3
Conceptual Framework and Previous Studies on Contracting

Drawing on the economic literature, this chapter addresses the factors that influence the decision to contract for transit services. The discussion first provides a conceptual framework for examining how transit agencies make contracting decisions. A review of past studies that have explored the effects of contracting on transit service cost, quality, and safety is then presented.

The Contracting Decision: Conceptual Framework

A public transit agency can deliver transit services through one of two methods: it can provide the service directly using its own vehicles and personnel, or it can contract with another entity. The choice between these two methods is described in the economic literature as the “make or buy” decision. To understand how this decision is made for transit services, it is useful to apply a conceptual framework drawn from two related bodies of literature—organizational behavior and transaction-cost economics. The discussion that follows is condensed from Sclar (2000). The intent is to introduce the relevant concepts rather than explore them in depth; a selected bibliography from the two sets of literature is presented at the end of the chapter for those wishing further detail.



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Contracting for Bus and Demand-Responsive Transit Services: A Survey of U.S. Practice and Experience 3 Conceptual Framework and Previous Studies on Contracting Drawing on the economic literature, this chapter addresses the factors that influence the decision to contract for transit services. The discussion first provides a conceptual framework for examining how transit agencies make contracting decisions. A review of past studies that have explored the effects of contracting on transit service cost, quality, and safety is then presented. The Contracting Decision: Conceptual Framework A public transit agency can deliver transit services through one of two methods: it can provide the service directly using its own vehicles and personnel, or it can contract with another entity. The choice between these two methods is described in the economic literature as the “make or buy” decision. To understand how this decision is made for transit services, it is useful to apply a conceptual framework drawn from two related bodies of literature—organizational behavior and transaction-cost economics. The discussion that follows is condensed from Sclar (2000). The intent is to introduce the relevant concepts rather than explore them in depth; a selected bibliography from the two sets of literature is presented at the end of the chapter for those wishing further detail.

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Contracting for Bus and Demand-Responsive Transit Services: A Survey of U.S. Practice and Experience Complete and Incomplete Contracts A contract contains the terms of a relationship between two parties. The contract can be a formal, written agreement or implicit and unwritten. It can be structured in a highly standardized manner, like off-the-shelf computer software, or it can be tailored to meet specific needs, like a custom-designed computer program. A contract can specify delivery on a particular date or describe it in more general terms. Contracts can be for products, for services, or for both. Contractual relationships are of two basic types—complete and incomplete. Complete contracts are typically drawn up for the supply of a well-defined product or service to be delivered within a clearly prescribed time frame. Such contracts usually involve limited interaction between the contracting parties in an “arm’s length” relationship that is often legalistically defined. The written contract delineates all the pertinent obligations and rights of the parties involved. Markets for such products and services are often well established and associated with conventional contracting terms. The contractual relationship is therefore shaped and disciplined largely by the marketplace. If the supplier does not perform as set forth in the contract, the buyer can opt for another supplier. Because of the routine nature of the transaction and the high volume of exchanges, the product or service usually has multiple buyers and sellers. If a contractual conflict cannot be resolved through market mechanisms, the parties can seek relief through the courts. A contract is incomplete when it is impractical to specify all of the supplier’s responsibilities under all contingencies. It may be incomplete because aspects of the deliverable, such as the quality of service to be provided, cannot be defined or measured precisely. Likewise, there may be uncertainty about other pertinent factors during the period of the contract. In such situations, the parties often recognize at the outset that the contract terms will be incomplete, so they do not try to delineate all the issues and conditions that may arise. To avoid an unwieldy and expensive contract, they instead stipulate a means of settling unanticipated disputes arising from contingencies, such as a method of arbitration. Public transit agencies are parties to both complete and incomplete contracts. They usually contract for equipment, parts, fuel, and other commodity-like products using complete contracts that specify the deliverable and a specific time of delivery. When they contract for transit services, however, the contracts often entail a certain amount of incompleteness and ambiguity. Some aspects of the service, such as safety performance and customer service, can be difficult to define

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Contracting for Bus and Demand-Responsive Transit Services: A Survey of U.S. Practice and Experience fully and explicitly in a contract document, and of necessity must remain implied by the transit agency purchasing the service and the contractor supplying it. Even if the contract terms clearly spell out detailed performance standards and monitoring functions, it is seldom possible for all aspects of service provision to be continually observed and evaluated, especially since transit services may be provided throughout the day, 7 days a week. Because of the practical difficulties associated with specifying, monitoring, and enforcing all aspects of service, public transit managers may place a high value on being able to trust the service provider. The Decision To Contract in Light of Transaction Costs A major reason transit agencies contract for transit services is to derive the benefits of market competition. By seeking bids from competing suppliers, an agency hopes to obtain the best combination of price and quality for the prescribed service. U.S. transit agencies employ many methods to procure both goods and services from other organizations through competitive means. Perhaps the most common are the request for proposals, the invitation for bid, and a two-step process that begins with a request for qualifications from bidders. These methods are described in Box 3–1.1 Savings in operating costs are typically the main reason to contract, as indicated by the literature and the results of the committee’s survey (discussed in Chapters 4 and 5). In seeking to reduce these costs, a contractor may hire less-expensive labor than would a public agency. Yet there is no guarantee that labor costs will be lower for contracted than for in-house services. Nevertheless, the transit agency may still choose to contract for other cost-saving reasons, such as the ability to use labor and assets more efficiently—for example, by being able to use part-time drivers and to shift vehicles between public and private service during peak and off-peak times. Because public transit systems face considerable demand fluctuations throughout the day and week, they can reap significant benefits from being able to allocate and reallocate resources to match swings in demand. Apart from anticipated savings in operating costs, other factors may influence the decision in favor of contracting. The agency may want to shift some of the risk of service provision to an outside entity. For instance, one risk of providing a new service in house is that it may prove difficult to modify or withdraw the service later if such change is essential for budgetary or other reasons. Hence public transit managers may place a high value on knowing that they can modify or end the service when the contract expires, especially if in-house operations

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Contracting for Bus and Demand-Responsive Transit Services: A Survey of U.S. Practice and Experience BOX 3–1 Common Methods of Obtaining Contract Services Perhaps the most commonly used method of obtaining transit services is the request for proposal (RFP). Usually the public agency describes the product or service it is seeking and openly solicits both technical and cost proposals. The RFP is used when the product or service being sought is complex and difficult to describe in detailed specifications. The RFP typically contains a general description of the desired product or service. Responding contractors therefore have the opportunity to be creative and convincing about their capabilities. In the case of an RFP for transit service, the agency may ask the contractor for a technical proposal that describes its startup plans, transition plans, key management personnel, inspection and maintenance programs, and personnel hiring and retention programs. Likewise, the contractor may be asked for a business proposal that gives detailed cost assumptions, including expectations about wage rates and other factors that account for the proposed price. Each of the proposals may be scored separately, and the agency may then negotiate the specific contract terms with the winner. Thus, price may not be the primary determinant of the winning proposal—although price typically remains a critical factor. Another method of competitive procurement is the invitation for bid (IFB); however, this method is used more often for obtaining commonly transacted goods and less frequently for the provision of services. When the IFB is used, the agency usually has a high degree of certainty about the bid price range because of the well-understood nature of the deliverable. The bids are commonly sealed, and the bidders and agency have limited opportunity for communication before and during the bid period. Final selection of the contractor is usually based on low price. Nevertheless, even many IFBs contain language that limits the award to the lowest “responsive” bidder; that is, the agency may refuse to award the contract to a low bidder that does not meet minimum levels of licensing, bonding, and financial wherewithal. A two-step procurement process is sometimes used to limit the pool of respondents to those that meet certain qualifications. Bidders are prequalified through a request for qualifications to ensure technical capabilities; financial capacity; and other qualifications, such as proper licensing and insurability. The RFP or IFB is issued as part of the second step only to those contractors that have been approved. Sole-source procurements often occur, but usually for small purchases or in cases where a product or service is being sought from another government agency. Because of the greater number of steps involved, the RFP and two-step methods usually take longer to complete than an IFB. While the former processes may entail less specification writing, they typically require more complex evaluation

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Contracting for Bus and Demand-Responsive Transit Services: A Survey of U.S. Practice and Experience and selection processes, which can slow evaluation and decision making. Still, even the general specifications that accompany RFPs and the selection criteria applied are usually well defined to ensure fairness and meet minimum levels of proposal quality. For instance, the RFP will often describe the basis for payments (i.e., fixed price or based on costs or output); who is responsible for the vehicles, equipment, and facilities; who is responsible for scheduling, marketing, and planning; how payments will be made and fare revenues treated; how much insurance is needed and who will provide it; and even who is responsible for towing vehicles and maintaining radio systems and fare box equipment. Respondents to the RFP are not expected to propose alternatives to these specifications, but they may do so if they wish. Agencies choose the method that best fits their circumstances and that conforms to their own statutory requirements, since procurement methods are often governed by state and local law. SOURCE: Morgan and Kaiser 1992. have proven difficult to change. Likewise, the agency may elect to contract in order to avoid certain administrative costs, such as the time and expense associated with personnel management. In many instances, such anticipated benefits may be secondary to savings in operating costs as reasons for contracting, yet for some agencies, especially smaller ones with limited administrative capabilities, they can be a main motivation for contracting (as indicated by the survey results). At the same time, a public transit agency must take into account various transaction costs associated with contracting. To illustrate the workings of the competitive process at its most basic level, economists often posit an idealized situation in which both the buyer and seller possess equal and adequate information with which to make decisions about exchanges they are making. Yet economists recognize that fully informed buyers and sellers seldom, if ever, exist in practice. For instance, key product qualities may not be apparent to either or both parties, or these qualities may be difficult to evaluate and measure. While the ideal of complete information is by no means a prerequisite for market transactions, shortcomings in information do increase the costs and risks associated with exchanges in the marketplace. Consequently, organizations that use the marketplace to accomplish an end must factor in the time and other costs associated with obtaining necessary information for the transaction.

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Contracting for Bus and Demand-Responsive Transit Services: A Survey of U.S. Practice and Experience To be sure, transit agencies incur transaction costs when they contract out services. At the outset, an agency encounters administrative expenses in developing requests for proposals, soliciting bids, qualifying bidders, and assessing and awarding contracts. Service disruptions at the start and end of a contract, especially when a contract changes hands, represent another potential cost of contracting a service. These costs can be episodic, occurring each time a contract is rebid, although to differing degrees each time. Furthermore, the contracting agency may bear recurrent costs associated with contracting, such as the expense of monitoring contractor performance, handling and resolving contract disputes, and coordinating contractor and in-house services. Many transaction costs can be anticipated and estimated; however, not all transaction costs are quantifiable. For instance, the loss of direct control over operations, and even the political ramifications of using contractors and diverting resources outside the agency, can present management uncertainties that are intangible but real costs. Apart from providing a service directly, one way to reduce some transaction costs is through a network, or relational, approach to contracting, which is common in the private sector. Private companies often develop ongoing relationships with a select set of suppliers that have proven reliable, possess the necessary equipment and expertise, and are familiar with the buyer’s specialized needs. Although the buyer of a service may pay somewhat higher prices by favoring suppliers in this way, it may find that overall costs, including transaction costs, are reduced. At the same time, as public entities most transit agencies are subject to legal and regulatory strictures that govern how they can obtain contracted services and whether they can employ such a relational approach to contracting. Transaction-cost analysis provides a framework for understanding the factors that influence the make-or-buy decision. In general, when transaction costs exceed the operating savings from contracting, plus any administrative savings, one would expect the transit agency to choose to operate the service in house. Conversely, when the savings in operating and administrative costs from contracting exceed transaction costs, the agency would be expected to contract the service if this option is available. Previous Studies of Effects of Transit Contracting Studies of the effects of contracting for transit services vary significantly in both scope and approach, and have sometimes been controversial. Much of this research, though not all, has sought to estimate the changes in operating costs

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Contracting for Bus and Demand-Responsive Transit Services: A Survey of U.S. Practice and Experience and subsidies for a single transit operator after the initiation of contracting for some or all service. While many of these studies have been published in scholarly and peer-reviewed journals, at times they have taken the form of “dueling” studies of a single agency’s contracting experience, commissioned by competitors in a debate over contracting. An area in which past studies have often disagreed is what effects of contracting should be measured and how they are best measured. As discussed in the previous chapter, much of the early research on transit service contracting was sponsored by the Urban Mass Transit Administration (UMTA) during the 1980s (see, for example, Teal 1985; Teal et al. 1987; Morlok and Harker 1988). This research focused largely on the savings in operating costs obtained from contracting as compared with direct service provision. For the most part, other effects of contracting on transit performance—both positive and negative—have been viewed as secondary reasons for contracting and have thus received little attention in the literature. Some previous studies that have examined other reasons for and outcomes of contracting, such as effects on administrative expenses, service quality, and safety performance, have been largely audit-like examinations of contractor records on vehicle accidents and breakdowns, on-time performance, vehicle inspections, and the like.2 Given the sometimes conflicting findings of competing studies on the effects of transit service contracting on operating costs, the committee chose not to conduct a comprehensive, adjudicative review of the results of this research. Although such a careful review is needed, the focus here is on the approaches taken to examine contracting’s effects on transit costs (both operating and administrative), service quality, and safety. Studies on Cost Savings The early UMTA-sponsored studies revealed that contracting, when accompanied by vigorous competition, led to reduced operating costs due to (1) less compensation for operating personnel; (2) more flexibility in the use of labor as a result of fewer work rules and greater ability to use part-time operators; (3) more efficient vehicle maintenance procedures, such as management of parts inventory; and (4) streamlined management and administration cost in general (see, e.g., Black 1991). Most of this early research yielded estimated cost savings on the order of 10 to 40 percent per unit (e.g., vehicle-mile, vehicle-hour) of contracted service, usually in comparison with the costs associated with providing the service in house. In some of the studies it was postulated that contracting also

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Contracting for Bus and Demand-Responsive Transit Services: A Survey of U.S. Practice and Experience had the secondary effects of reducing the cost and improving the quality of in-house service provision by compelling transit managers and unions to become more flexible, efficient, and responsive to customer needs—although the difficulty of obtaining empirical evidence of such effects was noted (see, e.g., Karlaftis et al. 1997). The authors of one critical study of this early research (Sclar et al. 1989) questioned whether observed cost savings from contracting resulted from contractors submitting bid prices below cost to gain an early foothold in a market or from misjudgment of the true cost of providing the service. Other critics questioned the use of comparisons of small single-mode systems and large multimode systems to draw conclusions about the cost savings from contracting, as well as the extrapolation of such findings from one set of systems to another (see, e.g., McCullough et al. 1998). Although much of the initial research on contracting focused on operating costs, some studies have examined other effects of contracting on agency costs. How best to treat transit agency overhead costs when projecting savings from contracting has been the subject of much controversy and disagreement. Some of the early UMTA studies estimated that longer-run, “fully allocated” cost savings from contracting could be twice as high as initial savings in variable costs because of gradual reductions in transit agency administrative expenses and other overhead items passed along to the contractor. Critics of such assumptions about savings in overhead costs argue that they are simplistic, and that the cost-allocation models exaggerate prospective savings because some expenditures on overhead (such as those for system planning, advertising, and marketing) are unavoidable or correlated only weakly with the actual amount of transit service provided by a transit agency (see Sclar and Watkins 1994). The examples in Box 3–2 illustrate how differing treatments of overhead costs have generated markedly different estimates of cost savings. The early cost-saving studies have been criticized not only for assuming that contracting would have large effects in reducing overhead costs, but also for not anticipating administrative and other costs incurred by contracting. Examples are costs involved in administering contracts; monitoring contractor performance; and coordinating contractor services with those provided by the agency, as well as other contractors (see Sclar and Watkins 1994). One study of contracting in Orange County, California, indicated that administrative and monitoring costs represented about 14 percent of the contract amount (Teal 1990). Likewise, in another study of bus contracting in San Diego, California, it was estimated that average administrative and monitoring

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Contracting for Bus and Demand-Responsive Transit Services: A Survey of U.S. Practice and Experience BOX 3–2 Confliting Results of Cost Savings from Contracting: Experiences in Los Angeles and Denver Foothill Transit District, Los Angeles County In 1986, the Los Angeles County Transportation Commission established guidelines for local jurisdictions for controlling transit services within their boundaries. If the jurisdiction could meet one of four cost-saving criteria by contracting for transit services, it could act as an operator (Richmond 1992). Within 2 years, 20 San Gabriel Valley cities and some unincorporated parts of Los Angeles County had formed Foothill Transit and taken over 19 lines operated by the Southern California Rapid Transit District (SCRTD). The service was privately managed and operated. Foothill Transit reported considerable success in reducing operating subsidies for the former SCRTD routes and increasing ridership by about 30 percent (Richmond 1992). To further assess these reported effects, the Los Angeles County Transportation Commission commissioned a series of evaluations by the accounting firm Ernst and Young (1991, 1992, and 1993). The studies found cost savings approaching 50 percent, and confirmed the patronage gains reported earlier. However, the SCRTD criticized the study findings, particularly the methods used to estimate resultant savings in its overhead costs. The agency argued that the projected savings were overstated, pointing to a number of instances in which its fixed costs could not readily be shed, such as those costs associated with idled maintenance facilities and job-protected personnel that had to be shifted to other, less productive tasks. The transit agency subsequently hired the accounting firm Coopers and Lybrand to produce an equally controversial report that found virtually no cost savings on the Foothill Transit routes (Coopers and Lybrand 1991). Richmond (1992) assessed both sets of studies for the Los Angeles County Transportation Commission and concluded that the results of each were more or less acceptable depending on the time horizon used for projecting cost savings. Denver Regional Transportation District In 1988, the State of Colorado mandated that the Denver Regional Transportation District (RTD) contract at least 20 percent of its service to private operators. Soon after initiation of the program, the state legislature sponsored a series of studies by the accounting firm KPMG Peat Marwick to assess effects on service operating costs, safety, and reliability (KPMG 1990 and 1991; Peskin et al.

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Contracting for Bus and Demand-Responsive Transit Services: A Survey of U.S. Practice and Experience 1992). The auditors found that in the second full year of the program, the contractor prices were 12.5 percent lower than the costs incurred by RTD in providing similar service directly, not including projected savings in overhead. When such fully allocated cost projections were included, the savings more than doubled—although the analysts preparing the study noted that some of the fixed-cost savings would take many years to appear. The KPMG studies revealed no consistent difference between RTD’s direct and contracted operations with respect to accident rates and severity, on-time performance, maintenance reliability, and complaints and commendations. The contractors, however, were found to have higher rates of employee turnover than RTD, explainable in part by lower worker compensation. The KPMG auditors also concluded that the private operators had earned little, if any, profits in the first 2 years, and questioned whether the original bids had been set low to “get a foot in the door” in the Denver market (Peskin et al. 1992). A critic disputed the claims of lasting savings in Denver; for instance, Sclar (1997, 2000) argued that Denver’s contracting costs per revenue vehicle-hour had exceeded the costs incurred on directly operated routes. He maintained that the market for competitive bidders had never materialized in Denver, and that three large firms had captured the market (Sclar 1997). The Denver RTD (2001) recently released its own analysis of its experience with contracting in Denver during the past 10 years. The agency estimates that it saved a total of $40 million through the use of private contractors from 1991 to 1999, including $7.8 million in 1999. costs were $0.10 to $0.25 per vehicle-mile (Hurwitz 1995). For the most part, however, the research in this area has been scant, in part because many of the associated costs can be difficult to isolate and quantify. More sophisticated cross-sectional and time-series studies of effects on agency overhead costs—controlling for the influence of many factors apart from contracting—would be helpful. However, such studies would require the application of considerable judgment in the allocation of costs, as well as sufficient time and data from many transit agencies. As noted above, most previous studies of savings from contracting have been conducted over very short time periods—1 or 2 years—and for a single or only a few systems.

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Contracting for Bus and Demand-Responsive Transit Services: A Survey of U.S. Practice and Experience Studies on Service Quality and Safety Effects of Contracting Research on the service quality effects of contracting has not shown conclusively whether contracting provides a better or worse quality of service than publicly operated services. Part of the difficulty with measuring service quality is in finding criteria that are both measurable and relevant to the multiple dimensions of transit service as experienced by the rider. Past studies evaluating quality of service have examined a variety of measures, such as records of on-time performance; customer complaints and commendations; driver wages and turnover; and vehicle accidents, vehicle mechanical breakdowns, and facility and vehicle inspection results. The individual criteria that have been chosen, such as driver wages and retention rates, may be relevant only indirectly, if at all, to the quality of the service. It is often difficult to understand how these proxies for service quality have been derived and whether they control adequately for exogenous factors, such as differences in the operating environment of contract and in-house services (e.g., varying levels of traffic congestion on routes). Finally, many of the studies on service quality have been agency-specific, and the literature contains a great deal of anecdotal information, such as narratives on the failings of one contractor or another (see, for example, Hurwitz 1995; Sclar 2000; Teal 1990). While the anecdotes and individual studies of service quality provide insight into possible problem areas, their results are difficult to place in an overall context. Summary Fully specifying all aspects of transit service in a contract agreement is a complex endeavor. Theories on the decision to contract suggest that contracting for transit service can be a complicated undertaking that requires a strong relationship and understanding of responsibilities between the contractor and contracting agency. The methods of procurement used most often by public agencies to contract for services are not always amenable to the development of close working relationships between transit agencies and contractors. Therefore, most contract agreements contain detailed specifications regarding service expectations and quality, as well as provisions for monitoring and measuring performance. In deciding whether to contract, the transit agency must compare costs associated with developing and administering the contract against the expected savings in operating costs and other benefits of contracting.

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Contracting for Bus and Demand-Responsive Transit Services: A Survey of U.S. Practice and Experience Past studies on contracting effects have focused primarily on savings in operating costs, and most have found such savings. Effects on administrative costs have received less attention. Because most studies have focused on the experiences of individual agencies over relatively short time horizons, it is difficult to reach general conclusions about overall effects. Extrapolation is especially problematic for examining the impacts of contracting on service quality and safety, areas in which studies of individual experiences have had mixed results, and the criteria for measuring quality have often varied widely. Given the focus of most previous transit contracting research on changes in operating costs, the relative dearth of cross-sectional studies on the nature and extent of contracting, and the fact that most of the research on transit contracting was completed a decade or more ago, the committee chose to conduct a comprehensive survey of the state of transit service contracting in the United States today. It is to the results of this survey that the discussion turns in the next two chapters. Notes 1.   Although competitive procurement methods are often required by law, other, noncompetitive methods are sometimes used to obtain transit services, including periodic renegotiation with an incumbent contractor, which is essentially a sole-source procurement. 2.   Notable exceptions include Goldstein and Luger (1990), who surveyed transit agencies to determine the factors affecting contracting decisions other than operating cost savings, and Richmond (2001), who examined the role of politics in motivating contracting decisions in five U.S. cities. References ABBREVIATIONS TRB Transportation Research Board UMTA Urban Mass Transportation Administration Black, A. 1991. Privatization of Urban Transit: A Different Perspective. In Transportation Research Record 1297, TRB, National Research Council, Washington, D.C., pp. 69–72. Coopers and Lybrand. 1991. RTD/Foothill Zone. A Review of the Marginal Cost Analysis Approach. Prepared for the Southern California Rapid Transit District, July. Denver Regional Transportation District. 2001. Analysis of Private Contractor Bus Service Costs.

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Contracting for Bus and Demand-Responsive Transit Services: A Survey of U.S. Practice and Experience Ernst and Young. 1991. Evaluation of Foothill Transit Zone: Fiscal Year 1990. Report to the Los Angeles County Transportation Commission, July. Ernst and Young. 1992. Phase II, Fiscal Year 1991 Evaluation of Foothill Transit Zone. Report prepared for the Los Angeles County Transportation Commission, June. Ernst and Young. 1993. Phase III, Fiscal Year 1992 Evaluation of Foothill Transit Zone. Report prepared for the Los Angeles County Transportation Commission, Sept. Goldstein, H.A., and M.I.Luger 1990. The Determinants of the Decision To Contract Out Public Transit Services. In Public Policy and Transit System Management (G.M.Guess, ed.), Greenwood Press, New York. Hurwitz, E. 1995. Competitive Contracting of Public Transit Services in San Diego. Presented to the Western Regional Science Association, Feb. 22. Karlaftis, M.G., J.S.Wasson, and E.S.Steadham. 1997. Impacts of Privatization on the Performance of Urban Transit Systems (Indianapolis). Transportation Quarterly, Vol. 51, No, 3, Summer, pp. 67–79. KPMG Peat Marwick. 1990. Performance Audit of Privatization of RTD Services. Revised Final Report. Regional Transportation District, Denver, Colorado, Dec. KPMG Peat Marwick. 1991. Denver RTD Privatization Performance Audit Update: July 1990 to June 1991. Final Report, Regional Transportation District, Denver, Colorado, Nov. McCullough, W.S. III, B.D.Taylor, and M.Wachs. 1998. Transit Service Contracting and Cost-Efficiency. In Transportation Research Record 1618, TRB, National Research Council, Washington, D.C., pp. 69–77. Morgan, H., and R.Kaiser. 1992. Competitive Contracting for Transit Services: An Overview. Taxi and Livery Management, Vol. 4, No. 4. Morlok, E.K., and P.T.Harker. 1988. Privatization of Public Transit: Final Report. UMTA-PA-11–0032–88–1, Urban Mass Transportation Administration, Washington, D.C., pp. 95. Peskin, R.L., Mundle, S.R., and Buhrer, S.D. 1992. Transit Privatization in Denver: Experience in the First Year. In Transportation Research Record 1349, TRB, National Research Council, Washington, D.C., pp. 75–84. Richmond, J. 1992. The Costs of Contracted Service: An Assessment of Assessments. Advisory paper for Los Angeles County Supervisor Michael Antonovich, July. Richmond, J. 2001. The Private Provision of Public Transport. A.Alfred Taubman Center, John F.Kennedy School of Government, Harvard University, Cambridge, Mass. Sclar, E.D. 1997. Paying More, Getting Less: The Denver Experience with Bus Privatization, 1990–1995. Prepared for the Amalgamated Transit Union. Sclar, E.D. 2000. You Don’t Always Get What You Pay For: The Economics of Privatization. Cornell University Press, Ithaca, N.Y. Sclar, E.D., K.H.Schaeffer, and R.Branwein. 1989. The Emperor’s New Clothes: Transit Privatization and Public Policy. Economic Policy Institute, Washington, D.C. Sclar, E.D., and M.Watkins. 1994. Urban Bus Transit Privatization (in Canada): A Look at the Record. Prepared for the Amalgamated Transit Union, AFL-CIO.

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Contracting for Bus and Demand-Responsive Transit Services: A Survey of U.S. Practice and Experience Teal, R.F. 1985. Transit Service Contracting: Experiences and Issues. In Transportation Research Record 1036, TRB, National Research Council, Washington, D.C., pp. 28–36. Teal, R.F. 1990. Issues Raised by Competitive Contracting of Bus Transit in the U.S.A. PTI Journal, Vol. 4. Teal, R.F., G.Giuliano, E.K.Morlok, and J.M.Golob. 1987. Estimating the Cost Impacts of Transit Service Contracting. UMTA-CA-06–0220–1, Urban Mass Transportation Administration, Washington, D.C. Selected Bibliography Contracting and Transaction Cost Theory Deakin, S. and Michie, J. 1997. The Theory and Practice of Contracting. In Contracts, Cooperation, and Competition: Studies in Economic Management and Law, Oxford University Press, Oxford, United Kingdom, pp. 1–39. Hart, O. 1995. Firms, Contracts, and Financial Structure. Clarendon Press, Oxford, United Kingdom. Holmstrom, B., and J.Roberts. 1998. The Boundaries of the Firm Revisited. The Journal of Economic Perspectives, Fall, Vol. 12, No. 4. Macneil, I. 1974. Contracts: Adjustment of Long-Term Economic Relations Under Classical, Neoclassical, and Relational Contract Law. Northwestern University Law Review, Vol. 72. pp. 854–905. Maness, R. 1996. Incomplete Contracts and the Choice Between Vertical Integration and Incentives in Franchising. Journal of Economic Behavior and Organization, Vol. 32, pp. 101–115. Menard, C. 1995. Markets as Institutions Versus Organizations as Markets? Disentangling Some Fundamental Issues. Journal of Economics Behavior and Organization, Vol. 28, pp. 161–82. Milgrom, P., and J.Roberts. 1992. Economics Organization and Management, Prentice-Hall, Englewood Cliffs, N.J. North, D. 1984. Transaction Costs, Institutions, and Economic History. Journal of Institutional and Theoretical Economics, Vol. 140, March, pp. 7–17. Selanie, B. 1998. The Economics of Contracts: A Primer. The MIT Press, Cambridge, Mass. Williamson, O. 1979. Transaction-Cost Economics: The Governance of Contractual Relations. Journal of Law and Economics, Vol. 22, pp. 233–271. Williamson, O. 1985. The Economic Institutions of Capitalism. The Free Press, New York. Contracting Experiences Generally and in Specific U.S. Locations Echols, J.C. 1985. Use of Private Companies To Provide Public Transportation Services in Tidewater, Virginia. In Urban Transit: The Private Challenge to Public Transportation (C.A.Lave, ed.). Ballinger, Cambridge, Mass.

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Contracting for Bus and Demand-Responsive Transit Services: A Survey of U.S. Practice and Experience Lave, R., R.Teal, and G.Cross. 1986. The Use of Contracting by Public Transit Agencies in California. CA/DMT/UMTA-9/86/153, SYSTAN, Inc., Los Altos, Calif. Mansbridge, J. 1988. Service Expansion Plan Evaluation. Report to the Board of Commissioners of the Regional Transit Authority (New Orleans), Aug. McCullough, W.S. 1997. Transit Service Contracting and Cost Efficiency. Master’s thesis (unpublished), School of Public Policy and Social Research, University of California, Los Angeles. O’Leary, J. 1993. Comparing Public and Private Bus Transit Services: A Study of the Los Angeles Foothill Transit Zone. Policy Study 163. Reason Foundation, Los Angeles, Calif., July. Price Waterhouse. 1989. Metro-Dade Transit Agency: Private Enterprise Participation Program Evaluation—Six Month Report. Talley, W.K. 1990. A Cost Analysis of the Tidewater Transportation District Commission, Prepared for the Tidewater District Commission. UMTA. 1990. Transit Contracting Services Study (Transit Privatization), Phase 1: Final Report. UMTA-NY-08–0119–90–1, Niagara Frontier Transportation Authority, Buffalo, N.Y. Viton, P.A. Evaluating the Feasibility and Desirability of Transit Deregulations: Volume 1. UMTA-OH-11–0007–88–1, Urban Mass Transportation Administration, Washington, D.C. Webster, B.A. 1988. Dallas Area Rapid Transit Service Privatization: A Summary of Benefits/Risks for Transit Providers. UMTA-TX-08–0253–88–1, Urban Mass Transportation Administration, Washington, D.C.