1. Project on
London Bus
success story
Prepared by: Neeraj Mandloi
Supervised by: Dr. Martin Lodge
Course: 15th Chevening Gurukul Program 2012

2. London Bus : A Success Story…
A study of the evolution of
The London Bus tendering system
and role of various
Governmental organs
with a special focus on the
unique features
of the current system of tendering
Leading to overall improvement in various
performance parameters.
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3. London Buses: Some Facts- I
2.5 Billion 500 Million Kilometers of total travel
500 Million Kilometers of total travel
Passenger trips per year for these passengers
for these passengers
Total Number of Buses Approx. 7000
Passengers per Day Over 6 Million per day
Operating Routes 748 ( and growing)
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4. London Buses: Some Facts-II
Like Most Public Transport systems,
it is not a commercially viable activity
YEAR Annual Government Subsidy
2000 £ 41 million
2004 £560 Million
2011 £690 Million
£414 milion (40% reduction
2018 Planned)
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5. A Chequred path towards creation of
outstanding organs
1970
The London Public
transport Board was
1933 reorganized into a
London’s Public transport
new organization
was brought together for
the first time under London called London
Public Transport Board Transport (LT).
(LPTB).
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6. A Chequred path towards creation of
outstanding organs
1986
All the bus services outside
London were deregulated,
1984 meaning any licensed
operator could, on his own
The London Regional transport
act was passed which set up initiative, run any route at a
subsidiary companies to run schedule of his choice.
buses. This subsidiary company However, the Bus system
was called London Buses within London remained
Limited (LBL).
reregulated.
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7. A Chequred path towards creation of
outstanding organs
1999
Greater London Authority
Act (GLA Act) was
1992 passed which led to the
LBL was still operating about replacement of London
60% of routes through its 13
subsidiary companies where Transport (LT) with the
each was a profit center in itself now popular Transport
while the private operators were for London (TfL) authority
running about 40% of routes
in 2000.
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8. Transport For London (TFL)
Transport for London (TfL) is
mandated to
a) Plan,
b) Procure
c) Manage
the public transport system in
London.
The GLA act provides for
promoting fair and sustained
competition for the same.
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9. Transport For London (TFL)
TfL has a specialized arm called
London Bus Limited (LBL)
to look after the bus transport
in general and the following
aspects in particular;
Plan Routes
Specify service levels
Monitor service quality
Develop and maintain bus
stop infrastructure
Conceive , execute and run
the tendering system
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10. A balance of Beaurocrats, Civil
Society and People’s representatives
London Assembly: Elected reps.
Greater London Authority: Mayor
(Chair pereson) and 25 elected
London Assembly Reps
Travel for London (TFL): Mayor
(Chair person) and professionals
and experts headed by
Commissioner.
London Travel Watch (LTW): A
civil Society funded and supported
by London assembly but
independent.
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11. London Buses: Evolution of Privatization
1985-1995
Gross cost contracts.
This meant that the authority was
taking the entire risk and private
operators were given payments for
the tendered amount to run bus
services as per the service level
agreements.
Positives:
A good first step.
Built Confidence.
Built Capacities.
Negatives:
No incentive to perform better.
Lack of modern IT systems.
Accounting of revenue.
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12. London Buses: Evolution of Privatization
1995-2000
Net cost contracts.
The net subsidy regime requires
operators to estimate the difference
between operating costs and
revenues and bid accordingly.
This was not subject to competition
and the entire ticket revenue was
retained by LBL.
Positives:
Incentive to improve revenue
Shift of partial risk on operator
Further capacity building
Negatives:
Not tendered but negotiated
For LBL subsidies, it was block grant.
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13. London Buses: Evolution of Privatization
2000 onwards
Finally, in 2000, TfL, armed with the
new mandate under the act, went for
the most innovative and successful
Quality Incentive Contracts (QIC).
In the present reference, it is important
to define tendering as:
The allocation [by government
agency] of a protected or
exclusive right to exploit or
carry out an activity” such
that “consumers or the public
gain an advantage .
(Baldwin and Cave, 1999)
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14. QUALITY INCENTIVE
CONTRACTS:
UNIQUE FEATURES-I
 Contracts provide incentives to operators to improve quality.
 Routes, although tendered individually, are clubbed in clusters
to help operators develop bases and strengths in preferred
localities.
 The initial period of contract if five years with an incentive
extension of two years.
 Each year, about 20% of routes are tendered so at any given
time, TfL has all variations of lengths of contracts running and
provides a unique and continuous nature of activity by
introduction of new contracts every year.
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15. QUALITY INCENTIVE
CONTRACTS:
UNIQUE FEATURES-II
 There is an elaborate system of prequalification of
potential
 Tenders are evaluated first on viability and non
workable rates are rejected thereby eliminating any
possibility of compulsive undercutting by the
contractor.
 Primary financial evaluation is on the basis of
mileage operated and overall service parameters
offered.
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16. QUALITY INCENTIVE
CONTRACTS:
UNIQUE FEATURES-III
 Service parameters mainly include frequency and
timings.
 Safety is usually not an evaluation criteria because it is
non negotiable and has a zero tolerance policy.
 LBSL complies with the EU procurement directives for
transparency and fair competition which are the world
standard in public procurement.
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17. QUALITY INCENTIVE
CONTRACTS:
UNIQUE FEATURES-IV
Payment procedure and deductions
LBSL operates a 4 week accounting cycle. 75% of the
contracted amount is paid by LBSL at the end of 4 th week
without any questions asked as long as the operator is
running buses.
The remaining calculation of incentives or deductions is
done within next 4 weeks based on the data and records
and the balance payment is made within that time frame.
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18. QUALITY INCENTIVE
CONTRACTS:
UNIQUE FEATURES-V
Clear demarcation of responsibilities
A clear division of responsibilities between LBSL and the
private operator is another feature, which has been
instrumental in cementing a lasting relationship.
An outstanding example of single window service
LBSL has also taken the task to coordinate with any
government or public authority regarding anything to do
with London Buses, thereby protecting the private
operators to individually pursue their cases with other
public authorities.
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19. QUALITY INCENTIVE
CONTRACTS:
UNIQUE FEATURES-VI
Matter of Faith in Partnership:
The overall concept of putting faith on the private operator and treating
him as a partner rather than a contractor who has to deliver and the
government only has to monitor.
Examples:
Clear shouldering of responsibilities of coordination with public
authorities
TfL supports and maintains an entire transport operational
command unit, which is a dedicated team of metropolitan Police
force to deal with any enforcement or crime/accident related
issues.
TfL supports and maintains an efficient ambulance and medical
assistance service system
The trust is also evident in the deductions clause of contract.
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20. QUALITY INCENTIVES-I
Quality Incentives:
The Quality Incentive provisions of the Contracts have
two parts of financial incentive to the private operator.
The first part remains his main bid amount which
covers primary performance monitoring systems. These
are;
Mileage operated.
Reliability (Adherence to agreed schedule).
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21. QUALITY INCENTIVES-II
The second part of the incentive payment is based on the extra performance
delivered by the private operator over and above the minimum performance
norms. These are;
Driving Quality :
This program is build on Mystery Traveller surveys deployed by LBSL and
based on the objectively monitored criteria, the driving quality is assessed on a
numerical scale.
Vehicle Quality Monitoring:
This program is based on pre announced as well as surprise inspection of
vehicles and takes into account the corrective and preventive maintenance
procedures adapted by the operators.
Customer Satisfaction:
The three London Buses customer satisfaction surveys (CSS) done annually
give marks to the operators and the incentive is linked to the performance.
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22. QUALITY INCENTIVES-III
Currently, the private operators
generate 70% to 80% of their
revenues through the routine
performance and 20% to 30%
through incentive payments.
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23. Conclusions and Lessons for India
FROM:
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24. Lessons for India
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25. London Bus : A Success Story…
Lessons for India-I
It is vital for the authority to maintain
workable rates for tenders and reject any
bids that seem to be unviable right at the
beginning.
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26. London Bus : A Success Story…
Lessons for India-II
 The service to be supplied must be specified, at least in
part, in advance. Less precise specification leads to
difficult implementation issues giving rise to complaints
and disputes.
 Ideally, revenue risks should be shared between the
authority and the operators.
 It must be possible to monitor the performance of the
operators at reasonable cost.
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27. London Bus : A Success Story…
Lessons for India-III
 A continuing program of letting tenders, as in London’s
method of basically tendering approx. 20% of the
network each year seems sound.
 Smaller tenders are to be preferred to bigger tenders
except when there is the possibility of packaging tenders
into joint bids.
 Capacity building needs to be done on both sides, the
public authority as well as private operators. This does
not happen overnight
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28. London Bus : A Success Story…
Lessons for India-IV
 As in any democratic system, there shall be turf
war between people’s representatives and
technocrats/experts regarding decision making
processes.
 More so in case of public transport because the
decisions affect citizens directly and involve big
sums of money.
 London has shown a way to create systems
and organisations to handle this in a mature
manner.
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29. London Bus : A Success Story…
Thank You
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