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Contracting transit operations

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Transit agencies may contract for a portion or all of their operations needs. Smaller, newer transit agencies without historical relationships with unionized labor are more likely to contract all of their service. Larger, older agencies with standing relationships and long histories with unionized labor typically contract only a portion of their labor, if any at all. Reducing the number of union contracts would be politically difficult. <ref name="Iseki et al. 2006">
Iseki, Hiroyuki, Amy Ford and Rachel J. Factor (2006), “Contracting Practice in Fixed-Route Transit Service: Case Studies in California”, Transportation Research Record, 1927: 82-91.</ref>
Three general perceptions about how contracted labor reduces operating costs dominate contemporary views. First, contracting labor capitalizes on any difference in the cost of non-union labor in the private sector. Typically, non-union labor is believed to be less costly than unionized labor. Second, contracting with the private sector introduces competition into the labor market, creating an incentive for labor unions to reduce wages in their contracts with the public sector. Third, transit agencies contract out inefficient service in order to maintain efficient operations under their direct control. <ref name="Taylor et al. 2008">
Contracted service is also seen as flexible over the long-term. Transit agencies view contracted labor as easier to initiate and terminate than directly hired labor. Rather than directly hiring workers for experimental routes, transit agencies may benefit from reduced political risk by contracting for service until the service is deemed to be permanent. Along these same lines, contracted labor is viewed as faster to initiate service than directly contracted labor. For new service routes, transit agencies may hire contracted operators in order to expedite start of service. <ref name="Iseki et al. 2006" />
Despite these commonly held views, contracted service only yields moderate cost savings. In a study of 400 transit agencies spanning a 10 year period from 1992 to 2002, partially contracted service yielded a 7.8% cost savings while contracting all service yielded only a 5.5% savings.<ref name="Iseki 2004">Iseki, Hiroyuki (2004), “Does Contracting Matter? The Determinants of Contracting and Contracting’s Effects on Cost Efficiency in US Fixed-Route Bus Transit Service”, University of California, Los Angeles, unpublished dissertation.<ref/> Research has also shown a strong self selection bias to be present among transit agencies. If an agency can achieve cost savings through contracting either a part or all of its service, it will do so. Thus, agencies cannot necessarily look to other agencies for guidance on the choice of contracting.
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