Establishing Value for Money in Incentive-Driven Quality Contracts: The Bus Reform Agenda in New South Wales1

The bus and coach sector in New South Wales (NSW) (Australia) is currently under review as part of a Bus Reform initiative of the NSW government. One matter central to the review is the establishment of a value for money (VM) regime to ensure that operators deliver to the market the best possible service levels consistent with stakeholder needs and the objectives of government. In developing a VM regime, we recognise the potential conflict between the operator’s profit maximisation objective and the government’s social surplus maximisation objective. A key underlying feature of ‘value for money ’ (VM) is identifying the benefit to society associated with each dollar of subsidy from government. We propose an incentive-based performance contract regime delineated by the quantity and quality of service delivered (represented by service quality weighted patronage), the financial outlays by operators and non-operator sources in delivering this service level and an implementation plan that deliveries monitored information as well a holistic commitment by all stakeholders. 1