effectively. The following steps help in determining the same:

a. Identification of the role of the authority providing bus services

The city authority needs to evaluate

the role of the entity which presently

provides city bus services. The

authority could be a city-level SPV, a

city transport authority or a state

transport authority. These authorities

could either be providing bus services

on their own or through engagement of

private operators. The engagement of

private operators would be possible

only if there are no mandates

restricting private participation.

b. Assessing the strength and capacity of the authority

The capacity and willingness of the authority to take responsibility for the planning, monitoring

and control of the bus network will partially determine the type of contract selected. In this context,

there is a need to assess the following aspects:

Financial soundness of the authority

Risk appetite and funding support

Technical competence to operate bus services on its own

Capacity to monitor operator performance

Desired level of control over city bus services

A number of Indian cities have formed SPVs to

manage city bus transport service, leading to a thrust

in provision of city bus services through PPP mode.

Key SPVs in Indian cities are listed below:

Indore: Atal Indore City Transport Services Limited

Ahmedabad: Ahmedabad Janmarg Limited

Bhopal: Bhopal City Link Ltd.

Delhi: Delhi Integrated Multi-Modal Transit System

Surat: Surat City Bus

https://en.wikipedia.org/wiki/Delhi_Integrated_Multi-Modal_Transit_System_(DIMTS)_Ltd.



c. Enhancement of the management role of the authority

City authorities have historically played the role of regulators and not managers, and often lack

expertise in the management of transport networks. While a typical historical regulatory model

has government playing the role of regulator and private entity playing the role of provider, it lacks

institutions that play the role of manager. Filling this management deficit through authorities

delegated with this task is the key role of the city in the envisaged model. Actions to enhance and

improve the function of the city in managing transport would include:

Reasserting its role in the business of public transport to strengthen its control over the

outcomes

Taking a more managerial and less regulatory role, and handling the responsibility for

customer service delivery

Developing a sustainable business approach to guide its planning

Assigning risks to where they can be best managed

Taking a commercial approach to subsidy, using it to produce positive outcomes and

not to support operational losses

Another important aspect in enhancing the role of the city authority is ensuring a dedicated entity

for bus service provision. A successful PPP contract requires a dedicated involvement from both

the parties, i.e., the private operator and the public authority. If the city does not currently have a

dedicated authority for city bus operations, it could plan the creation of a separate cell within the

authority that currently manages city bus operations.

Exhibit 2-8 Comparison of a traditional regulatory approach and a more commercial

approach to managing bus services

Source: Deloitte Project Team

The agency to operate as an efficient commercial entity should be a corporate and autonomous

entity which is free from the constraints of political interference. Where the SPV manages the

entire bus network, it is preferable to be government–owned to retain public control; however,

under certain conditions (such as the presence of a strong public transport authority) a private

concessionaire could be used; should the city doubt public sector capacity.



The envisaged SPV, or the City Authority, should be profit-focused3, independent, transparent in

discharging its duties, able to hire staff based on merit, dismiss staff for poor performance, able

to borrow funds, sue and be sued. It is equally important for the body to have qualified personnel

with necessary skill sets and long-term job commitment.

The next step would be to determine the risks that the SPV, or the city authority, is able and

willing to manage on its own, and the risks that it aims to offload to the private operator.

d. Risk assignment between the players

The assignment of risk is a key determinant of the success or failure of bus systems. It is linked

closely to the strength and capacity of the city authority, and their willingness to manage risks

under their control. The key rule in this area is to assign the risk to the party that can best manage

it. For example, if the bus operators are assigned risks they cannot manage, they would either

fail or would adopt means that would maximise revenues at the cost of service quality.

In recent times, India has seen operators predominantly bidding for bus service contracts only if

they can avoid revenue risk, leaving the city authority shouldering this predominant risk. While

cities can manage certain factors impacting revenue risk, they may not be able to handle it

adequately. Mechanisms as these only transfer the risk and don’t manage or mitigate it.

The solution lies in either of the following approaches:

1) Sharing the risk between the hierarchy of players

2) Working out mechanisms to ensure that the operator is better able to manage the risks

assigned to it so that it is not averse to assuming those risk

The following exhibit shows the main types of risks that are at play in the provision of city bus

services, and their allocation between the parties:

3 The term ‘profit-focused’ does not necessarily imply a profit maximisation ethos - rather a financial performance-measure so that

loss-making subsidies can be avoided. The underlying incentives then are to win the market, satisfy customers and grow revenue, while ensuring efficiency in operations.

Type of risk Assignment of risk

Political risk: Any disruption in

operation of a project due to political

decisions

Political risk is best managed at the level of the transport

authority responsible for strategic policy direction. This

authority provides oversight, coordination and manages

cross- jurisdictional issues and sets the strategic policy

and planning for public transport.

Revenue risk: The business risk

which affects the overall profitability

or viability of services or the level of

public subsidy need to support

services

Revenue risk could be managed at the level of the bus

agency operating public transport network or at the

private operator level, depending on the type of contract

adopted. In many cases, the city authorities are unwilling

or unable to take the revenue (demand) risk of the bus

network owing to the spread of geographical area, or

lack of data to understand the dynamics of passenger

demand. In some cases, cities simply make a political

decision to devolve the revenue risk to the private sector.



Exhibit 2-9 Assignment of risk in a shared risk model

2.1.4 City Level Plans

There are several existing city level plans affecting the subject of bus transport in India, for

example, the Comprehensive Mobility Plan, the City Development Plan and the Land Use Master

Plan. These plans define the limits of the road network and future expansion if any. The

authorities need to understand these plans and their possible effects on city bus transport.

Comprehensive Mobility Plan (CMP): A CMP presents a long-term vision of desirable mobility

patterns (people and goods) for a city. It provides strategy and policy measures needed to

achieve this vision. The typical CMP planning horizon is for 20 years, but CMPs also cover actions

to be taken within 5 to 10 years. A city’s CMP needs to be taken into account before planning for

bus operations. The CMP provides information on spatial and temporal demand patterns, which

could aid the authority in planning routes and schedules for bus services.

City Development Plan (CDP): The CDP proposes planning goals of various urban

development sectors, including urban transport, although it rarely adopts a transport modelling

approach and provides limited input on a clear strategy for long-term urban transport

development and the ‘mobility’ concept. A CDP also provides valuable information regarding the

existing and future development of the urban area. The details of the city development plan are

available with the city development authorities.

City Master Plan / Zonal Development Plans: A Master Plan (or Development Plan) is a

statutory document for guiding and regulating urban development. It is prepared by urban

development authorities / State Government for each metropolitan area, city and town. For

example, in Delhi, it is prepared by the Delhi Development Authority. It defines the future area for

urbanisation and addresses planning issues for various sectors. The transport sector plan

Operational risk: The risk taken by

operators that are related to the

difference between the expected

costs and observed costs after

performance realisation and their

ability to meet availability and

performance standards as

contracted

Operation risk is best managed by the operators

contracted to provide services. Various mechanisms in

the contract arrangements ensure the provision of

quality service.



contains development measures such as road network (arterials, collectors, and distributors,

etc.), parking facilities and mass rapid transit systems. The Zonal Development Plans specify

locations and extents of land use proposed in the zone for public buildings, other public works

and utilities, roads, housing, recreations, industry, business, markets, etc. The land use plan may

assist the city authority in route planning taking into account the location of major

industrial/business hubs and markets.

Comprehensive Traffic and Transportation Studies (CTTS): The CTTS is a transport sector

study, focusing mainly on vehicle flows. Some cities have conducted a CTTS by examining traffic

and transport issues and recommending improvement measures. Some of these measures

include strengthening roads and flyovers, Mass Rapid Transit (MRT) systems, etc.

The bus operations in a city will need to comply with all the operational plans of the city. The city

authority should identify all the relevant plans and assess the specific requirements of each plan.

It should then structure the bus operations contracts accordingly.

2.1.5 Competitive Environment / Existing Transit System

A fundamental objective of transport planning in any city should be to integrate the transport

system in a holistic fashion and avoid overlap within and across modes that lead to wasteful

competition. The understanding of city operating plans from the previous section helps in

evaluating the existing transit system. To further assess the competitive environment of the city

for public transport, following steps are suggested:

1. Assessment of Transport Modes

2. City Requirement: Bus Transport

2.1.5.1 Assessment of Transport Modes

Each city should assess the existing modes of transport and alternative competitive transport

modes for the bus in cost efficiency, user preferences, and routes connectivity, etc.

2.1.5.2 City Requirement: Bus Transport

After mapping the different modes of transport in the city, the city needs to understand the

requirement of the passengers and role of the bus transport. A city which has an established and

well-connected metro rail might need bus connections from the metro stations to commercial

hubs/tourist destinations. On the other hand, a city without metro rail, but having a multitude of

transport services along its arterial routes (e.g. shared autos, rickshaws, etc.) may need to

introduce a bus service along its main roads. The city may also choose to retain competing modes

along a particular route to optimise capacity distribution across modes. For example, the city

might decide to retain many overlapping bus routes to cater for shorter, more localised, trips on

the corridor so that the capacity of the Metro rail is used mainly by those making longer trips.

Summarising, bus transport can play the role of the trunk services providing the majority of urban

transport or feeder services providing transport to alternative modes of transport or supplement

existing modes of transport. This understanding of the requirement of bus transport will help the

city to decide on the next step.

2.1.6 Understanding the Incumbent Operators & Trust Environment

Every city planning to adopt private bus services will need to work with existing players and

understand the legal setup. For example, an operator may have been given an exclusive route

license that may not be cancelled during the term of the license; launching a new scheme in this

circumstance would require negotiating with this operator for early cancellation of license.

The approach would largely depend on following factors:



Whether the present operators are public operators (STUs) or private operators;

Level of regulation;

Whether they are profitable or struggling financially and;

Future prospects of the operators

The standard of trust between the existing operators and the city authority is also a factor that

may impact negotiations for bus reform.

The city also needs to determine if it aims to include existing operators in new contracts or plans

to replace them with new operators. While retaining the existing operator ensures continuity, new

players might bring new skills and price competitiveness.

The factors that need consideration are:

Incumbency issues that may require resettlement or compensation;

Political, and social implications;

Attitude and profitability of existing players, and factors that can induce changes;

Cartels, or associations, that may require negotiations.

Once the potential group of operators is identified, their capacity needs to be assessed to

determine the suitable contract type. It is also imperative to assess the funding capacity, training

requirements, and partnerships structures in the decision.

Usually, with inexperienced operators, a more prescriptive contract will be needed to provide

clear, defined and unambiguous service to enable tighter control. The risk on the operator should

be low in such a scenario. However, experienced operators may be allocated greater risk, and

contracts may be more flexible and innovative to develop efficiencies, generate passenger growth

to increase returns and contribute to business development.

2.2 ANALYSIS OF FACTORS AFFECTING BUS TRANSPORT SERVICES

A SWOT (Strength-Weakness-Opportunity-Threat) analysis on the collected information and

findings, as illustrated below, provides a robust methodology for analysis. The following is an

indicative list of strengths, weaknesses, opportunities and threats that would drive the strategy

for the city authority and this list varies from city to city.

Exhibit 2-10 SWOT Analysis for review of business environment

Strengths Weaknesses

Strong political leadership

Competent bus operators

Demonstrated need for improved public

transport provision

High level of public awareness

Inadequate infrastructure

Inadequate finances

Weak institutional capacity

Manpower constraints

Opportunities Threats

Central funding support Vested interests possibly driven by

commercial or political advantage



Favourable policy environment

City’s environmental action plan that

places prominence on use of bus

transport

Trust deficit between industry and

authorities

Reluctance to change

2.3 TRANSFORMING INFERENCES INTO IMPLEMENTABLE ACTIONS

Above analysis may provide a fairly comprehensive snapshot of the problems, issues, and

conditions that need to be considered in the planning process. The exercise will also enable the

city authorities to be in a better position to identify factors and actions essential to overcome

existing shortcoming of transportation services. This would represent the broad framework within

which the city could develop the business and contract structure. The review of various internal

factors specific to bus transport system of the city which will be further described in the next

chapter will enable the cities to finalise this framework.



3. PLANNING THE BUSINESS MODEL

The next step is planning the business model within which city bus operations will function. While

the focus is often solely on the type of bus contract to use, the real issues are found in the

planning of the business model which highlights the alternatives for providing effective and

efficient passenger bus transport services suitable to the city.

This chapter describes the internal factors that relate to the various activities involved in delivering

bus transport systems in cities.

These include:

Stages of planning

The role and capacity of the city authority

Risk assignments between players

Network and service planning

Options for engaging bus operators

Planning bus operations

Revenue model and collection

Payment mechanisms

3.1 STAGES OF PLANNING THE BUSINESS MODEL

A prerequisite to planning the business model is an understanding of the baseline conditions and

defining what the city wishes to achieve. A clear process for developing the business model

includes the following steps:

i. The strategic plan & goal setting

ii. Assessment of existing conditions

iii. Stakeholder consultations

iv. Construction of the business plan and supporting structures

3.1.1 The Strategic Plan & Goal Setting

It is crucial that the city is clear, at the very outset, on its bus transport objectives before

embarking upon the reorganisation of bus transport. Each city must chalk out a clear road map

(a strategic plan) for an improved, efficient and financially sustainable bus transport system. Also,

the operational, institutional and financial factors operating in the bus transport system need to

be evaluated and assessed. This will guide the inherent features and design of the business

model and the eventual contractual relationships that facilitate a well-performing transport

system.

This involves developing a strategic plan which includes a vision statement to define a clear

roadmap with detailed goals set according to various time frames.



This process would need to start with an ‘objectives-based’

discussion to help the city to:

Identify possibilities and determine needs of

passengers

Assess the broad options and refine them

based on assessment of viability, and also

consider innovations

Identify suitable solutions and technology,

which will address the goals in the best manner

or fulfil the highest number of objectives (in

some cases new technology makes possible

what was previously unattainable)

Develop foundational agreements between stakeholders and consolidate them to

a common direction and purpose.

At the basic level of mobility goals, the city needs to analyse basic community transport needs,

viz., options for balancing of car traffic and public transport, the scope for introducing efficient

transport options such as Bus Rapid Transit System (BRTS) and bus networks and where

applicable, and improving connectivity to rail. A prime goal would be to design public transport to

be as convenient (or more convenient) than private car travel, as this would create an incentive

toward greater public transport use.

The goals so identified should be specified quantitatively to be achieved in a given time frame.

Exhibit 3-2 shows an outline of probable goals for city bus transport.

Exhibit 3-1 Considerations for goal setting

Source: Deloitte Project Team



Exhibit 3-2 Setting goals for city bus transport

Source: Deloitte Projects Team

3.1.2 Assessment of Existing Conditions

This step pertains to understanding the existing scenario of a city’s bus transport system in regard

to the following aspects:

1. Operational Assessment – this would include an ‘as-is assessment’ to determine the

present condition of city bus services, specifically operational features such as:

Routes currently planned for bus operations

Average number of passengers carried per peak hour and per day



Typical earnings per day

Bus-km operated by operator (if available) or fleet numbers

Maximum peak hour capacity/load

Average peak/off-peak hour load

Missed trips

Average number of buses under repair per day

This information would help to identify the service bottlenecks existing in the city where

passenger demand exceeds capacity.

Fleet Inventory – this would include an assessment of the present condition of the

fleet inventory and ownership, involving:

Fleet sizes per operator

Fleet age (as per year of manufacture)

Fuel type

Bus capacity (sitting as well as standing)

Actual buses in service compared to total fleet size

Passenger Facilities – this would include a review and analysis of the infrastructure

related to terminals, customer service centres, existing bus stops with and without

shelters, and any other passenger facility in the city bus system. Each facility should

be assessed as to whether or not it can handle existing passenger loads adequately,

offers sun/weather protection, provides sufficient lighting, is accessible for persons

with disabilities, provides customer information, has secure cycle parking, is in a good

state of repair.

Depot Inventory - the following information may be ascertained for each depot to

capture its inventory and maintenance capability:

Name and location/ land area/ fleet capacity and ownership of bus depots

Adequacy of overnight parking capacity

Availability or adequacy of workshop repair and bus cleaning (washing) facilities

/capacity

Bus towing capacity available

Fuel supply on-site or off-site

2. Institutional Assessment: The current governance structure needs to be understood

and analysed for aspects such as the decision-making process, the division of

responsibilities between the bus transport undertaking, the Municipal Corporation(s),

Traffic Police, Transport Department and various other stakeholders responsible for city

bus transport functions. Moreover, the structure and role of the SPV (if one exists) needs

to be assessed to understand its responsibilities, management role, organisational

structure and delegations and the technical capability within the organisation. This would

require an assessment of quantitative and qualitative aspects of the workforce, mapped

against the overall objective of the organisation. There is also need to identify current

redundancies and the workload pattern in the staffing structure. Dependency on outside



agencies, tasks outsourced, private operators’ manpower and capacity could also be

investigated.

3. Financial Assessment - The financial health of most bus transport undertakings in India

is not in good shape primarily because fare-setting is influenced more by social and

political considerations rather than the cost of operations. Hence, a key aspect of financial

assessment is to understand the financial difficulties and failings, including financing

capacity, timeliness of payments, cost recovery, budget processes, and ratios of fare

revenue vs. non-fare revenue, etc. Furthermore, the capacity of the undertaking to

manage future bus contracts must be assessed to determine whether alternatives need

to be considered. It is equally important to evaluate the sponsoring agencies that provide

the funding on their capacity, consistency and timeliness in providing committed finance,

as well as potential policy changes which could threaten financial support for the scheme.

3.1.3 Stakeholder consultations during planning process

It is valuable to engage stakeholders from the outset of the planning process, to develop

ownership and inclusion. Furthermore, stakeholder consultations will help city authorities

understand ground realities and gain insight and recommendations for deciding on bus transport

operation in the city.

A collaborative and participatory planning approach requires a preliminary identification of key

stakeholders who can provide valuable input into the definition of options to improve bus services.

Stakeholders in this context are people, bodies or agencies who are either directly or indirectly

affected by bus transport and any proposed changes in its planning. Direct stakeholders are

those who have an apparent role in planning, organisation, operation, regulation and support of

bus services. These may be citizens, communities or any other entity that use city bus services,

or are impacted by it. Indirect stakeholders, on the other hand, comprise of those individuals or

bodies whose interests may be affected by reforming bus transport. These may include non-

governmental organisations, citizen representative groups, etc. The first step to invoking

stakeholder response is to identify who the stakeholders are, as shown in Exhibit 3-3.

Exhibit 3-3 Stakeholder consultations

(Source: Deloitte Projects Team)



Although there are clear benefits of stakeholder consultation, all the stakeholders need not be

involved in every decision-making process or every phase of the process. Some functions are

particularly suited to a participatory approach, like the location of a bus stop, bus routes, fare,

and concession values while other functions such as policy related issues, maintaining reliable

and efficient transport services require approaching stakeholders who are directly involved in

running the city bus operations.

One key stakeholder in this is private operators. They are usually in a better position to gauge

the ground situation as they are directly in touch with the users and are aware of the impediments

faced in the actual delivery of bus services. Involvement of private operators in this stage also

eliminates the situation of a no-show by bidders during contract tendering or resistance in

performance post contract award.

3.1.4 Construction of the Business Plan4,56

During this stage, the operational, institutional and financial elements are constructed to develop

the business plan and its supporting frameworks.

1. Operational Strategy

The operational strategy is fundamentally set within the service operating plan which outlines the

actual operations of the services, in terms of demand/capacity, bus route definition, levels of

service (frequency and service periods) total kilometres, staffing levels and cost of operation. On

this basis, the business case is developed; namely fare policy, cost recovery is forecast, and

consequently the viability of the operation is demonstrated.

2. Institutional strategy

The business plan will have created a scenario that will define what institutional structures are

best suited to managing it, namely the contract type and the necessary institutional oversight.

The document outlines in Chapter 5 the various factors at play and options available as well as

indicates some recommendations.

3. Financial strategy

The financial strategy which includes cost and revenue aspects, as well as capital investments,

underpins the business case and institutional structures. The financial strategy would cover the

sources of funding for city bus operations and the avenues of fund utilisation. Budgeting the

revenue and expenditure sources will enable the city authority to plan its finances efficiently and

accordingly decide on the activities to be performed in-house and those to be outsourced.

The main sources of funding for bus operations are fare box collections, non-transport

commercial activities, and budgetary allocations. Income generated from fare box collection, or

user charges, is often based on social and political considerations and seldom covers the cost of

the service provided, which is reflected from the following examples:

User charges insufficient to meet the transport finance

In France, the contribution from users covers only 25% of the operating costs of the public

transport systems.

4 Comprehensive Mobility Plan Preparation Toolkit - Institute of Urban Transport India

5 Guidelines for Bus Service Improvement: Policy and Options – ADB

6 Urban Bus Specification - JNNURM



In Istanbul, the coverage rate for the bus system operated by the firm IETT is 64%. This

falls to only 41% when amortisation and provisions for equipment replacement are

included.

In Ho Chi Minh City, public subsidies cover around 45% of the transport system’s

operating costs

In Tshwane, public minibuses/taxis (32% of motorised travel) do not receive any operating

subsidies.

City authorities need to develop a financial plan which clearly specifies the strategy for funding

its bus operations. Since fare box revenues are invariably insufficient to cover bus operation

costs, non-fare box revenue such as revenue from advertisements, congestion charges, and

innovative taxes (such as employer tax and green tax) should be exploited. Grants and loans

from international financial institutions and public-private partnerships could also be used for

supplementing the massive funding requirement for city bus operations. The financial strategy

formed by the city authority would determine the operating surplus or shortfall as well as

mechanisms to close the gaps in the case of the latter. The strategy will estimate potential cost

savings from outsourcing of activities such as bus operations, bus maintenance, and station

maintenance.

3.2 IMPLEMENTATION PLAN

Following the formulation of the operational, institutional and financial strategy, an

implementation action plan needs to be prepared. Anticipating implementation challenges that

one might face during implementation is imperative.

Guiding Principles for Preparing Implementation Plan

The following key principles need to be considered while developing implementation plan:

Needs flexibility of modification / change across the implementation process. This is primarily

due to unanticipated changes and delay in implementation. Under such circumstances,

assumptions might change and hence implementation plan might also change.

Needs to indicate the level of infrastructure required, broad time frame and the structure of

implementing team e.g. various teams responsible for different initiatives would be clearly set

out.

Needs to clearly specify skill sets required to drive the initiatives laid out in business model.

In certain cases, where skills are not available within the organisation, they would be

outsourced. Based on an assessment of competencies available within the organisation,

implementation plan would specify whether external help is needed to manage

implementation.

Time Horizon Implementation Plan

Short Term Focus on efficient utilisation of existing infrastructure

Plan services keeping in mind existing constraints

Medium Term Upgrade of existing infrastructure

Upgrade of existing institutional structure



Long Term Creation of new infrastructure considering future requirements

Increase institutional capacity

3.3 NETWORK AND SERVICE PLANNING

Network and service plan is a major component of the business model. This includes planning of

routes considering present and future projected travel patterns, type of permits to be procured,

integration of bus services with other transport modes and setting service standards against

which performance can be monitored.

Annexure IX outlines who bears the responsibility for network and service planning.

3.3.1 Route Planning

The city authority needs to undertake route planning for their bus operations in a scientific way

to remove overlapping routes and inter-modal competition. The main aim of route planning is

resource optimisation by providing seamless connectivity to the maximum population of the city

with available resources.

Route planning requires detailed study of existing public transport routes, their demand and

supply parameters, type of modes available, and demand for the same, and performance of the

system. Route plan from Comprehensive Mobility Plan can be utilised if it is available.

Before the introduction of a new bus service along routes or revision of routes, the level of

ridership should be assessed as it is a critical component of the transportation system. Two steps

are important in this regard:

1. Evaluating current ridership: Based on detailed and up-to-date data, measure and

evaluate the ridership level of all routes in the transportation network, including

identification of roads and corridors with higher levels of vehicle and transit traffic. The

level of ridership should be judged along with the level of road capacity to identify those

corridors with the greatest potential for upgrading and expanding bus services.

2. Forecasting potential ridership and travel demand: Estimate and project the level of

ridership due to the introduction of new or improved bus services. Such projections are

also based on population and employment growth projections.

Numerous assessment methods and tools7,8,9,10 can be used to assess whether demand exists

for improved bus services or additional transit services along selected corridors. There is a need

to review the prevailing bus transport infrastructure and traffic movement pattern. In particular,

surveys are useful to gauge the general public’s interest in and support for an additional bus

service, as well as to evaluate the potential willingness of residents and riders to pay for this type

of service. Different types of surveys can be employed: household travel surveys, customer

satisfaction surveys of transit services, traffic volume count survey, etc.

7 Refer: Urban Bus Toolkit - World Bank

8 Bus Rapid Transit Planning Guide – ITDP

9 The Demand for Public Transport: A Practical Guide – TRL

10 UITP Tender Structure: For the tendering of buses and related services



3.3.2 Permits

The Motor Vehicles Act stipulates that no public service vehicle can operate without a ‘permit’.

The city authority has to obtain these permits, clearly stating type of permits the authority plans

for its bus operations.

The options include area permit, route permit or a combination of area and route permits. The

process of obtaining operation permits from the Regional Transport Office also needs to be

specified. Merits and demerits of various types of permits based on the contract in operation /

proposed are provided in the Exhibit 3-4.

Annexure IX outlines the responsibility matrix for getting permits under different contract types.

Exhibit 3-4 Type of permits and their merits/demerits

Type of Permit Merits/ Demerits

Route Permits/

Route Cluster

Permits

When the city authority assumes revenue risk:

Eliminates on-road competition which leads to dangerous/unsafe

behaviours such as over speeding

The authority has the means to re-deploy buses according to

demand across different routes

Makes it easier vary route without resistance from operators

concerned with profitability.

When the private operator assumes revenue risk:

Difficulties with competing operators on common route sections

Causes on-route competition for passengers which often results in

negative behaviours

Makes negotiation for varying fleet deployment and service levels

difficult

Makes it difficult to carry out route changes

Area Permit

When the private operator assumes revenue risk:

Eliminates competition on routes but may still be present with line-

of-route connections to major destinations outside of the contact

area. Can an operator pick-up along this line of route or not?

(reciprocal rights are possible)

Operator has freedom to plan routes in a given area

Could lead to undesirable monopolistic behaviour of a single

operator in due course

Could be difficult to find a single operator for large cities, however,

smaller more manageable contract areas may allow comparison of

performance between operators



Type of Permit Merits/ Demerits

Combination of area

and route permit

May allow the possibility of overlaying NCC trunk routes over

contract areas routes to provide major O-D connectivity

May introduce the worst features of both contract types

3.3.3 Multi-Modal Integration

Multi-modal integration refers to the operation of public transit modes as one seamless entity to

improve service efficiency and service coverage area.

Guiding Principles for Integration of Transport Modes

The following key aspects need to be covered while developing integration plan:

Institutional Integration: Create organisational framework for joint planning and operation of

transit services. This would include tariff associations, transit federations or mergers, etc.

Operational Integration: Optimised allocation of transit resources and coordination of services.

This would include rationalisation of redundant services, matching modes to service requirements,

coordinated public information system, unification of fare structure, etc.

Physical Integration: Provision of jointly used facilities at intermediate points or terminals with

interchange facilities. This would include intermodal terminals, transit shelters, etc.

3.3.4 Setting Service Standards

City authorities need to clearly define the service quality standards for the provision of city bus

service. City authorities can refer to published guidelines for more details11,12,13,14. The service

quality standards would include aspects such as:

Accessibility: Accessibility is defined as easy access to the services (i.e. access to the

bus stop). It involves designing services so that a large percentage of the population is

within the benchmark range of 400m from a bus stop;

Adequacy: The public transport system should be sufficient to serve the travel needs of

the city population (including growth projections), both spatially and temporally. Ratio of

capacity provided to travel demand is an indicator of adequacy of public transport

services;

Affordability: The public transport services need to be priced reasonably to be within

affordability levels for large segments of travellers and serve the social objective.

However, a very low fare level may result in poor quality services. Hence, innovative fare

mechanisms must be used to assist financial viability;

Regularity: Measured in terms of service frequency and reduction in waiting times.

Punctuality and waiting time: Bus trips should be punctual in the departure from their

designated origins and arrival at respective destinations. Set benchmarks of timely

11 Guidelines for Bus Service Improvement: Policy and Options – ADB

12 Measuring PT Performance – Sustainable Urban Transport Technical Document #9

13 Randall, E., Condry, B., Trompet, M. (2006), International Bus System Benchmarking: Performance Measurement Development, Challenges, and Lessons Learned, Proceedings of the 86th Transportation Research Board Annual Meeting, January 2007, Washington

14 SLBs for Urban Transport – MoUD, Government of India



running will expose failures. GPS tracking can provide operational data in real time for

management to address any late running issues;

Reliability: Compliance to schedules in terms of service timeliness, avoidance of missed

trips, and gaps in service;

Safety: Safety is a large concern for bus travellers. This should be a measurable

benchmark in terms of accidents per 100,000 km, and be cognitive of the seriousness of

accidents;

Scheduled waiting time: Preparedness to wait for services to arrive tends to be relative

to the total journey distance. Planners need to understand customer perspectives and

reduce service headways where possible, as patronage will tend to decline

commensurate with increasing wait times.

User Satisfaction: The authority needs to make available appropriate communication

channels to retrieve comments and feedback so that complaints can be assessed and

necessary remedial actions can be taken.

Comfort and convenience: To compete with private travel modes, bus service must

provide a similar level of comfort. Reduced overcrowding, provision of temperature control

are measures which provide passenger comfort

Where possible, the authority needs to set out the above service quality parameters in

quantifiable terms, without creating onerous compliance issues. Benchmarking of these

parameters is useful as a comparison measure with other operators or to measure improvement.

Annexure XI details the quality parameters on which performance of the bus services should be

evaluated, monitored and controlled.

3.4 OPTIONS FOR BUS OPERATOR ENGAGEMENT

3.4.1 Background and context

Since independence, the public road transport sector has been dominated by state transport

undertakings (STU) whose priority is intercity transport rather than city bus operations as they

are considered to be loss making. Under these circumstances, the rapid economic progress and

urbanisation have placed even more pressure on these underequipped city bus operations which

have not been able to keep pace with the rapid increase in demand. This vacuum is being filled

by fragmented and poorly regulated private sector operations.

The advent of centrally sponsored schemes such as JnNURM which aim for effective, efficient

urban public transport systems coupled with focus from international multilateral donors has

brought attention back to city bus operations. As a result, many Indian cities have started using

PPP models to establish city bus operations.

The various options for bus operator engagement range from a public monopoly where the public

sector owns and operates services to the other end of the spectrum of a fully privatised operation.

In between is a range of partnership options (PPP) ranging from payment by kilometre Gross

Cost Contracts (GCC) with a hybrid option (payments adjusted to passenger variables) and Net

Cost Contracts, either completely revenue dependent or with financial support for non-

commercial services.

However, PPP contract models need to be designed in such a way that risk is assigned to parties

suitable to manage it. Thus the solution is to develop a business model that manages risk, is

efficient and profitable, and this business model should be embodied in the contract agreements.



3.4.2 The role of a PPP Contract

A common perception is that PPP contracts have the best chance of developing a business that

is profitable for the operator, while at the same time fulfilling social objectives. In essence, this is

because there is an element of risk sharing and partnership within such arrangements.

A PPP recognises that each party has specific skills or advantage in managing specific tasks. By

allowing each party to specialise in their respective tasks, better performance is achieved, and

risks are often better managed. A PPP contract provides the relational framework between both

parties. Importantly, a key advantage of PPP is that both parties work to achieve agreed

objectives for mutual advantage. Exhibit 3-5 shows the benefits to various stakeholders of PPP

arrangements.

Exhibit 3-5 Advantages of a PPP contract

Public Authority Private Company Consumers

Ability to leverage private

sector efficiencies (and

investment) and know-how

into government operations

Ability to utilise innovative

approach and know-how to

earn profits

Can assign some operation

environment risks to

government (e.g. traffic

management)

Better quality services

combining public and private

expertise

Risk and responsibility sharing so each party carries the

risks it can best manage

Private sector profit motive

and innovation may reduce

public expenditures to

support bus operations.

Opportunity to develop a

profitable business

Apart from PPPs, public monopoly and fully privatised options are also discussed in Chapter 4,

weighing their advantages and disadvantages. The detailed contract options discussed in

Chapter 4 will help define reasons why cities may opt for a PPP contract option.

3.5 REVENUE MODEL AND COLLECTION

Revenue collection has a major impact on the viability of the business model and plays a

significant role in the successful operation of bus operations.

This section covers the sources, channels and responsibilities of revenue collection as shown in

Exhibit 3-6.



Exhibit 3-6 Revenue Collection

3.5.1 Sources of revenue for bus operations

3.5.1.1 Fare box revenue

Fare box revenue (i.e. the revenue collected from passengers) is the major source of revenue for

the bus system. The importance of managing this function well cannot be overstated for these

key reasons:

1. The failure to capture all the revenue due to pilfering is a common frustration of bus

operators, and often the cause of marginal returns. Safeguarding revenue is a prime

requisite to a sound business model.

2. Fare collection is an important interface between the system and its passengers, and

therefore needs to be as smooth and streamlined as it can be. The perception of a good

travel experience is often embedded in a respectful and convenient fare collection system.

3. The fare policy is what gives the passengers ‘value’; be it equity (appropriate payment

according to distance for example) or consideration for loyalty (where the system can

discount for volume travellers). Where passengers perceive value, this will, in turn, create

more ridership which returns value to the system.

4. Fares policy also plays a role in inducing a modal shift, particularly from private vehicles

to public transport and synthesising between public transport modes.

3.5.1.2 Non-fare box Revenue

Non-fare box revenue includes non-ticket sales and may include revenue from advertisement,

commercial development, cross subsidy, property rental, etc. Non-fare box revenue sources can

play a role in improving the viability of public transport operations.

Re

ven

ue

colle

ctio

n

po

int On-board

Off-board

Both on-board and off-board

Re

ven

ue

colle

ctio

n

me

dia Physical tickets -

preprinted or issued on -site using ETVMs, etc

Electronic

Smart cart,

Tokens,

Enti

ty c

olle

ctin

g re

ven

ue Authority: - in- house

- out sourcing

Operator - himself

- Authority as above

depending upon type of operational contracts in all cases.

Hong Kong’s Rail plus Property Development Model

The Mass Transit Railway Corporation Limited (MTRCL) is the agency in charge of

operating and constructing the mass rail transit system in Hong Kong. Employing rail plus

property development (R+P) business model, the company partners with private property

developers to develop commercial, office and residential projects on and around rail stations

and depots. As of 2011, MTRCL has executed projects around 29 of the 82 stations,

providing close to 79,000 housing units and 1.7 million square metres of office and

commercial space. Profit after tax from the property development accounted for 30% of the

overall profit for the company in 2011.



3.5.1.3 Subsidy or additional incentives

Subsidies may either be loss-compensating or act as an incentive to generate the provision of

additional services. Examples of such payments are compensations of fare rebates for specific

target groups, compensations of fuel duties in specific areas, etc. By these means, the authority

may also achieve some redistribution of wealth between different groups of the population. Such

interventions influence the action of operators on the free market without foreclosing competitive

threat and autonomous innovation which are the principles of such a design.

3.5.2 Fare Box Revenue collection methodology

Depending upon the infrastructure and cost-effectiveness of various systems, the authority may

choose one or a combination of the following systems.

On-board – user of system pays for travel fare on-board the bus. The conductor collects

fare and issues ticket to the user. This is the most common form of revenue collection

mode.

Off-board – in this system, the passenger pays fare before boarding the bus. There may

or may not be a ticket verification system on-board. This system is common in developed

countries. It requires adequate infrastructure for ticket dispersion, collection of money and

ticket verification system on the buses.

Fare box revenue may be collected in multiple ways with manual and electronic ticket vending

machine being the most common. Standards, design and specifications need to be developed by

the authority for all cases. The medium of the tickets may be paper, tokens, smart cards, etc.

3.5.3 The entity collecting revenue

Based on the revenue risk allocation, the authority or the operator may collect fare box revenue.

The decision of who collects the fare box revenue is important when designing contracts.

The city authority may collect fare box revenue on its own, or may outsource to a third

party. In both cases, either the authority or revenue collection agency procures, owns and

maintains equipment for collection of revenue. When outsourced, the fare collection

contracts need to be for periods in line with the serviceable life of the equipment.

The private operator usually collects fare box revenue when it assumes the revenue

risk. In this case, the equipment is owned and maintained by the operator.

Regardless of who manages the function or takes responsibility, the contract must specify clearly

who shall be responsible for waybill data generation, reporting, compilation, analysis, etc. In

addition, fares and ticketing integration with other modes of transport / other operators across the

network need to be facilitated.

Annexure VIII details the responsibilities of different parties for revenue collection under different

contract types.

Note that more recently, new technologies like mobile phone applications create an opportunity

for a payment system provider15 to manage the entire ticketing system using cloud-based

technology. A key feature is that it allows bus operators to be paid per passenger, with full data

provided on individual bus ridership, the location of boarding and alighting, and allowing bus

tracking. This has the advantage of applying central control to fare collection, operate a fully fare-

15 One such provider is Boloro Global USA.



integrated network, safeguard revenue, and still pay operators per passenger when the operator

takes the revenue risk.

3.6 MANAGING FINANCIAL PRESSURES AND FARE INCREASES

3.6.1 Managing Operating Losses

When the city authority assumes the revenue risk, the fare level is separate from the cost of

operation, and a number of options are available if costs increase and the system enters a loss-

making phase, such as:

Improve marketing, understand customer needs and conduct a program to improve

patronage;

Enact restrictions on competing modes (increase parking charges, reduce parking

availability and position the bus service as a more efficient alternative);

Look for efficiency improvements and cost savings but be careful not to reduce the level

of service (as such action may be counterproductive). Examine items such as unit costs,

work practices, bus speed, etc.

Reduce the level of service, especially in low-demand periods (but this may also reduce

passenger demand);

Increase fares or secure subsidy support.

3.6.2 Tariff fixing, structuring and revision

Within Net Cost Contracts, where the operator is revenue dependent, there needs to be a

mechanism to index fares to meet changes in operating costs (assuming other tactical responses

are not available). Including these formulas in the contract gives the operator confidence that the

risk of increased costs can be met in a structured way. Such a fare index uses a weighting system

that apportions the unit cost increases to the fare reflecting actual cost impact.

Within an NCC, the authority needs to clearly define triggers or time markers for tariff revision.

Inputs to fare revision could include CPI, fuel price changes, wage rate variations, etc., and these

offer an objective and quantitative system to inform the calculation. Delays in approving tariff

revision is a risk faced by the operator and contracts should include a clause the protect operators

in case such an event, by appropriate compensation for losses suffered.

City authorities are suggested to go through World Bank's Toolkit on Fare Collection Systems for

Urban Passenger Transport particularly the practice on fare structures for a more detailed treatise

on the subject. Exhibit 3-7, Exhibit 3-8 shows fare adjustment/escalation formula in Hong Kong

and Singapore respectively. Both examples show the need to have an elaborate, transparent fare

revision mechanism which is published to avoid ambiguity during fare revisions.

Annexure XIII elaborates on the fare fixation, structuring and revision in case the operator bears

the revenue risk.



Exhibit 3-7 The Fare Escalation Formula in Hong Kong16

Hong Kong had maintained its ‘formula’ (maximum profit based on 15 or 16% of assets

employed) for almost 20 years before it was superseded by a ‘basket of factors’:

“In determining the scale of fares, the government takes into account changes in operating

costs and revenue since the last increase, forecasts of future costs, revenue and return, and

the need to provide the operator with a reasonable rate of return. The value of average net

fixed assets is used as the basis for measuring the operator’s rate of return and reference is

made to the rates of return in the previous ten years. Public acceptability and affordability are

also taken into account, (and) reference is made to changes in the composite consumer price

index”.

The ‘basket’ approach gives no weightings to the factors and does not preclude the

consideration of other factors. Some of the factors are highly qualitative and the basket

approach’ leaves political discretion largely unfettered. The political input is provided by the

appointed Transport Advisory Committee which considers fare increase applications from the

bus operators and makes a recommendation to the highest administrative authority in Hong

Kong, the Chief Executive in Council, as to whether an increase should be granted and the

amount of that increase. In the context of Hong Kong, however, the bus operators are confident

that, in the current political and economic climate, which is generally ‘pro-business’, their profits

are unlikely to be compromised.

Exhibit 3-8 Fare Adjustment Formula in Singapore17

To better reflect Public Transport Operators’ (PTO) cost changes, the Public Transport Council introduced Energy Index component to track energy costs and a core Consumer Price Index which excludes costs of accommodation and private transport.

The revised fare formula is as follows:

Fare Adjustment = Price Index – Productivity Extraction

where, Price Index = 0.4 cCPI + 0.4 WI + 0.2 EI

cCPI is the change in core Consumer Price Index.

WI is the change in Wage Index. This refers to the Average Monthly Earnings (Annual

National Average), adjusted to account for any changes in the employer’s CPF contribution.

EI is the change in Energy Index. This refers to a composite of cost changes in electricity

and diesel.

and, Productivity Extraction = 0.5% (valid from 2013 to 2017)

The productivity extraction factor is aimed for PTOs to share part of their productivity gains with passengers.

3.6.3 Other tariff / revenue related factors

Mechanisms need also be developed by the authority, to deal with some socially relevant issues,

such as 1) providing concessions to special needs groups such as students, persons with

16 http://www.legco.gov.hk/yr00-01/english/panels/tp/papers/a100e03.pdf

17 https://www.ptc.gov.sg/regulation/annualFareReviewProcess.htm



disabilities, etc. and 2) Operation of non-profitable routes that operate as a public service

obligation.

Such subsidised trips and tariff concessions need to be mentioned upfront in the contract along

with an objective mechanism to deal with them. The authority needs to periodically gauge the

ongoing situation and requirements, the financial performance, costs to provide services and

payment to operators to provide these services.

The authority needs to make budget provisions for maintaining such support; however, the

authority also needs to be aware of the possibility where operators manage revenue collection,

revenue from loss-making services may be hidden by them in order to increase compensation.

A contract condition should specify integrity of the fare collection system before a compensation

agreement is entered into.

3.6.4 Fare Policy as a price mechanism to develop the market

The traditional government regulated fare scale is incapable of exploiting revenue opportunities

in the market, especially ‘willingness to pay’. Fares are usually set at levels the poor can afford,

and consequently, systems are starved of funds, providing a service that only the poor will use.

Modern transport system needs to be more innovative in designing fare policy to attract

customers, offer them value, building customer loyalty and at the same time developing value for

the service provider. This is common commercial practice in a retail setting, and can also be

applied to bus services. Where a fare policy can exploit willingness to pay, it will allow the cross-

subsidising special needs users such as students or the poor.

Pricing policy must move beyond the mind set of ‘affordability for the poor’ and instead focus on

funding options that will deliver on service quality objectives and sustainability.

To do this, the operator should manage a fare policy which will need to include a number of

considerations, including the affordability issue.

Using fare policy as a price mechanism to develop revenue and passenger growth,

offering incentives and discounts to volume users, and loyalty benefits.

Affordability is relative and needs to be understood in context, and it is necessary to

understand the customer. Social fares set for the poor results in ‘cash-starved’ and

poorly performing systems.

Being able to exploit ‘willingness to pay’ for value added services allowing cross-subsidy

to special needs /disadvantaged groups.

Electronic ticketing provides the technology to easily manage a more complex fare

policy, user-subsidies (and compensation amounts) and distance-based fares.

To avoid operator being able to exploit a captive market, the city authority can set an ‘average

fare level’ allowing operators the freedom to adjust fares and within this framework of control,

manage price mechanisms to influence demand and maximise revenue.

3.7 MONITORING AND CONTROL

Identification and benchmarking of performance parameters of any PT system along with

monitoring and control are essential to facilitate delivery of services as per agreed performance.

An objective assessment of system performance based on such parameters will guide both

incentives and penalty for variations in benchmarked performance. Objective and continual

collection of operational and performance data in various forms is one of the essential

requirements for this purpose.



For continual data-based monitoring and control of PT services, it is essential to set up a control

centre duly equipped with necessary plant and equipment, ITS / IT infrastructure, applicable

software, etc., manned by qualified, experienced and motivated staff, managed by the agency

(the network manager). However, where such an agency does not exist, relatively simple

technology is available for an operator to set up their facility.

In the case of a city-wide control centre with multiple bus operators, the provision of land, building,

utilities and other non-movable infrastructure along with its ownership and investments should be

the responsibility of the authority.

3.7.1 Performance monitoring18

In order to monitor performance of operators, quantifiable and qualitative parameters need to be

identified and defined mainly for the following amongst others:

Service quality – accessibility, adequacy, affordability, efficiency, reliability, regularly,

safety, etc.

Physical – productivity of rolling stock, capacity utilisation, fuel efficiency, mean time

between failures of aggregates, etc.

Financial – costs and revenue per passenger km, per passenger, per bus km, per bus

daily;

Benchmarking – performance parameters based on past performance and or with

respect to peer PT agencies,

Monitoring – delivery of performance with respect to benchmarked levels, assessment

of deviations if any

Defaults, and their treatment – setting out punitive actions for quantifiable defaults –

discretionary defaults cause disputes and need to be avoided.

Data acquisition compilation, analysis evaluation, report generation, monitoring and

control – as explained in an earlier paragraph.

In all types of contracts, identification and defining of service quality parameters, their

benchmarking, monitoring and control are essentially done by the authority. In contracting

systems where revenue risk is with authority, it is easy to monitor and implement the above –

where the authority can enforce requirements using the payment mechanism as leverage.

However, it is not the case in PPP contracts where revenue risk is with the operator where there

is no leverage to do so. The authority thus needs to consider such issues while making a choice

of the type of contract.

3.7.2 Infrastructure for control and monitoring

Intelligent Transportation Systems (ITS)19 comprise a set of sub-systems and equipment fitted

on buses and in the control room, to monitor performance of operations. They provide real-time

operating data and real-time communication across the various parts of the system. This

information can be used for monitoring and management of the bus contracts. While the city-wide

ITS system managed by the control rooms is owned by the authority, on-board subsystems are

owned by bus owners and are compatible with overall system.

18 Refer: Guidelines for Bus Service Improvement: Policy and Options - ADB

19 Refer: Toolkit on Intelligent Transport Systems for Urban Transport - The World Bank



In addition, a third party may be responsible for design, procurement, operations and

maintenance of system particularly that in the control room.

3.7.3 Bus fleet maintenance management

For the business model, there needs to be a system to ensure proper maintenance and servicing

plan for the bus fleet. It is incumbent on the authority to establish systems whereby it can monitor

and audit fleet maintenance and repair, especially if problems on service reliability become

evident.

The elements of a vehicle maintenance program include:

Daily inspection routine carried out by drivers at the commencement of a shift with a

reporting and documentation system in place and a reporting trail

Servicing and scheduled maintenance program for the entire bus fleet

Regular safety inspections/compliance with regulations

Complete recording system of all bus service and maintenance

Internal (self-audit) procedure

Various fleet management activities and under whose responsibility they fall, are shown in

Annexure V.

3.8 MARKETING AND BRANDING OF SERVICE

Developing an overarching marketing and branding strategy is essential to ensure a successful

implementation of an improved provision of bus transit services in the city. The importance of

outreach of any public transport services cannot be overstated. The challenge is to develop a

customised communications strategy for city bus services including customised messaging for

audience, selection of media tools, etc. The communication strategy development will provide

input for this marketing campaign.

Branding: Branding techniques are a way of identifying the bus service characteristics in the

minds of the public. It is primarily intended to create awareness of service offering, and help

communicate distinct features of the bus service to encourage greater use of the system. The

following are some branding techniques which the city authority may use:

A logo is a visual image or icon that communicates the distinct nature of a specific

bus service. A logo usually uses distinct colours and can be combined with the

brand names, either under the form of an ideogram or a logotype.

Brand names can take the form of a word or a short sentence that helps distinguish

the bus service from other regular transit services operating in the same city.

The use of distinguished and designated colour schemes on infrastructure and

fleet helps differentiate and set apart the bus service by providing visual

references for passengers.

Market Reach: The primary purpose of a market analysis is to have a general picture of the

customers and develop a better understanding of key factors that influence people’s decisions in

terms of modal choice. More specifically, market research tools are intended to reveal the:

Current users of bus service

Potential users of bus service



Barriers faced by non-users

Need for service improvements

Expectations from a bus service

Market research tools mostly include:

1. Surveys (both attitude and usage surveys): Telephone surveys, web surveys, mail

surveys, onsite (either on-board or at a bus stop/station) surveys

2. Focus groups discussions

In a PPP model, while the responsibility for the branding of urban PT system is with authority, the

marketing of services may be allocated to the agency that will benefit directly from the marketing

efforts.

Where operators are directly dependent on patronage and revenues, failure in marketing by the

authority/agency may affect their revenues. The authority could include clauses in the contract to

indemnify themselves, but it would be better to ensure that this eventuality did not occur in the

first place.

3.9 FINANCIAL MODEL

The financial Model is an important part of the overall business model. It is utilised to evaluate

the project viability and attractiveness, assess the requirement of financing for the project

including subsidy or viability gap funding and summarise the financial information of the project.

A typical structure and information flows in a financial model is shown in the exhibit below.

The key steps/methodology to be followed for preparation of financial model are described below

briefly.

Input for financial model:

The inputs to the financial model would include the following

Estimated capital costs and operating and maintenance costs and a depreciation

schedule for physical assets

Revenue options and the associated forecast revenue stream. This will include fare box

revenue and non-fare box revenue identified



Forecast demand

Debt and repayment schedule

Sensitivity ranges on assumptions

Output of financial model:

The outputs of the financial model would include the following

Projected Financial Statement such as cash flow, income statement and balance sheet

Expected returns from the project in Net Present Value (NPV), Debt Service Coverage

Ratio (DSCR) and Internal Rate of Return (IRR)

Assessment of subsidy or viability gap funding requirements where there is a viability gap

between revenue requirement and potential revenue

Sensitivity analysis:

Sensitivity analysis shows the extent to which the viability of a project is influenced by variations

in major quantifiable variables. The long-term commercial viability of a project would be critical in

ensuring private operator’s interest in that project. In case, project returns are found to be less

than a benchmark; the authority can consider additional subsidy or Viability Gap Funding to make

the project attractive.

The authority is advised to follow the Toolkit on Finance and Financial Analysis20 published by

Ministry of Urban Development and the PPP Toolkit for Improving PPP Decision-Making

Processes21, in particular, the Financial Viability Indicator Model22 for more detail on financial

modelling.

3.10 SUMMARY

The next chapters discuss the four model contracts along with the contract parameters and

procurement guidelines. However, before cities move on to contract selection they are advised

to have completed the following:

1. Business Environment Assessment as detailed in Chapter 2

2. Preparation of Business Plan as detailed in Section 3.1.4

3. Network and Service Planning as detailed in Section 3.3

4. Financial Model as detailed in Section 3.9

The completion of these 4 actions provides the cities with the context behind city bus operations,

and the business model under which city bus operations shall operate giving them an

understanding which decides their next steps. The cities in the next chapter shall have to decide

on whether a PPP option is best for them and within PPP option which type of contract is best

suited for them.

20 http://www.sutpindia.com/skin/pdf/Toolkits/Finance%20and%20Financial%20Assessment%20Toolkit.pdf

21 http://toolkit.pppinindia.com

22 http://toolkit.pppinindia.com/xls/urban-transport/PPP-Financial-model-tool-urban-transport.zip



4. CHOOSING THE RIGHT CONTRACT

This section outlines the various contract options, including the PPP contract models. The

operations of a public monopoly as well as full privatisation are also discussed to cover the

possibilities comprehensively. Four PPP contract options are discussed, outlining their distinct

features, suitability to a specific context and situation and their advantages and disadvantages.

Particularly, the role of the authority and prevalent risks are discussed, along with the suitability

of the contract to the characteristics of the operators.

4.1 OVERVIEW OF CONTRACT OPTIONS

This document evaluates four types of PPP contracts across the spectrum of contracts, with a

public monopoly operator owning and operating services at one end, and a fully privatized bus

operation at the other end. Exploring the entire spectrum is influenced by suggestions received

during industry consultations regarding continued viability of fully public and fully private options.

Evaluating these two options will also help identify the rationale behind cities that opt for a PPP

contract option.

We evaluate these two non-PPP options first and then evaluate the four PPP options in the

subsequent sections. Exhibit 4-1 illustrates the full range of options for engaging bus operators.

Exhibit 4-1 Guiding Principle and Options for Model Contracts

4.2 BUS OPERATION BY A PUBLICALLY-OWNED ENTERPRISE/STATE TRANSPORT

UNDERTAKING (STU)

It is argued, especially in the face of poorly performing private bus operations, that the city/state

should operate the public bus services. The logic has merits, the public sector is more likely to



have the interests of society at heart, and can theoretically operate at lower costs than the private

sector. However, state operations have typically failed despite many state-operated businesses

having employees that are highly competent technically.

Many factors have attributed to these failures, some of the key ones being:

Lack of a clear objective: State bus operations often suffer from the dilemma of blurred

objectives. On the one hand, they are expected to be profitable or have a reduced need

for subsidies while at the same time provide services at reduced rates (regulated low

fares).

Political directives and considerations often interfere with good business practice,

including high staffing levels and generous staff entitlements, inefficient work practices and

an inability to eliminate poorly performing services.

Reliance on subsidy: Excessive reliance on subsidy has a two-pronged effect; firstly it

creates a lack of focus on passenger demand and customer service as authorities are

subsidy (not revenue) dependent. There is little focus on service efficiency or winning

passengers, and the result is a ‘supply-oriented’ rather than of a demand-oriented service.

Secondly, financial pressures often result in cost-cutting and service level reduction which

leads to declining passenger numbers and consequently, dwindling revenue.

All of the abovementioned factors lead to a subsidy based non-commercial approach towards the

business. Unfortunately, businesses cannot continue to rely indefinitely on subsidies, and after a

particular point, the city may cut back subsidies to cover losses, especially when public budgets

are strained due to competing demands for funds.

Privatisation, defined as transferring state-run operations to the private sector, is often hailed as

the obvious solution but comes with a unique set of challenges. The success of privatisation lies

in a number of inherent factors like focus on revenue building, a real understanding of costs and

subsidies, developing profit incentives that drives efficiency and a merit-based recruitment.

These issues make it essential to evaluate options that may equip STUs to be competitive in

providing bus services. The options would include strengthening the STU or transferring their

operations to a state-owned special purpose vehicle (SPV) company that is a commercially-

oriented government-owned entity established to operate bus services.

4.2.1.1 Strengthening STUs

The key to fixing the STU issues lies in their reorganisation as a commercial operation. The

process begins with establishing a clear objective on the aims of the organization, and reduced

political involvement in its functioning. The loss-compensating subsidy should be phased out to

ensure that the organisation is customer centric and generates revenue. This may require not

just an increase in fares to cover costs, but also the introduction of a more innovative fare policy

that exploits ‘willingness to pay’. It is imperative for the management to be more accountable for

revenue and less reliant on subsidy support. It is also essential to review the operation costs and

adopt measures like higher bus speeds or rationalise stops, to decrease the same. The

organisation also needs to review human resources related factors like high wage costs and

pension benefits, and the inability to dismiss poorly performing staff that adversely affects the

performance of the STU.

Eventually, the success of the exercise depends on the capability of STU to adopt these

fundamental and structural reforms. If these reforms are not possible, the only option for the STU

might be to convert them to a government owned commercial enterprise.



4.2.1.2 Reorganising an STU to a government-owned commercial SPV

Some Indian cities have explored option to develop commercial SPVs i.e. a business-like

government–owned company to operate bus services. This is a logical step in ensuring that the

management becomes commercially-oriented, is accountable for performance, and ensures a

greater focus on customer service and satisfaction.

4.2.1.3 An alternative role for the public sector in network management

It may be argued that the essential role of the public sector may not necessarily be to operate the

buses but to plan and monitor the bus network. In this model, the ‘public bus operator’ manages

the business, and not the operations, of public transport i.e. planning services, collecting revenue,

being responsible for customer service, etc., and the operation and maintenance of the buses

are contracted to the private sector. Separating these roles creates a Principal and Client

relationship where there is clear accountability for service provision. This model has been

adopted by many Public Transport Authorities (PTAs) in many cities around the world; some of

the prominent examples include Transport for London (London), Public Transport Council

(Singapore), and Massachusetts Bay Transportation Authority (Boston).

4.3 FULL PRIVATISATION OF BUS OPERATIONS

Another operational model for bus operations, though miles away from state-owned bus services,

is the full privatisation of city bus services, where the private sector, and not the state, carries the

responsibility for transport outcomes. Under this scenario, market forces are left to dictate the

balance between supply and demand.

During the 1980-90s, neo-liberal policy experts argued that state-run bus operations be privatised

on the assumption that private operators were more efficient, could adapt better to the market,

and would require less subsidy (or none at all). The UK was among early adopters of this model,

and the experiment demonstrated a reduction in subsidies for utilities like power and water. While

the UK model was based on conviction of market efficiencies and was successful in eliminating

costly subsidies, the downsides like loss of consumer base, indicated a downturn in service

delivery levels, and it took years for the industry to address these issues successfully.

The possibilities and downsides of full privatisation

While the UK experience had issues owing to its uniqueness, it was also impacted by factors like

abolishing authority role in service planning and depot privatisation, which distorted fair

competition. The UK experience of reduction in bus passengers coinciding with privatisation

suggests that the blanket adoption of privatisation model might not always yield successful

results. Similar experience were observed worldwide by subsidy-burdened state operators that

adopted privatisation as a ‘silver bullet’.

It may be argued that privatisation did not yield better outcomes mainly for two reasons. Firstly,

the risks that the state companies could not manage were transferred to private operators who

themselves could not manage these risks and ultimately started a ‘race to the bottom’ in quality

standards fuelled by cost cutting. Secondly, although regulators yielded control over the level of

service and quality to the operators they still retained control over fares and left the operators to

sort out the economics.

Eventually, global enthusiasm for privatisation was tempered by the fact that the profit motive of

the private operators was often in conflict with public service objectives, leading to a trend toward

PPP arrangements to strike a better balance in control and efficiency, and the essential sharing

of risk.



4.4 PPP CONTRACTS23

4.4.1 Overview of PPP Contracts

A Public Private Partnership is typically a medium to long-term arrangement between the public

and private sectors whereby services that are typically the responsibility of the public sector are

transferred to the private sector.

The PPP contract is a detailed framework under which a private company can perform the

services, and maintain and carry out investment for a given term. The roles and responsibilities

of each party and their rights and obligations are explicitly outlined in the contract. A PPP contract

also defines the partnership relationship. While all contracts define relationship at a tactical level,

PPP contracts need specifically defined strategic framework where:

There is alignment of expectations and objectives between the parties;

A clear alignment exists among strategic, tactical and operational aspects;

Reasonable flexibility is given to respond to the dynamic context of public transport

and to understand the environment and capabilities of the parties.

PPP contracts will vary according to the situation and context, the strength and capacity of the

parties, and the trust relationship between operators and the authority. The contracts range from

a Gross Cost Model, where the entire revenue risk is with the authorities, to a Net Cost Model,

where the operator takes the responsibility of managing the revenue risk. The contracts also

include hybrid models, which act more like a ‘partnership’ and are relational in terms of risk

sharing and partnering toward a common objective.

It is important that the process of developing the contract is open and clear, and achieves buy-in

from all sides. It is also valuable to learn from the past and other cities’ experiences.

4.4.2 The benefits of PPP Contracts

There are two aspects of a PPP contract that make it valuable and useful in the management of

city bus services: 1) the inherent ‘contractual’ basis of the agreement and 2) the aspect of

‘partnership’.

The contractual basis ensures:

The roles of the parties; their rights and obligations; and procedures are well-defined

and clearly stated and are part of written, agreed upon and enforceable terms and

conditions of the contract;

The contract is the control mechanism which places the authority in the ‘driving seat’

to achieve its intended outcomes;

Remuneration to operators is (in part) performance based;

Performance is easier to enforce (under contract) utilising payment mechanisms and

a sanction/penalty regime;

Contracts allow the removal or discipline of poorly performing operators.

The partnership aspect ensures:

Shared risk – assigning of risk to where it can be best-managed;

23 Also known as “Controlled Competition”, “Competition for the Market”, both requiring public tendering for bus transport concessions



Contracts are financially viable for both parties;

Aiming for a win-win outcome.

4.4.3 The Role of the authority24 in the PPP Contract

In any PPP-type contract, the public authority will need to participate to a greater extent in the

management of the system network; beyond its traditional role of ‘regulator’. The SPVs in Indian

cities are a typical example of the same, where these entities engage by:

Asserting a business management approach to public transport, and

strengthening control over outcomes;

Being ultimately responsible for customer service delivery;

Concerning themselves with sustainability and risk management;

Taking a more commercial approach to subsidies, using it to produce positive

outcomes and not to merely support operational losses.

In situations where SPVs take a more commercial approach to public transport, instead of the

traditional ‘social service’ mind set of an STU, the SPV adopts an approach that is more aligned

to the private sector approach.

4.4.4 Evaluation of the PPP Contract Options

Within the realm of PPP contracts, four distinct categories are identified as follows:

1. Gross Cost Contract (GCC)

In the GCC, the authority takes a major role in managing the network, by contracting the

operators and paying them to provide a set level of services under set quality standards.

Under this type of contract, the authority carries the revenue risk, plans overall services,

manages the contract for Level of Service (LOS) and quality, and is ultimately responsible

for customer service.

This contract is suitable if the authority (having access to finance) wishes to take a

dominant role, control service planning, and assume the revenue risk or the routes are

likely to be unviable. A city with low ridership routes, where the revenue risk would seem

unmanageable to the operator, is suitable for adopting a Gross Cost Model.

This contract sets overall Minimum Service Levels (MSL)/Key Performance Indicators

(KPIs) and requires close monitoring by the authority. By its inherent nature, this contract

grants a greater control to the authority.

2. Hybrid Gross Cost Contract

Under a hybrid contract (a variant of the GCC), the agency still carries prime responsibility

for passenger service outcomes and sets explicit service obligations (MSL), but

incentivises the operator through additional payment for ridership growth.

This contract is a more suitable contract for cities that require the ownership of GCC and

with an intention to share the revenue risk. The model incentivises the operator to ensure

24 It is to be noted that the terms Government, State, City and ‘Authority’ are interchangeable in this document describing the public

sector entity or its various embodiments responsible for administration or management of bus services. The terms Bus Operator and

Contractor used in the description of PPP's are also interchangeable.



it meets the service levels, and innovate to increase ridership. The authority sets overall

MSL/Quality KPIs and needs to monitor as closely as in the GCC model.

3. Net Cost Contract (NCC)

In the NCC, the authority performs a more regulatory role, and the operator carries the

revenue risk. Service planning is mostly done by the operator, although an MSL and

Quality KPIs are set as conditions for awarding the NCC. The authority has lesser control

mechanisms which typically results in a loss of control as the party that carries revenue

risk has the upper hand. However, control can be improved if there is an incentive for the

operator to comply with the authority’s wishes. For example, if an operator is profitable, it

will increase the authority’s chances of influencing a better level of service (LOS), whereas

if the operator struggles financially, then its economic survival takes precedence over any

request to improve service levels.

The operator will cross-subsidise non-profitable routes with profitable ones. This type of

contract is suitable where there are willing and capable operators. However, there is a

risk of the contract weakening the authority’s control and leading to undesirable outcomes.

4. Hybrid Net Cost Contract

In Hybrid Net Cost Contract (a variant of the Net Cost Contract), the authority supports

non-commercial routes where service on the routes needs to be provided as a public

service obligation (PSO).

This contract type is suitable for more skilled, willing and experienced operators who are

capable of undertaking service planning and managing almost all the revenue risk, and

where the authority does not have the skill for business management. It can be used in a

city where the revenue risk, to be undertaken on certain routes, is unmanageable for a

single party. The authority sets overall MSL/Quality KPIs and needs to monitor outcomes.

But, by its inherent nature, the level of control by the authority is less.

Exhibit 4-2 briefly outlines the features of the Gross Cost, Net Cost and Hybrid Contract types.

The discussions on the individual contracts are detailed in the following sections.

Exhibit 4-2 Features of GCC, NCC and hybrid contract

Parameter GCC Hybrid GCC NCC Hybrid NCC

Suitability

Authority has

maximum

control

Authority has

more control

and intends

that operator

shares some

revenue risk

Operators have

more control

Higher revenue

risk for operator

Limited

competition on

the routes

Operators have

more control, but

less than NCC

Revenue risk for

operator lower

than NCC

Limited

competition on the

routes

Revenue risk

Authority Shared:

Base cost by

authority

Operator Operator, subsidy

by authority on un-

viable routes



Parameter GCC Hybrid GCC NCC Hybrid NCC

Ridership

increase by

operators

Degree of

operator’s

incentive to

increase

ridership

Low

Fixed payment

irrespective of

ridership

High

Bonus on

increase in

ridership

High

Revenue directly

linked to ridership

High

Revenue directly

linked to ridership

Monitoring

and penalty

regime

Requires strong

and consistent

monitoring with

penalty for

service below

benchmark

performance

Higher level of

monitoring

than GCC

because of

greater

economic

incentive for

performance

Less monitoring.

Only service

quality

parameters

monitored

Level of monitoring

is higher than

NCC.

In addition to

service level

parameters,

monitoring of

movement of bus

on un-viable

routes

Access to

finance

(Bankability of

project)

High

Guaranteed

income reduces

credit risk

High

Part of income

assured;

decreases risk

Low

Revenue risk

borne by

operator.

Increases credit

risk especially if

no track record or

demand is

uncertain.

Low

Reduces revenue

risk as non-

commercial routes

are supported.

Improves credit-

worthiness, but still

lower than GCC

Developing a public transport system in most of the countries is a loss-making venture, so

authorities should be prepared to provide some form of subsidy to the operators to ensure that

project is sustainable.

Access to finance is an important parameter, but it should not be the sole criterion for selection

of a business model. Hence, extreme caution must be adopted while considering access to

finance as one of the key reasons for selection of business model.

4.5 SALIENT FEATURES OF A GROSS COST MODEL

4.5.1 Suitability to contractor and level of contract detail in a GCC

Gross Cost Contracts may be used in any situation where the authority wishes to enforce strict

quality outputs. It is also a suitable model for low demand routes or services operating in non-

peak hours, where services may not be commercially viable for the operator.



The contract specifies minimum service levels (MSL) and quality service standards. The

monitoring and enforcement are easier but is reliant on the ability of the authority to monitor the

entire service. Thus, the model’s monitoring is easier on a trunk line than an expansive city area.

A GCC prescribes in detail the service requirements with regard to the standard of quality and

service delivery as well as operational, management and performance monitoring procedures.

The level of detail in the contract should be sufficient to ensure the operator is informed of all

requirements and the authority has a reference for applying penalties in case of performance

failure.

However, the contractual demands placed on the operator need to be objective and realistic, and

penalty by the authority must be applied fairly and equitably. City authorities should develop a

contract management procedures manual to provide explicit and clear guidance in the

management of the contract.

The payment of the operator is dependent on the kilometres plied and not on the number of

passengers carried. In situations where revenue is overly dependent on the number of

passengers transported, the operators often compromise on safety in the pursuit of passengers

and revenue, causing irregular and illegal behaviours and safety concerns. By delinking the

payments from passenger revenue, GCC can reduce competition.

The service specifications within the contract must be variable and must allow the authority to

adjust services according to demand requirements. However, under reduced demand, the

operator may be burdened with an excess fleet and suffer financial disadvantage.

4.5.2 Roles, responsibilities and risk assignment in a GCC

In a GCC, the authority manages the ‘businesses of public transport’ while the operator manages

the ‘business of bus operation’. Service planning, efficiency, business development and

marketing are all in the domain of the authority’s responsibility. The authority not only takes the

revenue risk but is also in a position to manage the revenue risk by being able to adjust services

to demand, marketing the system, implementing parallel traffic treatments/restrictions, managing

central fare collection and fare integration, etc. In cases where the authority also controls the

service planning of the network, it has the flexibility to assign and reassign the buses across the

network and adjust LOS according to demand.

The risk assigned to the operator is the operational risk; including responsibility for service

frequency (no missed trips) and compliance with quality and safety standards (bus quality,

cleanliness, driver behaviour, safety, etc.).

4.5.3 The monitoring capacity of the authority

GCC requires (and demands) the authority to undertake close monitoring of daily performance.

The authority will need the requisite resources and the technology to carry out this task.

4.5.4 Operator input into service development

Under a GCC, the operator is not expected to contribute to service development, since it has no

incentive to be more efficient by reducing kilometres of operations (as it is the basis for payment)

and it most likely wants to increase kilometres for additional benefit. However, a good operator

with an eye on the long-term partnership opportunities could provide useful advice that is more

likely to be attuned to local demand. It may be worthwhile for authorities to develop such a

constructive relationship with the operator.



4.5.5 Payment mechanisms and performance incentives of a GCC

In a GCC, the authority collects the revenue and takes revenue (demand) risk, and therefore

controls the levers of supply, price, and service quality and system performance. By taking this

business control and the risk, it has a strong hand in ensuring quality, assisted by the contract to

enforce service delivery. The authority must have the resources and ability to monitor services

closely.

While there is a good incentive to maintain service frequency, operators carry no demand or

revenue risk, so they have little incentive to cater to demand, as their revenue is unaffected by

demand-propelling efforts. The limitation of a GCC is that operators can comply with the fleet,

capacity and kilometre targets as set out in the operational plan, and still offer poor service. This

increases the authority’s reliance on the penalty regime to ensure quality standards are

maintained. Complementing the kilometre payment system with a bonus for passengers carried

would motivate operators to improve customer service. Penalty regimes typically include a

financial penalty for service failures and a demerit point system to identify chronic performance

failures and a habitually poor performing operator. Subsequent months of poor performance

could justify a review of the contract with eventual termination if the problems are ongoing.

A typical payment mechanism useful especially for Gross Cost Contracts is an Escrow Account

that can be used to manage inflows and outflows of cash specifically for revenue receipts and

disbursements along set payment guidelines. The account can also hold a balance of

contingency funds to smooth out peaks and troughs and guarantee timely payments. For

example, a contingency of an amount equal to one month’s fee payable to the private operator

may be the mandate. The provisions of the escrow account are further detailed through an escrow

account agreement between the authority and the private operator. This agreement forms part of

the main contract.

The main benefit of using an escrow account for payments from the authority to the operator is

that it gives an assurance to both the parties that neither would default on its obligations. The

operator would not receive its payment till the time it delivers on the agreed provision of service,

which is an assurance for the authority. At the same time, the operator is assured of payment

once the agreed services are delivered as specified in the contract since the amount has already

been debited from the authority’s account.

4.5.6 Access to finance under GCC

Payment by kilometre under a GCC ranks well in terms of risk and access to finance. Typically a

GCC specifies and assures annual kilometres over the contract period, so an operator does not

suffer losses with a reduction in demand. The authorities often extend the contract when the

operators have not achieved the kilometre quota.

Exhibit 4-3 Flow of funds from Escrow Account

2. Provision of agreed services

1. Transfer of funds 3. Transfer of funds

AUTHORITY

ESCROW ACCOUNT

PRIVATE

OPERATOR



4.6 SALIENT FEATURES OF A HYBRID GROSS COST MODEL

4.6.1 Suitability to contractor and level of contract detail in Hybrid GCC

Contracts can also be a ‘partnering agreement’ between the authority and the private operator.

A Hybrid GCC suits situations where the operators are more skilled and experienced in the

business of bus service. The operators are consequently given the opportunity and incentives to

be innovative and responsive in the provision of services while meeting minimum service

standards. This contract can be utilised in cities with a high potential to increase the ridership.

A Hybrid GCC gives the operators an incentive for maintaining and increasing the ridership (but

with MSL applied), similar to the bus service contracts of Adelaide Australia.

The level of responsibility for service innovation given to operators under this type of contract

depends entirely on the skill, capacity and motivation of the operator. The incentive mechanisms

in the contract should be aligned with the objectives of the authority (such as reducing costs and

building patronage); however, service change proposals still need to be approved by the

authority.

The Adelaide experience illustrated some operators were proactively applying their expertise in

catering to passenger demand and improving service levels; however, despite the incentive to

exploit this provision for additional income, others simply managed costs to ensure they remained

sustainable.

Exhibit 4-4 The Hybrid Contract Model used in Adelaide

The contracts were area-based giving operators’ exclusive rights within their service area

and were awarded through a competitive bidding process. Conditions were also established

to provide for bus services that crossed contract boundaries. No commercial deregulated

services were allowed. The term of the contract was an initial five years and would allow for

contract renewal by negotiation for a further five years in cases of satisfactory performance.

The operator commenced with the network and services as specified by the transport

authority and prepared an annual service plan in which it could propose amendments to the

network, routes or service levels. Any proposed changes need to be approved by the

transport authority.

Changes would typically be within the allocated contracted kilometres; however, growth

would require additional funding. In light of the Government's primary objectives for the

passenger transport reforms to "encourage innovation and achieve service improvements,

particularly improved frequencies, better night and weekend services and more equitable

access to services", it was concluded that operators should be in the best position to

determine service requirements (having regard to costs) at the local, tactical level and that

operators, therefore, should be given the primary role in detailed service planning within

minimum service guidelines.

The salient features of the contract adopted were as follows:

a. a set of prescribed minimum service standards, both metropolitan-wide and specific

to each contract area (generally based on previous levels of service);

b. tender bids were required to be based on at least these minimum service standards,

with additional points being awarded in tender evaluation for bids offering service

enhancements;



c. the contracted operator had the primary responsibility for developing proposals for

service enhancements and variations;

d. the fleet deployment plan was prepared by the transport authority. The operators

had the provision to submit a proposal, to amend the fleet deployment plan in

accordance with their tactical measures to improve services. However, proposals

for these changes were subject to approval by the authority; and it was expected

that contractors would finance service innovation from savings and additional

revenue from increasing ridership.

Generally speaking, a Hybrid GCC will need to ensure the following aspects:

Clear objectives established by the city for service outcomes about the city

objectives on passenger demand. These objectives could include passenger

growth, service coverage and access, level of service, etc.; the objectives should

be embodied in the contract.

A reward mechanism should be included. Performance incentives should be

mindful of the skill and capacity of operators to propose service adjustments.

A performance measure predominantly based on outcomes like passenger growth

and satisfaction. However, it is equally important to monitor reliability and safety

aspects like missed trips and accident records.

A suitable payment mechanism and incentive structure. For example, the payment

mechanism should be able to quantify passenger growth relative to kilometres

since operators have no incentive to reduce wasted kilometres if they are paid on

a kilometre basis.

Offering a level of protection from on-road competition especially when the

operator takes a greater revenue risk.

Under such a contract, the operator should be assured of covering costs, but must improve its

returns through service innovation.

4.6.2 Roles, responsibilities and risk assignment in a Hybrid GCC

In the hybrid GCC, the authority maintains control over MSL and KPI's to control customer service

levels. It devolves some service planning to operators under the incentive to develop business,

build revenue and maintain quality standards. The penalty system and service quality evaluation

are same as the GCC, and the authority retains the same monitoring responsibility.

However, incentivising the operator for performance and increasing the ridership, does not mean

assigning the entire revenue risk to the operator. Any risks assigned to the operator must be

attentive of the operator’s ability to manage it. For example, traffic congestion or roadwork which

can affect the cost of service delivery and service timeliness or ancillary factors such as motor

vehicle policy or illegal competition that can affect patronage or revenues, are factors that are

beyond the control of the operator.

In a hybrid GCC, the authority still collects revenue even in cases of on-bus fare collection25, and

the operator is paid for services in line with the predetermined payment mechanism.

25 Modern ticketing technology allows better control over revenue by managing central fare collection. In cases where the operator

collects fares ‘on-bus’ the revenue is banked to the account of the authority. .



4.6.3 The management capacity of the authority in a hybrid GCC

A Hybrid GCC design requires the same management capacity as the authority exercises in a

pure GCC. Mechanisms to determine actual ridership increase then needs to be in place to

maintain the integrity of the bonus payments to the operator.

4.6.4 Operator’s input into service development

Hybrid GCC designs allow and incentivise operators to develop efficiencies. Developing

passenger growth and managing costs is the key to their profitability, and thus gives them

incentives to improve service levels, reduce wasted kilometres, and other customer service

improvements, etc.

As the operator shares the revenue risk (indirectly), it has a reason to improve and self-monitor

performance, however, the authority still has to enforce service obligations by ensuring minimum

service levels (MSL) are adhered to, and also respond to failures under KPIs and passenger

complaints.

4.6.5 Payment mechanisms and performance incentives in Hybrid GCC

Hybrid GCC designs require the same performance incentives as GCC. However, the additional

payments made for ridership increase will act as an economic incentive in addition to penalties

applied for poor performance under the GCC model.

The authority may decide the component of the O&M Fee it intends to share with the operator for

an increase in ridership. The corresponding values of Bonus Percent26 shall be used for

calculation of Bonus O&M Fee. For instance, if the variable component is 40% of the O&M fee,

and the Monthly Load Factor on Route 1 on XYZ bus is 51%, then Bonus Payment payable shall

be (40% of Per km O&M Fee x 50%). The following table presents sample monthly load factors

and bonus percent values.

Exhibit 4-5 Sample monthly load factor and bonus percent values

Monthly Load Factor Bonus Percent

<40% Nil

40% to 50% 20%

51% to 60% 50%

61% to 70% 80%

>70% 100%

A further performance incentive could be the adoption of good performance as a credential in

subsequent rounds of tenders. These future opportunities might incentivise contracts to perform

well even towards the end of their contract terms.

4.6.6 Access to finance under Hybrid GCC

As the hybrid contract has a strong element of assured income, it ranks well in terms of risk and

access to finance. However, if the cities undertaking reform has insufficient data on assured

26 The authority may change the Monthly Load Factor and Bonus Percent values, as per its needs



demand and future growth, it may be reasonable for the contract to shield operators from undue

revenue risk.

4.7 SALIENT FEATURES OF A NET COST MODEL

Under the Net Cost Contract, the city assigns to an operator, the permission to carry out business

through designated routes or service areas generally with a level of exclusivity and protection

from competition, in return for a monthly fee or payment of a grant, as the case may be. The

operator retains the fare box revenue collected from the passengers and has the economic

incentive to increase the ridership in the buses. The operator also needs to cross-subsidise non-

profitable routes from their profitable sectors. The model has been adopted in Singapore,

Barcelona, Budapest, and Amsterdam27 .

The operators in India on NCC type arrangements hold the permits for defined areas/routes and

under government fare regulations. However, in India, the major impediment to this type of

operation is that the operator provides services within the framework of a regulated fare scale

established by the city, and rarely revised due to socio-political factors. This situation causes

hardship to the operator and makes the model unsustainable from the operator’s perspective.

Consequently, operators reduce the service levels and leave the government powerless to

exercise any authority over the situation. As a result, these operations have been progressively

modified in various ways either by retendering of contracts or by negotiating with incumbent

operators with the government taking patronage risk in return for high standards of service

delivery.

In this guidance document, we offer an NCC as an option where the authority wishes to be less

involved, and rely more on the private sector to deliver services under an entrepreneurial model

despite evidence regarding the model’s downsides and its failure in achieving public objectives.

Under the NCC model, the operator conducts service planning but has to comply with conditions

set by the authority such as MSL, Quality, Fleet Deployment Plan, age of vehicles, and fare rules.

Typical features of a Net Cost Contract include:

Some level of exclusivity (reduces competition) to establish a viable business.

In return, the operators agree to abide by certain conditions (LOS / fare control/

quality/ fleet deployment plan)

Operators have maximum incentive to conduct service planning.

Quality/ performance not as easy to enforce, but strict penalty system exists in the

contract

Tends to be more successful where operators are profitable but conflicts arise

when risks such as revenue risk are high

Operators have captive market and poorly performing operators are removed

using the penalty system

In the Net Cost model, the operators secure the right to establish their own business to operate

public bus services and will cover investment costs, working capital costs, and carry the entire

revenue risks. The government regulates quality standards, public well-being issues, and

competition.

27 van de Velde, D., Beck, A., Elburg, J.-C. van, & Terschuren, K.-H. (2008). Contracting in urban public transport.



The major risk associated with NCC are identified as follows:

Traffic congestion: Traffic congestion could lead to inefficient operation and thereby,

increase the cost of operation. While city authorities have the ability to control traffic,

the model does not offer them any incentive for the same. However, bus operators

suffer severe cost impacts when buses are stuck in traffic. As a general rule, if a bus

operator cannot reach 20 km/hour they will be losing money, and shall either require a

subsidy, or an increase in fares to compensate for the loss of efficiency.

Fare Policy: On the revenue side, a static and regulated fare set by the government

may not be sufficient to cover operating and investment cost, especially if costs

increase due to traffic inefficiency. Fare levels are often set to affordability levels, based

on an ‘affordable for the poor’ mind set, thus starving the system of funds to ensure

quality travel.

Revenue Protection: The inability of operators to control fare collection and protect

revenue is also a major risk issue for them

Competition in the market: Other modes of transport, especially informal modes of

transport, pose immense competition to the operators plying on routes and erode

operators’ revenue. Because of this, the operator tries to cut costs and the service

quality goes down. It may also lead to safety issues with operators competing with each

other for a limited set of passengers.

Based on the above, it follows that an NCC would be feasible if the city could work more closely

with operators in a practical way to make the business model work, particularly assisting in

managing risk. The NCC could be structured in such a way that the city gives certain concessions

and guarantees to reduce operator risk. This would include:

1. Enabling an operating environment that guarantees commercial operating speeds (as is

the case with BRTS)

2. Allowing operators to manage essential control levers such as service levels

3. Reviewing passenger fares at regular intervals

4. Linking fare revision with the quality of service offered by the operator would greatly assist

the viability of an NCC and promote the authority’s objective. Improved technology such

as e-ticketing may also assist in ensuring better protection of the revenue, improved

monitoring and a high level of data collection for efficient service planning.

This would create a situation where the city authority can ensure sustainable operations under

an NCC without taking the revenue risk.

4.7.1 Suitability to contractor and level of contract detail in an NCC

A Net Cost Contract requires an entrepreneurial operator willing and capable of taking the

revenue risk but would expect to be rewarded with an additional risk premium. While such Net

Cost Contracts are presently unpopular in India due to operators perceiving unmanageable risk,

operators may reconsider if they see a prospect where risks can be managed.

4.7.2 Operator input into service development in an NCC

As the operator takes full revenue risk, it assumes extensive responsibility for service

enhancement, and has the incentive to operate efficiently. Although the fleet deployment plan

may be set by the authority, the operator can submit a plan that is more demand responsive.

Where services are non-commercial e.g. late night services, there needs to be an



accommodation by offering compensation either in form or more profitable services. These

options fall under the purview of Hybrid NCC option and have been addressed in subsequent

sections.

4.7.3 Access to finance under an NCC

Compared to the other contract options, the NCC has the greatest difficulty in accessing finance

unless the operator has a sound track record and the business is known to the lender. The key

issue behind lenders’ hesitance is the uncertainty associated with passenger demand and

subsequent revenue projections. Accessing finance is easier for projects in cities that have

detailed information regarding demand patterns or have a stable demand pattern.

4.7.4 Control and Monitoring of an NCC

Due to the very nature of an NCC, monitoring by the authority can become difficult, especially

when services are spread across expansive city areas. Inspections of the services provided can

become difficult if the authority doesn’t have the personnel for inspections or for supervision of

third party inspectors.

A realistic approach would be to monitor passenger service outcomes through passenger

feedback via complaints, suggestions, etc. Any evident safety issues should also be quickly

investigated and remedied.

4.8 SALIENT FEATURES OF HYBRID NCC

Hybrid NCC is essentially the same as an NCC except that the authority may provide financial

support by undertaking the revenue risk for certain non-commercial and unprofitable routes, on

which the authorities require buses. The financial support is a financial supplement in addition to

fare box revenue retained by the operator. Typical examples of the model include routes in newly

developing areas where patronage is limited and where car ownership needs to be discouraged.

Another example could also include maintaining general service frequency in non-peak periods

as a social service.

A Hybrid NCC may be viewed as a strategy to make NCC more attractive to operators and reduce

operator risk while limiting the authority’s exposure to the full revenue risk.

4.8.1 The management capacity of the authority

A Hybrid NCC requires a higher level of involvement by the authority (as against NCC model) in

service planning as the model involves financial support on selected non-commercial routes. The

model also has an indirect benefit of creating conditions that facilitate closer partnership between

the authority and the operator, and fosters greater understanding towards joint effort in service

delivery. These benefits are in contrast to a pure NCC where there is often controversy around

the authority making the rules leaving the operator to manage the risks.

4.8.2 Operator input into service development

In routes where the operator takes full revenue risk, it will take full responsibility for service

enhancement, and has the incentive to operate efficiently. Although the fleet deployment plan

may be set by the authority, the operator can submit a plan that is more demand responsive.

For routes where services are non-commercial e.g. late night services, the city authority is

providing compensation and thus the operator has limited incentive to increase efficiency by

reducing the kilometres of operations since it is the basis for payment.



4.8.3 Access to finance

The Hybrid NCC reduces the difficulty in accessing finance, as there is some government support

for loss-making routes. However, revenue risk for the majority of the network still exists, and any

uncertainty in passenger demand estimates may affect the finance proposal. Consequently, the

access to finance is greater than NCC but less than GCC and Hybrid GCC.

4.9 SELECTING THE ‘MOST SUITABLE’ CONTRACT TYPE FOR YOUR CITY

After the city has decided to adopt PPP in city bus operation, and based on the understanding of

the various PPP models, the next step is to decide which model is most suitable for the city. The

decision framework provided subsequently is an attempt to quantify qualitative parameters to

facilitate an informed decision for choosing a right contract for a city.

However, it is imperative to note the framework should be adopted as guidance, and not as a

prescription. It is equally important to involve UMTA or the larger permit issuing authority, apart

from the contracting authority, to undertake an unbiased assessment based on the framework.

The various parameters for such an assessment may be broadly classified into three headings:

Service Plan identifying the role of contracting authority vis-à-vis the operators, Financial

Capacity that deal with financing arrangements of contracting agencies for operations, and

Institutional Capacity that capture the ability of contracting authority to manage the contract.

Exhibit 4-6 Contract decision framework parameters

Parameter Definition

Load factor on routes This parameter takes into account the average load factor

cumulatively on all the routes.

Overlap of routes

This parameter pertains to the presence of multiple bus

operators in a city, often leading to deployment of multiple

operators on a route or overlapping of multiple routes.

Authority's control over

service and network plan

The contracting authority’s ability to make changes to the service

and network plan varies with the type of contract.

Integration of different

modes

There may be multiple modes of transport in a city. Integration

among these modes of transport and coordination among the

various agencies responsible for respective mode is important to

provide seamless public transport to users.

Competing Modes

Competing modes refer to the presence of multiple modes such

as metros, BRTS, intermediate public transport (IPTs), etc.

Higher number of competing modes lead to a higher score since

competition leads to less load factor on buses. However, as IPTs

are prevalent in every city in India, the minimum score will be one

(1).

Fund Allocation for the

entire term of contract

It is important to demonstrate the allocation of funds by the

contracting authority to undertake city bus private operation for

the entire term of the contract, which covers initial financing as

well as financing during the operational period. If the envisaged



Each of the above parameters may be rated Low, Medium or High based on their relative

importance in contract selection and accordingly assigned a weight.

Rating Weights Score

Low 4% 1

Medium 10% 2

High 18% 3

Each parameter is further scored on a three-point scale (1-3) based on the assessment for that

parameter. For the purpose of illustration, a score of 1 signifies a “Low”, a score of 3 signifies a

“High”, and a score of 2 signifies a “Medium”. For some questions, the answer maybe “Yes” or

“No”. For such parameters, the value will be 0 if the response is “No” and 3 if the response is

“Yes”.

Exhibit 4-7 Decision Criteria for Contract Selection

Parameters Description Score Weightage (%)

Max. Score

Parameter Max. Score

A Service Plan Key questions to answer before assigning ratings

1 Average load factor 18 3 54

funds are to be provided by a government entity other than the

contracting authority, approval from such entity shall also be

obtained prior to initiating the bidding.

Provision of dedicated

funding

To provide an additional level of comfort to the operators and

their lenders, it is preferable to provide for dedicated funding

arrangements such as Urban Transport Fund or any other

alternative mechanisms to undertake the project.

Credit Rating

Credit Ratings assess the financial health including debt

repayment ability, ability to recover the cost of services and track

record of service delivery among other things.

This should cover the contracting authority, municipal body or

any other government entity responsible for financing city bus

operations, either in full or part. A higher rated agency is better

able to cover its liabilities.

Creation of SPV Incorporation of SPV that is fully functional to undertake public

bus transport in the city.

Adequacy of Staff for

Bus Transport

Adequate staffing of the contracting authority to undertake the

project for tasks such as contract management, monitoring the

project, technical staff to verify physical conditions at depot, etc.

A well-staffed contracting authority shall have employees for

control room functions, monitoring functions and project

administration functions.



Average load factor below 30%

What is the average load factor cumulatively on all the routes?

3

Average load factor between 30% and 60%

2

Average load factor more than 60%

1

2 Overlap of routes Are there significant overlap of routes?

10 3 30

More than 20% 3

Between 10% and 20%

2

Less than 10% 1

No overlap 0

3 Authority's control over network and service plan

Should the authority have more control over frequency, headway, selection and modification of routes? If yes, rate 3 or else 0

4 3 12

4 Integration of different modes

Is there a need to achieve seamless integration between different modes (metro, BRTS, water transport, trains etc.)? If yes, rate 3 or else 0.

4 3 12

5 Competing Modes Is there significant competition from other modes? If only one mode then give 1 score, two modes then give 2 score and three or more modes then give 3 score.

10 3 30

Metro/Mono rail

IPTs

Any other

B Financial Capacity

1 Fund Allocation for Project

Has the authority budgeted money for the entire duration of the contract? If yes, rate 3 or else 0.

10 3 30

2 Provision of dedicated funding

Is there any provision for funding for the project created such as Urban Transport Fund and/or is there a resolution from the Urban Local Body/State Govt. for funding? If yes, rate 3 or else 0.

18 3 54

3 Credit Rating What is the credit rating of the authorities financing the project?

4 3 12

BBB and above 3

Between B and BBB

2



Less than B 1

No rating 0

C Institutional Capacity

1 Creation of SPV Is there a SPV created for this project? If yes rate 3, else score 0.

4 3 12

2 Adequacy of Staff for Bus Transport

Are there bus transport staffs dedicated to administer and monitor the project? If yes, rate high or else low

18 3 54

More than 10 employees

3

Between 5 and 10 employees

2

Between 2 and 5 employees

1

Less than 2 employees

0

Max. Score 300

Exhibit 4-8 Contract Selection Score

Certain factors have inflection points beyond which Gross Cost Contract is more suitable than

Net Cost Contract. A load factor less than 40% is generally not feasible under NCC, and a load

factor beyond 60% is generally feasible under NCC. Similarly, an overlap of routes beyond 25%

may incite significant “on the street” competition thus making NCC not feasible. A significant

presence of competing modes running parallel to city bus is also not conducive for NCC. The

total score for all the parameters is used to select a contract among Net Cost Contract and Gross

Cost Contract.

After selecting a contract between Gross Cost and Net Cost Contract, another decision needs to

be taken. The decision is whether to use the standard contract or its hybrid. The choice between

Gross Cost and Gross Cost Hybrid is driven by the authority’s need to have significant ridership

growth and innovation from the operator in service delivery. This need makes Gross Cost Hybrid

a more suitable option. The choice between Net Cost and Net Cost Hybrid is driven by the

presence of more than 20% routes with less than 30% load factor in off-peak hours and less than

60% load factor in peak hours. Standard Net Cost is generally unviable on these routes so having

Net Cost Hybrid is better in these cases.

Once the ‘right’ contract has been identified, cities shall refer to Annexure II to modify and

customise the Model Contract to a city-specific contract.

Total Score Contract Type

Equal and Above 210 Gross Cost Contract

Between 150 and 210 Selection depends on inflection points

Below 150 Net Cost Contract



5. DEVELOPING PPP CONTRACT PARAMETERS

Once the city has selected a PPP contract type most appropriate for its needs, various other

conditions and parameters need to be decided. The major ones as highlighted in the diagram

below are discussed in this section.

Exhibit 5-1 Addressing Contract Parameters

5.1 RISK IDENTIFICATION AND ALLOCATION

The main tasks in managing and mitigating risks are:

1) To identify them and assess their likely impact (consequence).

2) To conduct an assessment of likelihood (how likely is the occurrence of such an event)

An indicative list of risk in city bus operations is given in Exhibit 5-2.

Exhibit 5-2 Types of Risk in City Bus Operations28

Risk Explanation Consequence

Commissioning

Risk

Risk that the authority or the operator, or

both, might not receive all approvals needed

to provide the services

Additional Costs

Delayed Service

Revenue Risk Risk which affects the overall profitability or

viability of services, or the level of public

subsidy required to support services

Losses

Reduced revenue

28 Adapted from ADB Toolkit for PPP in Urban Bus Transport



Procurement Risk Risk that the buses are not delivered on time

or as per specification

Delayed Service

Financial Risk Risk that the project isn’t able to raise debt or

achieve financial closure

Additional Funding

Costs

Delayed Service

Operating Risk Risk that adversely affects the day-to-day

operations

Reduced revenue

Losses

Additional Costs

Performance Risk Risk that the operator is not able to meet

availability and performance standards

Reduced revenue

Losses

Force Majeure Risk Risk that unanticipated acts delay the project

or destroy the assets of the project

Additional Costs

Reduced Revenue

Losses

Change in Law

Risk

Risk that legal framework of the project will be

affected

Additional Costs

Cost of compliance

with new regulations

Risk assessment can follow set processes that relate to consequence and likelihood as shown

in Exhibit 5-3 below, adapted from the Australian Standard, where the risk level increases when

a higher consequence aligns with greater likelihood.

Exhibit 5-3 Degrees of Risk

AS 4360:1999 Qualitative measure of CONSEQUENCE

LEVEL DESCRIPTOR DESCRIPTION

1 Insignificant Little negative impact on system operation or image

2 Minor Affects reliability and convenience of passengers and system

reputation

3 Moderate A compromise on service quality and system credibility

4 Major Major event requiring urgent attention, threatens system

integrity

5 Catastrophic Affects total system with massive financial or political impact, or

future of operations



AS 4360:1999 Qualitative measure of LIKELIHOOD

LEVEL DESCRIPTOR DESCRIPTION

A Almost certain Expected to occur

B Likely Will probably occur during normal circumstances

C Possible Could occur under certain circumstance

D Unlikely Would not be expected to occur under most circumstances

E Rare Could occur under unusual circumstances

Source: Australian Standard AS 4360:1999

Exhibit 5-4 Evaluating Risk

Exhibit 5-4 shows the rating for risk (low to extreme) where there is a progression of greater

likelihood and greater consequence. The numbers inside the boxes indicate individual risks

plotted according to the descriptors of likelihood and severity (please note that this is only an

indicative sample). For example, items which are evaluated to be in A4, A5, B5 are categorised

as extreme risks so the focus of contract design should to mitigate the risks; if that is not possible

then the option to discontinue PPP option may be considered. Revenue risk could be categorised

into B4 if there is a high likelihood of a new competing mode being operational during the contract

period reducing the revenue potential for the bus services. The contract could then include a non-

compete clause whereby the authority agrees not to grant permits to the competing mode or to

compensate the operator if there is an adverse impact on revenue because of the competing

mode.

The risks identified also needs to be classified into retained risks (with the authority), transferable

risks (transferable to the operator), and shared risks (shared by both parties). This identification

will ultimately guide the risk allocation which has been briefly covered in Section 2.1.3.2. The risk

allocation would then drive the risk management strategy within the contract, and ensure that

each risk is addressed in terms of contingency measures, management and mitigation

responsibility, and can even include provisions to ensure that both parties agree to work together

to resolve such an event if it should occur.



An indicative risk allocation matrix is provided in Exhibit 5-5.

Exhibit 5-5 Risk Allocation Matrix

Risk Risk Allocation

Authority Operator

Commissioning Risk

Revenue Risk

Procurement Risk

Financial Risk

Operating Risk

Performance Risk

Force Majeure Risk

Change in Law Risk

5.2 TRANSITION PLAN

A transition plan is required to be in place to deal with a situation when the contract’s term is

completed, or it is terminated prematurely. In bus contracts, transition plans can be quite complex,

specifying the process to contract commencement.

The decision to incorporate existing directly affected road-based public transport operators in the

new undertaking can help in a smoother transition. This aspect is not considered in bus contracts

and comes under the city authority’s purview. Another consideration in the transition plan is to

ensure continuity of employment. The new entrant could be obliged to employ existing staff at a

similar remuneration level. Also, a transition period during which changes in work practices and

staff are permitted only following approval from the authority could be considered.

The transition plan typically:

includes details of separate mechanisms for dealing with ordinary exit (completion of

contract term) and emergency exit (termination of contract), the provisions relating to

emergency exit being prepared on the assumption that the operator may be unable to

provide the full level of assistance required by the provisions relating to ordinary exit;

includes details of the management structure to be employed during both transfer and

termination of the services for an ordinary exit and an emergency exit;

includes a detailed description of both the transfer and cessation processes, including

timetable applicable for both ordinary or emergency exit;

demonstrates how the bus services will transfer to the successive operator or the

authority, including details of the processes, documentation, systems migration, data

transfer, and security;



sets out procedures to deal with requests made by the authority or a successive operator

for information relating to any employees, agents, consultants or contractors of the

operator or any sub-contractor;

provides a timetable and identifies critical issues for providing the transition.

The authority may ask the operator to submit a Transition Management Plan within a period of 6-

8 months from the commencement of services. The Transition Management Plan shall also

include Transition Services which shall be accorded by the operator in Transition Assistance

Period which shall be for a period after the Termination or Expiry Date of the contract.

5.3 CONTRACT INSTRUMENTS

5.3.1 Payment mechanisms

The payment mechanism in the contract acts as a primary motivator of operator behaviour. For

example in Gross Cost Contracts, payment by kilometres provides no incentive for the operator

to cater to demand, while in Net Cost Contracts the motivation to maximise revenue can lead to

aggressive and competitive behaviour.

If the payment mechanism is misaligned with public service objectives, either the performance

will suffer or the system will fail. The payment mechanism options for each type of contract are

discussed in more detail in the sections detailing the contract types.

User Charges: In an NCC, the private operator is completely dependent on the revenue that it

collects from fares. User charges are often subject to fare controls by the government, and the

operator is also obliged to provide discounts or fare exemptions to special groups. The bankability

of the project is affected if revenues collected by the operator are insufficient to cover operation

and investments costs. The theoretical problem is that the social factors that determine tariff

levels bear no relationship to the cost of operation.

Exhibit 5-6 Revenue Protection in Santiago, Chile

Availability Payment (for the supply of service): Under this payment mechanism, the authority

pays the operator for providing a prescribed level of service (‘availability’ - mostly as a per km

value) as defined in the contract. It separates revenue collection from the cost of operation with

authority retaining revenue risk. Availability payments alone do not provide incentives for the

private operator to stimulate service usage and provide service quality. However, since service

availability is largely under the operator’s control, availability payments do provide strong

incentives to comply with availability targets. This methodology is often used when the authority

wishes to control unmanageable risk for the operator while having its input into levels of service

provided.

Usage Payments: It is possible for the authority to pay a ‘per passenger’ fee directly to the

operator (or supplement a discounted fare), where passenger numbers are insufficient to cover

costs and increasing fares is undesirable. Under this method, the operator takes no actual

revenue risk but may be incentivised to increase ridership.

Quality performance payments: These systems complement other payment schemes by

providing incentives to the private operator for meeting quality standards specified in the contract.

The payment system is according to the number of passengers carried. However, the payment was semi-guaranteed to reduce operators’ risk. If actual demand differed from reference figure, the operators only received a drop (or increase) in their income representing 10% of the demand change. A 10% drop in user charges would only impact operator’s revenue by 1%.



The quality performance targets should be measurable and observable at a low cost to avoid any

dispute or controversy. A system of robust deductions for service underperformance and bonuses

for performance above the target level is crucial to ensure that the private operator complies with

quality performance targets.29

The theoretical basis for Quality Performance Payments is that higher service levels are willingly

provided only if revenue compensates for the additional costs required for providing quality. As

service quality is not something that can be specified contractually in all dimensions, an economic

mechanism built into the payment system to incentivise the operator to provide efficient and high-

quality service is useful. Quality aspects could include aspects like timeliness of service and

avoidance of missed trips, customer satisfaction indices, low accident rates, etc. London

Transport extensively uses these payment mechanisms.

Third Party and Secondary revenues: The private operator may be granted the permission to

collect secondary revenues from third parties by making available a part of bus transport facility

to them, whenever such permission does not adversely hamper the provision of bus service. An

example is leasing space for advertisements on buses, depots, terminals, or bus stops.

5.3.2 Control and monitoring

It is imperative to put an efficient performance monitoring system in place to uphold the incentive

structures underlying output specifications and risk allocations. Performance targets should be

designed so they can be monitored effectively at the least cost. Benchmarking emerges as an

effective tool to compare the operator’s service provision with standards set by other bus

transport providers. The authority may also delegate or outsource the task of monitoring to an

external organisation, with the payment to that organisation being linked to the failures reported

and verified. Self-monitoring by the authority may be possible by administering random audit

checks on the operator.

5.3.3 Penalty regime and sanctions for poor performance

While economic incentives promote better performance, financial penalties and payment

deductions deter service failures. Damages and performance security is used if the private

operator terminates the contract or fails to commence service. These contract safeguards may

incentivise the operator to invest and perform as per the ‘agreed upon’ standards. Sanctions may

be especially useful when the authority is in a weak bargaining position once the contract has

started, because of the need to deliver bus services. The amount of damages or penalties should

be specified in the bidding documents so that the operators can price the risk of incurring such

charges. In such cases, the city authority may impose penalties according to the list of infractions.

The parties should decide on the penalty for each level of non-compliance or service failure. It is

important that the level of penalty is commensurate with the severity of the event. Penalties can

be deducted from the next scheduled payment to the operator or demanded from the operator as the

case maybe.

A detailed list of infractions and applicable penalties has been provided in Annexure XII. These

are only indicative, and the authority may modify as it deems fit.

5.3.3.1 Capacity to monitor

The effectiveness of a penalty system relies primarily on the ability and capacity of the authority

to carry out sufficient monitoring and fair administration of these sanctions. This capacity requires

29 Good Governance in Public-Private Partnerships: A Resource Guide for Practitioners (2009). The World Bank



explicit clauses in the contract and sanctions that are commensurate with the severity of the

event.

5.3.3.2 Application of penalties

Penalties are generally applied for service failures, i.e., not complying with specifications, such

as missed trips, contravening a set rule or procedure; or for not maintaining quality standards. It

serves to give operators an economic incentive to comply. In a well-designed regime, penalties

make unscrupulous behaviour prohibitive for an operator. When operators have no economic

incentive for customer service (for example, by being paid for the supply of kilometres), the

contract will need to rely more heavily on sanctions and rewards to enforce performance and

quality.

There are several aspects of a penalty regime that need attention, including the following:

1. The exact service obligations need to be well-defined: While some service obligations are

straightforward (e.g. trip frequencies) others might be vague, such as customer service

behaviour.

2. Penalties are an efficient tool only where there is a capacity to monitor: While payment

systems have built-in incentives, the penalty regime relies on monitoring and enforcement

which is often costly and difficult to manage. Intelligent Transport Systems (ITS) such as

vehicle tracking can help but require a strong and effective authority that can continuously

monitor and enforce the contract. Penalties must be enforceable, practical and realistic.

Draconian penalties that place excessive burdens on the operator; or contract termination

conditions that the authority will find difficult to enforce are unrealistic and impractical as

a tool to improve performance.

It is evident that contracts must apply the correct balance of built-in incentives in the payment

mechanism and appropriate penalties to strike the correct balance for managing the contract.

5.3.4 Adjustments for variation in operations

It is important that mechanisms for handling variation in operational conditions or parameters are

provided within contracts.

In an NCC, the authority may require the operator to add new buses to increase the fleet if

overloading occurs. At the same time, the authority may want to change the fleet deployment

plan or add new routes to manage demand.

In a GCC, the contract needs to contain certain conditions that enable proper actions to address

variances in demand. These would include:

Flexibility to assign vehicles across the network

Where the network is managed by a single authority, the bus contracts should allow the authority

to assign vehicles across the routes to optimise capacity.

Adjusting fleet size to meet travel demand

Since overall passenger traffic can vary throughout the period of the contract, there need to be

mechanisms within the contract to adjust services and fleet strength accordingly. For this to be

managed, there needs to be a proper formula and process to vary fleet size with a mechanism

to reimburse the operator for the additional investment, and in cases of a declining fleet

requirement, to protect the operator by supporting financial commitments they may have incurred

in relation to the fleet. The contract needs to include a rational method for fleet expansion in the

contract. For example, one can define a maximum load factor (LF) above which operators will



have to increase fleet size proportionately. For illustration, if moving average LF calculated over

the previous quarter goes beyond 10% of the defined maximum limit for peak hour LF of 100%

or day-long LF of 85%, operators may be asked to increase the fleet size or supply capacity in

proportion to increased LF. The authority needs to make suitable provisions for dealing with such

requirements.

Network expansion

A situation may arise where new routes emerge due to spatial growth in the city. In such cases,

enabling provision needs to be made and flexibility rendered in assigning buses to new or

modified routes to accommodate this eventuality. Extending or altering existing routes of an

operator may be an option with commensurate cost adjustments. However, if a new route

emerges, the authority needs to decide whether to add it to an existing contract or tender the

additional route as a new contract.

Competition in the market affecting contract viability

While the contracted operator may have a level of exclusivity for a route or an area, there may

be an increase in intermediate public transport (IPT) modes, such as autos and rickshaws that

compete for passengers. Although city authorities cannot limit market competition contractually,

they can, however, take steps to abolish illegally operating IPTs.

5.3.5 Contract flexibility

While the contract design should be flexible, the flexibility should be limited to change in scope.

Anticipated changes such as varying demand may be managed within the contract mechanisms.

In the case of unanticipated changes, a change protocol may be included that spells the process

through which any contractual change is initiated, reviewed and approved. Contract flexibility is

easier to manage if there is a good sense of partnership between the authority and the

operator(s), and respect for mutual objectives and benefits.

5.3.6 Contract terms for safety assurance

Safety is an important element in the delivery of a contract and is a key aspect of the performance

monitoring framework. The contract must set conditions and specifications to ensure that safety

is an integral part of the system through proposed safety procedures, guidelines, specifications,

programs and reporting systems. It is assumed that the safety element is provided for in national

or state guidelines on fleet specifications (Automotive Industry Standards 052). Work practices

(particularly driving practice) and fleet specifications feature highly in the aspect of safe practice

and conditions. The passenger safety is also an important aspect of service quality and is crucial

for winning passengers to the use the system. Harassment, assault and pickpocketing are all

safety issues that the system must be able to monitor.

5.3.7 Conditions Precedent

The conditions precedents are the items and obligations the respective parties must fulfil prior to

the contract coming into effect. These typically have a material impact on the effectiveness of the

contract and could include necessary permissions, availability of facilities, necessary preparation,

etc. The contract must include penalties if condition precedents are not met. For example some

of the conditions precedents could be:

1) For the authority:

Hand over bus depot facilities/relevant permissions within [XXX] days of the

signing of the contract



2) For the Private operator

Sign the agreement within [XXX] days of acceptance of the letter of award

Submit a performance guarantee equivalent to Rs [XXX] in the form of a bank

guarantee

Certify that all representations and warranties are true and correct

Deliver the initial lot of buses according to the bus delivery schedule

If either party is unable to fulfil the conditions precedent, there is a provision to extend the period

to fulfil conditions precedent. But the party failing to achieve conditions precedent is liable to a

penalty. Further, if the party is not able to fulfil the conditions precedent even within the extended

period, the other party has the right to terminate the contract.

5.3.8 Dispute resolution mechanism

In tightly constructed contracts, dispute resolution processes are usually specified in detail. In

more loosely constructed concession contracts, dispute resolution is vague and much will depend

on a good working relationship between the parties. It is valuable in all types of contracts to

specify how disputes will be handled and a methodology outlined so that disagreements can be

aired and resolved. Similarly, a mechanism for resolution of the grievances raised by any

stakeholder of PT system (including passengers) should be developed. A timeline for resolution

of grievance must be agreed upon.

5.4 FLEET SELECTION AND PROCUREMENT

5.4.1 Fleet specifications and bus type

The decisions on the type of fleet selected and the party responsible for procurement are major

issues in the bus contract. These decisions will depend on the type of contract adopted, as well

as the operating environment.

Generally, when the private operator takes the greater operational risks, they would want a

greater input into fleet decisions and retain investment and ownership responsibilities. However,

it is within the realm of the authority’s mandate to specify characteristics and specifications of the

fleet to meet public service objectives and ensure efficiency in the city bus fleet.



For general information about fleet selection, PPIAF/World Bank Urban Bus Toolkit and technical

specifications of buses issued by Ministry of Urban Development, Government of India30 may be

referred to.

Annexure V outlines the demarcation of responsibilities pertaining to bus fleet.

Factors that influence fleet selection would include:

1. Type of buses (ordinary/semi deluxe/deluxe/super deluxe/low floor/semi low floor/high

floor) suitable to service design and passenger expectations (air-conditioning, seat-layout

etc.)

2. Capacity of buses (micro/mini/standard/double decker/articulated) to operate efficiently

in managing the demand and service requirements. When a large number of passengers

need to be carried, the most efficient and economic vehicle is the largest one. For medium

to low passenger volumes, smaller size vehicles may be more suitable to maintain a

higher frequency of service and bus occupancy.

3. Emission compliance to meet applicable emission rules specified by Central Pollution

Control Board.

4. Design characteristics such as length and size of buses, seating layouts and door

dimensions to suit operating conditions and service types such as kerb side operation or

median BRTS, and within the Code of Practice for bus body design and approvals

(Automotive Industry Standards 052).

5. Technical and engineering specifications such as engine propulsion (e.g. CNG, LPG,

diesel, etc.), emission compliance, transmission type, suspension, ITS, and bus internal

arrangements, etc. Supply issues, availability, and manufacturers’ support are also

important considerations.

6. Fleet renewal policies including bus life limitations, bus scrapping norms and programs

to support new fleet acquisition.

7. Fleet size per operator: Generally, an operator should have a fleet size that is large

enough to be economically viable (providing some economy of scale), suitable to its

investment capacity (if the operator is buying buses) and in context of the facilities it

manages to park and maintain the fleet.

30 Recommendatory Urban Bus Specifications – II issued in April 2013

Availability of fleet

Manufacturer support

O&M cost considerations

Efficiency related to service design

Service life

Road characteristics

Financial capability

Fleet image

Selection of fleet

Passenger and Safety Features

Exhibit 5-7 Factors in selection of fleet



However, there are further implications on fleet selection and procurement; such as the cost of

operation, reliability/reputation, the cost of repair and maintenance, manufacturers’ after sales

support, etc. While the authority should have the mandate to draft general specifications for the

fleet, the details of specification should be sufficiently broad enough to allow operators to bring

their on-ground experience into the play and manage issues that affect their operations.

5.4.2 Compliance with Environmental Standards

Acquisition of new buses also provides an opportunity to introduce cleaner and more efficient

vehicles. In addition to complying with the governing legislation, the contract must define its

minimum environmental/ emission thresholds or standards. Generally, the following must be

considered in assessing the environmental quality of the system:

Emission levels;

Fuel quality, type and propulsion system;

Levels of interior and exterior noise;

Ventilation and temperature standards.

Exhibit 5-8 Frankfurt/M. (D): Tendering of bus route bundle contracts with environmental

incentives

TraffiQ, the organising authority responsible for local public transport services within the city of

Frankfurt, tendered a 6-year Gross Cost Contract with environmental incentives for a sub-

network (3.3 million timetable-km/year) in 2006. One main policy aim within the tendering

procedures was the reduction of air pollution by demanding high anti-pollution standards to

fulfil the European anti-pollution regime. The operator of this bundle now uses vehicles already

fulfilling the EEV-standards for gas emission.

While the authority may stipulate overall emissions standards, it is unwise to outright mandate

fuel type, as this has a large impact on operating risk. Before specifying a fuel choice, a careful

analysis is required, as this decision can have long lasting impact on system viability and service

quality. Sometimes, cheaper alternatives are costlier over the long term, and even the

environmental benefit claims may not hold true. For example, Jakarta’s TransJakarta system

found that buses using CNG31 could not complete a full daily shift without service interruption to

refuel. Moreover, the scarce and distant commercial fuelling stations negatively impacted the

system efficiency. As a result, additional fleets were required to meet service requirements.

Diesel engines have been traditionally used for bus systems as it is a robust technology and is

becoming more technically sophisticated to meet clean emission standards. Modern Euro 4 or 5

diesel engines require low sulphur fuel (less than 50ppm sulphur content32) and can be regarded

as ‘clean’ technology, equal to a CNG engine. However, diesel fuels are a non-renewable

resource, (as is CNG) and will become increasingly expensive. The risk of energy price and

security in the future is a major consideration for any transport system.

31 Natural gas is a mixture of hydrocarbons, mainly methane (CH4) stored on-board the vehicle in a compressed state (CNG) using

high pressure cylinders.

32 http://www.shell.com.sg/home/content/sgp/products_services/on_the_road/fuels/shell_diesel/faq/



CNG is widely promoted as a ‘green fuel’ but its environmental credentials are being questioned,

due to the issue of methane leakage, leading a World Resource Institute report33 to claim that

“where there is more than 1% leakage – no matter how efficient the vehicle is at the tail end -

natural gas is more polluting than diesel.”

Furthermore, CNG has a number of limitations, such as:

Although accepted as clean burning, CNG engines use spark ignition engines and

require more maintenance to keep engines performing at high efficiency. California Air

Resource Board, researching diesel and CNG buses ‘in-service’ concluded that while

CNG was marginally better in most cases, results varied according to the type of

service the bus operated34 and CNG delivered a less consistent result.

CNG emissions also rely on fuel quality. While diesel fuels are highly processed, the

content of Natural Gas may vary depending on source giving varying emission

results35.

Technical considerations must be taken into account36, such as limited on-bus storage capacity

requiring additional fuelling breaks, risk of gas explosions (Jakarta, Brisbane) and higher cost of

fuel dispensing equipment. Inefficiency also includes extra vehicle weight to carry large CNG

cylinders, requiring added vehicle strength and consequently resulting in a heavier vehicle. CNG

also has a lower fuel efficiency as it contains less energy than an equivalent amount of diesel (15

- 20% less). While CNG has a price advantage (per litre), it is offset by higher initial bus cost and

a much higher cost of CNG refilling stations.

Another technology alternative that is becoming increasingly popular is hybrid technology engine.

Hybrid-electric vehicles (HEVs) combine the benefits of gasoline engines and electric motors and

can be configured to obtain different objectives, such as improved fuel economy, increased

power, or additional auxiliary power for electronic devices and power tools. Hybrids use

conventional fuel and a battery driven motor which captures energy otherwise lost during braking

and decelerating. For example, the Volvo 7900 Hybrid series of hybrid bus model saves up to

37% of fuel cost and claims to lower exhaust emissions by 40 – 50 %. Tata Hybrid Star buses

(CNG-electric hybrid buses) offer a substantial improvement in fuel economy compared to

conventional buses. Currently in India, Delhi Integrated Multi-Modal Transit System (DIMTS) and

Mumbai BEST use diesel-hybrid electric buses.

This discussion is not to advocate one fuel choice over another, but to highlight the fact that fuel

choice has wide-ranging impacts on the operation of a contract and the bus service. This

discussion also emphasises the need for some flexibility in the choice of propulsion and

consulting with the operator in making this choice. However, overall parameters for emissions

can be set by the authority without mandating a particular fuel option.

33 Bradbury, J., Obeiter, M., Draucker, L. Stevens, A., Wang, W. (2013) Clearing the Air. Reducing Upstream Greenhouse Gas

Emissions from U.S. Natural Gas Systems . World Resources Institute. Source: http://www.wri.org/publication/clearing-air. Accessed: 30/11/2013

34 Holmén, B., Ayala, A., Kado, N., Okamoto, R. (2001) ARB’s Study of Emissions from “Late-model” Diesel and CNG Heavy-duty Transit Buses: Preliminary Nanoparticle Measurement Result. Source: California Air Research Board: Source: http://www.arb.ca.gov/research/veh-emissions/cng-diesel/eth-zurich-2001-ayala1.pdf Accessed 30/11/2013. Accessed 30/11/2013

35 Wong. W.L. (2005) Compressed Natural Gas as an Alternative Fuel in Diesel Engines. (Research Paper) Source: http://www.cleanairnet.org/infopool/1411/propertyvalue-17753.html. Accessed 30/11/2013

36 When CNG buses were introduced in Brisbane Australia, the lack of gas fitting technicians presented an unexpected problem as well as the heavy gas tanks roof mounted on a low floor bus caused excessive body roll.

http://www.wri.org/profile/james-bradbury

http://www.wri.org/profile/michael-obeiter

http://www.wri.org/profile/laura-draucker

http://www.wri.org/profile/amanda-stevens

http://www.wri.org/publication/clearing-air

http://www.arb.ca.gov/research/veh-emissions/cng-diesel/eth-zurich-2001-ayala1.pdf%20Accessed%2030/11/2013



Other environmental issues include:

Noise levels: Acceptable noise levels must be specified within the bus procurement

specifications. Excessively loud vehicles are a health hazard and a detriment to the image of the

public transport service. Steps must be taken to phase out older buses and encourage noise

dampening devices on buses.

Other waste products: Bus operations will generate a variety of liquid and solid waste. Waste

oil, other lubricants and solvents should be recycled or disposed of in an approved manner. Liquid

waste that is not properly treated can endanger water supplies. Solid waste such as worn out

tyres should also be disposed in a safe manner. Concession operators must follow waste-

disposal procedures stipulated in the agreements. In some cases, depots may also have an

infrastructure to facilitate recycling and proper disposal of waste.

It should be noted that the improved business model in a bus contract should allow the purchase

of a new fleet, and this in itself is the best mandate for improving the clean credentials of the fleet.

A sound business model that can afford new buses is a powerful instrument to remove old

polluting buses.

5.4.3 Responsibility for fleet procurement

A number of practical issues affect the decision of who procures the fleet, as illustrated below.

Exhibit 5-9 Decision framework for fleet procurement

1) Purchase and ownership by the authority

The authority is often in a better position to buy the fleet. The authority may avail government

funds to buy buses or may have the financial capacity to buy the fleet. Also, it may prefer to own

the buses and depots to ensure that it is not captive to the contractor. Specific risk issues such

as insurance and operators’ obligations need to be assessed.

The concern of operator not maintaining buses might be an overstated risk. The vehicles must

meet the performance standards specified in the contract thus the operator has an incentive to

maintain the bus. Poor maintenance results in breakdowns, poor bus condition and service

unreliability affecting the operator’s earning potential both in Net Cost Contract and Gross Cost

Contract.

A major issue in authority owning the bus is in after sales service. The bus manufacturer or

supplier's primary customer is the authority causing the supplier to ignore the operator’s needs

during after sales service, and not rectify service issues that arise. The solution lies in the

FLEET MAINTENANCE

AFTER SALES SERVICE

TYPE OF CONTRACTUAL STRUCTURE

FINANCIAL CAPACITY AND/OR GRANTS

DECISION ON

WHO

SHOULD

PROCURE

FLEET

Procurement of fleet

TIME CONSTRAINTS



formation of a tripartite contract with bus suppliers to place contractual obligations on them for

after-sales support.

In a BRTS system, there is a definite construction time and anticipated start date. In this situation,

it may be worthwhile for the authority to order the fleet to allow for the necessary ‘lead time’ for

supply, especially if contract negotiations with operators could cause delay. As buses are

delivered in around 10-12 months from the date of order, the authority may procure and finance

the buses and later transfer ownership (and financial obligations) to contracted operator to reduce

the lead time.

PROS:

Lower investment risk so the private operators can focus only on operations and

maintenance of the project.

More bidders will participate in the bidding process which allows the authority a

wider choice of operators.

Easier to terminate a failing private operator if it does not own the fleet.

Avoids delays in fleet delivery when aligning with system inauguration deadlines.

CONS:

The authority will have to bear the entire capital cost on its own or through loan or

grant.

The authority may lack skill in specifying the fleet.

Lack of after sales support for operators.

Authority needs to set and monitor maintenance obligations.

Ownership/operations issues have insurance implications – may cause a delay in

responding to claims.

CONSIDERATIONS:

The authority, where possible, should consult the operators when developing fleet

specifications.

2) Purchase and ownership by private operator

In many cases, the city authority prefers fleet acquisition by the operator and save themselves

from the financial burden and procurement processes. The bus operators are often assumed to

be in best position to make fleet decisions as the operation and maintenance of the fleet is their

responsibility. There is a strong case supporting this view, although the authority is still able to

stipulate fleet specifications as they relate to passenger service and quality.

In a Gross Cost Contract, it is feasible for either the authority or the operator to buy the fleet;

however, the advantage for the authority to be the fleet owner is that it is not captive to the

operator, and can more easily terminate a poorly performing operator.

In a Net Cost Contract, it is unusual for the authority to own the fleet, but the authority may offer

some financial incentives to assist operators to invest in the fleet. A common incentive is the

‘interest subsidy’ that compensates operators for the cost of finance. One-off payments for fleet

purchases tend to be unsuccessful as operators often arrange for the fleet cost to be inflated to

exploit the subsidy, and do not operate for long as they struggle with operational losses.



PROS:

The authority carries no financial burden for the fleet.

Bus operators can select their preferred type, model and specifications (generally

under broad specifications set by the authority) and have a stake in the fleet (more

care).

Generally faster procurement by the operator.

Able to hold bus manufacturers directly accountable for after-sales support.

CONS:

Limits contract bidding to operators with sufficient financial capacity.

Authority is captive to the operators in case of severe contract conflict or

termination.

CONSIDERATION:

Fleet ownership by any party is less of an issue if a good contract relationship

exists.

Exhibit 5-10 Responsibility for fleet procurement

By the city authority By the operator

Authority is in a financially stronger better

position than the operator

Authority can avail government funded

schemes (funding from operator if

needed)

GCC: Preferably, procurement by

authority so that it is not captive to the

operator

Operator is in a financially stronger position

than the authority

NCC: Preferably, procurement by operator

so that it maintains the buses properly (with

financial assistance by authority if needed)

3) Authority owns buses and investment is shared by private operator

In a number of Indian cities, a more peculiar bus procurement model has evolved due to the

JnNURM scheme. In the JnNURM scheme, the central government provided a grant up to 50%

of bus procurement cost. The state government provided 20%, while the city provided the balance

30% amount. Some cities have transferred this 30% cost to the private operator. Typically the

scheme allows operators to raise finance using the bus as security up to 30% of the value of the

bus.

The validity of such a scheme is entirely reliant on whether operators find it attractive, as they are

financing 30% of the fleet that they do not own, as the authority has the ownership by having

majority investment in the fleet. However, in the larger picture of a business opportunity, operators

may find this preferable to bearing the entire cost of the fleet on their own (and the cost of the

bus share is reimbursed in earnings).



5.5 LENGTH OF CONTRACT

During the review of bus contracts both in India and internationally, it was evident that contract

length varied greatly, being based on a range of uncertain factors and often on what policymakers

considered the norm.

Life of the bus fleet is a predominant factor under an assumption that the operator would buy a

new fleet at contract commencement and would not need to replace vehicles during the contract

term. It is advisable to ensure that authority should decide upon the length of the contract most

suitable to its objectives and requirements, though the choice may be determined by local

circumstances, such as availability of bidders, costs, and favourable investment horizon. The

issues are highlighted in Exhibit 5-11.

5.5.1 Deciding on long term vs. short term contracts

In deciding the length of the contract, the city authority needs to weigh factors such as

competitiveness and cost effectiveness, balanced against practical issues such as service

continuity, disruption, and operator’s behaviour driven by contract conditions.

The ideal duration of a contract is indeterminate but needs to consider a period that is long

enough for the operator to cover investment costs and make a fair return, and also to provide

service consistency in the bus operations. Changing an operator too often or unnecessarily (i.e.

without gaining clear benefits) can be disruptive and incur unnecessary costs. However, at the

same time, too long a contract can make the contractor lethargic in performance. Where contracts

are shorter, operators may not see a value or may be unwilling to invest for long term gains,

especially if they contribute to service planning. The contract in Bogota, Colombia aims to balance

this by having contract length linked to vehicle mileage. A higher mileage every year leads to a

shorter contract while smaller mileage allows for longer contracts giving the private operator time

to recoup its investment.

Exhibit 5-12 Contract Length in Bogota, Colombia

The term of contract for Transmilenio in Bogota (Colombia) depends on the time the operator takes to recoup its investment. The regular operation period of the contract is between the start of regular operation as determined by Transmilenio S.A. and the time at which average mileage of fleet usage reaches 850,000 kilometres.

Level of disruption vs

benefits

Short term

objectives

Mid-point review Long term

investment horizon

Long term

commitment

Opportunity for

fleet upgrade

Level of bidder

interest

Exhibit 5-11 Challenges faced in deciding contract duration



Continuity of employment is also a factor that needs attention when contracts often change.

The new entrant could be obliged to employ existing staff at a similar remuneration level. Also,

a transition period during which changes in work practices and staff are permitted only following

approval from the authority could be required.

A disadvantage of long-term contracts is that over time, conditions can change to such an extent

that the initial contract may become outdated and less relevant to changing circumstances.

Use of a Mid-Point Review

A good way to balance short term and long term considerations is by creating a mid-point at

which key contract elements such as subsidy support, fare levels, obligations, etc., are re-

negotiated. Alternatively, the contract can be made for a medium term with a renewal or extension

for good performance. Key elements of the contract may, however, be renegotiated. This practice

provides a mix of the benefits of longevity and adaptability.

Impact of asset life on contract length

A traditional approach for the length of the contract term is to align it with the asset life of the

vehicle. This approach may be useful when a large fleet is purchased for a set purpose (such as

BRTS), and contract renewal is scheduled to occur at the same time when the fleet expires. But

for many operations, fleets are changeable, and buses are added to the fleet over time, leading

to no common fleet expiration date, and thus negating the need to tie the contract term to bus

life. Bus life is also indeterminate in that some buses are expected to last seven years, while a

well-maintained and higher quality fleet could last ten years or more. These situations present

difficulty in developing efficient contracts when they are based on fleet life. Additionally, when a

contract changes hands, rules need to be established in the contract to manage the changeover

fleet. The existing operator may dispose fleet over a certain age, and a new operator may be

obliged to purchase the fleet below a certain age threshold.

Impact of infrastructure investment on contract length

The ownership of a depot is also an important factor impacting contract length. If an operator

provides a depot facility and incurs substantial investment, it will expect a contract term worthy

of such an investment. The contract termination in such a case needs to be clearly defined, along

with the conditions for an incoming operator. It needs to be specified in the contract whether the

incumbent would be forced to sell the depot to the city authority or incoming operator. Additionally,

the contracts need to capture the depot selling price, if applicable. The contract should be well

defined in this respect, leaving no space for ambiguity if such a situation should arise.

Exhibit 5-13 Pros and cons of short duration contracts

Pros Cons

Shorter contracts provide an opportunity

to test market prices frequently, to inject

new blood and renew the fleet and

technology

Short contracts are costly, disruptive, as

operators change often, and may not

deliver the anticipated benefits

Short term contracts are less attractive

from operators’ perspective and may

result in few bidders

Private operators remain motivated to The attitude of contractors to building the



Pros Cons

maintain high standards of performance

and maintain the fleet at the end period

of the contract

business may deteriorate if they do not

see themselves secure as long-term

operators

Increases competition and the authority

may re-tender the project frequently to

get the best price

The value for money or lifecycle cost may

not meet the expectations of the

authority. Price benefits may be marginal

and not worth the disruption

Short contract is not suited where an

operator is required to invest in

infrastructure

5.5.2 Considerations for a short term contract (<5yrs)

Short term contracts have an extremely limited scope and few benefits unless they are used in

special circumstance as an interim service provision, with longer term prospects (or that sufficient

rewards are available for a short term operator). A short duration contract could be up to five

years, which may be less than the life of the fleet, but in this case, the fleet investment is better

managed by the authority. Short duration contacts are also useful if the authority intends to test

the model with a pilot project to test demand response and evaluate contract performance or the

authority owns a fleet that is part-way through its working life and seeks an operator for the

balance period. Based on the response and feedback, the authority may decide to extend the

contract duration.

5.5.3 Considerations for a medium – long term contract (5-10+ years)

Medium term contracts suffer from same issues as the short term contracts, though the benefits

increase with the extension of time periods. Any requirement for an operator to invest in large

infrastructure (depots, terminals or stations) will require a longer contract to align with life-cycle

costs.

Longer terms are more likely to align with asset life (fleet). Furthermore, operators may operate

buses for longer, thus, necessitating good maintenance and monitoring of fleet condition. It also

allows fleet renewal during the contract and the freedom for the operator to introduce a fleet

upgrade without necessarily being bound by the contract term.

Longer duration contracts make it worthwhile for private operators to invest in the fleet. If the

contract expires before the end of fleet life, the fleet can be sold at the market price though this

may be a challenge if the buses are designed for specific purpose like BRTS. In this case, the

new operator would be obliged to take over the vehicle, paying the market price or a pre-agreed

rate.

Long term contracts may elicit interest from more bidders as they offer continued business and

longer investment horizons.

Exhibit 5-14 Length of contract depending on contract type

Investment making Party/

Type of Contract GCC NCC



Operator

Short term: there should be a

provision of transferring

ownership to the authority at

the end of contract.

Long term contract or

period should be equivalent

to asset life (if defined)

Authority

Short term contract with a

provision for extension based

on performance

Long term contract or

period should be equivalent

to asset life (if defined)

5.5.4 Methodology for contract extension

Each method listed below seeks to ensure that the capital and maintenance investment will be

appropriate and that service quality will be consistent throughout and between concessions.

Automatic renewal: In some agreements, the concession period is extended

automatically if a concessionaire’s performance has been acceptable. This

ensures that the company has an appropriate investment horizon and re-tendering

costs for both parties are eliminated.

Existing concessionaire negotiates a roll-over: This allows the authority to

maintain continuity of service and force a concessionaire to be efficient. It avoids

the re-tendering process, which may be costly, though the authority should be

aware that renegotiation is resource intensive. Also, the absence of competition

removes the concessionaire’s incentive to reveal its true valuation of the

concession.

Existing concessionaire is bought out: The conditions for such a transfer are

specified in the agreement, for example, a government pays a concessionaire for

the un-depreciated assets at the end of a concession.

Re-bidding: If incumbents are unsuccessful, they receive the value of their bids

from the successful bidder’s offer. The government receives the portion of the

successful bid which is not paid to the incumbent. The government, therefore,

does not have to buy the concessionaire out and the market sets the value of the

concession.

5.6 INFRASTRUCTURE FACILITIES

Successful bus operations and contract viability are mostly reliant on key infrastructure facilities

and bus priority infrastructure like part-time or full-time bus lanes, stations, bus stops, bus

terminals, passenger information systems, bus depots with maintenance bays and overnight

parking facilities, and bus terminals. These facilities not only impact passengers’ comfort and the

perception of public transport but also result in tangible benefits regarding increased bus speed

and reliability.

The following sections discuss each of these components and who should be responsible for

their construction, operations and maintenance. Although some alternative scenarios have been

discussed, it is advisable that responsibility for planning, designing and construction of bus

infrastructure should remain with authority.

Annexure VI outlines the responsibility allocation for infrastructure planning.



5.6.1 Bus depot facilities

All bus contracts require the facilities of a bus depot to manage

the functions of parking, fleet repair and scheduled

maintenance, fuelling, washing and cleaning administration, and

management of operations, etc. The depot houses

administrative workshops, and control centre facilities and

equipment.

Planning of bus depots and their locations is closely linked to

travel demand and fleet assignments around the route network.

A suitable depot location is one that minimises ‘dead mileage’ to

the start and end of routes and is sized appropriately. However,

a fundamental problem with availability of depots is the cost of

land. This forces the depots to be often located at city outskirts

owing to cheaper land and proximity to bus initiation and

termination points. Cities with traffic congestion, or dead

mileage, may consider a number of small sub-depots that handle parking and driver sign on/off

functions. In this model, main depots centrally manage core functions of repair and maintenance.

In some cases, multiple operators may need to share a depot which may require an independent

depot management facility. However, it is preferable to have enough depots so that each operator

controls its maintenance and parking facilities. Most private operators, if they own the buses, like

to have control over their depot so that they can take responsibility for the security, maintenance,

and repair of their buses.

The size of the depot depends on the amount of vehicle parking needed and the number of

vehicles likely to need repairs. Once location, size and number of depots are decided, various

activities including acquisition of land, preparation of depot layouts, building designs,

construction, provisioning of utilities, and commissioning follow besides planning for tools,

fixtures, plant and equipment - type, quantities, specifications in each case and their acquisition.

The entire value chain of the bus depot planning and requirement assessment is shown in Exhibit

5-16.

Establishing bus depots involves land acquisition, requires high capital investment and has a life

span much longer than that of movable assets like buses, so it is advisable that ownership of bus

depots remains with authority. This is especially valid for Gross Cost Contracts, where the

authority may change the operator at regular intervals. Leasing the depot to the operator will

ensure that the authority is not captive to the operator who holds strategic depot sites. It also

makes it easier for the authority to dismiss a failing operator and terminate the contract.

Number of

depots

Size

Number of operators

Travel demand

Facilities

Exhibit 5-15 Factors affecting

number of depots



Exhibit 5-16 Planning for bus depot facilities

In the case of a concession where the contract term could be much longer (even to the point of

a quasi-permanent concession), it is feasible for the private operator to own the bus depot. While

it may require a huge amount of investment by the private operator, the investment horizon is

sufficient and allows the operator to be in control of its situation. Nevertheless, given that the

authority may have access to good depot locations and available sites, there is nothing to prevent

the operator to lease a city-owned depot site.

Maintenance of depots, its utilities etc. may either be undertaken by authority or by the operator

depending upon the decisions by the authority. If authority hands over the depot to a private

operator (PO) for operations and maintenance, the operator may be required to undertake repair

and maintenance of depot under a suitable agreement - detailing out duties, rights and obligations

of both parties. In the case of multiple operators, it may be preferable to utilise services of a third

party to manage the bus depot to avoid conflict between multiple operators particularly in sharing

of resources.

Though the title of land and ownership of depots remain with authority, liability towards taxes,

insurance for depot property, legal implications and compensation for accidents, etc. at the site

should be clearly defined by the authority. This definition is especially important, particularly when

depot is handed over to a private operator. Further, as legal cases may get settled long after

completion of a contract with a private operator, suitable mechanisms must be incorporated in

contracts to protect the authority against all liabilities arising out of finalisation of legal

proceedings.

While the authority may specify requirements for plant and equipment, the actual acquisition,

ownership, investment, etc. may depend on the type of equipment, its serviceable life, and the

operational arrangement, i.e., in-house by the authority and or by the private operator. While

major, heavy duty, costly and long life equipment may be owned and acquired by the authority,

movable plant and equipment like hand tools, fixtures, gauges, measuring instruments, small and

low life equipment may be procured, owned and maintained by the private operator. Equipment

Construction of Bus Depots

Authority: If GCC, as authority should not be captive to operator Operator: if the authority is not financially capable, in NCC (with assistance from

authority, only if contract length is long)

Exhibit 5-17 Responsibility for construction of bus depots



acquired by the authority may be handed over to the private operator for operation, maintenance

and returned to the authority in a predefined state on completion of the contract term.

5.6.2 Use of Intelligent Transport System (ITS) for contract management

ITS helps authorities and operators control and monitor the system to improve services and the

reliability and efficiency of operations. Through data analysis, authorities can provide better

information to passengers, improve resource allocation and make informed decisions on service

issues. ITS includes a variety of elements with applications in navigation and vehicle tracking,

collection of operational data, traffic management, parking, surveillance, etc. The following

components are particularly applicable to bus service operations.

Automatic Vehicle Location system (AVL): Automatic Vehicle Location enables the Control

Centre (managed by the authority or the operator) to know the location of the bus, detect route

deviations and schedule adherence. This technology allows the Control Centre to construct a

real-time view of the status of all buses as well as log the trips on the system to inform the

payment system if operations are on a ‘pay by km’ basis. For bus operators, ITS systems that

monitor driver behaviour are increasingly available and help identify bus maintenance costs that

are due to irresponsible and poor driving techniques.

Adaptive Traffic Signal Control (ATSC): Adaptive Traffic Signal Control enables dynamic

management of traffic signal timing. The system could be used to allow buses to receive priority

at traffic signals when running behind schedule, reducing the number of stops at intersections,

as well as the amount of delay experienced at traffic signals.

Passenger Information System (PIS): Passenger Information Systems provides static and

dynamic information about the bus transport system. AVL provides information about location of

the buses which is used to monitor their progress against the timetable which is passed on to the

passengers as estimated arrival times at specific locations, via variable message signs, mobile

phones (SMS), the Internet and mobile applications.

Automatic Fare Collection (AFC) systems are the key to streamlining the passenger interface

of fare collection and ticketing and also serve the critical purpose of capturing all the revenue.

The system offers a distinct advantage over other aspects of managing a contract primarily due

to its ability to capture wide array of operations.

A further benefit of AFC is the ability to capture passenger travel data which allows planners to

identify over and under-capacity services, and the nature of travel (also by time period) by the

passenger. For example, a high demand trip pattern that involves a bus transfer may be

deserving a direct service. Similarly, a high incidence of travel from point A to point B may warrant

an express service.

Planning and scheduling software is highly useful particularly if a city is focussed on cost

optimisation and cost control in its transport system. A high capacity planning and scheduling

software is a critical tool for optimising items like dead mileage, driver indexes, bus indexes, and

fleet optimisation. While such software is useful to manage the vast amount of data generated,

this is also possible through obtaining the right AFC data in an appropriate format. They may be

useful for highly advanced operations where good data is available, and a system-wide route

rationalisation is taking place.

5.6.3 Bus stops

From an operator’s viewpoint, bus stops are an important element in the contract because the

revenue is directly affected by the provision or the lack of bus shelters. Bus stops are also the



first point of passenger interface with the public transport system and are the key to accessibility

and ridership. Customer experience is provided through shelters, waiting facilities and travel

information, etc. Bus stops that are equipped with passenger information systems – PIS (next

bus arrival time, etc.) reduce the uncertainty of waiting and improve the perception of reliability.

While bus stops have long been neglected, there is now an increased interest in developing these

facilities, driven by an increased demand for quality bus services requiring better passenger

facilities, and also monetisation of the bus stops for advertisement revenue. While cities have

different models of ownership and maintenance of bus stops, these are usually owned and

maintained by ULBs either themselves or through a private operator (usually an advertising

agency).

Exhibit 5-18 Decision framework for bus stops

5.6.3.1 Planning of bus stops

Since bus stops involve land acquisition and they may be used by multiple operators, planning,

investing and ownership of bus stops should at all times remain with authority. The maintenance

and commercial leasing of advertising space can, however, be outsourced. Sometimes, a

commercial PPP venture allows the private sector to build and exploit the commercial

opportunities for a set period. As the title of land and ownership of bus stands is with authority,

liability towards taxes, insurance for asset, etc. would also be with authority.

Exhibit 5-19 Planning for bus stops

The authority should plan the locations of the bus stops, based on detailed route assessment

and other social and political considerations. Exhibit 5-19 outlines the process for the same.

5.6.3.2 Construction and maintenance of bus stops

For construction and maintenance of bus stops, the following three options are available:

Condition of bus stations

Length of contract

(payback)

Bus Stops

Investment required

Existing contractual obligations

Number of private bus operators

DECISION ON

DIVISION OF

ROLES &

RESPONSIBILITIES

Capacity & Role of

Authority



1) By the authority or a third party: In this case, the authority finances, constructs and

maintains the bus stops either on its own or appoints a third party. Since the contract is

with the authority, the third party operator may also be made responsible for PIS on bus

stops. In this type of option, the third party operator usually generates revenue through

advertisement, in some cases even shares revenue with authority, and this does not lead

to any financial burden on the authority. This option is ideal for cities where multiple private

operators are involved in city bus private operations as these facilities are shared. Such

a third party operator would need to be managed under a strict and enforceable contract;

otherwise, it will simply collect revenues without proper maintenance and care for the

public facility.

2) The private contractor/operator: In this case, the bus operator also finances and

maintains the bus stops. The operator will have an inherent incentive to maintain these

facilities as it affects their ridership. The problem is that the operator may not have the

power to police or enforce activities on public land, for example where hawkers or traders

disrupt or encroach on the facility.

Such a proposition will also need the close cooperation of the authority to facilitate the

construction process (permissions, relocation of utilities, relocation of existing structures,

etc.). This proposition also poses a risk for the operators as they may be constrained in

carrying out the responsibility while being contractually bound. The operator should also

have the freedom to sub-contract the construction, maintenance or advertising functions

if required. The operator would retain ultimate responsibility for the performance of this

activity.

As mentioned in the section on length of contract, the commitment to building

infrastructure requires a longer contract to ensure sufficient payback period for the

operator. However, this issue takes on less importance if the operator can receive

advertising revenue as it reduces the payback period. Similarly, if multiple operators use

the same route, an independent advertising revenue stream to the operator who owns the

bus stops will recompense them despite sharing the utility with other operators.

3) Shared by authority and private operator: A variation is where the city authority

constructs the bus station jointly financed with the private operator who maintains the bus

stops. The main advantage is that the private operator shares the cost, reducing the

chances that the authority delays building the facilities. Another advantage over the sole

private sector managing this is that it reduces the risk the operator faces in installing

facilities in public spaces (permissions/utilities etc.)

Conditions precedent clauses of the contracts should also address risk of delays impacting

negatively on the respective parties.

5.6.4 Bus terminals

A ‘terminal’ refers to large bus stops that are major points of interchange/ transfer between

different bus routes - such as trunk, feeder and intercity routes - or different modes of transport.

Bus routes often begin or end at terminals. They are larger than other bus stops in a system, and

may also provide auxiliary services to passengers such as food, ticketing, transfer facilities, and

so on.

The location and size of bus terminals are determined on the basis of route network structure

and function especially if multi-modal functions are needed, and are usually at places where a

number of routes and modes converge or intersect. Terminals do, however, generally have a



negative effect on traffic conditions in the surrounding areas due to a number of bus movements

in and out of the terminal. This negative effect is often an especially important consideration for

terminals located in central city areas. In such situations, it may be better to make transfer

facilities available at bus stops where multiple services connect, and these transfer points are

clearly indicated for passengers’ convenience.

Terminal size and requirement of facilities are worked out on the basis of demand, bus dwell

times and passenger amenities required. In urban bus operations, while one or more private

operators may use terminals, ownership of terminal and investment in its infrastructure is usually

under the authority. Operation and maintenance of terminal and its facilities including commercial

exploitation may be undertaken by the authority in-house or outsourced to private operator under

a separate PPP project.

Exhibit 5-20 Planning for bus terminals

5.6.5 Turnkey Option

The turnkey option is bus operator taking complete responsibility of the overall project including

design and construction of all infrastructure facilities as well as city bus operations. Such a

Infrastructure planning in a bus terminal at Gulbarga

In the Gulbarga transport network, a local transport hub was identified where 80% of passenger

trips originated or terminated, and 18% of passengers utilised the hub as a transfer point. It was

decided to upgrade the hub to a Supermarket Station, with the aim of integrating the terminal

facility with the existing urban setting, to accommodate the rise in demand. The following

infrastructure planning principles were established:

1. Terminal capacity was increased from accommodating 9 buses per hour to 30 buses per

hour, with a peak hour use of 2300 passengers. The new design incorporated two lanes

for parking and an overtaking lane at each platform.

2. To ensure passenger safety, the platform waiting area width and width of walking

pathways were increased.

3. The new design utilised traffic-calming measures to demarcate and create legible

spaces at pedestrian crossings.

4. It was observed that passengers preferred direct access to platforms, ticketing facilities,

transfers and convenient retail facilities. Non-passengers preferred access to a range of

peripheral activities such as retail, commercial, catering facilities, public spaces and

visitor information. These observations were incorporated into the planning design and

a commercial component was introduced in the terminal for better compatibility with

different types of users.

5. An attempt was made to integrate multiple modes such as auto-rickshaws, park-n-ride,

etc.

Exhibit 5-21 Example of Gulbarga Bus Terminal



proposition will need close cooperation with the authority to facilitate the construction process.

The turnkey option would require a much longer contract to ensure sufficient payback period for

the operator. Typical contract length for such an option is 20/25 years.

The main advantage of this option is that authority needs less coordination among the various

contractors for building assets required for city bus operations. The operator has flexibility in

building assets aligned with requirements of city bus operations without over provisioning. This

leads to efficiency and cost minimisation.

5.7 CONTRACT TERMINATION & ARBITRATION

Arbitration37

This section governs the situation where there are irreconcilable differences between the parties.

Although the dispute resolution clause in the contract prescribes the methods available to resolve

disputes, if the parties are not able to amicably resolve the claims on their own, then either party

may opt for arbitration. In case of arbitration, the clause prescribes the accepted procedures for

appointment of an arbitrator and the procedure of arbitration. It also mentions the courts of

applicable jurisdiction where the dispute can be filed. In many cases, the arbiter(s) are a mixture

of local authority staff and representatives of the operators, and this is the best and most cost-

effective way to deal with a dispute.

The clauses in the contract specify the appointment of the arbitrator, place of arbitration, the

procedure, and enforcement of award, fee to be paid to arbitrator, and performance during

arbitration.

Termination

During the implementation of the contract, a

situation may arise when it becomes

necessary for the parties to the contract to

terminate the contract. The termination of

contract may arise due to force majeure, due

to default or at the convenience of the

authority.

The contract clause should define the specific conditions on fulfilment of which the above

termination situations will be initiated. The clause will also list the consequences for the

contracting parties once the contract is terminated.

One very important component of the termination of contract is the rights and obligations of the

parties at termination. The obligation of the private operator on termination is usually to hand over

the project back to the authority in a specified condition.

Guiding Principles for Early Contract Termination Clauses38

The following key principles need to be considered while developing early contract termination

clauses

Reasons which trigger an early contract termination, and compensation each party is entitled

to, should be clear

37 For arbitration, the Arbitration and Conciliation Act, 1996 is followed

38 Yescombe, E. R. (2007). Public-Private Partnerships (1st ed.). Elsevier Ltd.

Sample Contract Termination Clauses

1. Termination for Private Operator’s Default

2. Termination for Authority’s Default

3. Termination Payment

a. Private Operator’s Default

b. Authority’s Default

Sample Contract Termination Clauses

4. Termination for Private Operator’s Default

5. Termination for Authority’s Default

6. Termination Payment

a. Private Operator’s Default

b. Authority’s Default



For authority’s default,

o the contract should specify the events of default that allows the operator to call for

contract termination

o the authority should compensate the operator in such a way that latter bears no

financial consequences from the breach

For operator’s default,

o the contract should specify the events of default that allows the authority to call for

contract termination

o any performance guarantees by the operator should be forfeited and costs

incurred by authority due to termination should be recovered from the operator

If both default, compensation provision for assets built by the operator should be clear and

the options available are fair value approach, book value approach and debt due approach

Fair Value Approach: In this approach, compensation is driven by the fair value of the assets as

assessed by the independent evaluator at the point of termination

Book Value Approach: In this approach, compensation is driven by the book value of the assets

at the point of termination

Debt Due Approach: In this approach, compensation is expressed as a percentage of senior debt

outstanding at the point of termination

Depending upon the project structure (usually the capital expenditure), the termination payment

will vary. Some sample termination payment clauses in the event of termination by the authority

are:

Liquidation of performance guarantee submitted by the private operator;

Payment by authority equivalent to the debt due by the private operator.

Some sample termination payment clauses in the event of termination by the private operator

are:

Return the performance guarantee to the private operator;

In addition to the payment of debt due, market expected return on the project

Payment equivalent to the market value, book value, or fair residual value of the

fleet

A transition plan during which the current operator continues to fulfil the services until a new

operator is signed, in order to ensure continuity, also needs to be considered.



Financial Implication of Termination

When buses have been procured by the operator, upon termination typically the buses are

transferred to the authority with payment being made to the operator. The authority needs to be

cognizant of the payment to be done in such cases.

Sample Calculation for the financial implication

Number of buses = 100 buses

Type and cost of bus = Low Floor Standard Size non AC diesel estimated cost INR 50 lakh

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8

Depreciation 12.5% 25% 37.5% 50% 62.5% 75% 87.5% 100%

Termination Outlay

for assets (in

Crores)

43.75 37.5 31.25 25 18.75 12.5 6.25 0

The authority may also have to return the performance security if it’s a case of authority’s default

which increases the liability of the authority.

Performance Security = 10% of (Cost of Bus + 20% for other capital expenses)

= 0.1 * (50 * 100 + .2 * 50 * 100)

= 6 crores



6. PROCUREMENT GUIDELINES

The objective of this chapter is to discuss the approach to procurement and various procurement

methodologies for contracts. This process has been shown in Exhibit 6-1.

Exhibit 6-1 Process for Procurement

6.1 CHOOSING THE RIGHT PARTNER

It is often beneficial to choose the end point - partnering arrangement and the partnering

arrangement that the contract achieves, at the inception of procurement planning.

The previous sections have constantly raised the issue of the partnership element of the PPP,

on the basis that the workings of a trusting partnership are far more effective than what can be

achieved through the tools available under contract enforcement. The real purpose of a contract

is to define the relationship between parties, set the tone of the partnership, and be a fall-back

position when things go wrong.

The nature and quality of the relationship and trust between the parties is an increasingly

discussed topic in contract development. Procurement cannot rely on price factors alone, despite

prices being a key criterion in competitive tenders. In competitive bidding, there is always a

danger of the ‘too-low’ a price being unsustainable. Also, a bus operator who has no control over

market costs of buses, fuel, finance, and can only reduce the wages to save costs, besides

efficient operation. This may translate in the lowest bidder underpaying staff and attracting low

skilled workers, a condition that is not a good prospect for a quality bus system.

This situation introduces the concept of including Partnership Criterion in contract procurement;

Partnership Criterion is a methodology for defining the type of partnership relationship in the

contract and can be used as part of the procurement process, and as an element of the

contractual offer. While it is not a partnership in the legal sense of a business, it is a partnership

in the general sense of a close and mutual working relationship between parties in a shared

endeavour.

‘Partnership’ has been a concept in use for over two decades and was initially used as a form of

alternative dispute resolution (by dispute prevention). Partnership is a process for building,

maintaining and evaluating relationships, and may be used with a wide range of formal structures

such as joint ventures, PPP, design-and-construct contracts, or any other form of arrangement.

It is most effective if introduced early in the relationship – even as early as the procurement stage.

The Partnership Criterion

Designing Bid Process Strategy

Preparation of Bid Documents & Concession

AgreementsBid Process Management

Selection of Preferred Bidder & Signing for

Concession Agreements



A major challenge in defining partnership is introducing the concept into procurement procedures

and inserting it as an element of the contractual offer. This may be achieved by using a structured

evidence framework, where profiles of the bidding organisations as potential partners are

developed from information gathered during the bid process. The profiles can then be used in

procurement decision making, and in the ongoing contractual processes to embed, evaluate and

continuously improve the partnership relationship. Some partnership attributes may also be

developed as the evaluation criterion in the bid evaluations.

This methodology creates a common language of partnership at the outset of a contractual

relationship, embeds the expectation of the desired form of interaction on both sides, and creates

an effective platform for the parties to reflect on, evaluate and improve their relationship over

time.

6.2 PROCUREMENT STRATEGY

The procurement strategies include the following four options:

Competitive bidding

Competitive negotiations

Negotiated contracts

Unsolicited proposals

6.2.1 Competitive bidding

Usually, public sector authorities prefer some form of competitive bidding when procuring any

private sector service. Additionally, most international lending and donor institutions require the

use of competitive bidding procedures as a condition for any loan or technical assistance granted.

Competition is expected to provide transparency to the process and provide a mechanism for

selecting the best-value proposal based on predetermined criteria. The competitive bidding

process can either be one stage (Request for Proposal - RFP) or two stages (Request for

Qualifying – RFQ+RFP). The latter allows short listing which is more efficient.

For competitive bidding, the bids may be open to international, national or limited bidding.

Depending upon the scale and complexity of the project, the authority may select either

international or national bidding. Limited bidding is by direct invitation without open

advertisement. This method is preferred if there are very few bidders for the product or service in

the market.

In the Indian context, competitive bidding is the most preferred procurement strategy.

6.2.2 Competitive negotiations

Competitive negotiations entail inviting a small group of bidders to a structured negotiation. The

bidders are aware of the presence of other bidders and there is pressure to obtain the best price.

This arrangement is quicker and less expensive than full competitive process and may yield good

prices. However, the selection of bidders to be invited could potentially be non-transparent and

may not yield the best bidder pool. There is also a greater risk of corruption in the process.

6.2.3 Negotiated contract

Negotiated Contract refers to contracts that are awarded on the basis of direct negotiations with

the contractor, without following the competitive bidding process. In certain situations, the method

offers distinct advantages over process discussed in the preceding sections. For example,

Competitive Bidding offers no methodology to manage losers, and this could be a problem in



contracts where the contract displaces incumbent operators. Authorities in such situation often

opt for a negotiated contract with affected parties who are removed from routes that fall under

the new contract. In some cases where BRTS is introduced, operators may be allowed to

continue but may not be able to compete, eventually leading to ceased operations.

Under a negotiated contract, affected and displaced operators can be offered new business

opportunities under the following guidelines:

To negotiate contracts based on known costs (more transparent) where the authority

proposes the operational plan;

As an inclusive process that engages existing operators as key stakeholders willing to

respond to commercial opportunities and more secure business arrangements;

To emphasise on transitioning to new business and employment opportunities without

wielding a ‘stick’ of regulation or offering compensation since the expectation of

compensation can distort the negotiation process. The ‘compensation’ offered is the

opportunity to take up new business and/or employment opportunities;

Government may seek to encourage the bus line committees to assist in facilitating the

transition process, to help unify operator representation;

A clear understanding of the operator’s business model, the contract conditions and

expectations on the government side will assist in convincing the operators of their future

viability. A level of trust building is likely to be required. Experience has shown that a good

trust-building initiative is when key decision-makers at government level engage with

operators’ representatives;

6.2.4 Unsolicited proposal

Unsolicited proposal is a self-initiated process where the private operator approaches the public

agency with a proposal to execute a project. The project idea is initiated and developed by the

private operator and the project development cost is passed on to the initiator. Entering into a

sole-source process can save the authority time and money and may alert the authority to an

unrealized opportunity for PPP. However, sole sourcing can encourage corruption through lack

of transparency and the cost benefits to competitive bidding are lost. Furthermore, the authority

have to be confident of their negotiation skills and information sources to ensure best value from

the deal.

A variation of the process involves putting the project to bid, after the initial proposal from the

initiator is approved, typically under a system of ‘bonus’, ‘Swiss challenge’, or ‘best and final

offer’39.

1) Bonus system

Chile and Korea use a system to promote unsolicited proposals that awards a bonus in the

tendering procedure to the original project proponent. This bonus can take many forms, but the

most common bonus involves additional theoretical value applied to the original proponent’s

technical or financial offer for bidding purposes only.

2) Swiss challenge system

The Swiss challenge system — most common in the Philippines and also used in Guam, India,

Italy, and Taiwan, is similar to the bonus system in using competitive tendering to determine the

39 Source: PPAIF, World Bank



project developer. But instead of a predetermined advantage, this system gives the original

proponent the right to counter-match any better offers.

3) Best and final offer system

In the best and final offer system, the key element is multiple rounds of tendering, in which the

original proponent is given the advantage of automatically participating in the final round.

6.2.5 Deciding between one-stage and two-stage bidding process40

A single-stage process comprises of only a Request for Proposal (RFP). An RFP document is

issued to interested bidders inviting them to participate in the bid process. The RFP is the formal

bid document issued by the authority and includes the project details and draft concession

agreement. A single-stage process is appropriate for projects when the scope of the project is

well defined, and there is a well-known and relatively small group of private entities that are likely

to bid.

A two-stage process has distinct ‘Request for Qualification’ and ‘Request for Proposal’ stages to

short-list bidders and to seek their financial quotes. This process is appropriate when the project

scope is not clear and discussions are required to finalise the service options, and the number of

bidders is large. The Ministry of Finance, Government of India has mandated the adoption of a

two-stage bidding process for central sector PPP projects.

The RFP may be preceded by an Expression of Interest (EOI) or a Request for Qualification

(RFQ) or sometimes both. The choice of whether to include EOI and/ or RFQ depends on how

much uncertainty there is about the project definition and about the bidders that are likely to be

interested and qualified.

An EOI is used to identify firms that are interested in bidding and that are available to bid for a

project. It is a ‘market sounding’ exercise that can be used by the authority to test the level of

interest and availability of potential private operators and to identify a preliminary list of firms who

40 PPP Toolkit, Ministry of Finance, Government of India

Exhibit 6-2 Bid Processes



will be sent RFQs or RFPs. Typically, no evaluation is carried out on an EOI as it just lists all the

interested firms who may subsequently be contacted for RFQs or RFPs.

An RFQ is used to narrow down the list of qualified firms that will be invited to bid. Unlike an EOI,

the RFQ submissions are evaluated, and some firms are eliminated on the basis of pre-

determined qualifying criteria. The aim is to reduce the number of potential bidders to include

only the technically and financially qualified bidders possessing the requisite skill set for

implementation of the project. The result of the RFQ stage is a shortlisting of bidders. These

potential bidders are then invited to submit their proposals for the project at the RFP stage.

An RFP invites technical and financial proposals from interested entities (in case it follows an

EOI) or qualified entities (in case it follows an RFQ) or from the market in general (in case of a

single stage process).

The two steps in the procurement process may be merged, and still retain the essence of two-

stage bidding process, as the scope, type of bidders and criterion are clear beforehand. In this

model, only RFP is issued to the bidders. The bidders are required to submit two envelopes i.e.

one for technical and financial capacity, and the other for financial bid. The financial bid for only

those bidders who meet the minimum technical and financial criteria is opened. The bidder

quoting the minimum or maximum fees, as the case may be, will be the selected bidder.

A defined scope and limited number of bidders has led single stage bidding to be preferred for

city bus operations.

6.2.6 Type of bid evaluation

Quality Based Selection: This method of bid evaluation is often seen in projects where technical

inputs required are important, and highly specialised. The budget of the project is usually fixed or

negotiated on unit costs. In such cases, the evaluation of bids is done based on technical

soundness of the bid. The bidder getting the highest technical score will be the preferred bidder.

This evaluation method would fit well with a partnership criterion.

Quality cum cost based selection (QCBS): This method of bid evaluation scores the technical

capacity, skill and experience of the bidder (sometimes called the ‘beauty contest’). Usually, a

minimum technical score is required for the bid to be considered for financial bid evaluation. The

bidder quoting the minimum financial bid is awarded 100 marks, and the score of the remaining

bidders is proportionately reduced, in ascending order of financial bid. Weights are assigned to

both the technical and financial score. The bidder scoring the highest combined score is selected

as the preferred bidder. In India, this is the most preferred mode of selection of bidder for PPP

projects.

Least cost method: This method involves selecting the bidder that quotes the least cost. The

method is useful for projects which are standardised in nature and require limited technical input.

The projects fit for such type of bid evaluation usually include outsourcing contracts. A modified

version of least cost method strategy may also be followed in which, the bidder is required to

furnish his bid in two/three envelopes i.e. one to showcase technical and financial capability, and

the other for financial bid. The financial bid of only those bidders who meet the technical and

financial criterion shall be considered.

The Least Cost Method and the Quality cum cost based selection have a danger of bidders, and

especially the less experienced bidders, offering prices that are ‘too low’ to be viable. It is useful

for the authority to test these prices against known benchmarks and question the bidders, if

necessary. In the case of no satisfactory explanation, the matter may be forwarded to a panel for

evaluation that may choose to either accept or reject the bid.



In India, QCBS and least cost method are the most common evaluation strategies followed across

sectors. For city bus private operations, two/three envelope least cost method is the most

common evaluation strategy.

6.3 PREPARATION OF BIDDING AND CONTRACT DOCUMENT

The final implementation structure will be translated into a legally enforceable document, the PPP

agreement. This document must be drafted before the start of procurement, as prospective

bidders will need to know the terms and conditions of their contracts. The agreement would make

bidders aware of their roles, as well as all the risks and obligations involved in the transactions.

A typical contract would contain the following:

Recitals,

Definitions and Interpretations,

Period of the contract,

Rights of The Contracting Parties,

Obligations of The Contracting Parties,

Contract Considerations,

Payment Mechanism,

Performance Management,

Defaults and their Consequences,

Dispute Resolution,

Termination of the Contract, And Effects of Termination (Terminal Payment

Arrangements and other Issues Related to the Termination).

Exhibit 6-3 Advance information to operators during the bidding process

6.3.1 Bidding and contract documents

Prequalification Process – RFQ stage

Preparation of RFQ Documents: The RFQ is a document for pre-qualification of the interested

bidders with the objective of narrowing down the field to select bidders capable of implementing

the proposed project. Minimum qualifying technical experience could include: experience in

similar projects (in its sole capacity or as a consortium), technical skills, and operating experience

that best help judge suitability for undertaking the project. Similarly, minimum qualifying financial

parameters help judge the ability of the bidder to raise the required finances.

The indicative contents of an RFQ are given below:

Disclaimer

Terms and conditions of the request for qualification

Bath and North East Somerset and South Gloucestershire were both praised by local bus operators for

the amount of information they provide with their tenders and the timescales they work with. They offer

the current operator the opportunity to comment on forthcoming tenders several months in advance,

including adopting the approach of stating how much funding is available and then inviting proposals

from operators. This approach has worked very well and allowed operators to offer innovative solutions

that make the most of the existing commercial network.

Bath and North East Somerset and South Gloucestershire were both praised by local bus operators for the amount

of information they provide with their tenders and the timescales they work to. They offer the current operator the

opportunity to comment on forthcoming tenders several months in advance including adopting the approach of

stating how much funding is available and then inviting proposals from operators. This approach has worked very

well and allowed operators to offer innovative solutions that make the most of the existing commercial network



Outline of the request

Brief statement of intent of the Transport Authority in issuing the request

Detailed information about the project (description, background, performance

parameters, financing structure, risk allocation, etc.)

Description of the procurement process, along with the evaluation criteria

Instructions to respondents

Information required from bidders, along with the prescribed format for its

submission

Description of the evaluation process

Bid Process – RFP stage

The RFP is the second stage of the two-stage bidding process. The RFP is issued and responses

prepared as per the provisions of the RFP, and “Bids”, shall be invited from the pre-qualified

bidders. The Bids shall consist of two parts: Technical Proposal providing certain compliance

related documents and other details as prescribed in the RFP and a Financial Proposal containing

its price/commercial quote for the Bid Parameter. The Bid Parameter shall be a single parameter

and shall be the only quantitative parameter based on which the preferred bidder would be

selected. While a single quantitative Bid Parameter is recommended, in particular circumstances,

qualitative aspects may also be included in the Bid Parameter, provided the same can be

objectively scored and methodology for such scoring is provided in the RFP. The Bid Parameter

can also be in the form of, among others, grant required, annuity required, user charges, revenue

share, upfront System Management Fee, annual System Management Fee, term of Project

Agreement, etc. depending on the project structure.

The RFP shall also have provision for Bid Security and a Performance Guarantee to be sought

from the Bidders at the time of submission of the Bid and before signing of the Project Agreement,

respectively. The amounts of such guarantees may vary based on the level of the project outlay.

Financial proposals shall be opened only after evaluation of technical proposals and only for

those bidders who comply with the requirements of the technical proposal and achieve the

minimum score specified in the RFP, if applicable.

The Draft Agreement, which is the project contract shall necessarily form a part of the RFP

document. It shall clearly spell out the rights and obligations of the concerned authority, the

Government (if applicable), and of the private entity involved. The Draft Agreement shall also

capture other aspects such as:

Term of Project Agreement, if any;

Performance specifications;

Monitoring mechanisms;

Penalties and Incentives associated with various obligations of the entities;

Mechanism for dealing with risks due to Force Majeure, Termination, Change in

Law, Change in Scope, etc.;

Procedures relating to Dispute Resolution, claims, information sharing & reporting;

with associated timelines; and



Process for handing over of the assets, if any, and if such handover is part of the

PPP structure.

Thus, the objective of the RFP stage is to:

Specify all the provisions of the Draft Agreement;

Set out clearly the evaluation criteria, terms and submission requirements for the

evaluation process; and

Invite proposals with specific technical and financial details that enable the

selection of the “Preferred Bidder”.

In this stage, all pre-qualified bidders, to whom the RFP has been issued, shall be given an

opportunity to ask queries and seek clarifications. The same shall also be discussed in a pre-bid

meeting. In case of more complex projects, more than one pre-bid meeting can be organised.

6.3.2 Criteria for qualification

The criterion for qualification has two parts – technical and financial.

Technical criteria

The authority should define relevant experience in the bidding documents. The criterion has to

be stringent enough to ensure that only serious bidders qualify, at the same time it should not be

so high such that very few bidders qualify. Usually, relevant experience is a good qualifier

especially having performed similar services previously, or with a skill set that clearly qualifies

their involvement; for example previous experience in logistics and customers service, could be

a relevant qualification.

It is also important to consider the experience of the previous 3-5 years, and not just the

immediately preceding year as the bidder may not have sufficient experience if the project started

only last year.

The bidder shall, over the past 3-5 financial years preceding the Bid Due Date, have:

a. Experience of operating Buses,

b. Experience of operating Trucks, and/or

c. Experience of operating Taxis

An experience weight may be granted to each of the categories, as shown in Exhibit 6-4:

Exhibit 6-4 Experience Weights

Category Experience Weight

Buses 1.00

Trucks 0.40

Taxis 0.80

Higher weightage is granted to buses (both contract and stage carriage) as compared to trucks.

Suitable conversion shall be made based on size of the vehicle in terms of the details set out in

Exhibit 6-5:



Exhibit 6-5 Multiplying Factor

Category Passenger Capacity Multiplying Factor

Buses < 22 passengers 1.50

23 – 34 passengers 2.00

35 and above 3.00

Trucks 3.00

Taxis 1.00

Experience Score for a given category = Number of vehicles x Experience Weight x Multiplying

Factor x Number of months of operations in the last five years/60= XX

Sample calculation is provided in the table below.

Category Passenger

Capacity,

if

applicable

No. of

vehicles

(a)

Multiplying

Factor (b)

Experience

Weight (c)

Number

of months

of

operation

(d)

Total

(Experience

Score)

(a*b*c*d/60)

Buses 42 40 3.0 1.0 40 80

Buses 20 15 1.5 1.0 12 4.5

Truck 60 3.0 0.4 56 67.2

Taxis 50 1.0 0.8 24 16

Total Experience Score 167.7

Total Experience Score for each Bidder shall be calculated based on submissions made by the

Bidder. Such Total Experience Score shall be compared with the Minimum Experience Score.

The Minimum Experience Score is the score calculated for Experience Score considering 50%

of the number of buses to be Operated and Maintained by the operator. For example, if 100 buses

are to be Operated and Maintained by the operator, then the Minimum Experience Score shall

be 50*3*1*60/60 = 150. The Bidder shall be deemed to meet the Technical Capacity, when the

Total Experience Score is greater than the Minimum Experience Score.

Financial criterion

After verifying the technical credentials of the bidder, the financial credentials are checked. The

bidder should have sufficient capability to undertake the financial burden of the project. Usually,

it is checked on the basis of average annual turnover and net worth. Authority should consider

both turnover from relevant experience and other services, but higher weightage should be given

to turnover from relevant experience. As in the case of technical criterion, in this case also the

criterion is defined as a percentage of total project cost. The average annual turnover of the



previous 3 to 5 years and net worth of the immediate preceding year are considered (net worth

of the years prior to the preceding years is not relevant).

For demonstrating financial capacity and experience, the bidder shall have:

i. Minimum Net Worth of [insert in rupees (in words)]41 at the close of the preceding

financial year

ii. Minimum Average Annual Turnover equivalent to [insert in rupees (in words)]42 in the

previous 3-5 years

Only for those bidders meeting both technical and financial criteria should the financial bid be

opened.

6.3.3 Bid parameters

For each type of contract, the bid parameters may vary as shown in Exhibit 6-6.

*This is for illustration; the variable percent may vary from city to city

The details are as follows:

Fee payable per kilometre to the private operator (GCC) – In this type of model,

the private operator is paid the quoted amount per km by the authority over a set

period. The authority usually specifies the minimum number of kilometres the private

operator has to ply as part of MSL. The bidding parameter is ‘cost per km’. Dead

mileage should be specified as included or excluded.

System Management Fee paid to the authority/Grant payable to operator (NCC)

– The private operator agrees to pay to the authority, a fixed amount or share a part

of the revenue it collects (system management fee), or the operator demands a grant

from the authority. This method is most suitable where there is considerable and

assured demand or where the operator is fully protected from competition, else in

case of shortfall the operator may demand a grant. The bidding parameter is usually

a fixed amount.

Revenue is linked to ridership (Hybrid GCC) – The authority supplements fixed

payments with bonus payments linked to ridership increase. This payment

mechanism will require the necessary technology to collect ridership data. As these

ridership payments are supplementary, it avoids negative competition for passengers.

41 This amount should be [15-25%] (fifteen to twenty five per cent) of the Estimated Project Cost of the project for which bids are

being invited 15

42 This amount should be equivalent to 25% of the Estimated Project Cost

GCC

Fee per kilometre, to be paid by the authority

Hybrid GCC

Fee per kilometre, to be paid by the authority

NCC

Monthly System Management Fee payable to the authority or grant payable to Operator

Hybrid NCC

Monthly System Management Fee Payable to the authority/Grant payable to Operator

Exhibit 6-6 Bid Parameter by type of contract



The bidding parameter could be the fixed portion costs (km-based) and the variable

fee per passenger for additional ridership over base figures. This method requires

base revenue to be set, and good data on ridership growth.

Supplementary payments for certain non-commercial routes (Hybrid NCC) -

Where a non-commercial route is within an operator’s contract area, and the authority

wishes to subsidise its operation, the fee would be fixed and stated in the RFP. The

fee per km shall be calculated based on total cost of operation less the amount of cost

recovery through revenue collected. As in NCC, the bidding parameter in this case

shall be system management fee or a grant.

Refer to Annexure III to customise and modify the model RFP to a city-specific RFP.

6.4 PROCUREMENT MANAGEMENT

Once the bidding and contract documents have been drafted, the authority would commence the

procurement process (as discussed earlier).

The following sections describe the procurement process based on the two-stage procurement

process (request for qualification [RFQ]–request for proposal [RFP]) that is extensively followed.

The authority can, however, select another process that fits the unique characteristics of the

project. If the authority selects the one stage procurement process, then RFP follows immediately

after the pre-bid activities.

6.4.1 Pre-bid activities

The first pre-bid activity pertains to reinforcing the links between the feasibility and procurement

stages of the project. The following will be reviewed and analysed:

Project Scope, Definition, and Objective;

Timelines, strategies, processes, deliverables in the procurement plan;

Project type and structure, and sources of funds;

Mechanism of payments to and from the authority;

Risk matrix updated after the PPP; and

Third-Party Contracts

The subsequent pre-bid activities relate to the major decisions to be made in the procurement

process:

Defining the bidding period (when bidders must prepare and submit their bids).

According to the size of the bid, the allowed time of preparation will affect the

quality of the bid;

Disclosing all relevant information to bidders including those related to the assets

of the bus transport undertaking, including their condition and maintenance

schedules, in the RFP;

Engaging in pre-bid meetings to discuss queries and ensure bidders and the

authority are aligned in their expectations;

Dealing with labour issues in the RFP; staff information pertinent to the project,

such as the displacement of existing staff, must be communicated to bidders along

with the implications;



Providing enough time for compliance with regulatory requirements.

6.4.2 Request for qualification (RFQ)

The process includes:

Press notification & issuance of RFQ: This includes marketing the project to the industry. The

prepared RFQ is issued along with a notification.

Pre-bid meeting and responses: Bidders may wish to seek clarifications on the RFQ. All

clarifications have to be responded to, with changes made in the contract document accordingly,

and revisions shared with the bidders.

Evaluation of responses: The bidders’ responses to the RFQ are evaluated according to the

evaluation and selection criteria in the RFQ. The evaluation criterion considers the technical and

financial capability of the bidder, their understanding of the project, and their skills and experience

to deliver the project. Bidders that meet the RFQ criteria are notified by the authority and invited

to bid. The notification indicates the terms and conditions for obtaining the RFP, and the

document date and cost.

6.4.3 Request for proposal

Issuance of RFP: The RFP document is issued to the pre-qualified bidders. Bids from only such

pre-qualified bidders will be accepted.

Pre-bid meeting and responses: Bidders may wish to seek clarifications on the RFP and draft

contract document. All clarifications have to be responded to, with changes made in the contract

document accordingly, and revisions shared with the bidders.

Evaluation of responses: The evaluation of bids is an extremely important stage in the PPP

project life cycle. The bids received are assessed based on the specific compliance and selection

criteria, as specified in the RFP issued. Assistance of external advisers/ consultants may be

sought by the concerned authority for evaluation of bids. Opening of technical and financial

proposals should be done in separate meetings in which those bidders must be invited, whose

technical or financial proposal is going to be opened.

6.5 SIGNING OF CONTRACT

After evaluation of the bids and selection of the Preferred Bidder, the authority may issue a “Letter

of Award” to the Preferred Bidder. The letter shall specify the formalities to be completed, if any,

by the Preferred Bidder before signing the contract. The Preferred Bidder shall accept the Letter

of Award by issuing a Letter of Acceptance within the specified time limit, subsequent to which

the Preferred Bidder shall be declared as the Successful Bidder. The draft contract provided at

the RFP stage shall be finalised and signed between the Successful Bidder or a company

constituted by the Successful Bidder (as the private entity), as per the provisions of the RFP, and

the authority.

There shall be no modifications in the draft contract at this stage, except changes which have

been agreed prior to bid submission date, with all bidders, and except some administrative

changes for finalisation of the contract.



7. POST AWARD CONTRACT MANAGEMENT

This chapter discusses the various processes in post award contract management, including

developing a sound monitoring framework to ensure smooth functioning of the project during its

lifecycle.

7.1 THE MONITORING FRAMEWORK

After developing a sound understanding of the functioning of a performance monitoring process,

a framework for implementing the same needs to be developed. This framework should be

comprehensive and should take care of all issues that might arise in the project lifecycle and with

due provision for review and update at any point of time.

Development of an ideal framework should consist of the following steps:

Step I: Collection & analysis of information needed

Step II: Analysing existing processes and tools for project quality measurement throughout the

project lifecycle

Step III: Setting the output requirements based on the terms agreed in the Concession

Agreement

Steps I-III are carried out during the development of the contract.

Step IV: Designing the performance review mechanism against the output requirements

including the KPIs

Step V: Reviewing the performance monitoring mechanism and updating the same

Steps IV-V are carried out during the monitoring period.

Exhibit 7-1 Performance Monitoring, Reporting & Review Framework

Step I: Collection & analysis of information

The authority needs to determine all parameters on which the private operator will be evaluated

for the quality of the project. Both qualitative and quantitative data are included. The authority

may need to also consider:

Which data sources are present and can be used for performance monitoring;

What other data sources need to be obtained;



In what form is information available or to be specified.

Step II: Evaluate existing processes and tools

The authority should decide what level of monitoring is most efficient considering the cost and

availability of resources. While the ITS generated data is generally the most effective way to

collect quantifiable data, there is no replacement for physical inspection, to experience and draw

conclusions on the qualitative aspects of the system.

Step III: Set the output requirements, design KPIs

In the context of managing a contract to deliver service quality, the main KPI aspects are:

Follow route assignment and operating schedule as set by the contract

specifications;

Failure to perform a service, or each incident where a service is cancelled, and

the Control Centre is not advised;

Comply with operating rules and service specifications;

Meeting vehicle standards of cleanliness and condition;

Following set procedures;

Meet reporting requirements;

Safe operation and driver performance.

Step IV: Design the performance monitoring mechanism

ITS and the agreed reporting structure should provide all the necessary data to enable sufficient

monitoring. However, it is essential to ensure that the primary task of the operator is not to furnish

the data for the authority, but to operate the business. ITS and computer data should make this

reporting relatively easy, but should not be used as a substitute for physical inspections to

evaluate qualitative aspects of customer service.

Regular meetings of all concerned officials must be conducted at agreed intervals to discuss any

performance related issues. These meetings must also include representatives from the side of

the private operator as well as any other related parties, to discuss the situation with them and

seek their opinion.

Step V: Review & update the performance monitoring system

Regular evaluation of the monitoring procedures, as well as the level of monitoring, will assist the

authority to assess its effectiveness.

7.2 MONITORING DURING THE COURSE OF OPERATIONS

The monitoring and control function will vary according to the type of contract. In a GCC, this

control is more stringent. In an NCC, outcomes are monitored and the authority would respond

to service issues that arise.



Exhibit 7-2 Monitoring and supervision London (GB): Financial incentives in a Gross

Cost Contract

7.2.1 Daily service monitoring

The daily monitoring will invariably require a Control Centre which, with the aid of ITS, can be

abreast with the daily service performance. This Control Centre may also be involved in service

planning, both the strategic service plan (setting overall parameters) and may also govern the

daily scheduled service. Other daily monitoring tasks will include monitoring and managing shift

start up (all scheduled buses arrive for service), AFC functions (managing faults and

breakdowns), responding to and managing emergency, accident or incident procedures, handling

lost property and responding to complaints and service failures. The Control Centre will have in

place standard operating procedures to cover all areas such as:

Control procedures

Vehicle breakdown response

Emergency or accident response

Malfunctions and technical support for support systems

Safety and security protocols and response procedures

Reporting procedures

Quality inspection procedures

Inspection and audit of contract items

Disciplinary procedures

7.2.2 Contract Management Procedures

For contract management, the authority will have to develop a comprehensive and agreed set of

procedures and processes under which it will administer the control and management of the bus

operator contract. It could be named as Contract Management Procedures Manual (CPM). It

would aim to provide explicit and clear guidance to reduce the amount of ‘ad hoc’, and arbitrary

Monitoring for Gross Cost Contract for buses is done by TfL as follows:

The “Quality Incentive” contract payments are based on a monitoring regime that primarily

measures the reliability of the buses. The contract dedicates an entire detailed section to

reliability. It states for example at which location and what frequency monitoring will take place.

In addition, customer satisfaction surveys are carried out, measuring waiting time & riding,

driving standard, cleanliness, information at bus stops, etc.

Other monitoring mechanisms include: Mystery travellers, driving standards reporting, accident

& incident reporting and environmental reporting.

Operator league tables are published for reliability and excess wait time. Other quality indicators

are reported at network level only.

Presently, monitoring is undertaken manually with a hand held device. However, TfL is in the

process of introducing GPS in the future. This tracking system would have additional benefits,

such as passenger information.



decisions that need to be made with individual operators and to build confidence in the regulatory

process.

This manual would address control and monitoring issues not contained in the contract, and may

be changed and adapted as new situations arise. It would be valuable to consult operators in

these changes, so that there is a consensus on the fairness of such procedures.

The content of the manual could include:

Guidelines for ethical and ‘good’ practice

Responsibility of operators (items not detailed in the contract) rights and

obligations

Penalties for not meeting obligations

Rights and obligations of the authority

Reporting obligations of both parties

Driver conduct and sanctions

Enforcement protocols and procedures

Right of reply and redress for penalties challenged by the operator

Management of incidents

Management of safety standards

Dispute resolution procedures

Updating procedures for CPM.

Exhibit 7-3 Enforcement in Amsterdam (NL): Direct award with competitive threat

The authority awarded a Net Cost Contract for the management of the urban public transport

network of Amsterdam directly to the municipal operator. The contract was awarded for the

period 2006-2011 in direct award with a threat of a competitive tendering procedure if the

existing municipal operator was not able to deliver a bid under market conformity. Monitoring

controls operation of the agreed number of timetable hours per route, punctuality, the number

of realised planned connections, occupancy rate, and passenger satisfaction. A bonus/penalty

system is also in place.

The authority awarded a net-cost contract for the management of the urban public transport network of Amsterdam

directly to the municipal operator. The contract was awarded for the period 2006-2011 in direct award with a threat

of a competitive tendering procedure if the existing municipal operator was not able to deliver a bid under market

conformity. Monitoring controls the operation of the agreed number of timetable hours per route, punctuality, the

number of realised planned connections, the occupancy rate and passenger satisfaction. A bonus/penalty system

is also in place.



8. IN LIEU OF A CONCLUSION

The advent of the private operator in effecting delivery of city bus services in India for public

transport is very recent and it would not befit to conclude the guidance document with crystallised

recommendations or directions. The guidance document does, however, provide the user with

necessary insight into the type of the long-term contract that would suit a city best and appropriate

the risks equitably, with an adequate mechanism for monitoring delivery of service. International

experiences in city bus operations offer a rich and varied source of instructive lessons for India’s

cities. Cities across the globe have had a variety of starting options; while some began with a

loosely regulated system (Santiago and Quito), some had already formalised operations

(operator franchises Curitiba) and some were specially designed to engage private operators in

public transport, replacing public bus systems (London and Adelaide). From such beginnings,

these cities have generally evolved on similar patterns of private and public involvement in city

bus services.

The global trend also presents a milieu of dominant informal, and unorganised private sector

followed by an increasing degree of public involvement and eventually culminating in a structured

system of private sector participation in well-defined concession contracts. Even in concession

contracts, variations exist in contractual parameters depending upon the context and

environment in a specific city. For example, contract durations have ranged from five years to

fifteen years; the roles of authority and operators have witnessed various variations. Adelaide

showcased partnership approach, where the authority engaged with operators before initiating

the bid process. While the provision of bus depots has remained with the authority in a majority

of the cities, some cities have also explored private ownership of bus depots. Each of the

alternatives for the provision of bus services came with its own advantages and limitations as

well, but the underlining endeavour was to deliver bus services at the lowest cost and meet or

surpass expected quality level. One key lesson from these diverse set of experience is that in

order to be able to assert control, the authority needs to accept such risks which the operators

cannot be expected to manage.

The model contracts are best appreciated along with perusal of the guidelines document which

recommends practices aimed at accelerating adoption of public-private partnership in city bus

operations. These documents have been prepared against the backdrop of state of the art review

of the practice of public transport delivery from city bus private operators. Practices of 10 Indian

and 5 international cities were studied and findings were discussed with different stakeholders

including senior officials from government departments, state agencies and municipal

corporations from various states & union territories, bus manufacturers, city bus operators and

various urban transport consultants.

In Indian context, city bus private operations are yet in a nascent stage and will evolve and mature

as both authorities and operators gain experience. Individual cities themselves are at varied

starting points of their journeys towards full exploitation of private participation in city bus

operations. While some cities are dominated by informal private operators or even have informal

private operators operating in tandem with public operators, other cities have had experience in

formalised private operators’ participation. As the sector evolves, certain practices which may

seem impracticable now would become viable options and win-win strategies for both, the

authority and private operator.

For example, a common perception in Indian experience is that inadequate planning before

commencing private city bus operations have resulted in complications that led to eventual failure



of contracts. To avoid this pitfall, the guidelines document has recommended that cities first

assess the prevalent business environment and then prepare the business model for bus

operations before considering contracting out bus operations. As cities adopt this practice, city

bus operations would provide the operators and the authorities a better understanding towards

making services sustainable and customer friendly.

Some other methods and models that could evolve in future, but haven’t been included as model

contracts at present are touched upon briefly in following paragraphs. These practices could be

incorporated into the existing model contracts by the authorities as and when cities mature in the

delivery of urban bus transport through private participation over long-term contracts; the

adoption could be through discussion with potential bidders, or with the help city-specific

transaction advisor to be appointed separately.

1. Depot Sharing

The model contracts have been prepared assuming each operator shall be the sole user of depot

facilities since the prevailing business environment and trust deficit between different operators

prevent the sharing of a common depot. Authorities, as well as, private operators have also

expressed reservations with shared depots, and accordingly, sole depots have been

recommended.

However, some cities, post experience of one or two model contracts, may find the model option

of sharing depots feasible as the requirement for buses increases and additional land for depots

becomes a challenge. This option of multiple operators working together has been exercised in

several cities (Adelaide, Curitiba) and a partnership approach could reasonably be expected to

evolve in Indian cities as well. Alternatively, multiple operators could also share a depot that is

managed by a third party.

2. Depot provided by operator

Establishing bus depots involves acquisition of land, requires high capital investment, and has a

lifespan much longer than that of movable assets like buses. Public authorities are generally

more capable of providing depot facilities as they control planning permissions, and often have

available land or land resumption powers. In this context, the model contracts provide for the

ownership of bus depots to remain with the authority.

However, as the sector matures in India, operators may develop the ability to provide their own

depot. At this stage, cities could consider the option of depots being provided by operators, while

ensuring that they are not captive to the operator holding strategic depot sites.

Cities might also consider leasing depots that have been constructed by operators with a leasing

period that is long enough for the operator to recoup its investment.

3. Step-In Rights

The provision of step-in rights for the authority in situations where the operator is unable to

continue service has not been recommended in the model contracts, assuming that authorities

currently do not have the capability to run the service on their own and procurement of another

operator may be quite time-consuming. However going forward, cities may build capability for

running services on their own and may want to have the ability to step-in if the operator fails to

provide bus services.

Step-in rights for the lenders could also be explored by the cities. Further, the model contracts

have provided the provision of asset transfer value in case of termination irrespective of the



responsibility in the event of default. However, cities may consider including the provision for the

lenders to step-in and provide a substitute operator.

4. Longer bus life

The service life of buses currently being utilised in India for city bus operations is generally around

eight years (around 750,000 kilometres) and is much lower than European buses that are

expected to perform beyond ten years (at least 1,000,000 kilometres). In future, buses with

performance similar or exceeding those of European buses could be introduced, necessitating

longer contract lengths and stricter performance standards.

Furthermore, with increased operational knowledge, cities may opt for much stringent

maintenance processes that would result in increasing the service life of present buses. These

changes would result in cities maintaining much higher performance standards throughout the

contract period. Another change is the possibility of extension of contract as buses are still

available for full service at the end of current proposed contract length of eight years.

5. Fare collection by operator

The provision of fare collection by the operator is provided in NCC as it is assuming the revenue

risk. With the introduction of newer fare collection technologies like contactless smartcards,

smartphone payment, etc., the operator doesn’t have to bear additional costs for revenue

collection and protection. In this situation, cities can explore fare collection by the operator even

when they are not assuming revenue risk. For example, in the London bus system, Oyster card

is used with card readers inside the bus for revenue collection. The card readers are connected

directly to the central server, thus, there is no involvement of a conductor for revenue collection.

6. Newer technologies

The model contracts have an implicit assumption that buses will continue to utilise fossil fuel.

However, with rapid technological advances, electric drivetrains could emerge form an emerging

to a mainstream technology in the near future. There is also possibility of automated public

transport system, on the likes of automated driving that is being pursued actively in passenger

car space. These changes could introduce significant changes in operating costs, and might

require modifications in the fare structuring, fare escalation formulas, and other operational

parameters.

The model contracts have considered probable changes in technology in the near future such as

the introduction of integrated fare, smart ticketing, etc. In line with this, roles and responsibilities

of the authority and the operator have been delineated. However, other practices which have not

been foreseen at present may also evolve and requires suitable modification in the contract.

City authorities are thus encouraged to create a forum where alternate practices / models could

be discussed and evaluated for adoption based on city environment. City authority can also take

help of Transaction Advisors in developing and evaluating alternative options suitable for the city

and also customise the relevant clauses of the contract accordingly.

With the above background, it is important to note that a sudden and massive change carries a

high implementation risk. It might be better to opt for a process that is more gradual, and leaves

room for trial and error in the journey. This would also require flexibility in contracts in the event

of changed circumstances or unanticipated outcomes. Each city must take stock of the local

situation, its strengths and weaknesses, threats and opportunities to assess its course of action

and methodology for finalising various contractual provisions.



ANNEXURE I - DRAFT STRUCTURE OF MODEL CONTRACTS

COMMON ELEMENTS ACROSS FOUR MODEL CONTRACTS

Item

Scope of the project

Provide bus services under an area or a route contract, as specified by authority

[Procure a lot of buses as per specifications defined in the contract]43

Provide a driver for each bus, as per the bus procurement schedule

Operate and maintain the bus services according to the performance and quality standards specified

Maintain bus depot (for bus maintenance and repair)

Supply and maintain adequate consumables as required for regular upkeep of fleet

Establish a control room to respond to any vehicle breakdown or accident

Maintain a detailed daily log of the performance of each bus

Redress customer complaints and issues, in accordance with the provisions of the contract

Maintain LED display system on buses

Procure clearances for the operations of the project, as required

Ensure assured fleet availability as per the fleet deployment plan

Submit to authority, monthly reports in formats as provided in the contract

Information list to be

prepared by the

authority/ Preparatory

work to be done by the

authority

Comprehensive mobility plan for the area/township: current scenario of urban transport, expected growth in

traffic, recommendations

Technical specifications of buses

Performance and quality standards for the services to be provided

Design of the route system where applicable, or the demarcation of major areas for area contracts

Format of roadworthiness and fitness certificates (certificates attesting to the operable condition of the

buses) to be submitted, quality and performance standard checks on buses

Formats of documents to be submitted at the end of each month

Conditions precedent Private operator

Sign the contract within specified number of days after acceptance of letter of award

43 Delete: If procurement of buses is done by the authority



Item

Execute depot license agreement

Execute the tripartite escrow agreement with authority and bank

Furnish performance security

Facilitate in procuring water supply and electricity connection

Procure all operator clearances that may be required for the project

Appoint duly licensed and trained drivers, and other staff members as required

Provide and install any necessary movable infrastructure such as equipment and machinery in bus depot.

Such equipment and machinery generally having life span equivalent to the project duration and/ or where

the cost of each such consumable, equipment and/ or machinery is less than Rs. ---- Lakhs

[Install ITS and other tracking system in lot of buses handed over by the authority]44

Authority

[Handover a lot of buses to the private operator]45

[Ensure activities related to road worthiness such as registration of buses, bus permit, payment of taxes etc.,

are completed before handover of buses to the operator]46

Handover depot for parking, maintenance, and regular upkeep of the buses

Execute depot license agreement

Execute the tripartite escrow agreement with operator and bank

Roles and

responsibilities of the

private operator

Furnish performance security to the authority

[Procure lot of buses as per specifications defined in the contract]47

[Procure bus license from RTO, registration of buses, payment of taxes etc.]48

Operate and maintain buses and depot facilities at its own cost

Ensure the LED system (on buses) is in working condition

Allow access to buses to all members of public

44 If buses are handed over by authority

45 If procurement of buses is done by authority

46 If procurement of buses is done by authority

47 If procurement of buses is done by the private operator

48 If buses procured by operator



Item

Ensure that buses pick and drop at designated stops

Make arrangement at its own cost to tow-away dysfunctional buses without causing disruption of traffic and

provide stand-by buses to ferry stranded passengers within a period of 2 hours

Maintain a control room to monitor movement of buses and respond in an event of emergency

Provide adequate number of drivers and helpers

Provide training to drivers and technicians on regular basis

Maintain cleanliness on buses

Maintain adequate level of inventory for repair and maintenance of buses

With prior approval of authority, construct and maintain temporary structures within depot premise

Allow authority to undertake inspections as and when it deems fit

Procure, install and monitor communication devices on the buses to allow authority to monitor the bus

operation, as well as any other devices deemed necessary for the smooth operation of the system

Shall not tamper with such communication system/ITS and/or cameras installed

Comply with all Laws

Be liable for claims made and compensation awarded by Court of Law

Ensure safety of buses and depots against theft and vandalism

May collect revenue from advertisements inside and outside the buses and bus depot

Pay penalties as imposed by authority

Be joint holder of the escrow account along with the authority and bank

Arrange the capital funds and financing for the day-to-day operation of the bus services

Address consumer complaints forwarded by authority

Designate and appoint suitable officers to run the day-to-day activities of the transport system

Maintain harmony and good industrial relations with the authority

Pay the Employees State Insurance Corporation and Provident Fund contributions for the employees of the

private enterprise

Maintain the confidentiality of the contract

Bear the cost of premium, for each of the buses in the fleet, but the premium payment will be given to the

authority



Item

The operator shall have obligations to assist in and abide by directions/queries by statutory government

bodies such as traffic police, CVC, CAG etc. with regard to the project

Roles and


authority

[Procure buses and handover to the private operator to carry out operations as per bus procurement

schedule]49

[Procure bus license from RTO, registration of buses, payment of taxes etc.]50

[Arrange for a comprehensive insurance policy, in the capacity of co-insurer along with the operator, for

each of the buses in the fleet. The authority will use the proceeds received from operator to take

insurance]51

Issue fitness certificate on buses procured by the private operator, to carry out operations

Handover and permit the operator to make use of the project facilities to carry out its roles and

responsibilities,

The bus depot or any other site identified for parking should have adequate parking facilities for buses

Grant all approvals, permissions, and authorisations, to be accorded by the authority on its own without

consulting the third party, that the private operator requires to complete the services satisfactorily

Regulate and oversee the management, planning, and control activities of the authority with respect to the

routes

Appoint project officer and/or independent engineer to monitor functioning of the operator, maintain record

of consumer complaints and forward to private operator, and maintain records

Conduct regular inspections of buses, from time to time

Levy penalties on private operator on account of non-performance

Monitoring mechanism

Private operator

Maintain project facilities in an orderly manner as per minimum service standards

Report any breach in service quality to the authority with explanation

Authority

49 If buses procured by authority





Item

In the event of breach of minimum service quality standards, notify the private operator, who shall be liable

to pay penalty

In the event of the same breach in service quality of a serious nature (such as safety) occurring more than

three times, declare an event of default

Safety provisions The private operator should prudently follow, nationally accepted safety practices generally and reasonably

expected of a skilled and experienced private operator.

Performance standards

• Utilisation of rolling stock

o Fleet utilisation: No. of buses deployed for operation in time *100 / no. of buses in fleet (92-96%)

o Roadworthiness Fleet: No. of roadworthy buses*100/No. of buses in fleet (92-96%)

• Regularity of service

o Trip efficiency: number of trips/number of trips scheduled (>98%)

o Kilometre efficiency: number of kilometres operated/number of kilometres scheduled (>98%)

Punctuality of operations: number of trips on time/total number of trips (>98%); No. of trips on time at

destination / Total no. of trips(>98%) operated

Reliability of buses (per 10,000 km):1/ (number of breakdowns× 10,000/total kilometres operated) (>95%)

Safety of operations (per 100,000 km): 1/ (number of accidents× 10,000/total kilometres operated) (>99%)

Cleanliness of buses (per 1,000 trips): 1/ (number of buses reported dirty× 1,000/total number of trips

operated) (>95%)

User satisfaction (per 1,000 trips): 1/ (number of complaints × 1,000/ total number of trips operated) (>98%)

Deficiencies or defaults in service: total penalties levied × 1,000/total trips operated (XXX)

Defaults and

deficiencies

Bus-related defaults and deficiencies

o Damage to bus components like tyres, seats, rails, saloon lights, indicator lights, wiper system, wiper

blades, holds

o Damaged headlight/ front/ back brake light/ side marker light

o Unclean bus

o Loosely hanging bumpers

o Modification of colour /design paintwork

o Defective/damaged wheelchair ramp (if any)

o Missing/loosely hanging seatbelts



Item

o Damages floor/step/hatches or hatch covers.

o Visible dents that are more than 5 mm in depth and 200 sq. Mm in area.

o Damaged, broken, loosely fitted, incomplete or missing passenger seats

o Defective operation of entry /exit doors, emergency exit doors/ hammer for breaking the glass

o Defective and or inoperative PIS partly or fully

o Installation of any type of decoration or non-functional items inside or outside the vehicle, not

originally installed in bus.

o Application of opaque films / paints etc. on side, front or back windows / glasses

o Excessive emission of visible smoke / abnormal noise of high intensity

o Non availability of specified fire extinguishers, lack of charge of same, expiry date due or no

specification of expiry date

Bus driver–related defaults and deficiencies

o Reckless driving

o Improper uniform

o Running of red lights and signals

o Failure to carry on-board personal identification and / or vehicle registration book / any other vehicle

identity

o Failure to carry first aid kit

o Refusal to provide information to authorised staff / passengers

o Park bus dangerously / at away from earmarked space in depot

o Disobedience to lawful instructions / orders of designated authorities

o Drunk while on-duty

o Irresponsible behaviour causing an accident

o Invasion of zebra crossings

o Carrying companions in driver work area

o Bus running out of fuel

o Delayed reporting of bus breakdowns / incidents en-route (reaction time < 30 minutes)

o Verbal or physical misbehaviour with passenger

o Failure to follow or acknowledge instructions of authorised staff



Item

o Non submission of defect / route incidents reports etc. on completion of work shift but before leaving

depot premises

o Not carrying complaint book and or not presenting complaint book to passengers when demanded

Bus operator–related defaults and deficiencies

o Not following/ changing route

o Operating un-authorised hours or services/ routes.

o Parking in places other than those established by authority

o Not stopping at earmarked station en-route as scheduled

o Stopping at a station and/or place not earmarked for route service and or in a manner to cause

obstruction to other traffic.

o Picking or setting down passengers at points other than the scheduled bus stops.

o Delaying operation without cause

o Abandoning and/or alighting from vehicle without cause and or without informing Authority

o Stopping on / ahead of Zebra Crossing

o Not submitting roadworthiness certificate

o Not permitting transport authorities access to project facilities

o Damage to fixed infrastructure like roads and bus stops

Management information System (MIS) and ITS related infractions

o Delayed / incomplete / erroneous submission / non-submission of any / all of the prescribed MIS reports

o Applicable operations related reports e.g. vehicle productivity data - vehicle wise, route and trip wise; Data

about incidents / accidents / fatalities en-route along with cause-wise details

o Revenue data, way bill data, pox boarding- alighting details; concessional travel data, cost details

o Ticketing machines quantum in use, functioning, / serviceable / under repair and maintenance data

o PIS systems – serviceable / under break down repairs

o ITS equipment on–board and their serviceability status – daily bus wise and consolidated

o Bus fleet maintenance related data as per details and formats prescribed by the authority from time to time

- a few requirements are Fuel, oil and lubricants consumption data, Break down related data, Accidents

related data ,Pollution under control certification details, Noise checking data related to average life of

aggregates

Any other violation of rules prescribed by the authority



Item

Events of default –

private operator

Non-compliance with performance standards

Non-adherence with safety norms

Using the project facilities other than the permitted activities

Refusal of ply buses as per fleet deployment plan

Generating revenue from the project facilities, other than payment by the authority

Material breach of contract

Insolvency of the private operator

Non-replenishment of performance security

Failure to pay utility bills

[Delay by more than 30 days in procurement of lot of buses]52


authority

• Non-transfer of project facilities required for maintenance and parking of buses to the operator despite

satisfactory completion of all conditions precedent

• [Delay in procurement of lot of buses]53

Consequences of

default

• In the event of default, either party will issue notice to the other party and indicate a suitable time period, but

not less than 15 days, to cure the defect.

• Failure to Cure the defect may lead to termination of the contract

In case of private operator default

• The performance security will be encashed

• The authority will also make good from the private operator any costs, expenses, or losses it may have

incurred because of breach or failure on the part of the private operator

• Clear all dues pending to the private operator

In case of authority default

• The authority will release the performance security

Qualification criterion

Technical criterion

• Experience of operating Buses,

• Experience of operating Trucks, and/or

52 If procured by operator

53 If procured by authority



Item

• Experience of operating Taxis

An experience weight may be granted on each of the categories, as shown in the exhibit below:

Experience weights


Buses 1.00

Trucks 0.40

Taxis 0.80

Higher weightage is granted to buses (both contract and stage carriage) then weightage to trucks and buses.

Suitable conversion shall be made based on size of the vehicle in terms of the details set out in exhibit below:

PCU Factor54

Type PCU Factor

Bus 3.00

Mini/Midi Bus 1.50

RTV 1.50

Taxi 1.00

Truck 3.00

Experience Score for a given category = Number of vehicles x Experience Weight x PCU Factor x Number of months

of operations in the last five years/12= XX PCU Years

Score for each category shall be added to arrive at the Total Experience Score. If the Total Experience Score is

more than the minimum Experience Score only then the bid shall meet the technical criterion.

Financial criteria

• Minimum Net Worth of [insert in rupees (in words)]55 at the close of the preceding financial year

• Minimum Average Annual Turnover equivalent to [insert in rupees (in words)]56 in the immediately preceding

last 3-5 years

54 RFQP for cluster no. 2, 3, 4, and 5: Operation of Private Stage Carriage Services

55 This amount should be 15% (fifteen per cent) of the Estimated Project Cost of the project for which bids are being invited

56 This amount may be equivalent to 25% of the Estimated Project Cost



Item

Handover of assets

On termination of the contract, the private operator will hand over to the authority the project facilities which

were handed over to it, in good working condition, subject to wear and tear.

[Handover buses to authority at the end of the concession contract, in good working condition]57

Three months prior to the end of the contract, joint inspection by authority and Operator shall be undertaken

and any defects should be rectified

MODEL CONTRACT I – GROSS COST CONTRACT SPECIFIC ELEMENTS

Item Model I – GCC

Roles and

responsibilities of

the private operator

Provide additional bus trips, as mutually agreed, on occasions, after getting written instructions from the

authority

Timely submit invoice to authority as per prescribed format on monthly basis

Roles and

responsibilities of

the authority

Collect all revenues (from fares and passes) accruing from the project and deposit them in an escrow

account

Timely make payment of O&M fee to the private operator

In writing, ask the operator to provide additional buses

Provide conductors in each bus to collect ticket fare

If the operator is not able to complete the route due to some en-route incident such as demonstrations,

then it will not be considered as a default on operator’s part

Terms of payment

Receive the payment (per km) with tax deducted at source and any other taxes that are applicable from

the authority

Private operator shall provide a detailed breakdown of the amount payable per km.

The payment will be subject to review depending upon the provisions in the contract.

Detailed breakdown

of payment terms

A detailed breakdown of the amount payable per km must be provided in terms of the following:

Staff labour costs per kilometre

Fuel, oil, and lubricant costs per kilometre

Tyre costs per kilometre

57 If buses were procured by the authority



Item Model I – GCC

Repair and maintenance costs per kilometre

Depreciation and interest amount per kilometre

Taxes, fees, and insurance per kilometre

Other amount per kilometre (including equity rate of return for the operator)


authority

• More than a month’s delay in depositing the payment due to the private operator

Consequences of

default

In Case of Authority Default

Clear all dues pending to the private operator

Bidding parameter The fixed fee of Rs XXX per kilometre, to be paid by the authority. The private operator quoting the lowest fee

will be selected as the successful bidder



MODEL CONTRACT II – HYBRID GROSS COST CONTRACT SPECIFIC ELEMENTS

Item Model II – Hybrid GCC

Roles and


private operator

Provide additional bus trips, as mutually agreed, on occasions, after getting written instructions from the

authority

Timely submit invoice to authority as per prescribed format on monthly basis

Roles and


authority

Collect all revenues (from fares and passes) accruing from the project and deposit them in an escrow

account

Timely make payment of O&M fee to the private operator

In writing, ask the operator to provide additional buses

Provide conductors in each bus to collect ticket fare

If the operator is not able to complete the route due to some en-route incident such as demonstrations, then

it will not be considered as a default on operator’s part

Terms of payment

Receive the payment (per km and bonus payment based on ridership growth) with tax deducted at source

and any other taxes that are applicable from the authority

Private operator shall provide a detailed breakdown of the amount payable per km.

The payment will be subject to review depending upon the provisions in the contract.

Detailed breakdown of

payment terms

A detailed breakdown of the amount payable per km must be provided in terms of the following:

Staff labour costs per kilometre

Fuel, oil, and lubricant costs per kilometre

Tyre costs per kilometre

Repair and maintenance costs per kilometre

Depreciation and interest amount per kilometre

Taxes, fees, and insurance per kilometre

Other amount per kilometre (including equity rate of return for the operator)


authority

• More than a month’s delay in depositing the payment due to the private operator



Item Model II – Hybrid GCC

Consequences of

default

In Case of Authority Default

Clear all dues pending to the private operator

Bidding parameter The fixed fee of Rs XXX per kilometre, to be paid by the authority. The private operator quoting the lowest fee will be

selected as the successful bidder



MODEL CONTRACT III – NET COST CONTRACT SPECIFIC ELEMENTS

Item Model III – NCC

Scope of the

project

Collect fare-box revenue from passengers travelled

Roles and

responsibilities of

the private

operator

Collection of fare box revenue

Roles and

responsibilities of

the authority

If the operator is asked to change route by a competent authority due to some en-route incident such

as demonstrations, then the operator will be compensated by the authority for that route.

Monitoring

mechanism

Private operator

Share MIS reports and any other data generated through ITS with authority

Terms of payment Private operator shall retain fare box revenue

Timely payment of route authorisation fee to the authority

Events of default

– private operator

More than a month’s delay in depositing the payment due to the authority

Bidding parameter The System Management Fee payable to the authority or receive grant from authority. The private operator

quoting the highest fee/lowest grant will be selected as the successful bidder.



MODEL CONTRACT IV – HYBRID NET COST CONTRACT SPECIFIC ELEMENTS

Item Model IV –Hybrid NCC

Scope of the

project

Collect fare-box revenue from passengers travelled on all routes. In addition, on select routes, receive per Km O&M

Fee. (The O&M will be fixed by the authority)

Information list to

be prepared by

the authority/

Preparatory work

to be done by the

authority

Prepare a list of routes, and separately mention the routes on which bonus payment is applicable.

Roles and

responsibilities of

the private

operator

Collect fare box revenue on all routes, and per Km O&M fee on Class II routes.

Roles and

responsibilities of

the authority

For Class II routes, pay the operator per km O&M fee

If the operator is asked to change route by a competent authority due to some en-route incident such as

demonstrations, then the operator will be compensated by the authority for that route.

Monitoring

mechanism

Private operator

Share MIS reports and any other data generated through ITS with authority

Terms of payment Private operator shall retain fare box revenue from all routes, and receive per km O&M fee on selected routes

Timely payment of System Management Fee to the authority or grant to the operator


private operator

More than a month’s delay in depositing the payment due to the authority

Bidding

parameter

The System Management Fee payable to the authority or receive grant from authority. The private operator quoting the

highest fee/lowest grant will be selected as the successful bidder.



ANNEXURE II – GUIDANCE NOTE ON USE OF

MODEL CONTRACT

Introduction

The model contract is a template contract for use in public procurement for city bus operations.

The purpose of this annexure is to serve as a link between the guidelines document and model

contracts. It describes the process to be followed by city managers to customise the model

contract to city-specific contract. This annexure assumes that city managers are familiar with the

procurement process.

As detailed out in this guidelines document, the process starts with assessing the business

environment. In this stage, the external environment for providing public transport including profile

of the city, competition, review of planning transport system and planning documents, and review

of policy, regulatory, and institutional framework. The assessment of business environment has

been discussed in detail in Chapter 2 of this guidelines document.

After assessing the business environment in the city, the next step is to plan the business model.

This involves network and service planning, setting service standards, planning infrastructure

requirement, revenue collection, monitoring and control, dispute resolution, and marketing and

branding for the project. The assessment of business environment has been discussed in detail

in Chapter 3.

Now comes the stage to determine which Contract suits the city. Deciding the ‘right’ Contract is

one of the most critical aspects. Various types of contract types have been discussed in Chapter

4. On the basis of a scoring-based decision framework provided in the chapter, the Contracting

Authority shall select a contract type suitable for the city.

Once the contract type is selected, contract parameters need to be finalised. These contract

parameters include procurement of fleet, contract duration, etc. The guidelines for selection of

contract parameters have been discussed in detail in Chapter 5. After selecting the contract

parameters, the city managers need to customise the model contract document to a city-specific

contract. The exhibit below represents this process.

Contract Timeline

In order to provide a broad overview of activities from issuance of Letter of Award to the operator

to return of the Performance Security after expiry of the Contract, the major milestones dates or

stages or periods in the Project have been represented on a timeline. The exhibit below provides

this Project timeline.

Finalisation of contract document

Selection of contract

parameters

Choosing the right contract

Planning the business

model

Assess the business

environment



Contract Description

The contract is divided into six parts namely Preliminary, Operations, Financial Covenants, Force

Majeure and Termination, Other Provisions, and Schedules. The parts are further subdivided into

33 Articles and 18 Schedules. This note provides the purpose of each Article, brief description of

various clauses in each Article and changes to be made by the authority to make it specific to

their city. However, cities should use their judgment while making specific changes in the model

contract document.

Recitals

The Recitals contains variable elements including:

▪ The date of Contract;

▪ Details of the Contract parties;

▪ Area of jurisdiction of the authority

▪ Description of tender documents;

▪ Performance Security

Date

The date of execution of the Contract should be inserted here.

Parties

The parties to the Contract must be accurately set out here. The full legal name of both the

Contracting Authority and the Private operator should be inserted here.

Area of Jurisdiction of the authority

The area of the jurisdiction in terms of city and state should be inserted here.

Description of tender documents

The description of tender documents particularly the Request for Proposal and Submission

should be clearly identified by title, date and any reference number.

Performance Security

The Performance Security amount and details of the bank guarantee should be inserted here.



Exhibit II-1 Coverage of Model Contract

Preliminary

Article 1 Definitions & Interpretations

Article 2 Performance Security

Article 3 Scope of Work

Article 4 Grant of Contract

Article 5 Conditions Precedent

Article 6 Obligations of the operator

Article 7 Obligations of the authority

Article 8 Representations and Warranties

Article 9 Disclaimer

Operations

Article 10 Buses

Article 11 Bus Depot

Article 12 Entry of Respective Lot of Buses into Commercial Service

Article 13 Operations

Article 14 Maintenance

Article 15 Monitoring of Operation and Maintenance

Financial Covenants

Article 16 Payment to the operator

Article 17 Escrow Account

Article 18 Insurance

Article 19 Accounts and Audit

Force Majeure and Termination

Article 20 Force Majeure

Article 21 Change of Scope



Article 22 Termination

Article 23 Divestment/Handback on Termination

Article 24 Defect Liability after Termination/Expiry

Other Provisions

Article 25 Assignment and Charges

Article 26 Change in Law

Article 27 Liability and Indemnity

Article 28 Rights and Title over the Project Facility

Article 29 Dispute Resolution

Article 30 Disclosure

Article 31 Redressal of Public Grievances

Article 32 Miscellaneous

Article 33 Definitions

1. Definitions & Interpretations

a. Intent

This article specifies what constitutes defined terms and the general principles that

will apply while interpreting this Contract.

b. Brief Description

Words and expressions beginning with capital letters and listed in Article 33 constitute

defined terms. This article also describes the principles which shall be used while

interpreting the Contract and how any ambiguities and discrepancies in the Contract

shall be dealt with.

c. Changes to be made

This article shall not need any changes.

2. Performance Security

a. Intent

The Performance Security is provided to mitigate the risk of the operator failing to

perform its obligation under the Contract. This article specifies the details of

Performance Security including amount, duration of the security, and the conditions

under which it shall be appropriated and released.




Performance Security has to be maintained by the operator, valid and in full force and

effect at all times during the Contract Period to guarantee the performance of its

obligations as per the Contract. The Performance Security guarantee shall be

furnished by the operator to the authority in the format specified in Schedule IV at

least 3 days before the signing of the Contract.

This Article also covers the details on the conditions under which Performance

Security may be appropriated. The amount of the performance security is calculated

as 5% to 10% of the estimated project cost which includes the capital cost as per

General Financial Rules 2005 Rule 158 issued by Ministry of Finance, Government of

India. In a situation in which buses are procured by authority the Performance Security

amount shall be higher in comparison to a situation in which buses are procured by

operator.


The amount of the Performance Security as per Schedule IV – Performance Security.

3. Scope of Work

a. Intent

The Operator’s primary responsibility is to provide bus services. However, this shall

require the operator to also perform activities which support this endeavour and this

Article specifies the work that the operator agrees to undertake in this Contract.


The Scope of Work of the operator shall mean and include the activities outlined in

this Article and Schedule I.

The authority shall prepare Schedule VIII – Fleet Procurement Schedule and

Schedule IX – Fleet Deployment Plan before this Article can be customised.

The Fleet Procurement Schedule provides the number of Buses and dates on which

the respective Lot of Bus will be procured and put into service. These dates have been

linked with the Effective Date (fulfilment of Conditions Precedent).

The Fleet Deployment Plan shall be prepared as per the format given in Schedule IX

using the methodology described in Section 3.4 in the guidelines document. The Fleet

Deployment Plan provides a detailed route-wise plan including the number of buses

per route, and the frequency and headway time periods.


If procurement of buses is done by the authority then sub-clause (c) to be deleted

from Schedule I – Scope of Project.

4. Grant of Contract

a. Intent

This Article specifies the provisions under which this Contract shall be awarded. The

start and end date of the Contract (Contract Period) and the start and end date of

commercial operation (Operation Period) has also be defined.




The details on what the operator is consenting to fulfil under this Contract and details

on the Contract Period including when the Contract shall come into effect are covered

in this Article.


The length of Operation Period shall be added following the guidance provided in

Section 5.5 in the guidelines document.

5. Conditions Precedent

a. Intent

This Article specifies the conditions that both Authority and Operator need to fulfil

before the Contract becomes effective. Such conditions are collectively termed as

“Conditions Precedent”.


A list of conditions along with the time period has been mentioned in the Article. Some

major ones are described as below:

i. Depot License Agreement – this agreement guides both the parties on how

the depot facility has to be used throughout the Contract Period. The Depot

License Agreement has been provided in Schedule V. The authority shall also

determine the annual rental amount the operator shall pay to the authority.

This rental amount shall be a nominal amount such that it does not create

undue financial burden on the operator.

ii. Further, in Schedule VI, a list of equipment to be installed, operated and

maintained either by authority or Operator at the bus depot has been provided.

Most common and important equipment has been listed in the Schedule,

though, the authority may modify this list as per its needs.

iii. Authority and Operator shall sign an agreement with the Escrow Bank. The

format of the agreement is provided in Schedule XII. All cash inflows and

outflows pertaining to the project are to be carried through this Account.

The number of days within which these conditions need to be fulfilled is

recommended to be between 45 and 60 days. The selected bidder needs to

incorporate an SPV before the signing the contract so this time period needs to

be given to the successful bidder. The damages payable for delay or non-fulfilment

of conditions precedent is also provided in this Article.


i. The number of days from the Execution date within which the conditions need

to be fulfilled.

ii. The number of days between progress reports on fulfilment of conditions

precedent.

iii. The damages payable per bus for each day’s delay in fulfilment of conditions

precedent.

6. Obligations of the operator

a. Intent



This Article details out the obligations that the operator has to fulfil as part of this

Contract throughout the Contract Period.


The Article is divided into multiple parts. The first part discusses the obligations related

to the operator’s Scope of Work, then those related to the all the Agreements under

and including this Contract, and the remaining parts cover obligations relating to

change in ownership structure of the operator, and employment of staff.

The major obligations of the operator are:

i. Operation and Maintenance (O&M): This clause describes the O&M

obligations of the operator specifically pertaining to buses, bus depot, annual

maintenance contract, compliance with warranty terms, record and reporting

requirement, repair and replacement, inspection, and co-operating with the

authority or a Third Party appointed by the authority and allow it to discharge

its respective obligations

ii. Project agreement: The clause details the obligations pertaining to all other

agreements as part of the Contract

iii. Change in Ownership: This clause describes Operator’s obligations

pertaining to Change of Ownership of the operator during the Contract Period

iv. Employment of staff: This clause describes the obligations pertaining to

appointing drivers and other staff by the operator. It also includes the minimum

qualification of staff. The minimum experience for drivers is considered 3 years

as that gives the drivers sufficient experience to operate the buses in a safe

and efficient manner while adhering to a schedule.


i. Clause 6.1.1 (a), (b), (z), (aa) requires change depending on whether the

operator or the authority is procuring buses.

ii. The duration each bus halts to pick up and allow passenger(s) to get off/board

the bus at the nominated Bus Stops. The duration called dwell time is

recommended to be 20 seconds. Dwell time is proportional to the boarding

and/or alighting volumes and the amount of time required to serve each

passenger. 20 seconds assumes 2 door channels, 9 passengers at the busiest

door in each bus, 2 second passenger service time and 2 second for door

opening and closing. The times are as per Transit Capacity and Quality of

Service Manual 2nd Edition.

iii. Clause 6.1.1 (n) requires change depending on whether the authority is

sharing advertisement revenue with the operator.

iv. Clause 6.1.5 (d), (e) requires change depending on whether the operator or

the authority is procuring buses.

v. The stipulated time period for notifying defects in any bus component or

equipment. The recommended time is 1 day.

vi. Clause 6.1.6 (a), (b) requires change depending on whether the operator or

the authority is procuring buses.



7. Obligations of the authority

a. Intent

Though the operator has to undertake the project, but there are many obligations that

the authority has to undertake for effective implementation of the Project. This Article

specifies the obligations of the authority with regard to this Contract.


The obligations in addition to the terms and conditions of this contract and rights of

the authority is detailed out here. The major obligations of the authority are

i. The authority shall construct, equip, operate and maintain the Control Centre

at the Bus Depot. The Control Centre is equipped with ITS to monitor the

performance of the operator. On the basis of data analysis of the data

generated by the ITS, the authority will impose penalty on Operator and make

performance payment.

ii. Regulate and oversee the management, planning and control activities with

respect to the network and service plans.


i. Clause 7.1.1, 7.1.2, 7.1.17, 7.1.19 needs to be changed depending on whether

the operator or the authority is procuring buses.

ii. In Clause 7.1.17, name of the city has to be added.

8. Representations and Warranties

a. Intent

A warranty is a representation by one party in respect of certain facts. Breach of a

warranty gives rise to a right to recover damages but does not entitle the injured party

to repudiate the Contract. This article specifies the assurances that one party gives to

another party.


The assurances provided by the operator to the authority and those by the authority

to the operator is given here. The major representations from both parties are

i. It has full power and authority to execute and perform its obligations under

this Contract

ii. It has the financial standing and capacity to undertake the Project

iii. It has no prior actions, suits, or proceedings pending whose outcome may

result in the default or breach of this Contract


i. The name of the city and the State to be added in Clause 8.1 (e).

ii. If the operator is not a consortium, make changes in Clause 8.1 (g), (k), (q),

iii. If the operator is a consortium, then names of all Consortium Members be

mentioned in Clause 8.1 (l), (m), (q).

9. Disclaimer

a. Intent



This article specifies the statements which are intended to limit the liabilities of the

authority.


The major statements which limit the liabilities of the authority are

i. The Operator acknowledges that it has made a complete and careful

examination of the risk and hazards that are likely to arise in the course of

performance of its obligations and shall have no claim against the authority in

this regard,

ii. All risks relating to the Contract shall be borne by the operator unless

otherwise provided in the Contract.


This article shall not need any change.

10. Buses

a. Intent

This article specifies the details for buses to be used under the Contract. This includes

standards and specifications of the buses, who will make investment in the buses,

how procurement or handover will occur, damages for delay in either procurement or

handover, what is required for readiness for the commencement of bus services, and,

damages due to an accident.


The major details of the buses included here are

i. The Buses of pre-defined standards and specifications shall be put into Bus

Service. The detailed standards and specifications have been specified in

Schedule VII. Schedule VII – Bus Specifications shall be prepared before this

article can be customised. The Bus Specifications shall follow from Ministry of

Urban Development Urban Bus Specifications.

ii. The owner of Buses shall achieve Readiness for Commencement of Bus

Service. The Readiness for Commencement of Bus Service means the

activities that need to be undertaken to ensure Buses are roadworthy. These

activities include joint inspection of Buses, procuring certification of

registration, fitness, insurance, etc.


i. In Clause 10.2 replace the word “Operator” with the word “Authority” if bus is

being procured by the authority.

ii. Clauses 10.3 and 10.5 are applicable only if procurement of Bus is being done

by the operator. Otherwise replace it with words “Intentionally left blank”

iii. Clause 10.4 and 10.6 are applicable only if procurement of Bus is being done

by the authority. Otherwise replace it with words “Intentionally left blank”

iv. If Clause 10.5 is applicable the amount of damages payable for each day of

delay in procurement of buses. This is recommended to be around Rs. 1000

per day of delay for each Bus.



v. If Clause 10.6 is applicable the amount of damages payable for each day of

delay in hand over of buses. This is recommended to be around Rs 1000 per

day of delay for each Bus.

vi. In Clause 10.7, delete sub clauses identified in the footnote if procurement is

done by the authority.

vii. In Clause 10.7.6, the amount of damages payable for each day of delay in

attaining Readiness for the Commencement of Bus Service. This is

recommended to be around Rs. 1000 per day of delay for each Bus.

viii. In Clause 10.8.3, delete part of the clause if Bus is being procured by the

operator.

11. Bus Depot

a. Intent

The intent of this Article is to detail the usage of the Bus Depot throughout the Contract

Period. It details about the ownership, how handover is to occur, what equipment and

facilities are to be made available, etc.


The major details of the Bus Depot provided here are:

i. Details of the hand over process

ii. Equipment and facilities to be made available by the authority at Bus Depot

and those to be arranged by the operator.

iii. Obligations of the operator for security and safety at the Bus Depot

iv. Details on hand back process including what equipment the operator is

allowed to take away


The number of days within which Authority shall address any deficiencies in

equipment and facilities at the Bus Depot.

12. Entry of Respective Lot of Buses into Commercial Service

a. Intent

Before buses can enter into commercial service, several actions need to be taken by

both the operator and the authority. These actions which ensure roadworthiness of

the bus include inspecting buses, obtaining insurances, etc.

This article specifies the actions required by both parties before buses can come into

commercial operation. Furthermore, the damages payable in case of delay from either

party is also specified.


The major actions to be fulfilled are:

i. Activities that ensure roadworthiness of buses is completed

ii. Obtain and maintain all Applicable Permits in accordance with the Applicable

Law and as specified in Schedule III. Applicable Permits are necessary to



initiate the project. They should be procured by the operator in accordance

with Schedule III.

iii. Ensure that all requisite insurances under Applicable Law in accordance with

Article 18 has been procured.


i. In Clause 12.1.1, delete sub-clause as applicable if procurement is by the

operator

ii. In Clause 12.1.2 a, delete sub-clause if procurement is by the authority.

iii. In Clause 12.2.1, the extension allowed for obtaining COD and damages

payable for each day of delay.

13. Operations

a. Intent

For providing bus service, the responsibility for various aspects such as fare

determination, fare collection, route setting etc. should be clear. This article details

these various aspects of operations of the bus services.


The various aspects covered are

i. Obligations and Responsibilities of the operator while operating the buses

ii. Responsibility allocation in determining routes, frequency and schedules and

in the Fleet Deployment Plan

iii. Responsibility allocation for passenger fare determination and passenger fare

collection

iv. Procedures to be followed in the event of incident en-route

v. Permissible advertisement and the revenue sharing arrangement. There is no

straightforward answer to whether Authority shall contract advertising through

an outside agency. However, experience has demonstrated that most

Authorities engage an outside agency as they receive a guaranteed minimum

or anywhere from 50 to 60 percent of ad sale revenue, without having to get

into another line of work.

vi. Details on the training provided to staff employed by the operator including

content, duration and location of training


Clause 13.11 is applicable only if advertisement revenue is shared with the operator.

14. Maintenance

a. Intent

For reliable bus operations, the buses as well bus depot have to be regularly

maintained. This Article specifies the responsibilities of both parties for maintenance

of buses and bus depot.


The various aspects covered are:



i. Activities which are respective responsibility of the operator and the authority

as part of the maintenance of buses

ii. Activities to be undertaken by the operator for maintenance of bus depots

iii. O&M schedule that the operator has to follow

iv. Damages payable for breach of maintenance obligations

v. Process of reimbursement in case of damages due to vandalism



15. Monitoring of Operation and Maintenance

a. Intent

The Operator has to maintain a minimum performance standard in the delivery of bus

operations. This Article specifies the details on how monitoring of operation and

maintenance is to take place.



i. Real-time data (captured through ITS) and monthly status reports to be

submitted by the operator to the authority

ii. Circumstances that warrant submission of reports of unusual occurrence

iii. Parameters considered for inspection and evaluation of performance of the

operator

iv. Remedial measures for any deficiencies found



16. Payment to the operator

a. Intent

This Article specifies the payment to be made to the operator as per this Contract.


The various aspects covered for Gross Cost and Gross Cost Hybrid Contract are:

i. O&M Fee payable to the operator including what constitutes bus kilometres,

basis for payment, schedule for payment and formula for revision of O&M Fee

ii. Formula for service quality evaluation and schedule for the same

iii. Penalty payable for delay in payment of O&M Fee

iv. Conditions under which penalties are levied on the operator

The various aspects covered for Net Cost Contract are

i. Details on the System Management Fee that the operator shall pay or Grant

that the authority shall give



ii. Responsibility for deciding Passenger Fare and schedule for fare revision

including its formula

iii. Formula for service quality evaluation and schedule for the same

iv. Conditions under which penalties are levied on the operator

The various aspects covered for Net Cost Hybrid Contract are

i. Details on the System Management Fee that the operator shall pay or Grant

that the authority shall give

ii. Responsibility for deciding Passenger Fare and schedule for fare revision

including its formula

iii. Monthly bonus payment for routes classified as Class II routes in the Contract

iv. Formula for service quality evaluation and schedule for the same

v. Conditions under which penalties are levied on the operator


i. In Gross Cost and Gross Cost Hybrid Contract, the number of days within

which payment shall be made from the receipt of the invoice.

ii. In Gross Cost and Gross Cost Hybrid Contract, % share for wage rate and fuel

rate in the PKOMF revision formula. In Net Cost and Net Cost Hybrid Contract,

% share for wage rate and fuel rate in the Passenger Fare revision formula.

iii. The number of years the Operation Period can be extended and the requisite

service quality.

iv. In Net Cost and Net Cost Hybrid Contract, either of Clause 16.1 or Clause 16.2

shall be applicable if Operator pays System Management Fee or receives

Grant. For both cases, the amount received or paid shall be added.

v. The weightage of each parameter in service quality evaluation shall be

modified as per the specific requirements of the city.

17. Escrow Account

a. Intent

An Escrow Account is used to manage inflows and outflows of cash specifically for

revenue receipts and disbursements along set payment guidelines. This is done so

that both parties have assurance that neither would default on its obligations. This

article specifies the details on the Escrow Account to be opened for the Contract.



i. Opening of Escrow Account and the minimum amount to be maintained in this

account. An amount equivalent to 2 months O&M Fee shall be maintained in

the Account as the payment cycle to the operator in full is of 2 months.

ii. Deposits to be made in the Escrow Account

iii. Withdrawals to be made from the Escrow Account during Contract Period and

on Contract termination




i. The number of days from the Execution Date within which the Escrow Account

shall be opened.

ii. The minimum amount to be maintained in the Escrow Account (measured in

the number of months). The number of months should be minimum 2 months

as the operator realises the full revenue only towards the end of 2nd month for

services rendered.

iii. Clause 17.2.1 (c), 17.3 (e), 17.4 (e) shall be deleted if Buses are procured by

the operator.

iv. Clause 17.2.1 (f) shall be deleted if advertisement revenue is not shared with

the operator.

18. Insurance

a. Intent

This article specifies the insurance to be taken by the authority as well as the operator.

The Contract requires all insurances required by Motor Vehicles Act, 1988 to be

maintained and documentation on that to be provided to the authority in a timely

manner.



i. Insurances to be taken include but are not limited to third party insurance

cover, standard fire and perils policy for any loss and damages to the Buses,

Bus Depot and Parking Space, and workmen’s compensation insurance

ii. Timeline for insurances to be taken by the operator and furnish proof to the

authority

iii. Process of claiming insurance and application of insurance proceeds


i. In Clause 18.1, the word “Authority” shall be replaced by “Operator” if Bus is

being procured by the operator.

ii. Clause 18.4 shall be deleted if Bus is being procured by the operator.

19. Accounts and Audit

a. Intent

This Article details the accounting requirements for the operator including when

audited accounts are to be provided to the authority.


The Operator shall maintain accounts in accordance with standard accounting

practices and statutory requirements under Indian Law and shall provide audited

copies of such accounts within 90 days from the date of close of each Financial Year.

90 days is a reasonable time for the operator to close its books of account and audit

them.




This article shall not need any change.

20. Force Majeure

a. Intent

Force Majeure are circumstances beyond the control of both the operator and the

authority. This article specifies what constitutes Force Majeure and what shall be the

consequences of Force Majeure Event.



i. Acts or events that shall be considered Force Majeure situation including

classification of those into Non-Political Events and Political Events

ii. Responsibility of reporting Force Majeure Event

iii. Effect a Force Majeure event has on the Contract including cost allocation for

costs arising out of a Force Majeure

iv. Conditions for Contract termination following Force Majeure and the payment

to be made in such a situation

v. Conditions under which affected party is excused from performance of

obligations on account of Force Majeure


Clause 20.8.1 (b) shall be applicable only if procurement of buses is by the operator.

21. Change of Scope

a. Intent

The operating conditions envisioned for the Contract may change during the Contract.

This might require both parties to consider amending the Contract. This article

specifies what constitutes change of scope and procedure for initiating change of

scope both by the authority and the operator.



i. Events that shall result in Change of Scope

ii. The details on who may initiate change of scope and limits on scope change

iii. The procedure for change of scope initiation either by the authority or the

operator

iv. The responsibility for payment in case of Change of Scope

v. Payment to be made in case of Change of Scope.


In Clause 21.6.1, the word “Operator” shall be replaced by “Authority” if the Buses are

procured by the authority.

22. Termination

a. Intent



The Contract envisions both parties to fulfil their obligations. However, if there is wilful

disregard of these obligations, the Contract should have provisions which allows for

termination of the Contract. This article specifies what constitutes Operator Event of

Default, Authority Event of Default, and the termination payment for these events of

default.



i. The events which shall lead to Operator Event of Default and Authority Event

of Default

ii. Termination Payment under both Operator and Authority Event of Default

iii. Additional Payments for Assets defined as Asset Transfer Value if Buses are

procured by the operator

iv. Rights and obligations of Authority upon Termination of Contract

v. Rights and obligations which shall survive termination of Contract


i. Clause 22.3.1 a, 22.3.1 c, 22.3.2 b, 22.3.2 d shall be applicable only if Buses

are procured by the operator.

ii. Clause 22.3.3 shall require change if Buses are procured by the authority.

23. Divestment/Hand back on Termination

a. Intent

Bus Operations should go on smoothly regardless of the operator providing it. A plan

to ensure orderly transition from the operator to the authority and/or any successor

Operator should be present. This article details the obligations of the operator during

the Transition Phase and the handover of assets upon termination of Contract.



i. The obligations of the operator during the Transition Phase so as to ensure

orderly transition from the operator to the authority and/or any successor

Operator

ii. The assets which are to be handed over to the authority upon Termination and

the procedure for this


i. Clause 23.2.3 shall require change if Buses are procured by the operator.

ii. Clause 23.2.8 shall be applicable only if Buses procured by the operator.

24. Defect Liability After Termination/Expiry

a. Intent

This article specifies the duration after Contract termination till which the operator has

an obligation to repair or rectify defects or deficiencies observed in the Buses.




The Operator shall have an obligation to repair or rectify at its own cost all defects and

deficiencies observed in the Buses for a period of 45 days after Termination

Date/Expiry Date.


This article shall require no change.

25. Assignment and Charges

a. Intent

The Contract is not a saleable commodity. Assignments are possible only if there is

written permission from the authority. This article thus specifies the rights and duties

that can be transferred to a third party by both the authority and the operator.



i. The restrictions on assignment and charges and permitted assignment and

charges

ii. Conditions under which assignment can be done by the authority


Clause 25.1.3 (a) shall require change if Buses are procured by the operator.

26. Change in Law

a. Intent

The Operator is obliged under the Contract to comply with all applicable legislation.

The cost of complying with legislation which is current or foreseen at the time of

Contract is the responsibility of the operator. However, the operator may not be

capable of including in the price specific costs arising from changes in law which are

not foreseeable at the time of entering into the Contract. This article specifies what

constitutes change in law and what is not included in it.



i. Events which shall be considered change in law and which shall not be

considered

ii. Process for modification of Contract if such change has a material adverse

effect



27. Liability and Indemnity

a. Intent

This article specifies the instances under which the operator and/or the authority shall

be indemnified against suits, proceedings, actions, demands and claims from third

parties for any loss, damage, cost and expense arising out of breach of the Contract.





i. General indemnities against all liabilities or losses incurred

ii. Specific instances where the operator indemnifies the authority

iii. Process if there is any notice or contest of claims

iv. Rights available to Indemnified Party to defend against any claims

v. Limits to indemnities specified



28. Rights and Title over the Project Facility

a. Intent

This article specifies the rights the operator and the authority have over the Project

Facilities.



i. Rights of the operator and that of the authority over the Project Facilities

ii. Restriction on Operator from sub-letting any Project Facility



29. Dispute Resolution

a. Intent

This article confirms a willingness by the parties to engage in dispute resolution

amicably and specifies the procedure for dispute resolution under this Contract.



i. Basic process in case of any dispute

ii. Specifics on the process of conciliation, arbitration and adjudication



30. Disclosure

a. Intent

The Operator is required to allow access to the authority documents and records

relating to the bus operations especially those relating to safety of the Buses. This

article mentions the specified documents that the operator has to make available for

inspection.


The Operator shall make available for inspection “Specified Documents” which shall

include copies of this Contract and data relating to safety of the Buses.





31. Redressal of Public Grievances

a. Intent

This article describes the procedure of recording and resolving public grievances

related to bus operations.



i. Process of recording public grievances which shall include maintaining public

relations office with a complaints register open to public access

ii. Process of redressal of complaints which shall include inspecting complaint

register every day and taking prompt action for redressal of each complaint


1. This article shall require no change.

32. Miscellaneous

a. Intent

This Article discusses various legal, commercial and technical aspects of the Contract.


The major aspects covered are

i. Obligations which shall survive Termination of Contract

ii. The laws which shall govern the Contract and place for jurisdiction of Contract

iii. Details on communications given by both parties including the language to be

used in notices given by one Party to other Party


i. The name of the city shall be added in Clause 32.1.

ii. The name of the authorised officer shall be added in Clause 32.14



ANNEXURE III - GUIDANCE NOTE ON USE OF

REQUEST FOR PROPOSAL

OBJECTIVE

A Request for Proposal (RFP) is issued at a stage in procurement process, where an invitation

is presented to the potential bidders, to submit a proposal for city bus private operations. The

RFP process brings structure to the procurement decision and is meant to allow the risks and

benefits to be identified clearly upfront, so that the bidders can factor in the same while

responding to the invitation.

The RFP is aimed towards selecting the most competent bidder with the economically

advantageous price.

STRUCTURE OF THE RFP

This RFP document for the “Selection of Operator for City Bus Private Operation” for Authority

comprises of the following:

a. Instructions on the Bid process for the purpose of responding to this RFP. This broadly

covers

i. General Instructions for Bidding process

ii. Bid evaluation process including parameters for Technical and Financial

Evaluation to facilitate Authority to determine bidder’s suitability as the operator

iii. Financial Bid and Other Formats

b. Functional and Technical Requirements of the Project. The contents of the document

broadly cover the following areas:

i. About the project and its objectives

ii. Scope of work for the operator

iii. Functional and Technical Requirements

DATASHEET

The bidders shall be provided with the Data Sheet comprising of important factual data on the

tender.

The information required herein are:

i. Name of the authority

ii. Date, time and venue of the Pre-Bid Conference

iii. Contact Details for requesting clarifications

iv. Bid Security Amount: The objective of submission of Bid Security Amount is to establish

the earnestness of the bidder so that it does not withdraw, impair or modify the offer within

the validity of the bid. This amount has been set at 1% of the Estimated Project Cost as

per Model RFP issued by the Planning Commission.

v. Selection Criteria: The criteria shall be “Per Kilometre O&M Fee (PKOMF)” for Gross

Cost and Gross Cost Hybrid Contract and “System Management Fee (SMF)”/”Grant” for

Net Cost and Net Cost Hybrid Contracts. The project will be awarded to the Bidder quoting



lowest PKOMF for Gross Cost and Gross Cost Hybrid Contracts. In case of Net Cost and

Net Cost Hybrid Contracts, the project will be awarded to the bidder quoting the highest

SMF and in the event no bidder offers SMF, then to the Bidder seeking lowest Grant.

vi. Date and Time for last day of submission for Proposal

INTRODUCTION

This section provides details on the background of the project, brief description of the bidding

process and the schedule of bidding process.

Background

The project background provides the following project details.

i. Background and need of services to be provided

ii. Project particulars including the estimated project cost, and duration of contract. The

duration of contract has been discussed in detail in section 5.5 of the guidelines

document. The estimated project cost shall be the capital cost of the project.

iii. The scope of work envisioned for the operator

Brief Description of Bidding Process

The Bidding Process envisioned is a single-stage three envelopes process. The procurement

process has been discussed in detail in section 6.2.5 of the guidelines document. The three

envelopes process include the following.

i. Test for Responsiveness: This includes a set of minimum documents that the Bidder

shall submit to express willingness to bid for the project. If the Bidder fails to submit any

of these documents then the Bid is rejected at this stage itself, without evaluating the

Technical Bid.

ii. Technical Bid: This shall determine whether each Bid meets the Technical Capacity and

Financial Capacity for the Project. The Technical and Financial Capacity is discussed in

Eligibility Criterion section below.

iii. Financial Bid: The Bidder shall quote the Financial Bid as discussed in the section above.

On the basis of which a Bidder shall be selected.

Schedule of Bidding Process

This section details the schedule of the Bidding Process. The schedule includes:

i. Last Date for receiving queries: D(Date of issue of RFP) + 25 days

ii. Date of Pre-Bid Conference: D + 30 days

iii. Bid Due Date: D + 45 days

iv. Opening Dates: Within 15 days from the Bid Due Date

v. Letter of Award

INSTRUCTION TO BIDDERS

General

The general instructions including the scope of the bid, the eligibility of bidders, etc. are detailed

in this section. The Scope of the Bid provides details on who is eligible to bid .i.e. single entity or

a group of entities (Consortium) including the maximum number of members in a consortium.



The Scope also clarifies that the bidder shall submit only a single bid for the project and if applying

individually or as a member of consortium shall not be entitled to submit another bid.

Documents

The documents which constitutes the bidding documents is detailed in this section. This includes

RFP along with all Appendices, Draft Contracts and Schedules. Any clarifications and

interpretations that maybe issued by the authority in due course of the bidding process will also

be deemed part of the RFP.

Preparation and submission of bid

The format, signing, sealing and marking along with language is detailed in this section. The Bid

Due Date and procedure for modification/withdrawal of bids is also detailed in this section.

BID CONTENTS, ELIGIBILITY CRITERIA AND EVALUATION

Contents of the Bid

The bidders shall submit their bid in 3 separate envelopes put together in one single outer

envelope:

i. Envelope 1: Test of Responsiveness

a. Power of Attorney

b. Bid Security

c. Details of Vehicle Permits

d. Jt. Bidding Agreement in case of Consortium

ii. Envelope 2: Technical Bid

a. Technical Capacity of the Bidder

b. Financial Capacity of the Bidder

iii. Envelope 3: Financial Bid

Eligibility Criteria

Technical Capacity: The Technical Capacity criteria demonstrates the technical capacity and

experience of the bidder. Experience in performing similar services as well as skill set gained

from experience in logistics and customer service is considered. The criterion has been discussed

in detail in section 6.3.2 of the guidelines document. The criteria considers the following:

a. Experience of operating buses: Similar service

b. Experience of operating trucks: Experience in providing logistics services, and

scheduling, operations and maintenance of fleet

c. Experience of operating taxis: Experience in customer interface, and scheduling of

fleet

However, all experiences are not considered equally important. Higher weight is granted to

buses. The weightages for trucks and taxis are kept such that the product of weight and

Passenger Car Unit (PCU) factor is less than the same product for buses.




Buses 1.00

Trucks 0.40

Taxis 0.80

Passenger Car Unit (PCU) Factor is utilised to convert all experiences to a single unit.

Type PCU Factor

Bus 3.00

Mini/Midi Bus 1.50

RTV 1.50

Taxi 1.00

Truck 3.00

Experience Score for a given category = Number of vehicles x Experience Weight x PCU

Factor x Number of months of operations in the last three years/12

The Experience Score calculated for each bidder shall be compared with the Minimum

Experience Score. For calculating the Minimum Experience Score, the number of buses shall be

50% of the buses to be Operated and Maintained by the operator over a period of three years.

For example, if 100 buses are to be Operated and Maintained by the operator, then the Minimum

Experience Score shall be 450 (50 * 1 * 3 * 36/12) Years.

Financial Capacity: The Financial Capacity criteria demonstrates the financial capacity and

experience of the bidder. This intention of putting this criterion is to ensure that the Bidder has a

minimum size and experience to deliver the project. The criteria considers:

a. Net Worth at the close of the preceding financial year: The Net Worth should be 15% of

the Estimated Project Cost. This qualification ensures that the bidders have sufficient

financial strength to raise the equity and debt necessary for undertaking the project.

b. Average Annual Turnover in the immediately preceding last 3 years: The average

Annual Turnover should be equivalent to the 25% of the Estimated Project Cost. This

factor is an indication of Bidder’s cash flows and financial health

2. The minimum percentages have been decided keeping in mind that the Bidder may be

involved in multiple projects at the same time.

In case of Consortium, the Consortium members on whose strength Bidder shall be selected

should hold at least 26% of the equity in the project SPV. This would ensure that members with

small equity holdings are not included for the sole purpose of achieving qualification. In other

words, only the experience and net worth of consortium members with a substantial stake is to

be counted as they alone can be expected to implement the project successfully and bear the

project risks. Qualifying a consortium on the strength of a member who has a small equity holding

can lead to unintended outcomes and jeopardise the assurance of success that is offered by a

member who has a substantial stake.



Evaluation

The evaluation shall follow the procedure described below

i. Step 1 – Responsiveness of Bid

Envelope 1: Test of Responsiveness shall be opened for evaluation and the authority

shall determine whether each bid is responsive to the requirements of the RFP.

ii. Step 2 – Evaluation of Technical and Financial Capacity

Envelope 2: Technical Bid shall be opened for evaluation for bidders who qualify in Step

1 and the authority shall determine whether the Bidder has met the Minimum Experience

Score and meets the Financial Capacity requirements.

iii. Step 3 – Evaluation of Financial Bid

Envelope 3: Financial Bid shall be opened only for Bidders who qualify in Step 2. The

evaluation criteria here is as below.

3. Contract Type 4. Selected Bidder

5. Net Cost Contract 6. Highest “System Management Fee”. If no bidder quotes

SMF then lowest “Grant”

7. Net Cost Hybrid Contract 8. Highest “System Management Fee”. If no bidder quotes

SMF then lowest “Grant”

9. Gross Cost Contract 10. Lowest “Per Kilometre O&M Fee”

11. Gross Cost Hybrid Contract 12. Lowest ‘Per Kilometre O&M Fee”

The Bidder selected as per the exhibit above will be issued a Letter of Award



ANNEXURE IV - RESPONSIBILITY ALLOCATION MATRIX This Responsibility Allocation Matrix should be taken as a guidance rather than a prescription.

Sr. No. Parameter Gross Cost Gross Cost

Hybrid Net Cost Net Cost Hybrid

1. Planning

a. Route planning Authority

b. Infrastructure planning Authority

c. Passenger fare Authority

2. Buses

a. Procurement of Bus Either – Authority or Operator

b. Ownership Party procuring the Buses

c. Operations and Maintenance Operator

3. Revenue risk Authority Shared between

Authority &

Operator

Operator Operator

4. Infrastructure

a. Bus Stops

i. Land acquisition Authority



ii. Construction58 Authority

iii. Procurement of plant and equipment Equipment which has life greater than the contract duration and/or cost more than

a certain amount, to be procured and installed by authority. Remaining plant and

equipment is to be procured by the operator.

iv. Ownership, and operations and

maintenance59

Authority

b. Bus Depot



iii. Ownership, and operations and maintenance Operator

c. Bus Terminal



iii. Ownership, and operations and

maintenance62

Authority

58 Authority on its own, or a third party appointed by it







5. Monitoring and control

a. Control centre

i. Civil construction Authority

ii. Equipping Party by authority & Operator

iii. Ownership and Operations and maintenance Party procuring the equipment

b. On-board ITS equipment

i. Procurement and ownership Operator

ii. . Operations and maintenance Operator



ANNEXURE V – FLEET

Responsibility Allocation for Fleet Planning

Legend:

Ao - Authority (outsourcing)

PO- Private operator for bus operation

Pr – Private agency for revenue collection

Pi- Private agency for ITS / IT

Authority – Activities essentially by authority

‘A’ – Authority for information / ensuring compliance / activity by choice

Yellow highlighting – to be decided

Sr.

nr Activities Sub activities / Sub-components

Responsibility

Options

Authority (A)

/ Ao

Private

operator (P)

Authority &

private

operator

1.

Buses Planning bus fleet requirement - quantitative - category and capacity

wise A / Ao

Setting Policy for serviceable life of buses, scrapping and disposal A / Ao

Setting up depreciation policy and depreciation fund A / Ao



Setting standards and specification of buses A / Ao

Acquisition of buses – RFP, bid process management, ordering A / Ao PO A & PO

Inspection, approval and receipt A / Ao PO A & PO

Ownership and Investment in buses A PO A & PO

2.

Bus operations Service planning, setting trip schedules and headways –

route wise and service category-wise

Manpower planning – drivers

Arranging revenue collection

Financial Planning

A / Ao

Preparation of bus and driver schedules PO

Deployment of buses with drivers on routes PO

Tracking bus operation en route A PO

Checking bus operations en route for service quality, commuter

complaints, presentation of buses

A / Ao PO A & PO

Deployment of replacement buses for buses failing on road PO

Recovery of broken down buses to depot PO

Arranging for repair of buses at site PO

Attending to commuter complaints, incidents en-route, etc. A PO



Attending to accidents, organising removal of damaged vehicle,

medical aid to accident victims, preparing accident reports, etc.

A PO

3.

Bus fleet

maintenance

management

Planning for fleet repair and maintenance requirement - Laying down

bus maintenance standards and specifications;

A PO A & PO

Laying down policy about process for scrapping of buses and bus

aggregates, disposal of Scrapped buses, aggregates, etc.

A PO A & PO

Acquiring / developing periodic and preventive, condition based

maintenance schedules - their contents and periodicity; Identification

and Segregation of all repair and maintenance activities for bus fleets

on the basis of complexities involved, nature of plant/equipment and

staff skills required; assessment of quantum of workload and critical

mass for each group of activities plant wise, etc.

A PO A & PO

Setting up bus fleet maintenance management system e.g. A Two tier

Unit replacement based maintenance management system; Setting

unit wise (aggregate wise) norms for quantum of float of assemblies;

Firming up activities to be carried out at two tiers - viz at central

workshop and at depot workshops;

A PO A & PO

Requirement planning for stores and spares by developing

consumption standards of spares, etc. for reconditioning and repair /

maintenance of buses;

A PO A & PO

Acquiring /developing specifications for materials / spares, etc. for

procurement and quality assurance;

A PO A & PO

Laying down inventory management policies, norms, etc. A PO A & PO



Procurement, storage, distribution of spares amongst user depots,

accounting of stores, disposal of obsolete and scrap items

A PO A & PO

Planning for repair and re-treading of tyres - quantum in each

category, process for re-treading and cut repairs, storage and

distribution system, scrapping and disposal of scrapped tyres,

A PO A & PO

Planning processes for repair and maintenance requirement / loads of

various activities at Depots and Central workshops;

A / Ao A & PO

Planning for and Identification of plant and equipment, machinery and

tools, etc. for depots;

A / Ao A & PO

Acquisition, installation and commissioning of such items at depot

workshop;

A / Ao A & PO

Repair and Maintenance of plant and equipment at depots A PO

Planning for and Identification of plant and equipment, machinery and

tools, etc. for Central workshop;

A / Ao A & PO

acquisition, installation and commissioning of such items at CWS; A / Ao

Repair and Maintenance of plant and equipment at Central workshop A / Ao

Staff requirement assessment category wise- skill level wise

separately for depots and central workshop;

A / Ao A & PO

Setting staff requirement norms for depots and central workshop;

planning for training and career development, etc. of workshop staff; ,

A / Ao A & PO

Planning for training and career development, etc. of workshop staff; , A / Ao PO A & PO



Recruitment, induction and training of technical staff at depot

workshops

A / Ao PO A & PO

Recruitment, induction and training of technical staff at Central

workshops (CWS)

Reconditioning of aggregates, repair and retrieval of worn out items,

testing / calibration of repaired and reconditioned aggregates, etc. at

CWS

A / Ao

Repair of major accidental buses; fabrication of bus body items and

their fitments including, repair and maintenance /replacement of

seats / upholstery, body panels, glasses, etc.

PO

Monitoring and control of maintenance activities and functions, setting

performance parameters and bench marking their standards of

achievement, collection of data for various activities / functions

consumption levels including those of spares, fuels, lubes, tyres, etc.;

their analysis, identification of deviations / defaults compared to

benchmarks for corrective action.

A / Ao PO A & PO



Identification of activities and decision making

Sr.

nr

Activities /

decision

area

Sub activities / Sub-

components for as part of

business process / decision

matrix / contracts

PT service contract options

Preferred

option

Why preferred? Action /

decision

by GCC NCC Combin

ation

1

Fleet size per

Depot / per

operator

Maximum fleet size per depot GCC NCC GCC+N

CC GCC

To be limited to about 100 buses

for optimal management and use

of resources

Fleet size, travel demand and

depot land / space guided.

While NCC faces Issues in

expansion, GCC conveniently

accommodates such

requirements.

Minimum / maximum fleet per

operator GCC NCC

GCC+N

CC All

For operational, maintenance and

managerial convenience /

improved performance, fleet size

per operator be planned in

multiples of depot capacity in

terms of fleet size.

One operator per depot, one

make /model of buses in a depot

fleet



Requirement assessment process

Sr

nr Item Description Process / remarks / comments etc.

1 13. Buses

Process of assessment of bus fleet size

Basis of assessment of fleet requirement:

spatial, temporal and category wise travel

demands – daylong & peak period;

Service levels – span of operations, trip head

ways route wise, - demand directed and policy

directed

Overall city wide travel demand, route wise

Average pax trip length

Assess overall requirement of standard buses inter-

alia considering:

o city wide travel demand in terms of pax km

and

o supply capacity of standard buses in terms of

carrying capacity km (seated + standees)

Set acceptable range of operational head ways

Identify bus sizes /capacity corresponding to travel

demand and range of headways

Select bus size/capacity that meets the demand at

minimal headway

Allocate fleet route wise

Group buses around prominent origin- destinations for

allocation to depots

2

Fleet size per

operator – type of

permits and

general suitability

for NCC or GCC

Authority as operator – entire fleet with the authority /

operator

Private operator – on area permits - NCC as an

option :

Clearly demarcated operational area essential with

minimal inter-area operations

Entire fleet to one operator per area.

‘Competition for market’ possible basis for Area

allotment

Further depending upon fleet size and operator’s

capacity for investment and management of larger

fleets.



For lack of capacity as above - allot large fleets to

multiple operators in multiples of up to about 100

buses – though fraught with all the ills of

‘competition in the market’ and hence not a

preferred option.

NCC- could be considered for area permits and

single operator though still fraught with problems of

incorporating variations in services, etc.

Private operator –on ‘route permits’ :

Entire fleet for each route to one operator - NCC

‘Competition for market’ possible basis for Area

allotment

Yet dangerous and unsafe competition ‘in-market’

unavoidable particularly on overlapping portions of

routes and also fraught with problems of

incorporating variations in services, etc.

NCC generally unsuitable for route contracts - ‘in-

market competition’ being almost always

unavoidable

GCC - the preferred option for route permits

Fleet size as per route demand and capacity of

operator to invest and optimally manage

Fleet size per operator normally synchronising with

depot capacity and further allotment in multiples of

one or more depot capacity.

No ‘in market competition’ even if more than one operator

on a route and or extensive overlapping of routes

Asset ownership investment, operation and maintenance

Assets Responsibility Remarks



Sr.

No.

Description / assets /

activities

Possible Options as who / which

agency suitable / should do

Preferr

ed

option

Decisio

n by

Authority Private Joint –

Authorit

y +

Private

1. Bus

fleets

Operation A Po A+Po Po A

Acquisition A Po A+Po Po

Investment A Po A+Po Po

Fleet ownership A Po A+Po Po

Insurance A Po A+Po Po

Long term legal liability in

case of accidents including

after completion / termination

of contracts

A Po A+Po Po

Scrapping and disposal of

buses at the end of contract Po Po

Phasing out of buses

prematurely, if warranted, A Po A+Po A+Po

Maintenance at depot level A Po A+Po Po

To be considered for large fleets

forming a critical mass for the

workshop



Terms and condition for such

arrangement, cost of repaired

aggregate, revision of costs, warranty,

etc. to be specified

For smaller fleets – arrangement by

operator and acceptance by authority

to be firmed up.

Heavy repairs /

reconditioning at Central

Workshop (CWS) level

mainly related to bus

aggregates

A Po A+Po A, Ao



ANNEXURE VI – INFRASTRUCTURE

Responsibility allocation for infrastructure Planning

Legend:








Sr.


Responsibility

Options

Authority (A)

/ Ao

Private

operator (P)

Authority &

Private

1

Infrastructural

facilities

14. Infrastructure and other Facilities planning A / Ao

Depots

Identification of depot activities, Planning depot location, size,

facilities, etc.

A / Ao

Preparation of depot layout plans, designs, facilities, etc. A / Ao

Land acquisition A / Ao



Construction, provision of all utilities, etc. A / Ao

Maintenance of depot buildings, utilities, etc. A PO

Planning for depot plant and equipment, its layout, equipment specs

and standards, etc.

A / Ao

Acquisition of plant and equipment, installation and commissioning A / Ao PO A & PO

Maintenance of Plant and equipment A PO A & PO

Terminals

Identification of terminal activities, Planning terminal location, size,

facilities, etc.

A / Ao

Preparation of terminal layout plans, designs, facilities, etc. A / Ao


Construction, provision of all utilities, etc. A / Ao

Maintenance of terminal buildings, utilities, facilities, etc. A / Ao

Bus Stops

Identification of Bus Stops location, size, facilities, design, etc. A / Ao


Construction, provision of utilities, etc. A / Ao

Maintenance of Bus Stops sheds, utilities, facilities, etc. A / Ao

2 MIS MIS system design

MIS reports for management, monitoring and control,

A / Ao PO A & PO



Data compilation for future growth and PT services planning

Operations related info for monitoring and control of operations

performance and service quality delivery

A / Ao PO




Sr.

nr

Activities /

decision

area



business process /

decision matrix / contracts

PT service contract

options Preferred

option Why preferred?

Action /

decision

by GCC NCC Combin

ation

1

15. Information

and

communicatio

n/

16. ITS-IT

Information is generated,

communicated and

processed using ITS/ IT –

normally installed ‘on –

board’, on bus terminals /

shelters and in control rooms

in each depot as well as at a

central location,

Clarification needed about

division of responsibility and

the process of utilisation of

data / information and

coordination amongst a

number of operators, service

providers, agencies, etc.

In a multi-cornered NCC

or GCC systems – better

to have ownership of

control rooms by authority

-- design, procurement,

operation and

management by out

sourced agency (Pi),

Operators to share costs

to seek assistance of

control rooms / use info

/data.

Recovery equipment –

owned by each operator

and suitably located –

deployed on obtaining

alerts from control rooms



Requirement Assessment Process

Sr

nr Item Description Process / remarks / comments etc.

1

17. Infrastructure –

quantum and

locations

Bus Depots

Assessment of no. of depots, their locations, facilities and

equipment, etc.

Depot locations near clusters of route ends /origins –

destinations for least dead km operation

Depot size - one depot of about 5 acres land per 100

buses for optimal utilisation of assets and for efficient

management of resources / operations –

Depot facilities on the basis of all activities envisaged

in depot, frequency of occurrence and cycle time of activities

Plant and equipment planned similarly.

Bus terminals

Terminal locations at transfer intensive stops en route

and or at trip origin / destination clusters

Terminal Size and facilities worked out on the basis

of quantum of operations, bus dwell times, bus terminal times

at route ends, etc.

Bus stops/ shelters

On both sides of the route at an average distance of

about 350 to 750 meters adjusted to traffic concentrated

demand locations

Facilities to meet commuter needs




Sr.

No. Assets


activities

Responsibility

Preferred

option Remarks

Decision

by

Possible Options as who /

which agency suitable /

should do

Authori

ty Private

Joint –

Authori

ty +

Private

1 Depots

Land acquisition A A

Design, construction,

provision of utilities and

commissioning

A, Ao A, Ao

Investments A A

Ownership A A

Insurance A Po Po

Use of depot facilities A Po A+Po A+Po

Maintenance of buildings

and yard – civil assets A, Ao Po

A,

Ao+Po

Po /

A, Ao

Po to do this activity to the

satisfaction of Authority

assessed through outsourcing.



Arrangement conducive to avoid

blame game.

Maintenance of utilities A, Ao Po A,

Ao+Po

Po /

A, Ao As above



that after completion /

termination of contracts as

legal cases take long periods

till settlement

A / Po

Clearance or indemnity bond /

security / bank guarantee

required by authority till

finalisation of case.

Treatment at the contract

end:

Given to operator / Retained

by authority

A A, Ao

Likely condition of the depot

/utilities, etc. at the end of

contract be handed over to the

authority in prescribed condition

and accepted by operator;

condition to be verified by

outsourcing

2 Plant &

Equipment

Operation Po

Acquisition A Po A

Investment A Po A

Ownership A Po A

Insurance A Po A



Maintenance A, Ao Po Po

AMC and its administration by

authority with equipment

suppliers - but blame game

possible between operator and

authority

Po be made a party to AMC and

responsible for administration of

AMC and for payments






till settlement

A / Po






end:


by authority

A Po A, Ao

Likely condition of the equipment

at the end of contract be specified

by authority and accepted by

operator; condition to be verified

by ‘Ao’ before taking over by

owner

3 Moveable

equipment

Operation Po

Acquisition Po Po

Investment Po Po

Ownership Po Po



Insurance Po Po

Maintenance Po Po



after completion /

termination of contracts

Po / A





Given to contractor /

Retained by authority

Po Po

4 Terminal




commissioning

A, Ao A, Ao

Investments A A

Ownership A A

Insurance A, Ao A, Ao

Operations / management A, Ao A, Ao ‘A’ through ‘Ao’ - outsourcing

Use of terminal and its

facilities A, Ao Po A+Po A+Po+Ao

‘Ao’ may be allowed commercial

exploitation of terminal assets

Maintenance of buildings

and yard, bus shelters, street A, Ao A, Ao

‘A’ to do this activity through ‘Ao’

- to the satisfaction of Authority.



furniture, etc. – all civil

assets

Maintenance of utilities A, Ao A, Ao As above






till settlement

A, Ao



required by authority from ‘Ao’ till



end:


by authority

A A, Ao

Likely condition of the terminal

and its facilities at the end of

contract be specified by authority

and accepted by Ao;

Condition to be verified by third

party outsourcing before handing

over to ‘A’

5 Bus stops




commissioning

A, Ao A, Ao

Investments A A

Ownership A A

Insurance A, Ao A, Ao



Operations / management A, Ao A, Ao ‘A’ to do this activity through ‘Ao’

outsourcing

Use of bus stops / shelters

and its facilities A, Ao Po A+Po A+Po+Ao

‘Ao’ may be allowed commercial

exploitation of assets

Maintenance of bus shelters,

street furniture, etc. – all civil

assets

A, Ao A, Ao

‘A’ to do this activity through ‘Ao’

-- to the satisfaction of Authority.

Maintenance of utilities A, Ao A, Ao As above






till settlement

A, Ao



required by authority from ‘Ao’ till



end:


by authority

A A, Ao

Likely condition of the terminal

and its facilities at the end of

contract be specified by authority

and accepted by Ao;

Condition to be verified by third

party outsourcing before handing

over to ‘A’

6 Control

room

Provision of built up space,

utilities and commissioning

in depots and at a central

location

A, Ao Po A+Po A, Ao



Investments A A

Ownership A A

Insurance A Po Po

Use of Control room and its

facilities A Po A+Po A+Po

Maintenance of civil assets /

utilities A, Ao Po

A,

Ao+Po

Po /

A, Ao

‘Po’ to do this activity to the

satisfaction of Authority

assessed. Arrangement

conducive to avoid blame game.






till settlement

A / Po






end:


by authority

A A, Ao

Likely condition of the control

room /utilities, etc. at the end of

contract be handed over to the

authority in prescribed condition

and accepted by operator;

Condition to be verified by

outsourcing before handing over

to ‘A’



7

ITS / IT and

Control

Room

ITS / IT equipment in

control rooms Pi

- Private operator for IT/ITS

System design, setting

standards, equipment

specs, acquisition,

installation and

commissioning of all control

room equipment, hardware,

software and facilities

A,Pi Po A,Pi+

Po A,Pi

Integration of control room

equipment with ITS / IT /

communication items on

board

A,Pi Po A,

Pi+Po A,Pi

Operation A,Pi Po A,Pi+P

o A,Pi

Provision be made for ‘Po’ to

position its staff in control room

and accessibility for data

acquisition, attending to alerts,

etc.

Acquisition A,Pi Po

A,

Pi+Po A,Pi

Investment A Po A+Po A+ Po ‘Po’ to share investments for use

of facilities and or pay usage fees

Ownership A Po A A

Insurance A Po A,Pi A,Pi



Maintenance A,Pi Po A,Pi+P

o Pi






till settlement

Pi






end:


by authority

A Po A, Ao

Likely condition of the equipment

at the end of contract be specified

by authority and accepted by

operator;

Condition to be verified by

outsourcing if IT/ITS systems to

be given to ‘A’



ANNEXURE VII– OPERATIONS

Responsibility Allocation for Operations

Legend:








Sr.


Responsibility

Options

Authority

(A) / Ao

Private

operator (P)

Authority &

Private

1 Bus operations

Service planning, setting trip schedules and headways –

route wise and service category-wise

Manpower planning – drivers

Arranging revenue collection

Financial Planning

A / Ao

Preparation of bus and driver schedules PO

Deployment of buses with drivers on routes PO



Tracking bus operation en route A PO

Checking bus operations en route for service quality, commuter

complaints, presentation of buses

A / Ao PO A & PO

Deployment of replacement buses for buses failing on road PO

Recovery of broken down buses to depot PO

Arranging for repair of buses at site PO

Attending to commuter complaints, incidents en-route, etc. A PO

Attending to accidents, organising removal of damaged vehicle,

medical aid to accident victims, preparing accident reports, etc.

A PO

2

Monitoring and

control of

Operation

Monitoring and control of PT services A / Ao P A & PO

Planning for setting up a control room A / Ao A & PO

Provision of land, building and utilities for Control room, acquisition

and maintenance of the same

A / Ao

Equipping of control room with IT, ITS, Communication systems,

fixtures and furniture,

A / Ao P

Maintenance of control room facilities / equipment, systems,

software, etc.

A / Ao

Staffing, operation and management of Control room A / Ao P A & PO



Acquisition of emergency service equipment, e.g. recovery van fully

equipped, man power, telecom system

A P A & PO

Incident alerting - whom and how? A / Ao PO A & PO

Data mining and data analysis A / Ao PO A & PO

3

Marketing and

Branding of PT

services

Branding of PT services, design of logo, A / Ao

Marketing PT services - responsibility A / Ao PO A & PO

4

Dispute resolution

and grievance

handling

Planning for and instituting a dispute resolution mechanism - A / Ao PO

Planning for and instituting a Grievance handling system A / Ao PO




Sr.

nr

Activities /

decision area



business process / decision

matrix / contracts

PT service contract

options

Prefer

red

option

Why preferred? Action

/

decisi

on by GCC NCC Combin

ation

1

Growth/

variations in

operations

Mechanism for handling

growth / variation of:

Travel demand- temporal

and spatial

fleet for an operator and

or in a depot

Routes

o fixed routes,

o route extension / truncation

o re-routing /variation in

route length/pattern

o Services

o Variation in services –

trips, headways

GCC NCC GCC+N

CC GCC

Details of mechanism to handle

needs related to growth / variations

during contract operational periods

be decided as part of business

process planning

GCC handles such issues better

A

2

Socially relevant

revenue related

issues

Mechanism for dealing with

subsidised operations / tariff

concessions for :

Certain categories of

travellers, variations in

categories, quantum of

concession, etc.

GCC NCC GCC+N

CC GCC

NCC

o Calls for an accurate

assessment of concessions

and quantum of revenue losses

– difficult to predict /assess

o Very difficult to:

A



Quantum of subsidy and

mechanism – accurate

assessments

Operation of socially relevant

but un-economic routes or

trips

Revenue compensation

mechanism for above

- accurately assess loss of

revenue on account of

concessional tariffs

- accommodate variations in

categories of such travellers /

quantum in concessions/

operations of such trips / routes,

etc.

GCC easily handles these

requirements.

3

En route -

Operational

environment

Route condition / behaviour:

Congestion on account of

increased traffic,

Diversions due to repairs

etc.,

Bus speeds impacted,

Addition of bus stops /

terminals

Travel demand variation

requiring fleet size variation

–Increase / decrease

Privately operated PT

buses / mini buses / micro

buses / auto-rickshaws,

etc. :

o Sharing of bus stops

o Addition of above PT

vehicles and their

impact on revenues,

GCC NCC GCC+N

CC GCC

GCC

Route speed at initial bidding

along with a mechanism for

assessment and the periodicity

during contract period

Impact of speed variation on bus

fleet productivity and bus fleet

size

Compensation mechanism for

above variations along with

triggers if any

Similarly a mechanism for other

variations such as varying bus

stops /routes / terminals / other

PT vehicles, etc.

A



Addition / removal of IPTs,

existing PT buses / bus

operators

In GCC – comparatively easier to

make objective assessment of

impact and compensation if any,

In NCC

Very difficult to accommodate

above aspects

4 Accidents

Implications of accidents –

on road and in depots

Legal and other expenses

during and after contract –

almost all cases take much

longer legal process to

settle than the contracts

duration

Workmen compensation

for in-depot accidents

MACT compensation

Insurance of buses,

passengers, crew, etc.?

Insurance of depots and its

assets by whom?

GCC NCC GCC+N

CC All

In NCC and GCC:

- Responsibility clearly of bus

fleet owners

- Investment and ownership of

buses preferably be of and by

the bus fleet operators

- In- depot accidents –

responsibility of depot lessee

/operator

- Security deposit /

indemnification for the

authority?

- Insurance by operators/ lessees

in all cases

A

5 Performance

Performance parameters-

quantifiable and qualitative

(non quantifiable):

Service quality

Physical

Financial

Benchmarking,

GCC NCC GCC+N

CC GCC

In all types of contracts--

Service quality parameters, their

benchmarking, monitoring and

control essential-- by authority

Easier to obtain data, monitor

and control in GCC –payment

system provides a possible

leverage

A



monitoring,

defaults, treatment of

defaults

Data acquisition,

compilation, analysis

evaluation, report

generation, monitoring

and control

Very difficult to do so in NCC –

no leverage

In GCC, acquisition, processing

and monitoring of revenue data

by authority

Physical performance in all

types of contracts to be

monitored and controlled by

operator – need for suitable

arrangement with IT- ITS

system provider / authority /

control room

Financial performance in NCC

by Pvt Operator and in GCC by

authority / Revenue collection

by private agency

6 Reconditioning

of aggregates

Division of responsibility

amongst multiple service

providers / operators for

development of facilities,

management and accounting

w.r.t reconditioning of bus

aggregates, and procurement

of spares, etc. – an issue

Creation of facilities for

reconditioning, usage in a multi

operator scenario, deciding

and charging rates of

overhauled items; assessing

Various aspects related to

reconditioning of aggregates, etc.

need to be addressed for various

types of contracts as none of the

private agencies would have critical

mass to establish facilities.



residual values of repairable

items, etc. – another issue

Requirement planning of

spares, procurement of

spares, those common for

depots and CWS use, their

costing / pricing mechanism, -

yet another issue

7 Competition

No competition GCC

GCC –

‘No

compe

tition’

Issues associated with ‘on road’

competition eliminated.

Unit rates for services obtained

through a competitive transparent

open bidding process

NCC –issues as brought out earlier

A

Competition ‘for the market’

NCC

NCC

part of

combina

tion of

NCC

and

GCC.

NCC –

compe

tition

‘for the

market

.

Issues associated with ‘on road’

competition eliminated.

Selection of service provider

through a transparent open bidding

process for each of the operational

areas.

Fraught with some of the issues

discussed earlier w.r.t NCC

A

Competition ‘In the market’

Not suggested to avoid

dangerous operational

behaviour of operators

Avoid

in all

types

As discussed A



ANNEXURE VIII – REVENUE

Responsibility Allocation for Revenue Activities

Legend:








Sr.


Responsibility

Options

Authority

(A) / Ao

Private

operator (P)

Authority &

Private

1 Revenue

collection

Planning for tariff collection system and mechanism - on-board, off-

board or both;

A / Ao PO

Planning for Manual or electronic ticket vending machines - hand held

or floor mounted; ticketing medium - paper, tokens, smart card and or

any other; etc.

A PO A & PO

Developing design Standards, specifications, security systems, etc.

for ticketing equipment

A PO



Revenue collection by authority and or by operator A / Ao PO

If responsibility of revenue collection of the authority -- decision about

in-house or outsourcing

A / Ao

By Private operator - in case of GCC

By Private operator - in case of NCC

Mechanism for engaging revenue collection agency A / Ao P

Ownership and investment in equipment A / Ao PO

Repair, maintenance and replacement of equipment A / Ao PO

Revenue and other data, way bill generation and communication to

control room, compilation, analysis, reporting and usage

A / Ao PO A & PO

Integration of tariffs with other modes of urban travel; A / Ao PO A & PO

Curbing revenue loss on account of pilferage/ticketless travel, etc. by

on-line checking, monitoring and control,

A / Ao PO A & PO




Sr.

nr

Activities /

decision

area



business process /


PT service contract

options Preferred


Action /

decision

by GCC NCC

Combin

ation

1 Tariff and

payments

Tariff Fixing, structuring and

revision:

Basis of tariff fixation?

Whether tariff fixation

based on cost of inputs?

Revision ad-hoc / delayed /

inadequate

Gaps in ‘allowed tariffs’ and

‘input cost based

economic’ tariffs

Mechanism for revision of

payments / triggers /

periodicity

Mechanism to bridge

gaps on account of above

GCC NCC GCC+N

CC GCC

NCC:

Process of tariff fixation,

structuring and revision to be

firmed up in advance along

with basis / triggers /

periodicity of revision

Mechanism for

compensation for delays /

shortfalls, etc. in tariff

revision to be devised

Consolidation and provision

of accurate, reliable and

relevant data for the purpose

difficult

GCC

Cost of inputs could be easily

and accurately worked out for

revision of payments along

with triggers for rate revision

under GCC

A



2

18. Revenue Possibility of linking

payments in GCC with

operational load factor – a

major issue related to GCC –

to be explored

GCC Modified GCC

A modified GCC required A




Sr.

No. Assets


activities

Responsibility

Preferred

option Remarks

Decision

by

Possible Options as who /

which agency suitable /

should do

Authorit

y Private

Joint –

Authori

ty +

Private

1 Revenue

Revenue collection agency

in:

NCC Po Po

GCC A, Ao Po Pr Pr

Pr- revenue collection private

agency

Tariff collection medium n

equipment

Tickets- pre-printed, smart

card, on – board printing in:

NCC Po Po

GCC A, Ao Pr

Tariff charging equipment



Hand held ETVMs with

GPRS / GPS compatibility or

Floor mounted vending

machines in GCC:

In NCC:

Decisions about type of

equipment, etc. by authority,

Ownership, investment,

operation, maintenance,

insurance, long terms liability,

etc. of Po

Operation A, Ao Po Pr Pr

Acquisition A, Ao Po Pr Pr

Investment A, Ao Po Pr Pr

Ownership A, Ao Po Pr Pr

Insurance A, Ao Po Pr Pr

Maintenance A, Ao Po Pr Pr






till settlement

A, Ao Po Pr Pr






end: A, Ao Pr




by authority



ANNEXURE IX – PERMITS

Responsibility Allocation for Permits

Legend:








Sr.


Responsibility

Options

Authority

(A) / Ao

Private

operator (P)

Authority &

Private

1 Permits

Obtaining Operational Permits from RTO A A & PO

Route permit A

Areas permit A

Hybrid - combination of route and area permit A




Sr.

nr

Activities /

decision

area



business process /


PT service contract

options Preferred


Action /

decision

by GCC NCC Combination

1

Permits for

bus

operations

Route permits and Route

cluster permits GCC NCC

Combined

contract =

GCC (for

inter-cluster

routes) +

GCC or NCC

(for intra-

cluster)

GCC

GCC

Avoids dangerous / unsafe

competition on – road,

Easy to vary fleet deployment /

service levels, routes, etc.

Easy to carryout route

deviations, extensions, truncations

NCC

Has problem of route

overlapping by multiple operators

in NCC even if one operator

selected for a route or a route

cluster through competition ‘for

market’.

Causes ‘on route’

competition by other route

operators on overlapping sections

– dangerous and unsafe

Very difficult to vary fleet

deployment / service levels

Very difficult to carryout

route deviations, extensions,

truncations

A



GCC + NCC

Problems of dangerous &

unsafe competition persist on

overlapping sections of routes

Area permit -- single area for

the whole city and or multiple

Area permits–for a large city

NCC

NCC for

intra-area &

NCCs for

inter-area on

reciprocal

basis

NCC (for

each

area)

NCC

Area permit contract awarded

through competition ‘for market’.

No dangerous competition on

routes

Possibility of affording freedom

to plan routes in given area

Problems of inter area

operations need to be

addressed

Problem of monopolistic

behaviour of a single operator in

due course,

Difficult to clearly demarcate city

areas particularly in medium and

small cities

Difficult to find a single operator

for large cities

Very difficult to vary fleet

deployment / service levels

Very difficult to carryout route

deviations, extensions,

truncations

Obtaining operational and other

data needed by authority for day

to day use and for future

A



planning is very difficult in

absence of any leverage with the

authority to press for such data.

Area and route permit

GCC

for

inter-

area

+

NCC

for

intra-

area

NCC for

intra-area &

for inter-area

on reciprocal

basis

NCC for:

each area

& for inter

area

routes

(reciprocal

basis)

OR

NCC for

intra area

& GCC for

inter-area

Intra area as above and Inter area

route contract to ‘area operators’ on

equal / reciprocal penetration basis

Or

GCC

For inter area routes operations,

NCC area operators allowed to

participate.

Problems of NCC as discussed

earlier persist

A



ANNEXURE X – PLANNING & CONTRACTUAL ISSUES

Responsibility Allocation

Legend:








Sr.


Responsibility

Options

Authority

(A) / Ao

Private

operator (P)

Authority &

Private

1

Strategic

Planning of PT

Agency (PTA) for

City Bus

Services(CBS)

Strategic Panning including but not limited to:

Statement of:

- Vision

- Mission

- Goals

- Aims and objectives,

Policies, institutional and Organisational set ups

Business processes,

Organisational structure and needs

A /Ao



Resources needs and provisioning

Financing needs and funding

Operational systems, and management

Monitoring and control

Any other aspect

2

Planning and

Setting

Standards,

specs, norms,

etc.

Planning for PT services including

travel demand assessment

spatial and temporal

short , medium and long term

service category wise

Route network and route structuring

Setting Standards for

Service quality

Buses

Vehicular emissions

IT and ITS and control room operations

Any other item / function

A / Ao

3

Concession

Contracts Planning and structuring of concession agreements

A / Ao A & PO

Risks

Identification of risks

Evaluation of and allocation of risks

Limits to risk transfer

A / Ao A & PO

Payments

19. Planning for payment mechanism and related aspects

Payment mechanism

User charges

Usage payment

Availability payments

Quality performance payments

A / Ao A & PO



Monitoring service availability and performance

Third-party and secondary revenues

Liquidated damages and performance bonds

Price variations

Governance issues

Flexibility Flexibility and in-operation negotiation A / Ao A & PO

Contract

Duration

Contract duration and investment

Contract duration and flexibility

Contract duration, competition, and incentives

Contract duration in service unbundling

A / Ao A & PO

Other

Contractual

Issues

Refinancing

Early Contract Termination

Transparency and confidentiality in PPP contract design

Any other issues

A / Ao A & PO



ANNEXURE XI – SERVICE QUALITY PARAMETERS

Service quality performance shall normally be evaluated, monitored and controlled in respect of the following parameters amongst others:

Sr.No. Parameter

Parameter defined Parameter values Proposed

Weightage* of

parameters on

a scale of 100 Symbol Formula Units

Contracte

d Achieved

1. Regularity of Service

i. Trips Operated Rt no. of trips operated*100 / no. of

trips scheduled % Rt Rtª 8

ii. Kilometre (km) operated Rk No. of km operated*100/No. of km

scheduled % Rk Rkª 7

2. Punctuality of operations

i. Start of trips–Origins Ps No. of trips on- time at start*100 /

Total no. of trips operated % Ps Psª 10

Ii Arrival of trips -

destinations Pd

No. of trips on time at

destination*100 / Total no. of trips

operated

% Pd Pdª 5

3.

Operational Reliability

(Inverse of rate of

breakdowns per lakh km

operation) --- Higher

number reflecting higher

reliability

B 1 / (Total no. of breakdowns*one

lakh / Total km operated) Number B Bª 15



4. Operational Safety

I

General

(Inverse of rate of

accidents per lakh Km

operation) -- Higher


safety

Sg 1 / (No. of accidents*one lakh / Total

km operated) Number Sg Sgª 10

II

Severity

(Inverse of rate of fatalities

in accidents per lakh km

operation) -- Higher


safety severity

Ss 1 / (No. of fatalities *one lakh / Total

km operated) Number Ss Ssª 15

5.

Operational Security

(Inverse of rate of security

related incidents per lakh

km operation) -- Higher


security

Z 1 / (No. of security related incidents

*one lakh / Total km operated) Number Z Zª 15

6.

User Satisfaction

(Inverse of rate of

complaints per lakh km

operation) - Higher


user satisfaction

U 1 / (No. of complaints*one lakh /

Total km operated) Number U Uª 15



Notes

I.

Regularity of services

It is measured as percentage of trips and km operated to those scheduled respectively. In this case the number of trips and km scheduled

are the sum total of respective operational schedules on a quarterly basis in their denominators, and actual trips operated and actual

km paid for in their respective numerators.

II.

Punctuality of bus operation

Punctuality indicates the level of on-time services. It is reflected by percentage of on-time start and arrival of trips to total operated trips

in each case. In this case, total number of trips starting / arriving late during the month is recorded and subtracted from the number of

trips operated to arrive at the on-time trips operated figures separately in each case.

A relaxation equivalent to 5 minutes, for start of the bus schedule, and 10% of the subsequent scheduled trip time (subject to a maximum

of 15 minutes) for start of subsequent schedules and arrival of trips.

III. 1

1

.

Reliability of bus operations

This parameter reflects the health of a bus and in turn indicates the operational reliability of buses. It is assessed in terms of number of

breakdowns per lakh km (actually paid for) operated. Higher the rate of breakdowns poorer is the health of buses and lower is their

reliability. Inverse of breakdown rate is an indicator of operational reliability – higher values reflect higher reliability.

IV.

Safety of operations

It is one of the most important parameters. It is indicated in terms of number of accidents per lakh km operated. Higher the rate of

accidents, lower is the safety of bus services. Rate of accidents is assessed by dividing cumulative number of accidents by all buses of

the operator by actual number of operated km paid for during the quarter. The severity of operational safety is similarly assessed by

analysing number of fatalities in accidents instead of accidents in general. Inverse of accident rate is an indicator of operational safety

– higher values reflecting higher safety.

V.

User Satisfaction

The citizens need to be regularly involved in evaluating the performance of bus services. Encouraging them to report freely about their

observations on all aspects of the bus services not only renders the system "an inclusive one" but also generates useful and un-biased



feedback for necessary corrective action. The complainant, however, needs to be informed of the actions taken, in least possible time,

for his/her continued interest in the system. It is estimated in terms of negative feedbacks/complaints received per lakh bus km operated.

Inverse of rate of user complaints reflects user satisfaction - higher number reflecting higher user satisfaction.

VI. Operational security is also defined and assessed similarly as user satisfaction.

VII.

Benchmarking of service quality parameters may be done by authority based on prior experience or on the basis of experience of other

Authorities in other cities.

Bench marked performance levels of service, as an example, may be considered as under:

Rt & Rk ≥ 96% each;

Ps≥ 94%, Pd ≥ 92% (excluding the exclusions as mentioned in point II)

B ≥ 5 ;

Sg ≥ 10, Ss ≥ 100;

Z ≥ 100;

U ≥ 10

VIII. Formula for calculation of the variation in service quality has been provided in Clause16.2.



DATA SOURCES FOR PERFORMANCE PARAMETERS:

Sr.

No. Parameter Formula Data source for performance parameters:

1 Trips Operated no. of trips operated*100 /

no. of trips scheduled

Trips scheduled – Data obtained from operational schedules prepared

by authority – trip wise route wise for urban areas. Schedules inter-alia

indicates no. of trips scheduled on each of the routes in operational area

which would add up to sum of all trips scheduled.

Trips Operated – Data obtained from physical performance reports w.r.t

no. of trips operated route wise which when added reflects all trips

operated – reports prepared periodically (daily / monthly/as required) –

by authority and or by PO.

2 Kilometre (km) operated

No. of Km

operated*100/No. of Km

scheduled

Km scheduled - Data obtained from operational schedules prepared by

authority – trip wise route wise for urban areas. Schedules inter-alia

indicate no. of trips scheduled route wise and route length in km of each

of the routes. No. of trips scheduled on each route multiplied by

respective route length provides route wise km scheduled, which when

added up for all routes indicates overall km scheduled.

Km operated - Data obtained from physical performance reports w.r.t

no. of trips operated route wise and respective route length, which when

multiplied indicates route wise km operated. Sum of route wise km

reflects all km operated – reports prepared periodically (daily / monthly /

as required) – by authority and or by PO.

In GCC and Hybrid GCC, km operated may also be taken from “km paid

for” reports



3 Start of trips–Origins

No. of trips on- time at

start*100 / Total no. of

trips operated

Scheduled start time for Trips at origins – Data obtained from operational

schedules prepared by authority – trip wise route wise for urban areas.

Schedules inter-alia indicates start time for each trip scheduled on each

of the routes in operational area.

Trips started ‘on-time’ – Data obtained from physical performance

reports w.r.t no. of trips operated (started) ‘on-time’ route wise which

when added reflects all trips operated – reports prepared periodically

(daily / monthly / as required) – by authority and or by PO.

4 Arrival of trips - destinations

No. of trips on time at

destination*100 / Total no.

of trips operated

Scheduled arrival time at trip destinations – Data obtained from

operational schedules prepared by authority – trip wise route wise for

urban areas. Schedules inter-alia indicates arrival time at destination for

each trip scheduled on each of the routes in operational area.

Trips arrival at destinations ‘on-time’ – Data obtained from physical

performance reports w.r.t no. of trips operated (arrived) ‘on-time’ route

wise which when added reflects all trips operated (arrived at destination)

‘on-time’– reports prepared periodically (daily / monthly/as required) – by

authority and or by PO.

5

Operational Reliability

(Inverse of rate of breakdowns

per lakh Km operation) --- Higher


reliability

1 / (Total no. of

breakdowns*one lakh /

Total Km operated)

No. of breakdowns - Data obtained from physical performance reports

w.r.t no. of breakdowns en-route route wise which when added reflects

all breakdowns during operated km – reports prepared periodically (daily

/ monthly/as required) – by authority and or by PO.









for” reports

6

Operational safety - General

(Inverse of rate of accidents per

lakh Km operation) -- Higher

number reflecting higher safety

1 / (No. of accidents*one

lakh / Total Km operated)

No. of accidents - Data obtained from physical performance reports w.r.t

no. of accidents route wise which when added reflects all accidents

during operated km – reports prepared periodically (daily / monthly/as

required) – by authority and or by PO.







for” reports

7

Severity

(Inverse of rate of fatalities in

accidents per lakh Km operation)

-- Higher number reflecting

higher safety severity

1 / (No. of fatalities *one


No. of fatalities in accidents - No. of fatalities in accidents - Data obtained

from physical performance reports w.r.t no. of all fatalities in accidents

during operated km – reports prepared periodically (daily / monthly/as

required) – by authority and or by PO.






In GCC and Hybrid contracts, km operated may also be taken from “kms

paid for” reports

8

Operational Security

(Inverse of rate of security

related incidents per lakh Km

1 / (No. of security related

incidents *one lakh / Total

Km operated)

No. of security related incidents - No. of security related incidents - Data

obtained from physical performance reports with respect to no. of all



operation) -- Higher number

reflecting higher security

security related incidents during operated kms – reports prepared

periodically (daily / monthly/as required) – by authority and or by PO.






In GCC and Hybrid contracts, km operated may also be taken from “km

paid for” reports

9

User Satisfaction (Inverse of

rate of complaints per lakh Km

operation) - Higher number

reflecting higher user satisfaction

1 / (No. of complaints*one


No. of Public Transport (PT) related complaints –Data for PT related

complaints obtained from: (i) PO – directly received by his office and or

on line and or through on-board complaint books, (ii) Authority –

through similar sources / means (iii) Government and or any of its

departments – as and when forwarded by them to PO and or to authority.

Sum of user complaints so received reflects all PT related complaints

over a period or during certain operated km.






In GCC and Hybrid contracts, km operated may also be taken from “km

paid for” reports



ANNEXURE XII – LIST OF INFRACTIONS AND PENALTIES

I. Bus related infractions

Sr.

No. Description

Parameter Unit

Contracted (bench marked)

Achieved Category of infraction

Symbol Definition / Formula

1 Buses

1.1 Roadworthiness of the Bus

Rw No. of roadworthy buses*100/No. of buses in fleet

% # $

1.2

Fleet Utilisation (Fleet deployment for operations)

FU No. of buses deployed for operation in time *100 / no. of buses in fleet

% @ $

1.3 Attending to breakdowns en-route

Time limit for attending to breakdowns en-route

hrs 3

2 Bus maintenance activities

2.1 Preventive maintenance (PM) schedules

Pm No. of PM schedules carried out*100/No. of PM schedules due

% 100% $ C1

2.2 Cleaning of buses

Cl No. of buses cleaned *100/ No. of buses due for cleaning

% 100% $ B2

2.3 Washing of buses

Ws No. of buses washed*100/No. of buses due for washing

% 100% $ B1



2.4 Roadworthiness certification of buses

Rc No. of buses attended for roadworthiness *100/No. of buses due.

% 100% $ C1

2.5

Pollution under control certification (PUCC)

Pc No. of buses checked for PUCC*100/No. of buses due

% 100%

$ B2

2.6 Other maintenance activities

Mo No. of buses maintenance activities carried out*100/No. of buses due

% 100% $ A2

Notes

Benchmarked performance:

(#) 96% during warranty period (as per the contract signed with Bus Manufacturer); 94% up to 6 years from the date of purchase

of Bus; 90% for the remaining term of the Contract

(@) 1% less than that of contracted values of roadworthiness of Bus. In other words, 1% of the Fleet from among the roadworthy

Buses shall be kept as reserve fleet at all times.

($) for up to every 2% shortfall in actual performance, Penalties would be levied as per category of infraction indicated against

each.

Roadworthiness of Buses – considerations and pre-estimated damages- assessment

i. Buses generally operate in one or more shifts daily. They are shed out as per schedule of operations for various shifts. A

roadworthy bus ready for timely out- shedding as per shift wise schedules be considered available for that shift. Depot-

wise/Bus-wise availability of roadworthy buses is worked out quarterly for above purpose.

ii. Buses are not considered available in a given shift in any of the following cases:

a. A Bus not available for timely out-shedding as per given schedule for any reason.

b. A Bus breaking down en-route after leaving Depot as per schedule unless attended promptly and completes 90% or

more scheduled Km operation in that shift. Loss of revenue earning Km however be subject to recovery of pre-

estimated damages equivalent to net loss of revenue for lost kms.



iii. Exclusions while calculating availability of Buses on quarterly basis:

a. Failure of availability of any Bus due to natural disaster, riots or such other reasons beyond control of Operator

b. Failure in providing Bus Services because the Bus is in police/judicial custody or for such other reason provided non-

availability of Bus is not due to an event caused by improper maintenance or negligence on part of Operator. Authority’s

decision in this regard shall be final.

iv. Pre estimated loss of revenue and damages for non-availability of Bus as above:

1. Failure to make availability of Buses as specified, renders Operator liable for payment of pre-estimated damages

worked out as under separately for each Bus shift, Depot and Operator.

2. For a preceding quarter, let “k’ (Km / shift / bus) be the average scheduled Km, ‘l’ as average load factor, ‘p’

passengers as carrying capacity of bus and ‘t’ as tariff (Rs.) per passenger km, ‘r’ be Per Km O&M Fee (Rs), for

the related shift of a Depots, then net revenue loss (∆R), per bus shift, for non-availability of Bus is worked out as,

∆R=k*(l*p*t-r)

e.g. for k=120, p=70, l=0.70, t=1, r=10,

net ∆R in a shift = Rs. 4,680/-

Or ∆r – net average revenue loss per bus km = 4,680/120= Rs 39/-

∆k = Average kms operation per bus per hour (for an 8 hr shift) = 120/8 = 15 kms

3. Amount of pre-estimated damages be recovered from outstanding payment of Operator or from Performance

Security as the case may be.

v. Damages for delayed response to break downs en-route

Any delay beyond 3 (three) hours, in attending a failed Bus en-route, would attract pre-estimated damages equivalent to

Km lost multiplied by net revenue loss per Bus km. For example, a delayed attention to a failed Bus by 3 (three)

hours would entail a net loss of revenue equal to 2*∆k*∆r where ∆k is average Km per bus per hour and ∆r is average

loss of revenue per bus per km loss - ∆k and ∆r worked out as illustrated as above.

vi. Damages in general

If the operator fails to ensure Bus-wise 88% availability of Buses on quarterly basis during warranty period, 85% beyond

warranty period and up to end of 6th year from the purchase of Bus and 82% thereafter, Authority shall, without prejudice



to other remedies under contract, levy/deduct pre-estimated damages as specified above subject to a ceiling equivalent

to average revenue per Bus per day in preceding quarter less Km charges not incurred

vii. Operator agrees that above pre-estimated damages are fair and genuine pre-estimates and not by way of penalty.

Operator also agrees that he shall not dispute the same in any manner

Presentability of Buses and other infractions in provisioning of Bus Service

i. Presentability of Buses and other infractions in providing Bus Service shall be evaluated by recording infractions and

consequent performance deficiency damages/ recoveries.

ii. ‘Infraction’ in Bus presentability, for example, is an incidence of sub-optimal performance and / or non- compliance of

prescribed specifications and standards at the time of declaring a Bus roadworthy.

iii. Infractions can be identified based on visual checking at the time of out shedding or detected during field checking.

Fresh infractions, if any, occurring during course of operation of a Bus during that shift, are excluded.

iv. In the event of a Bus held upon account of any infraction e.g. poor presentability, cause /reason need to be recorded

and maintained by the authority and same shall also be noted by operator’s Representative before imposing any

damages on this account.



II. Infractions and their categorisation related to different aspects of the project

Sr. No. Description of the infractions

Category of Infraction

A B C

1.0 Bus related additional infractions

1.1 Damaged /Missing window safety guard rails A1

1.2 Missing, damaged, or loosely hanging rub rails, hand grab rails, handholds, etc. A1

1.3 Section of hand rail loose or with sharp edges A1

1.4 Damaged or bent, inadequately fastened / loosely hanging bumpers B2

1.5 Modification of colours/designs of external paintwork vs originals B2

1.6 Discoloration, paint peeled off, and or unpainted repair work inside bus or on any of its items /

sections A1

1.7 Defective, damaged, or another wise in operative wheel chair ramp, where provided B1

1.8 Missing, broken, or loosely hanging, seatbelts, or wheelchair anchorages B1

1.9 Damaged floor, steps, hatches, or hatch covers in the bus A2

1.10 Visible dents that are more than 5mm in depth and or 200sq mm in area A2

1.11 Missing / non-operative, saloon lights, indicator lights, wiper system, wiper blades, prescribed

horn & any indicating instruments (per item) A1

1.12 Installation of additional lamps, for illumination or decoration A2





A B C

1.13 Defective head light B2

1.14 Defective front, and / or back brake lights; side marker lights B1

1.15 Damaged, broken, loosely fitted, incomplete or missing passenger seats B1

1.16 Defective operation of entry / exit doors B2

1.17 Defective operation or damage to emergency exits doors, non-availability of hammer for breaking of

emergency glass C1

1.18 Oil spillage on wheel rims, hubs, tyres, etc. B1

1.19 Defective and or inoperative PIS partly or fully B1

1.20 Installation of any type of decoration or non-functional items inside or outside the vehicle, not originally

installed in bus. A2

1.21 Installation of horn(s) other than that originally fitted in bus B1

1.22 Application of opaque films / paints, etc. on side, front or back windows / glasses B2

1.23 Use of worn out tires i.e. tread depth being below tread wear indicator (TWI) depth C2

1.24 Damaged or under/over inflated tyres C1

1.25 Dirty vehicle, outside or inside, at the time of out-shedding of bus and or at crew change at change –

over locations B2

1.26 Unauthorised advertising material on bus / advertisements not legally permitted on bus B2





A B C

1.27 Excessive emission of visible smoke / abnormal noise of high intensity C2

1.28 Non availability of specified fire extinguishers, lack of charge of same, expiry date due or no specification

of expiry date C1

1.29 Non-provision of fire hydrants C2

1.30 Any other bus related infraction

2.0 Operations related infractions

2.1 Parking in places other than those established by authority B1

2.2 Not stopping at earmarked station en-route as scheduled A1

2.3 Stopping at a station and/or place not earmarked for route service and or in a manner to cause

obstruction to other traffic. A1

2.4 Changing the route of a service B1

2.5 Operating un-authorised hours or services C1

2.6 Picking or setting down passengers at points other than the scheduled bus stops. C2

2.7 Operating outside the established and designated routes C2

2.8 Delaying operation without cause. B1

2.9 Abandoning and/or alighting from vehicle without cause and or without informing Authority. C2





A B C

2.10 Stopping on / ahead of zebra crossing A2

3.0 Crew (mainly driver) related infractions

3.1 Failure to carry on-board personal identification and / or vehicle registration book / any other vehicle

identity B2

3.2 Failure to carry first aid kit C1

3.3 Refusal to provide information to authorised staff / passengers B2

3.4 Park bus dangerously / at away from earmarked space in depot C1

3.5 Cross a red light B1

3.6 Disobedience to lawful instructions / orders of designated authorities C2

3.8 Drunk while on-duty C2

3.9 Irresponsible behaviour causing an accident C2

3.10 Driving above prescribed speed limits B2

3.11 Invasion of zebra crossings B1

3.12 Carry companions in driver work area A2

3.13 Bus running out of fuel B2

3.14 Delayed reporting of bus breakdowns / incidents en-route (reaction time < 30 minutes) A1





A B C

3.15 Verbal or physical misbehaviour with passenger B1

3.16 Failure to follow or acknowledge instructions of authorised staff B1

3.17 Non wearing prescribed uniform, badge, etc. while on-duty A2

3.18 Non submission of defect / route incidents, reports, etc. on completion of work shift but before leaving

depot premises B1

3.19 Not carrying complaint book and or not presenting complaint book to passengers when demanded B1

4.0 Management Information System (MIS) and ITS related infractions

4.1 Delayed / incomplete / erroneous submission / non-submission of any / all of the prescribed MIS reports.

A few of such reports given here under:

4.1.1 Applicable operations related reports e.g. vehicle productivity data - vehicle wise, route and trip wise;

Data about incidents / accidents / fatalities en-route along with cause-wise details; C1

4.1.2 Revenue data, way bill data, passenger boarding- alighting details; concessional travel data, cost

details, C1

4.1.3 Ticketing machines quantum in use, functioning, / serviceable / under repair and maintenance data C1

4.1.4 PIS systems – serviceable / under break down repairs; B1

4.1.5 ITS equipment on–board and their serviceability status – daily bus wise and consolidated C1

4.1.6 Bus fleet maintenance related data as per details and formats prescribed by the authority from time to

time - a few requirements given here under B1





A B C

Fleet maintenance activities completion – due and completed – daily and as per prescribed

periodicity

o Preventive maintenance schedules

o Cleaning of buses

o Washing of buses

o Roadworthiness certification of buses

o Pollution under control certification

o Other maintenance activities

o Road worthy fleet

o Fleet Utilisation

Fuel, oil and lubricants consumption data,

Break down related data,

Accidents related data

Pollution under control certification details

Noise checking data

Data related to average life of aggregates

5.0 Administration related infractions as related to applicable contract(s)

5.1 Preparation of and submission of all reports / information as required by the authority from time to time.

A few of such reports / information are given here-under





A B C

5.1.1 Compliance with all statutes, rules, regulations, obligations, responsibilities as applicable to bus

operations and all its constituents and sub systems and or as prescribed by law and or by authority B2

5.1.2 Change of composition / constitution of the business entity / business / registered office/ CEO and or

other key officials A2

5.1.3 Capacity building of PT operations related crew / staff – quantitative (person days) and operational field

related as agreed / indicated by authority and/or with the training plan. C1

5.1.4

Non-compliance with the waste management or water recycling, defective sewerage system, leaking

water lines / pipes, defective wash rooms, dirty / foul smelling / lack of disinfection of sanitary fittings,

defective drinking water supply system / its sub components, defective electrical / hanging wires /

lighting systems/ In-adequate illumination,

C1

5.1.5 Failure to make timely payments of dues, penalties, damages, etc. to Authority C1

5.1.6 Non-payment / delayed payment of wages, social security benefits like Provident Fund, pension

contribution, Employees State Insurance dues, leave salary, etc. to employees C1

5.1.7 Violation of business days, working hours per day, minimum wages, etc. and any other working

conditions requirements as per applicable legal / contractual provisions. B2

5.1.8 Failure to comply with the corrective and preventive maintenance plan as applicable to infrastructure,

plant and equipment and other facilities C1

6.0 Any other infraction identified and communicated to Operator by the authority



III. Penalty for various categories of infractions and time period to resolve

Sr.

No.

Category

of

Infraction

Amount of performance deficiency

damages/penalty per infraction per

bus per day (in INR)

Time to resolve (infraction)

as under or as stated against

each infraction whichever is

higher

1 A1 2X* subject to a minimum of Rs 200/- One day

2 A2 4X subject to a minimum of Rs 400/- One day

3 B1 6X subject to a minimum of Rs 600/- One day

4 B2 8X subject to a minimum of Rs 800/- One day

5 C1 10X subject to a minimum of Rs 1000/- One day

6 C2 12X subject to a minimum of Rs 1200/- One day

(*) ‘X’ represents per km O&M Fee payable for provisioning bus service as applicable from time to

time. Minimum value of penalty for each category would also stand increased proportionately

(rounded off to next higher ten)



ANNEXURE XIII – FARE FIXATION, STRUCTURING AND REVISION

INTRODUCTION

This Annexure details the basis for fare fixation, the method for fare revision along with fare structuring process. The annexure also details the bus input cost review process along with the steps for amending cost of inputs in a Net Cost Contract. The method for fare revision has been detailed for Net Cost Contract but is applicable for all other contract types as well.

1. BUS FARE FIXATION

1.1 User tariff

Bus fares / tariffs are user charges payable by bus user for availing of bus transport stage carriage services.

1.2 Basic unit of User tariff

Basic unit of user tariff is fare per passenger km travelled.

1.3 Factors for fare fixation

Generally user fares are fixed considering cost of inputs for acquisition, operation and maintenance of buses in addition to similar costs for transport infrastructure,

cost of capital and applicable taxes, fees, rates, etc. Affordability by users, return on capital invested particularly if a private entity provides transport services,

policy of local, state, central governments, etc.

1.4. Factors in Net Cost Contract

In case of PPP for provision of public transport services, under a Net Cost Contract (NCC), private bus operator (PO) considers all factors affecting overall costs

and revenues, profitability and sustainability of business of provision and operation of buses for PT and quotes a well-considered rate against requisite bidding

parameter say, System Management Contribution (SMC) rate . A transparent bidding process used for selecting a successful bidders normally brings out the

most competitive rates , for System Management Contribution (SMC) as bidding parameter, leading to selection of PO - other conditions having been satisfied.

PO, however depending upon the business model selected by the authority, does consider other costs such as those involved with provision of transport

infrastructure; some equipment and facilities to be provided by authority; monitoring and controlling of operations by authority including setting up, equipping,

operation and maintenance of control room; planning and administrative expenses of the authority, utilities and other applicable, rates and taxes, etc. besides

any other expenses for successful provision of PT services as all such expenses are normally recovered from fare box revenues mainly dependent upon user

tariffs. Although in NCC contracts, PO recognises cost of revenue collection as part of input costs for operation and maintenance of PT services, yet in the

proposed system of fare fixation, revision, etc., revenue collection is separated to facilitate incorporation of policy decisions, any other aspect related to provision

of services, for example, to socially relevant but un-economic operations / services, etc.



1.5 Responsibility allocation for different cost heads

Sr

no.

Activities for bus operations in NCC and costs related

there to

Responsibility of / provision by Cost head including all

applicable elements of

costs (Rs per year) for

provision of PT and related

services

Authority (A)

Private

operator

(PO)

Ao - outsourcing by A

a

Travel demand assessment, overall planning, setting

route network, operations planning and scheduling;

setting bus fleet standards, specs and requirements;

benchmarking service quality levels, operators

performance parameters, etc.; contracting of various

services and contract administration; branding of PT

services, etc.; overall monitoring and control of all

activities related to PT operations; all administrative

functions, any other activities related thereto,. All

miscellaneous activities and contingencies for

provision of PT services. Costs for above activities

collectively termed as 'administrative costs' and

termed as 'A'

A - - A

b

Acquisition of bus fleets including investments

therefore, operations and maintenance of buses;

acquisition of set of tools, plant and equipment,

auxiliary vehicles, jigs and fixtures, etc. as decide by

the authority as part requirement schedule of PO - their

investments, operation and maintenance; upkeep and

maintenance of depot infrastructure, plant and

equipment procured and provided to PO by authority

and all other activities as decided by authority at the

time of award of NCC contract. Costs for all above

activities collectively termed as 'cost of inputs for bus

- PO - C



provisioning and operation under NCC' and

designated as 'C'

c

Acquisition of PT infrastructure such as depots,

central workshop if any, including investments

therefore; acquisition of / investment in plant,

equipment and other facilities of infrastructure for

handing over to POs for their usage, operations and

maintenance; acquisition of other infrastructure such

as bus stops, terminals, control rooms, etc. - their

investments upkeep and maintenance, etc.;

acquisition of set of plant and equipment, auxiliary

vehicles, furniture and fixtures, computers, ITS

facilities, equipment, their operation and maintenance,

etc. as provisions by the authority as part of authority's

responsibilities. Costs including operational costs,

consumables cost, maintenance cost; utilities costs

collectively termed as 'I'

A - - I

d

Cost of revenue collection includes those of related

hardware and software, communications, checking,

accounting, etc.

- PO - R

e

Return on investment (ROI) and cost of borrowed

capital, payment of 'SMC' to authority, etc. (Though

ROI, does not normally constitute 'input costs', yet

same is considered here as part of 'input cost' for tariff

fixation as the same is to be recovered from pax tariff

in NCC.)

- PO - B

f Total cost of provision of bus transport services in a NCC model under PPP particularly for user

tariff fixation, etc. T = C + R + I + A + B



1.6 Fare fixation in terms of fare per passenger kilometre

The fare fixation process described here in takes under consideration the input costs identified above to work out the fare per passenger kilometre.

i. Fix bus user fare considering all above elements of input costs including return on investment, cost of capital, depreciation, fees, rates, taxes, SMC,

etc. Bus user fare should be adequate to recover total costs as above.

ii

Fare per passenger km (F): 'F' be worked out considering benchmarked physical performance parameters (namely: Fleet size, category, bus capacity,

fleet utilisation, bus productivity, capacity utilisation) of bus per unit period, say a year. As physical performance of buses deteriorates with usage,

appropriate deterioration factors with respect to various parameters need also be considered. In the following case entire bus fleet is taken as new

comprising of type 1 (non-deluxe standard as per AIS 052) buses and fare fixation is demonstrated during first year of serviceable life of bus.

iii

Physical performance (benchmarked / contracted) and passenger kms serviced per yr. by the fleet.

Description units symbol

a. Avg. Bus fleet size during the yr. nos Q

b. Avg. benchmarked fleet utilisation % W

c. Bus fleet utilised during the yr.=a*b*365 i.e. no. of

days in a yr. bus days U

d. Avg benchmarked bus productivity per bus on road

during the yr. kms per bus / yr. K

e. Bus capacity seated + standees per bus nos N

f. Avg. planned capacity utilisation per bus during the yr.

=percentage of passenger kms utilised to bus capacity

kms supplied(=d*e)

% L

g. Planned usage or supply per yr. per bus on road in

terms of pax kms =d*e*f pax kms P



h. Planned delivery of PT services by contracted bus fleet

during the yr.=g*a*b pax kms D

iv

Total costs (as worked out at 1.5.f above) for provision of

PT services in NCC system as per benchmarked physical

performance parameters.

Rs T

v

Avg fare per pax km of PT service delivered = Avg. cost

of delivery of PT services per pax km during the yr.=1.6.iv

/1.6.iii.h

Rs/pax km F

2. REVIEW / REVISION OF BUS FARE PER PASSENGER KILOMETRE

The review process described here is applicable for all contract types but has been described for Net Cost Contract as fare box revenue forms an integral

part of the potential revenue for a private operator in Net Cost Contract.

Description Unit

Symbol of

various

items /

elements

Quoted /

assessed

values per

year.

Quoted / estimated values in

terms of fare per pax km

Revised Rates for

initial values

quoted /

assessed

Remarks

F as %age of F

2.1

Bus fleet operations,

maintenance, etc. related

costs during the year as at

1.5.b

Rs C C F1=C/D (C*100)/(D*F) Cr

As per bus input cost

details provided by PO

during bidding

2.2

Administrative and other

costs of / by the authority

during the year as at 1.5.a

Rs A A F2=A/D (A*100)/(D*F) Ar=A*Sr/S

As per revision of

Wholesale Price Index 'S'

to 'Sr'

2.3

Costs related to

infrastructure per yr. as at

1.5.c

Rs I I F3=I/D (I*100)/(D*F) Ir=I*Sr/S



Description Unit

Symbol of

various

items /

elements

Quoted /

assessed

values per

year.

Quoted / estimated values in

terms of fare per pax km

Revised Rates for

initial values

quoted /

assessed

Remarks

F as %age of F

2.4 Costs related to revenue

collection per yr. as at 1.5.d Rs R R F4=R/D (R*100)/(D*F) Rr=R*Sr/S

2.5

Return on investment (ROI)

and cost of borrowed

capital, payment of 'SMC' to

authority, etc.

Rs B B F5=B/D (B * 100)/(D * F)

Br=B*(x₂*z₂ +

y₂*2*z₂) / (x₁z₁ +

y₁*2*z₁)

As per revision in

borrowing rates of SBI as

applicable to commercial

vehicles.

Weighted average of

prime lending rate for

commercial vehicles by

SBI on borrowed capital

and twice that rate for

return on own capital

invested. For

example, if borrowed

funds are 'x₁, x₂ ' and own

funds invested are 'y₁, y₂'

and prime lending rates

for commercial vehicles by

SBI are 'z₁, z₂' at bidding

and revision stages

respectively then

Br=B*(x₂*z₂+y₂*2*z₂) /

(x₁z₁+y₁*2*z₁).

SMC payable to Authority

would also get revised at

above weighted average

rates.



Description Unit Symbol of various

items/elements

Quoted/assessed values

per year

Revised Rates for initial values

quoted/assessed

2.6 Total costs during the yr. for provision

of PT services under NCC Rs T T = C + A + I + R + B

Tr = Cr + Ar + Ir + Rr + Br = [Cr + {(Sr /

S)*(A + I + R)} + B * {(x₂*z₂ + y₂*2*z₂) /

(x₁z₁ + y₁*2*z₁)}]

2.7 Planned delivery of PT services during

the year in terms of pax kms = 1.6.iii.h pax kms D D Dr

2.8

Fare per pax km ('F')= cost per pax km

worked out on the basis of total costs

incurred for provision of PT services by

the fleet during the year and quantum

of PT services delivered, in terms of

pax kms, at bench marked physical

performance parameters level during

the year.

Rs / pax km F F=T/D Fr=Tr/Dr

2.9 Revised fare per pax km 'Fr' Rs/pa

x km Fr

Fr= Tr / Dr = (Cr + Ar + Ir + Rr + Br) / Dr = [Cr + (Sr/S) * (A + I + R) + B*(x₂*z₂ + y₂*2*z₂) / (x₁z₁ +

y₁*2*z₁) ] / Dr

2.10 Variation in total cost Rs TΔr TΔr = Tr - T = {Cr + Sr * (A + I + R)/S + B*(x₂*z₂ + y₂*2*z₂) / (x₁z₁ + y₁*2*z₁)} - (C + A + I + R +

B) = (Cr - C) + (A + I + R)*{(Sr/S) - 1)} + B * {(x₂*z₂ + y₂*2*z₂) / (x₁z₁ + y₁*2*z₁)-1}

2.11 Percentage variation in fare

per pax km % FΔr

Δr = (Fr - F) * 100 / F = [(Tr / Dr) - (T / D)] * 100 / (T / D) = [(Tr * D / T * Dr) - 1] * 100 = [{{(Cr +

(Sr / S) * (A + I + R) + B * (x₂*z₂ + y₂*2*z₂) / (x₁z₁ + y₁*2*z₁)) * D} / {Dr * (C + A + I + R + B)}} - 1]

* 100

2.12 Notes:



i. 'C' = Input Cost of bus operation, maintenance, etc., for the fleet during the year as submitted by the contracted NCC bidder during competitive

bidding process and accepted by authority.

ii. 'Cr' = Revised cost of bus operation and maintenance, etc., for the fleet during the year, as per process of revision placed at Annexure 1.

iii. A, I, R, B = Represent costs as brought out at sr nrs. 2.2, 2.3, 2.4, 2.5 respectively in table. Ar, Ir, Rr, Br represent revised costs of A, I, R, B

respectively. Cost revision is based upon variation in Whole Sale Price Indices for A, I, R and that of prime lending rate for commercial vehicles by SBI

for 'B'.

iv. S and Sr: 'S' - whole sale price index initial, at the time of fixation of fares, and 'Sr'- whole sale price index at the time of fare revision.

v. 'T' and Tr : 'T' & 'Tr' - Total (all inclusive) costs, during the year, for providing bus services initially and at the time of fare revision respectively.

vi. 'D' & 'Dr' : 'D' and 'Dr' respectively represent, initial and revised quantum of PT services planned / delivered, in terms of pax kilometres during the

year, at benchmarked physical performance parameters levels.

vii.'F' & ‘Fr’: 'F' &'Fr' - Fares per pax km initial and revised respectively.

viii. 'TΔr' & 'FΔr' : 'TΔr' & 'FΔr' represent variation in total cost and variation in fare per pax km (%) respectively between initial workout stage and the

revision stage

3. FARE REVISION / MODIFICATION IN NCC CONTRACTS FOR SERVICE QUALITY VARIATION

3.1 Revised fare i.e. 'Fr' modified for service quality variations = Frqs

3.1.1 Service quality variation =Qsv = (Qsa - Qsc) / Qsc

where Qsa = actual service quality score over the period of preceding three months & Qsc = contracted service quality score

3.2

Revised fare per pax km incorporating variation in service quality=Frqs:

Frqs = Fr * (1+service quality variation element) or

Frqs = Fr * (1+Qsv) where Qsv value shall be limited to actual or ± 10% which ever absolute value is lower.

For negative value of Qvs, only 60% of Qvs is to be considered in revision.



4. ASSESSMENT OF SERVICE QUALITY VARIATIONS

The assessment of service quality variation shall be done as per details given separately for service quality performance.

5. FARE STRUCTURING – NEED, PROCESS, AND EVALUATION OF STRUCTURED FARE

5.1. Fare Structuring

As discussed earlier basic unit of PT user tariff / fare charged for use of PT services is fare per pax km (F). During the process of fare fixation, 'F' may

work out as a whole number or a whole number followed by a fraction thereof e.g. Rs 1.29 per pax km. Similarly passengers travel trip lengths (in terms

of pax kms) which may also be whole nos and or fraction thereof e.g.8.76 kms. In such a situation working out chargeable fares from passengers would

invariably cause operational and handling inconvenience, journey time delays and other difficulties both for passengers and the tariff collectors. To address

such issues PT routes are divided into a number of fare stages appropriately placed and further adjusted for easy accessibility of passengers from

residential, institutional, educational and other traffic generation locations. Further basic fares are rounded off for operational ease and accordingly pax

tariffs are decided stage wise. This process is generally termed as 'fare structuring' and fares so decided constitute 'fare structures'.

Fare structures may be as simple as flat fare structure - charging one fare from all passengers irrespective of journey time or travel trip length. Fare

structure may also be designed as stage wise fare and or telescopic fare structure and or any other variation / combinations. In case of telescopic

structures, user tariffs tend to decrease with increasing trip lengths.

Fare structures prepared as above need to be evaluated to ensure that revenue generation remains in line with that planned while fixing basic fare i.e.

fare per passenger km. The process of evaluation of fare structures is also discussed along with the process of fare structuring.

5.2 Fare Structuring and fare structure evaluation to ensure that revenue from structured fares match fare fixed / revised in terms of fare per pax kms

The fare structuring assumes the total distance for the route is SL8. A passenger who has travelled a distance more than SL4 but less than SL5 would fall under fare stage 5 and would pay fare f5 and is assumed to have travelled a distance SL5. Thus, the average kilometres paid for by passengers falling under this fare stage is SL5.

Fare

Stage

no.

Fare Slab Stages

Present

fare Rs

per pax

per slab

Avg. pax

kms paid for

Revenue

per stage

Rs

Fare option I -

Flat Fare=T₁

Fare option II - 2 slab

fares=T₂ & T₃

Fare option III -

Stage wise fares

= T₄ to T₁₁

From

(km)

To

(km)

Pax per

period for

each

distance

Revenue per

period at Flat

Fare = RT₁

Revenue per period at

slab wise fares = RT₂₃

Revenue per

period at stage

wise Fares = RT₄

to RT₁₁



i ii iii iv pk = ii * iii r = iii * iv RT₁ RT₂₃ RT₄₁₁

1 0 SL1 p₁ f₁ SL1p₁ r₁

RT₁ = T₁ * ∑(p₁ to

p₈)

RT₂=T₂*(p₁+p₂+p₃+p₄)

RT₄=T₄*p₁

2 SL1 SL₂ p₂ f₂ SL2p₂ r₂ RT₅=T₅*p₂

3 SL₂ SL₃ p₃ f₃ SL3p₃ r₃ RT₆=T₆*p₃

4 SL₃ SL₄ p₄ f₄ SL4p₄ r₄ RT₇=T₇*p₄

5 SL₄ SL₅ p₅ f₅ SL5p₅ r₅

RT₃=T₃*(p₅+p₆+p₇+p₈)

RT₈=T₈*p₅

6 SL₅ SL₆ p₆ f₆ SL6p₆ r₆ RT₉=T₉*p₆

7 SL₆ SL₇ p₇ f₇ SL7p₇ r₇ RT₁₀=T₁₀*p₇

8 SL₇ SL₈ p₈ f₈ SL8p₈ r₈ RT₁₁=T₁₁*p₈

Total p = ∑(p₁ to

p₈)

pk = ∑(SL1p₁

to SL8p₈)

r=∑(r₁ to

r₈) RT₁=T₁ * p RT₂₃=RT₂+RT₃

RT₄₁₁ = ∑(RT₄ to

RT₁₁)

5.3 Average fare box revenue per passenger kilometre with respect to each option

F=r/pk F₁=RT₁ / pk F₂₃= RT₂₃ / pk F₄₁₁= RT₄₁₁ / pk

5.4 Fare Structuring Process Illustration

Fare

Stage

no.

Fare Slab Stages

Present fare Rs

per pax per slab63

Avg. pax kms

paid for

Revenue per

stage Rs

Fare structure

options at 'F' =

1.50 per pax

km

63 Assumed from existing fare structures from different locations in India



Fare option I --

Flat Fare=T₁

Fare option

II -2 slab

fares=T₂ &

T₃

Fare option

III - Stage

wise fares=

T₄ to T₁₁

From

(km) To (km)

Pax per period

for each

distance

Revenue per

period at Flat

Fare = RT₁

Revenue

per period

at slab wise

fares = RT₂₃

Revenue

per period

at stage

wise Fares

= RT₄ to

RT₁₁

i ii iii iv pk = ii * iii r = iii * iv RT₁ RT₂₃ RT₄₁₁

1 0 2 15 3 30 45

10

10

5

2 2 4 10 5 40 50 8

3 4 6 25 7 150 175 10

4 6 8 12 9 96 108 12

5 8 10 13 11 130 143

15

15

6 10 12 11 12 132 132 17

7 12 14 8 13 112 104 20

8 14 16 6 14 96 84 20

5.4.1 Totals

i Total pax 100



ii Total pax kms paid for 786

iii Total revenue Rs 841 1000 1190 1211

iv Planned fare per pax km 'F' Rs 1.10 1.50 1.50 1.50

v Tariff per pax km Rs ('Fc') for structured fares 1.07 1.27 1.51 1.54

5.5 Comparisons of fare per pax km planned('F') and that obtained 'Fc' in various fare

structures

Almost

matches

with 'F'

Fc' < 'F' -- fare

structuring

need to be

improved. For

example flat

fare fixed as Rs

12/- per pax,

'Fc' works to Rs

1.54 per pax

km. which is in

the range of

that planned

i.e. 'F'=Rs1.50/-

and thus

should be

accepted

Fc' ≥ ‘F’ i.e.

Rs 1.51/- as

obtained

using

structured

fare is equal

to that

planned i.e.

'F' = Rs

1.50/- . Fare

structuring

should be

acceptable.

Fc' ≥ ‘F’ i.e.

Rs 1.54/- as

obtained

using

structured

fare is more

than that

planned i.e.

'F' = Rs

1.50/- . Fare

structuring

should be

acceptable.



6. BUS INPUT COST REVIEW PROCESS

6.1. Bus input cost is the cost of operation, maintenance, etc. incurred by a Private operator (PO) for provision of buses for a Public Transport (PT) as

contracted and or revised by the authority, to operate passenger transport services in the operational area of the authority on routes, trips, timings, schedules,

etc. and as per other terms and conditions as finalised. SMC by PO is fixed in terms of Rupees per revenue earning km operated by a bus. Beginning and end of

revenue earning km shall generally be the start/end points of designated route(s) and or locations as finalised by the authority. SMC would automatically stand

revised in line with revision in parameter 'B' of fare revision elements.

6.2. Service quality performance shall be computed in respect of parameters and as per procedure detailed at Annexure XI of the document.

6.3. Authority shall initially mention, then applicable tariff structure for PT services, in the RFP and fix SMC on the basis of open tenders and or by any other

method / procedure decided by the authority.

6.4. While quoting rates, bidders have to provide cost element wise break up of input cost besides composite cost of operation and maintenance, etc. per km.

Benchmarked Service Quality performance levels for various parameters, process / formula, periodicity of assessment in each case as well as formula to assess

variation in overall service quality would form part of RFP document in a prescribed format. PO agrees to deliver service quality performance in respect of various

service quality parameters and its use in reviewing tariffs and SMC.

6.5. Above cost break up and the performance shall be used for amending the rate periodically.

6.6. PT tariffs in NCC system shall be amended periodically on the basis of variation in input costs and or performance of PO, particularly with reference to

service quality parameters, achieved during the period for revision of tariffs. Contracted parameters / cost data shall also be considered for review of user tariffs.

6.7. Initially quoted rate for SMC shall remain firm for a minimum period of six months from the date of induction of first bus of the PO.

6.8. Performance of PO shall be regularly monitored for various parameters during above period. On basis of performance during last month of above period,

and the input cost per km, Authority would consider tariff revision subject to approval by the concerned Government / Agency. However tariff review would be

undertaken once in six / twelve months or later subject to variation in cost inputs and or service quality performance exceeding ---- % of previous levels. Revised

rate shall be applicable during the following period. This process shall be followed thereafter unless quality performance levels warrant otherwise, in which case

review / revision of tariff rates or any other action deemed fit may be undertaken earlier by the authority.

6.9. Revision of tariff and SMC shall be undertaken as per formula given in tender document.

6.10. Quality performance for the purpose of tariff rate revision shall be taken for total bus fleet deployed by PO.

6.11. Responsibility for highlighting/submitting details of variations in cost of inputs shall be that of the PO and that for assessment of service quality performance

shall be of the authority.

6.12. Tariff / SMC rates fixed and or modified herein would remain valid only for present contract. Should for any subsequent contracts the rates, terms and

conditions obtained are more beneficial to Authority, later (Authority)) shall have the right to implement the same for existing PO who shall be obliged to accept

the same failing which Authority may take action against the concerned PO as deemed fit.



6.13. Authority shall have right/option to ask PO to deploy more buses (up to 25% of the currently deployed quantum of buses within one year of induction of

first bus) from existing PO as per rates, terms and conditions currently applicable.

7. FIXING/AMENDING COST OF INPUTS FOR BUS FLEET OPERATION AND MAINTENANCE UNDER NCC

Sr nr. Input Cost elements Symbol of

Contracted /

tendered rate

per bus km*

Contracted /

tendered rates

as %age of CT

Remarks

cost element Rs/ bus km#

7.1. Input Cost per bus km(cpk)

7.1.1. Staff/Labour cost per km inclusive of overheads but excluding

revenue collection and repair maintenance cost ST ST

7.1.2. Fuel, Oil and lubricants cost per km FO FO

7.1.3. Tyres cost per km TY TY

7.1.4. Repair and Maintenance (R&M) cost per km (Rs / km) includes

labour for R&M, materials, spares, etc. # RM RM

7.1.5. Depreciation on buses, plant and equipment provided by PO DP DP

7.1.6. Taxes, fees, Insurance, etc. per km TX TX

7.1.7. Other charges per km OT OT

7.2. Total cost per km CT CT

7.3. Note: Item values marked '*' are only indicative values for assessing overall cost variations in future and may not reflect actual consumptions. '#'

rates as finalised by authority on receipt of bids

7.4. For revision of input cost per km following parameters/cost data be considered

7.4.1. Elemental input cost variations

Sr nr. Cost element wise details Rates Rs per unit at Remarks



Affected Cost

element (symbol)

Contract stage

Revision stage

i. Minimum labour wage rate for highly skilled labour as fixed by

concerned State Govt ST ST1 ST2

ii. Fuel rate Rs per litre (as applicable to concerned city PT Agency) FO FO1 FO2

iii. Tyres cost /km (DGS&D rate contract rates) TY TY1 TY2

iv. Wholesale Price Index as applicable to Automobiles for calculation

of variations in repair and maintenance related cost element. P P1 P2

v. Depreciation DP DP1 DP2

vi. Tax basket Rs./bus/year '=Sum of MV tax, pax tax, permit fees,

Insurance, etc. per year per bus TX TX1 TX2

vii. Others (administration, utilities, etc.) as per variation whole sale

price index OT OT1 OT2

7.4.2. 3 NOTES

i Fuel cost Rs. per litre of fuel

ii Tax basket rate to be calculated by adding annual individual taxes per bus. For taxes charged on basis of passenger seats, its annual value shall

be worked out by multiplying annual tax rate by contracted carrying capacity (seated plus standee passengers) of the bus.

iii For revision of staff related costs, minimum wage rate of highly skilled workman shall be taken as the basis

iv. Revision in repair and maintenance cost element, whole sale price index of auto parts / automobiles would be considered.

7.5. 4 Basic revised input cost per km = CT2

CT2 = ST * ST2 / ST1 + FO * FO2 / FO1 + TY * TY2 / TY1 + P * P2 / P1 + DP

* DP2 / DP1 + TX * TX2 / TX1 + OT * OT2 / OT1 or a simplified version of

above as under may also be used CT2b (simplified) = ST * ST2 / ST1 + FO *

FO2 / FO1 + A * W2 / W1 where, 'W' is whole sale price index for all items and

'A' is sum of all other cost elements' contracted values i.e. A = TY1 + RM1 +

DP1 + TX1 + OT1



ANNEXURE XIV – BLOCK COST ESTIMATES (All costs are indicative)

Block Cost Estimates – broadly capital and revenue expenses – block estimates –bus fleet of 100 standard size non AC buses

Sr.

No. Component

Authority GCC NCC Total

staff Financial

implication (Rs.

In lakhs)

staff Financial

implication

(Rs. In

lakhs)

staff Financial

implication

(Rs. In lakhs)

staff Financial

implication

(Rs. In lakhs)

A Ao

I Capital expenses –

1 Infrastructure

1.1 Land 5 acres per depot of 100 buses @ Rs

1000/ per sq mtr 40 40

1.2 Buildings and all other civil construction

works complete with utilities and workshops

– ready to use i.e. buildings, workshops,

offices, control room, hard standing,

boundary walls, complete set of utilities

including high mast lights - all fully installed

and commissioned @ Rs 6000/= per sq mtr

of land area - weighted average

240 240

1.3 Bus terminals



1.3.1 Land about 5 acres at one or more locations

depending upon city needs @Rs 1000/= per

sq mtr

40 40

1.3.2 Bus Terminal – all civil works – buildings,

hard standing, boundary wall, etc. as above

@Rs 3000/= per sq mtr of land area –

completed as above at 1.2.

120 120

1.4 Bus shelter @ 2 bus shelters per km of

route length- one on each side of road –

total route length of about 100 kms per city

each shelter costing@ Rs 10 lakhs per

shelter – land available free

200 200

1.5 Miscellaneous expenses and contingencies

– lump sum 50 50

1.5 Total Land and buildings 690 690

2.0 Plant and equipment, ITS, Control room,

etc.

2.1 Plant and equipment

2.1.1 Plant and equipment for repair and

maintenance of bus fleet including latest

driver training equipment, facilities and

simulator

350 350 350 700

2.2 Other miscellaneous equipment such office

furniture, air conditioners, vehicles,

computers, communication systems, etc.

40 20 40 40 100



2.3 ITS and Control room equipment including

those for data capturing, mining,

processing, analysing, report generations,

etc., other ITS equipment, software, etc. on

– board equipment with buses, and data

communication equipment, vehicle tracking

equipment on line, etc. by authority and PO

almost equally divided - assumption

200 200 200 400

2.4 Total for plant and equipment for 100 buses

maintenance

3.0 Buses

3.1 Buses -- 100 nos, low floor standard size

non AC diesel fuelled as per UBS II @Rs 50

lakhs per bus

5000 5000 5000 5000

II Operation and maintenance costs of PT

system of 100 buses

Nos Annual cost Rs

in Lakhs Nos

Annual

cost Rs in

Lakhs

Nos Annual cost

Rs in Lakhs Nos

Annual cost

Rs in Lakhs 1.0 Bus fleet and ITS, staff costs for Operations

and maintenance:

1.1 Staff for bus fleet O & M

Bus fleet operations and maintenance

management, administration, checking and

supervision, supervisors, managers, etc.

including CEO @8 man per bus for 2 to 2.25

shift working daily on an average and

government agencies leave, etc.; and

20 (335 by

revenue

collection

agency

outsourced)

60 1005 445 1335 780 2340 800 2400



average cost to the company as Rs 25000/=

per staff per month

Staff distribution per bus taken as under:

Drivers : 3

Conductors : 3

Inspectors, Supervisors, Engineers,

Managers : 0.5

Workshop & Maintenance : 1

Administration, accts, etc. : 0.5

Total Staff per bus : 8

1.2 Staff for ITS – O & M 15 45 10 30 10 30 25 75

2.0 Maintenance expenses

2.1 Bus fleet maintenance

Maintenance expenses for materials,

spares, bought out items, consumables,

etc. for bus fleet, etc. maintenance and

management, etc.

500 500 500

2.2 ITS and control room items

ITS system maintenance including

manpower etc. outsourced @20% of ITS

capital costs

40 40 40 80

2.3 PT infrastructure maintenance expenses



PT infrastructure maintenance @5% of

infrastructure cost (less land cost) 31 31 31

2.4 Plant and equipment maintenance

expenses @10% of P & E’s capital costs 41 39 39 80

3.0 Fuel and Lubricants costs

3.1 Fuel cost – Fuel Efficiency as 3.0 kmpl and

diesel rate as Rs 50 per litre, bus

productivity as 200 kms per bus held

1220 1220 1220

3.2 Lubricants 30 30 30

3.3. Depreciation, interest, etc. on borrowed

funds, etc. @15% of capital expenses 153 839 839 992

3.4 Miscellaneous expenses including taxes,

rates, utilities, communication, auxiliary

vehicles operation, etc. @ 33% of labour

costs

20 335 445 780 800

III Grand totals

1.0 Capital costs 1080 220 5590 5590 6890

2.1 O & M expenses in one year for 100 bus

fleet

2.1.1 In GCC 233 1466 4509 - 6208

2.1.2 In NCC 233 126 - 5849 6208

3.0 Revenue in a year for 100 bus fleet at a

fare per pax km rate of Re 1.00, bus fleet 3577 3577 3577



average load factor of 0.70, bus carrying

capacity of 70 pax


fare per pax km rate of Re 1.50, bus fleet


capacity of 70 pax

5366

5366

5366


fare per pax km rate of Re 1.75, bus fleet


capacity of 70 pax

6260

6260

6260

Summarising:

1. Overall capital expenses of about Rs 69 crores required for operationalising a bus fleet of 100 standard size low floor Non – AC buses

2. Fare per pax km of Rs 1.75 – considering no discounts and highly optimistic, year-long, average load factor of 0.70 – would need to be charged for

recovering all expenses from user tariff only.

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