Transforming Catalonia’s Mobility System for Net Zero

Annex I. Good practices from international experience for concession renewals

Catalonia could build on international experience on contract design and tendering processes for the concessions’ renewal process that will take place in 2028. This Annex describes good practices in terms of contract duration and extension periods, revenue collection, revenue-risk arrangements (net and gross cost), and key performance indicators (KPIs) to increase quality of service.

Evidence suggests that public transport contracts with a duration below ten years, and with extensions below 5 years, foster competition and increase service quality (GGI, 2018[54]; ITF, 2021[55]). Table A I.1 shows contract duration periods in selected cities for conventional buses and bus rapid transit. The ideal contract duration period varies with the local context and type of services and longer contracts may be needed to attract bidders to routes with low demand. Extension-wise, Transport for London (TfL) proposes 2-to-3 years contract extensions to ensure flexibility to adapt services (ITF, 2021[55]).

Table A I.1. Contract duration period in selected cities

	Conventional buses	Bus Rapid Transit
León (Mexico)	15 years	-
Mexico City (Mexico)	10 years	10 years
Uberlandia (Brazil)	10 years	10 years
Stockholm (Sweden)	8-10 years	-
London (UK)	5 years	-
Bogota (Colombia)	24 years	15 years

Source: Authors, based on (GGI, 2018[54]).

Staggered tendering can reduce administrative burden and bottlenecks at the time of renewing multiple contracts. For example, TfL renews 15% to 20% of contracts each year (GGI, 2018[54]), which allows TfL to dedicate more time to each contract while reducing human resource needs for the administrative processes, as contracts are not all up for renewal at the same time (ITF, 2021[55]).

International experience suggests that gross-cost contracts coupled with performance bonuses and economic penalties linked to specific KPIs (punctuality, cleanliness, etc) lead to services with higher quality than those based on net-cost contracts or gross-cost contracts without KPI-tied bonuses and penalties (ITF, 2021[55]; GGI, 2018[54]) (Box A I.1). TfL experience in this sense may be useful for the 2028 contract renewal process in Catalonia. TfL experienced improvements in service quality when the institution transitioned from net-cost to gross-cost contracts tied with incentives and penalties. Before 1993, London transport services were based on gross-cost contracts. Without performance incentives, these contracts led operators to cut spending to maximize revenues, resulting in low service quality (ITF, 2021[55]). After 1993, London transport authorities shifted to net-cost contracts with no success: the model still incentivised cost-cutting instead of service quality (ITF, 2021[55]). In 2000, TfL was created and transitioned to gross-cost contracts with bonuses awarding operators for service quality beyond the quality established in the contract, as well as penalties for failing to meet contract requirements (ITF, 2021[55]).

Box A I.1. Gross-cost and net-cost contracts

In gross-cost contracts, transport authorities pay a fixed amount to operators to provide a specified level of service and own the fare revenues. Gross-cost contracts ensure a stable income to operators, which may allow for better planning and service continuity, particularly in contexts of low-demand where revenue risk is higher. They could imply, however, a revenue risk for public administrations, as operator has no incentive to increase revenues and/or quality of services as they would not benefit from the additional profit from such increase (ITDP, 2018[56]). This risk may be reduced via performance-based bonuses. Performance-based bonuses attached to key performance indicators (KPIs) included in the contract can incentivise high quality of service and increase ridership (GGI, 2018[54]). For example, both Movia (the transport authority of the Copenhagen area) and Skånetrafiken (the regional transport authority of Skåne County, in the south of Sweden) utilize gross-cost contracts with performance-based bonuses and penalties. Bonuses are tied to KPIs such as punctuality, vehicle cleanliness, and customer satisfaction ratings.

In net-cost contracts, operators own the fare revenues and benefits from potential profits (the difference between the cost of operation and the amount collected from tickets). When the operation is not profitable, transport authorities cover losses (entirely or partially) (PPIAF and World Bank, 2006[57]). Under these contracts, the operator has incentives to increase efficiency and ridership, as higher revenues represent higher profits. When comparing ridership levels in gross- and net-cost contracts, however, empirical studies do not find a significant difference in ridership increase across the contract type (Vigren and Pyddoke, 2020[58]; Bray and Wallis, 2008[59]).

KPIs can help public authorities monitor performance, identify areas for improvement, and ensure operators deliver services in line with the contract agreement. Assessment of performance via KPIs can also help identify which operators to consider for renewal processes. For example, London Buses Service Limited (a private operator) assesses performance of each route at renewal, integrating London TravelWatch considerations, an independent transport watchdog that represents London residents (London TravelWatch, 2024[60]). This is done by London Buses Service Limited to ensure they are complying with the stipulated KPIs. Table A I.1 lists examples of KPIs included in contracts and tied to awards or penalties (GIZ, 2016[61]).

Table A I.2. Examples of KPIs in bus-based public transport contracts

	Examples of KPIs used in bus-based public transport contracts
Operations	Reliability: vehicle headway and system coverage On time performance: percentage of runs that missed timetable Connections: number of connections to other PT services Passenger ridership: number of passengers using bus services over a period Load factor: percentage of available sitting capacity Farebox recovery: the ratio of fare revenue to operating cost Speed: bus average speeds Excess Waiting Time: amount of time users must wait beyond scheduled arrival
Vehicles	Average vehicle age: usually less than 15 years Comfort: number of seats, quality and handrails Vehicle breakdowns: measures average distance between breakdowns or damage Cleanliness, using customer satisfaction surveys Universal Accessibility, low floor bus, ramps/kneeling, wheelchair space and features for users with different mobility needs Environmental and noise standards: noise levels and GHG and air pollutant emissions technology
Personnel	Pleasant driving, using customer satisfaction surveys Service, friendliness, and appearance of staff Employee productivity: measured in number of public transport users per employee
Communication	User-friendly information to users (maps, line plans, timetables, tariff info, app)

Source: Authors, based on (GIZ, 2016[61]).

To be effective in improving services and increasing ridership, KPIs need to be regularly monitored and enforced by public authorities (ITF, 2021[52]). ATMs could support the monitoring and enforcing of KPIs should its functions be expanded as suggested in Chapter 5. For example, TfL performs periodic quality control audits to measure services’ reliability, users’ perception, customer satisfaction levels, and bus drivers’ performance. Quality control audits by TfL include “mystery traveller” audits, in which auditors act as regular transport service users to assess several dimensions of service quality such as punctuality, cleanliness, driver behavior, and overall passenger experience (ITF, 2021[52]). The audits results serve as feedback into TfL processes to ensure continuous learning and improvement of services (TfL, 2024[62]).