Public-Private Operating Partnerships
What are Public-Private Operating Partnerships?
In a public-private operating partnership, a government or policy board delegates the management and operation of an entire transit organization to a private sector provider. This model is very common in Europe and over the past five years, Transdev has pioneered this model in New Orleans and Nassau County.
In this type of partnership, a transit system is fully managed and operated by a private sector operator, who is held contractually accountable to manage all aspects and functions of the transit agency, --including overseeing and executing all aspects of operations, the business support functions of marketing, passenger information and communication, planning, scheduling, ticketing, finance, grants management, IT, HR, legal, and all other back office functions.
The contractor operates under strict guidelines outlined in the contract and enforced by the public sector. Policy decisions, including approving fare levels and schedules, allocating subsidies, and approving annual budgets remain firmly in public control. A PPOP leverages the efficiency of the private sector and leaves policy decisions to the public sector.
Under this model, the private contractor is responsible for outcomes and has the authority to utilize best methods to achieve those outcomes. The private operator is incented to deliver both quality and efficiencies, thus it typically assumes greater financial risk. It provides the private operator the latitude to apply innovative and proven methods to achieve public policy objectives.
Why do Cities choose PPOPs?
Every situation is different. Many times the city needs to reduce operating costs and improve quality. Or it needs to implement a new vision for mobility, fill voids in managerial and technical talent, implement cultural change for greater accountability or shift operational risk from the public to the private sector. In New Orleans, the Regional Transit Authority lacked the expertise to recover quickly and effectively from Katrina. They needed the resources of a private operator with global experience. Additionally, the PPOP represented a way to control operating costs to enable the RTA to fund their pension liabilities. In Nassau County, the existing public authority was threatening to drastically reduce service unless more money was found; a PPOP was a way to get more and better service for each dollar spent.
A PPOP contract allows the private operator to innovate and seek out efficiencies, while still insuring complete public control over policy. PPOPs save money, increase effectiveness and bring accountability to public transit.
How is the contract structured?
PPOP contracts are complex documents designed to give flexibility to the private sector to innovate, but empower the public sector to hold the contractor accountable to strict performance standards.
The most important component of a P-POP contract, then, establishes public sector control over policy. If there is an independent transit oversight structure in place, such as a Board of Commissioners or Board of Directors, it may continue unchanged in the new contract. This was the case in New Orleans, for example. In Nassau County, where there was no public transit governance in place, the County Legislature authorized the creation of a five-member Bus Transit Committee to oversee the contractor.
After establishing the governance structure, the contract creates a process for monitoring the new transit authority. The public sector reviews the transit system’s performance on all key performance metrics on a regular basis and approves the annual plan and budget, including specific approval of any recommended fare adjustments and significant route or service level adjustments.
The contract will also establish financial incentives and penalties for certain key performance metrics. These may include on-time performance, local hiring preferences, customer complaint levels, or anything that is deemed important to the policymakers overseeing the transit authority.
Other important aspects of the contract pertain to the specific local situation. Pension liabilities, or legal damages in the event of an injury, are complex issues that are clearly explained and resolved in a finished PPOP contract.
What are the major benefits?
A PPOP ensures the delivery of the best transit system possible with a given amount of resources. The public sector defines the outcomes, and the private contractor is responsible for achieving them within a defined budget. That means the operator is continually innovating and reducing costs as a way to increase profit. In 2011, the Center for Urban Transportation Research at the University of South Florida concluded that private contractors reduce operating costs by nearly 40% compared to the public sector.
Each year during the annual review process, a full accounting of the budget and recommendations from the contractor on key initiatives are reviewed in detail by the public sector board.
In many communities, this model actually increases the amount of control policymakers have over their transit system. Most importantly, if the private contractor is not delivering the expected results, policymakers can dismiss them per the terms of the contract.
PPOPs typically transform transit systems from top to bottom – initiating sweeping change in the culture of an organization, improving performance and accountability, overhauling operations in accordance with best practices, and prioritizing passengers. In virtually all cases, this model has charted a course to a sustainable financial future,
What are the risks?
The largest risk associated with the P-POP is in the transition from public operations and management to a public-private partnership. An extended pre-launch transition period, that could take several months, is necessary to ensure that all stakeholders are informed and aligned. Local policymakers must understand and craft an agreement that is best for the community; the private operator must complete due diligence and identify sources of savings; and public employees (represented or not), transit advocates and community leaders must become familiar with the new structure.
What about labor?
PPOPs do not impact the workforce’s right to organize – in fact, approximately 75% of the private contracting transit workforce is unionized. Private sector companies make productive union relationships a top priority, because these relationships directly affect service quality and reliability. The private sector operator must balance workers’ motivation and fair compensation with the needs of the passengers – exactly the desired outcome for a mayor, governor or other policymaker who wants to do the most good for their community.
There are a number of companies that compete in the provision of contracted services to city government transit agencies. However, only Transdev has experience in North America with public-private operating partnerships, along with extensive experience with these arrangements in Europe and other parts of the world. Please contact firstname.lastname@example.org for further information.