West Yorkshire bus franchising

[MotCO]

In the provinces the councils often show some flexibility and are willing and able to negotiate price increases outside normal timescales when these changes occur,

But surely this can only be in the margins, or else an unsuccessful bidder could cry 'foul'.

 

[TheGrandWazoo]

It would often appear that the issue is that the procurement people who write the underlying contractual terms don't understand transport so tie cost increases to standard inflation terms (CPI or RPI) rather than bus industry costs (which often jump in sudden acts well above standard inflation, such as fuel costs) whilst the transport teams who write the service specs aren't able to adjust the standard T&Cs (you also often see it in some of the questions you are asked on the forms where there are several questions that make no sense, or are entirely irrelevant, to a bus operator and so are difficult to answer but is necessary and logical for another activity a council may buy in).

You're absolutely right.

They will apply measures like CPI or CPIx (CPI without mortgage costs as a factor) which businesses can take a reasoned view on unless you have some sort of Covid era shock. It's relatively appropriate for staff and utility costs, but not for fuel which is much more volatile. The other issue is those legislative changes that impact the cost base - I mentioned about the increase in National Insurance Contributions as something that operators had no visibility of and, if you don't have the ability to review pricing, it too eats into margin.

But surely this can only be in the margins, or else an unsuccessful bidder could cry 'foul'.

You might think that. Procurement people like to do two things... screw the price down AND make sure that it is relatively fixed, especially in public sector. That's because we've seen procurements in the past that have spiralled upwards in terms of cost so they try to avoid bad tabloid headlines.

And if you think that operators can just throw in the contract after 3 years of a 5 year term... Well, I can't say I've seen the contracts for Manchester or West Yorkshire but there may well be an early termination penalty that says if you do so, you're not only liable for the costs of running a new procurement exercise but also the variance between the new costs and your original tender.

Faced with that sort of challenge, operators tend to "price in risk" so you take a view of how things might change. Of course, the second challenge is that it's a competitive tendering process so you don't want to build in too much contingency and make your bid uncompetitive.

 

[MotCO]

And if you think that operators can just throw in the contract after 3 years of a 5 year term... Well, I can't say I've seen the contracts for Manchester or West Yorkshire but there may well be an early termination penalty that says if you do so, you're not only liable for the costs of running a new procurement exercise but also the variance between the new costs and your original tender.

I've not seen contracts like that. Those in London were typically 5 +2 year contracts, so presumably there is no penalty for terminating at 5 years. And what happens if the contracted is terminated after 3 years because the contractor has gone bust - there would be no money to pay such penalties.

If there are penalties for early termination for contractors, are there penalties on the commissioner for terminating contracts early as well? For example, if the route is cut back, hours of operation reduced etc?

But I suspect we are beginning to drift off topic.......

 

[Dwarfer1979]

But surely this can only be in the margins, or else an unsuccessful bidder could cry 'foul'.

Who is going to cry 'foul'? We are talking several years into the contract of a tendered bus service and all operators want to benefit from council flexibility so you would have to be a grade 'A' idiot to kick up a fuss over an operator getting the same treatment you are asking for and these sort of negotiations and matters are less publicly known.

It will be harder for this to happen under franchising as everything is more rigid and contractual so if the operator doesn't get their pricing right and the authority don't get their price review (inflationary increases) right then that is where the friction will kick in.

I've not seen contracts like that. Those in London were typically 5 +2 year contracts, so presumably there is no penalty for terminating at 5 years. And what happens if the contracted is terminated after 3 years because the contractor has gone bust - there would be no money to pay such penalties.

If there are penalties for early termination for contractors, are there penalties on the commissioner for terminating contracts early as well? For example, if the route is cut back, hours of operation reduced etc?

But I suspect we are beginning to drift off topic.......

They aren't common in the bus industry with normal tendering, though I do know one of the Combined Authorities had a contractual term requiring an operator to pay the difference between their price and the replacement operator for the term of the original, contract if they handed it back and a shire county who had a term that meant if you handed back a contract early you were removed from the tender list. Whilst never explicitly stated by either party it is suspected that a punitive contract guarantee against the owning group was why Stagecoach pulled out of Dumfries & Galloway given what they said.

They are more common with larger outsourcing contracts, which bus 'franchising' comes under and all the rail franchises had such guarantees (and the guarantees/penalties are with the owning group not the operating subsidiary so a big group making their subsidiary go bust won't get them out of it) to stop businesses trying to wriggle out of a poorly performing contract.

As my dad, who used to work in IT procurement as a consultant, says "the profit is in the variance". Depending on how well written was the original contract the variation may well be where contracts are rescued, either marking up enhancements above actual cost or not passing on all savings of reductions, but it does depend on how well written the contracts were (and UK government at all levels does appear to be particularly bad at writing these sort of things in general). Even with normal bus contracts there are notice periods that have to be adhered to (often related to registration notice periods for instance) and a council would be as tied to them as the operator is - as with many of these things in the deregulated market with normal route tenders there may be flexibility from both sides (we'll forgo some of the notice on ending now because you were flexible earlier) assuming the relationship is good but that is less available in the more formal and contractual franchise system.

 

[Tetchytyke]

It would often appear that the issue is that the procurement people who write the underlying contractual terms don't understand transport so tie cost increases to standard inflation terms (CPI or RPI) rather than bus industry costs

It's not that they "don't understand transport" so much as the simple fact that any cost escalator has to be clearly defined for it to withstand any sort of legal scrutiny. CPI and RPI are both clearly defined and independently set and verified and so they are the logical choice for any sort of contractual cost escalation. I don't see how you can define it any other way.

Fuel is probably the biggest cost variable but the prices now fluctuate so rapidly that how can you ever hope to price that fairly into a cost escalator? The price can change by a couple of pence per litre even from one day to the next, depending on what mood the orange ape in Washington is in on any given day. Some companies can hedge their costs and some cannot. Even with hedging, sometimes the prices go up and you got a good deal and sometimes the prices go down and you got a bad deal. So do you give a windfall to a company who hedged well/bought on a good day or do you penalise a company who hedged badly/bought on a bad day? Take an average and you may as well have just used CPI or RPI. Use what the operator actually paid and there's no incentive for them to buy sensibly.

== Doublepost prevention - post automatically merged: Monday at 14:48 ==

I've not seen contracts like that. Those in London were typically 5 +2 year contracts, so presumably there is no penalty for terminating at 5 years. And what happens if the contracted is terminated after 3 years because the contractor has gone bust - there would be no money to pay such penalties.

Sullivan's Buses is the perfect example of how there's no easy solution. An SME and on contracts that reflected their SME status, when they went bust they owed TfL almost £400k and owed the taxman £1.3m. And that won't include the cost to TfL of having to retender their routes at short notice.

 

[TheGrandWazoo]

Fuel is probably the biggest cost variable but the prices now fluctuate so rapidly that how can you ever hope to price that fairly into a cost escalator? The price can change by a couple of pence per litre even from one day to the next, depending on what mood the orange ape in Washington is in on any given day. Some companies can hedge their costs and some cannot. Even with hedging, sometimes the prices go up and you got a good deal and sometimes the prices go down and you got a bad deal. So do you give a windfall to a company who hedged well/bought on a good day or do you penalise a company who hedged badly/bought on a bad day? Take an average and you may as well have just used CPI or RPI. Use what the operator actually paid and there's no incentive for them to buy sensibly.

Fuel escalators are employed in the road transport (freight) sector extensively.

• Agree what the percentage of overall cost that fuel represents
• Have a base notional fuel price (xxx pence per litre) against which your overall cost base is created
• Have an independent fuel price source (e.g. RHA)
• Have a scale that then uses that independent pump price to create either a surcharge or rebate against that overall cost on a monthly basis

This is not uncommon in the freight sector. It's not perfect but in the round, it works and it's better than having nothing.

So yes, @Dwarfer1979 is right. They don't understand transport.

 

[MotCO]

Fuel escalators are employed in the road transport (freight) sector extensively.

• Agree what the percentage of overall cost that fuel represents
• Have a base notional fuel price (xxx pence per litre) against which your overall cost base is created
• Have an independent fuel price source (e.g. RHA)
• Have a scale that then uses that independent pump price to create either a surcharge or rebate against that overall cost on a monthly basis

This is not uncommon in the freight sector. It's not perfect but in the round, it works and it's better than having nothing.

So yes, @Dwarfer1979 is right. They don't understand transport.

Would the increasing move to EVs remove the fuel price volubility? I assume electricity prices do not change so frequently.

 

[D6130]

I spotted one of the brand new Mercedes Access Buses - immaculate in the two-tone green Weaver Network livery - heading Westwards empty through Hebden Bridge on the A646 yesterday afternoon. Couldn't catch the registration number, but the fleet number was 59. I wonder whether it was heading for the TLC depot at Eastwood or the First Halifax depot at Millwood (Todmorden)?

 

[Leedsbusman]

I spotted one of the brand new Mercedes Access Buses - immaculate in the two-tone green Weaver Network livery - heading Westwards empty through Hebden Bridge on the A646 yesterday afternoon. Couldn't catch the registration number, but the fleet number was 59. I wonder whether it was heading for the TLC depot at Eastwood or the First Halifax depot at Millwood (Todmorden)?

Do First run access bus?

 

[mattb7tl]

Do First run access bus?

TLC. I believe they are the only operator, could be wrong.

 

[Andyh82]

TLC. I believe they are the only operator, could be wrong.

Following the demise of CT Plus, TLC do operate access bus county wide

 

[D6130]

TLC. I believe they are the only operator, could be wrong.

Yes....since my previous post, I've spoken with a TLC driver in Hebden Bridge and you are correct. They told me that 40 new access Buses had been ordered and all of those delivered so far have gone to Bradford. The Eastwood (Hebden Bridge/Todmorden local services) - based drivers have been complaining that they have been getting all the old, knackered cast-off Optare Solos from Bradford as the new access buses have been delivered. Perhaps no. 59 was en route to Eastwood to redress the balance?