Contract Terms and Provisions

  • Most contracts are for multiyear periods, usually 3 years. Bus contracts tend to be longer than contracts for demand-responsive services.

  • Transit agencies usually provide the vehicles and other major assets for bus service contracts. For demand-responsive contracts, there is a much greater likelihood that the contractor will either provide the vehicles or share this responsibility with the contracting agency.

  • Most contracts are structured to pay contractors on a predetermined fee per unit of output produced—usually revenue- or vehicle-hours of service. The contractor is therefore responsible for controlling costs; only one-quarter of reported contracts pay contractors on the basis of cost plus a fixed fee.

  • Monetary penalties to discourage poor performance are common in contracts. Fewer contracts contain monetary incentives for good performance.

Contracting Methods and Competition

  • Most transit service contracts are awarded through a competitive process.

  • Most contracts attract more than two bidders, although smaller contracts are more likely to attract only a single bidder. Demand-responsive contracts tend to attract fewer bidders than bus contracts. Small systems are least successful in attracting multiple bidders; most receive fewer than three bids.

  • Transit systems report that the number of bidders on contracts has been relatively stable, but demand-responsive contracts are more likely than bus contracts to have experienced a decline in bidders from the previous bid cycle.

  • The contracts of larger systems are more likely than those of small systems to have changed contractors at least once.

  • As contracts go through successive bid cycles, they continue to attract interest among bidders, suggesting continued competition. Moreover, most contracts that have been rebid at least three times have experienced a change in contractors. Even those contracts that have had only one contractor have continued to attract bidder interest.



Electronic versions of the survey were also made available to recipients on request.


Penalty disputes are typically resolved in court, while disputes over liquidated damages are more likely to be subject to arbitration.


The fact that these contracts tend to attract only one bidder may be the reason for the lack of contractor changes; however, it may also be the consequence. The direction of causality cannot be established.

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