LTA: Contract sums for bus routes determined through negotiations with operators

Goh Kian Huat wrote a letter posted at Today Online on 20 August to Land Transport Authority regarding on the report about the Government which would pay SMRT, SBS Transit S$7b to run bus routes.

Mr Goh asked

• How these are determined between the Land Transport Authority (LTA) and the bus operators is a concern, as the amount of money involved is large, especially compared with the contracts awarded to the two new operators, Tower Transit and Go-Ahead.

• How did the LTA ensure that they did not overpay SBS Transit and SMRT Buses to run the bus routes?

• How much in fare revenue is the LTA expected to collect? Will bus fares be raised if there is a significant short-fall?

• Why were SBS Transit and SMRT Buses given the negotiated contracts with tenures exceeding five years?

At this stage, there is no proof that the bus contracting model works better than the previous model. Therefore, all the existing bus operators’ licences for all packages of routes could have been extended first, before putting them up for tender

On 31 August, Helen Lim, the Group Director, Corporate Communications Group of LTA issued a response to Mr Goh's letter.

We refer to Mr Goh Kian Huat’s letter “How did LTA determine sum for bus routes not put up for tender?” (TODAY, 20 Aug).

Bus contracting brings significant benefits to commuters and bus captains. With the Government owning the buses, we would be able to respond more quickly to changes in ridership and commuter needs. Shorter contract periods means bus operators have to operate bus services even more efficiently and effectively in order to secure contract renewal. Furthermore, with the bus contracting model,  bus captains’ wages have risen in addition to better welfare and training.

The bus packages will be put out for tender gradually to allow for a smoother transition to the new model for commuters, drivers and operators. It is also necessary to stage this alongside the completion of supporting bus infrastructure like new bus depots. The different durations for the negotiated contracts took into account the interplay of these developments.

The contract sums for SBS Transit and SMRT Buses were determined through negotiations with the operators, based on similar performance standards and operational requirements as those in the first two tendered packages. This allows us to take reference from past tender prices, while taking into account circumstances unique to the operators and their packages, e.g. differences in age profile of buses, and geographical and route profiles.

Transiting to bus contracting is necessary for a more sustainable public bus industry. Under the old model, bus operators were either losing money or earning very low returns. While the contracting model may result in higher public subsidy initially, the greater competition should yield cost efficiencies over time. Ultimately, the degree of public subsidy also depends on whether fares are set appropriately. Therefore, regular fare adjustments will still be required, not only for general cost increases but for improvements in service and capacity as well. But we will work with the Public Transport Council to ensure that the fares remain fair and affordable.