This document discusses regulatory and contractual aspects of urban mobility systems. It begins by defining an urban mobility system and its key elements, including infrastructure, services, organizations, regulations, and agents. It then examines different decision levels in mobility systems and how introducing a new mode like bus rapid transit can change relationships between agents and objectives. The document outlines different types of organizations in the transport sector, including government agencies, service operators, and economic regulators. It also discusses regulatory frameworks, contractual relationships, and how contracts and performance indicators can be used to drive performance in urban mobility systems.

1. Across Latitudes and Countries
Bus Rapid Transit
Center of Excellence
Regulatory and Contractual Aspects
´
Rosário Macário
Instituto Superior Técnico
Lisboa, Portugal

2. Outline
 Urban mobility system
 Agents, relations, decision levels
 Effects of introduction of a new mode/service - BRT
 Institutions
 Regulatory Frameworks
 Contracts
 Regulatory framework and contracts as performance
drivers

3. URBAN MOBILITY SYSTEM

4. What is the urban mobility system?
• structured and coordinated set of modes, services and
infrastructure to ensure the displacement of persons and
goods in the city.
• consisting of several elements, one physical and
material character, others
organizational, institutional, and finally, others of logical
character.
• a vital element of the competitiveness of the
city, because of that is a sub-system of the urban system
and it is used to development of the city

5. DECISION LEVELS
 Three fundamental levels of decision-making:
 Strategic: define the objectives to pursue and the resources to mobilize
 Tactical: define the solutions types (technologies) and make the
planning (capacity, networks, schedules)
 Operational: execute the planned production
 Success of the process
 At each level it is needed to have some idea of the implications of
decisions of lower levels
 Nevertheless, it is necessary to assemble retro-action processes that
allow to adjust decisions to each superior levels which lower level
analysis reveals
 In a democratic society, the strategic level should be policy
makers responsibility

6. The elements of UMS
• The infrastructures
• The mobility services
• The organization
• The regulation
• The information
• The elements of other sectors that affect
our perception of the mobility system
• Etc

7. The agents of UMS
• Transport Authorities
• Mobility Operators
• Infrastructures Operators
• Policy Makers
• Representatives of the citizens
• Third and fourth party providers
• etc

8. Intra-system links
 Infrastructure :
 Hierarchy of road network in accordance with service levels;
 Current and future roles of the main arteries
 Parking location, P&R, etc.
 Definition of zones or networks which can not be used by individual
traffic (protection zones)
 Services
 Prioritization of services: primary and feeders; mass ("Transit") and
segmented.
 Pricing policies (various services and including parking)
 System
 Linking land use and transport
 Linking transport of passengers and goods
 Linking motorized and non motorized transports
 Controlling externalities (emissions, accidents, noise)

9. Introduce a BRT = Changing the system
 Roles of each mode/service change
 Relations between the different agents change
 Objectives for urban development are challenged
Relation between decision levels
Relation between agents

10. Difficulties of Urban Mobility Systems
S
Strategic
goals of the
system
Stakeholders
interest
S
T T
O
Service
performance
Monitoring
criteria
Measuring
tools
O
DecisionLevels
DecisionLevels
consistency
gap
Relation between decision levels

11. Urban mobility system properties
Robustness, i.e. stability and long-term sustainability;
Adaptability, i.e. dynamic capability of adapting
services to the requirements of developments in
society and technology.
Efficiency, i.e. high productivity in the ability to
change the basic resources into products and these
consumer units, providing the best result at the
lowest cost;
• Diversity, ability to meet the aspirations of different
customer segments with different services in a
continuous adjustment between supply and demand
of the urban mobility system

12. INSTITUTIONS

13. What are institutions ?
Institutions <> Organizations
 The term “institution” is used with a variety of meanings in
common language as well as in philosophy, but with a more precise
meaning in sociology and generally in the social sciences:
 An institution is any structure or mechanism of social order and cooperation
governing the behavior of a set of individuals within a given human
community.
 Institutions are identified with a social purpose and
permanence, transcending individual human lives and intentions, and with
the making and enforcing of rules governing cooperative human behavior
 Institutions create elements of order and predictability.
Predictability in turn can enhance trust, which can enhance
reciprocating loyalty, which can facilitate
bargaining, compromise, and fiduciary relationships (Heclo, 2006)

14. How do Institutions Change?
 There is nothing automatic, self-perpetuating, or self-reinforcing about
institutional arrangements. Institutions represent compromises based
on specific coalitional dynamics, they are always vulnerable to shifts.
 Institutional change often occurs when problems of rule
interpretation and enforcement open up space for actors to
implement existing rules in new ways.
– In fact, institutions have implications on distribution of resources, which
creates tensions that eventually lead to dissenting actions
 Quite often, changes reflect adaptation to local experience, making
them relatively myopic and meandering, rather than optimizing
– So, they will most times be ‘‘inefficient,’’ in the sense of not reaching a
uniquely optimal arrangement

15. Why are specialized organizations
necessary? (I)
 In general, organizations are necessary as an instrument of
effectiveness  better performance thanks to a hierarchy of
command in particular tasks
– This is valid both in the private and in the public domains
 In both domains the dimension and mission of each
organization cannot grow indefinitely
– Loss of focus for the institution and of effectiveness of the chain of
command  subdivision in smaller organizations (departments /
divisions / units / etc.) is necessary

16. Making Institutions Work
 Institutional design affects the degrees of freedom and
incentives (penalties and rewards) of individual and
collective agents, so it influences their behavior
 Institutional design may also include filters or
screens, restricting
– Who is allowed to participate in some decisions
– What options are available in certain decisions
 Penalties and Rewards to individual agents in the
institutions must be stimulating of the desired behavior and
proportional
– In their conception, they should be complier-centered, not
deviant-centered

17. REGULATORY AND
ORGANIZATIONAL SETTING

18. Common Pathologies in
Organizations
 From Focus to loss of coherence
– Need for coordination
– Method of Open Coordination (introduced by EU in the Lisbon
Strategy, 2000)
 Organizations (like all organisms) have a priority goal of
qualified survival
– From focus on a problem to the need of keeping the problem
alive as a justification for survival
 Organizations are agents at the service of a principal
– The principal in this case is the set of institutions they embody
– But like all agents they tend to align their behavior with their
own interest and not so much with the interest of the
principal  need for contract (statute) with constraints and
incentives

19. Main types of Organizations in the
Transport Sector
• In all countries, there are multiple types of
organizations in the Transport Sector
– Because it is vital for the organization of peoples lives and activities
of companies, and so it is expected to function predictably
• The main types of organizations in the Transport
Sector are:
– Government to decide on Transport Policy
– Agencies for planning of infrastructure and service networks
– Organizacional Agencies
– (Direct and added-value) Service operators
– Protective Regulators, establishing technical, safety and
environmental rules
– Police and similar for enforcement of rules
– Economic Regulators, to ensure efficient economic performance

20. What is the Regulatory Framework
 Who does what and when
 Right of initiative: market initiative versus
authority initiative
 Spectrum of competition

21. Pitfalls of competitive tendering
 Authorities tend to over-specify the product, and then look for the
cheapest supplier
 Administrative setting of tariffs and subsidy levels leads to slow and
superficial changes in supply
• Customer surveys may show satisfaction but they only represent the opinion
of those that have not left
 A commercially tuned attitude is needed, more easily found in
operators than in authorities. But there is no incentive for large
gambles:
• Short duration contracts, no incentives beyond “doing it right”
• Excessive success would entice interest of other competitors

22. Economic Regulators and their role
 Economic Regulators are special organizations created to keep
watch against abuse from market failure, occurring in the
(mostly private) provision of goods and services in network
industries
 Difficult roles of regulators: preserve efficiency under limited or
no direct competition, administer tariff adjustments, push for
innovation (X-efficiency), keep companies healthy
– Inclusion companies’ health in the regulators’ agendas was a
central element in the process of attracting private equity into
these sectors (risk management)

23. CONTRACTUAL RELATIONS

24. Contractual relationships
Contractual models can be distinguished along several
parameters:
– Whether they are static or dynamic,
– Whether they involve complete or incomplete contracts,
– Whether they describe bilateral or multilateral
situations;
– Whether the private information bears on:
• What the agent does (hidden action)
• What the agent is (hidden information)

25. Pure contractual forms in PT
 Management contract
– represents a form of delegation from the authority to the operator who is
confined to the professional management of the operations on behalf of the
authority. The degree of delegation and of engagement of the contracted
manager in any risk taking is decided on a case by case basis, but in all
circumstances the contract is negotiated for a fixed period of time and agreed
price
 Gross cost contract
– the authority releases the control of the productive means – vehicles / rolling
stock, depots/other infrastructure, etc - to the operator, often setting also
certain specific standard for quality of service, required fleets, etc., together
with the agreed price for the production of the service. Very often contract
length as to be associated to the lifecycle duration of material assets involved in
production, this is a common situation with railways companies. However, more
recent evolutions enable to have contract length almost independent from
lifecycle of material assets through operational leasing
 Net cost contract
– In Net Cost contracts both the productive and commercial risk are born by the
operators. In these contracts the operator is normally entitled to retain all fare
revenue and bears all the risks (productive and commercial)

26. Quality and incentives in contracts
 Quality Measurements (Incentive/Penalty)
 Internal: focus on service production
 External: focus on customer’s perception/reaction
 Traditional Incentives
 Gross cost contracts: Revenue incentives based on
perceived customer satisfaction or patronage
 Net cost contracts: Shared revenue risk and minimum
quality standards monitored through perceived customer
satisfaction or patronage

27. The risks involved in the provision of
UPT services
 Production risks - related with productive factors
 Commercial risks - related with demand levels and pricing
policies
 Urban planning risks : land -use; traffic management;
transport system planning (encompasses political risks)

28. The risks involved in the provision of
UPT services
 Risks of classic contracts
 When Authority defines all beforehand
 Risk of initial misfit between requirements and supply
 Market requirements evolve and supply is “tied up” by
contractual obligations
 When Operator has more right of initiative
 More difficult to assure integration with other sectors
 Contracts must be longer to allow development of new
services, market reaction and payback of investments.
 Incumbent gains market information advantages that may be
decisive for winning successive tenders and exclude new comers.

29. Net Cost Contracts are hard to manage
 Apparently, Net Cost contracts would be the answer
 operator bears commercial risks
 Net Cost Contracts are harder for both sides:
 For Operators, much harder preparation of bids, higher
risks, permanent costs of reading markets, short-term contracts create
risk of baking the cake and have someone else eat it
 For Authorities, lower number of contestants in tender, market
contestability possibly virtual after first cycle
 Biggest difficulties come during contract life
 All changes of transport policy or traffic regulation may affect the
commercial side of PT operations, thus imposing compensation
 So, net cost contracts become a barrier to innovation and adaptation
in urban management

30. Material Assets
and Contract Length
 Traditionally, contract length connected to lifecycle
duration of material assets
 More flexible solutions are now available
– Fixed assets can belong to the Authority and be managed
directly or through management contracts w/ private parties
– Mobile assets may be acquired through operational leasing
• heavy maintenance performed by the suppliers (or subcontracted under
their responsibility)
• disposal at the end of contract ensured by supplier
– Contract for material assets may be done by the authority of
by the operator
 So, contract length may become (almost) independent
of lifecycle of material assets

31. REGULATION AND CONTRACTS AS
PERFORMANCE DRIVERS

32. Performance monitoring of UMS
 Industrial Performance - processing of basic resources in
production of transport
 Network organization - transformation between transport
units and levels of accessibility strategically defined
 Commercial performance- consumption potential represented
by these levels of accessibility, which is generally the level of
customer satisfaction
 Production of Externalities - potential of each configuration to
generate a negative impact in terms of economic and social
view

33. Assessing industrial performance
Factors affecting industrial performance :
– The regulatory and organisational framework (e.g.
structure-conduct-paradigm)
– Other factors :
• Dimensions of urban area (e.g. economies of scale)
• Diversity of modes and level of integration (e.g. network
economies, density and scope)
• Complexity of the network (e.g. fleet capacity in feeder
routes)
Industrial performance indicators should cover:
– Productive efficiency:
– Resource Management;
– Environmental protective Management

34. Assessing network organisation
 Four main dimensions of integration to be considered:
Visible
– Physical: In space, time and technology:
– Logical: Involving global system information, focused information and reliability of
connections provided by real time information:
– Tariff: Entailing tariff integration and revenue sharing:
Invisible
– Organizational (Institutional and Contractual): Entailing allocation of responsibilities
between authorities and operators, and between operators from different modes;
 Indicators to assess network organization should depart from the
accessibility concept. i.e.:
– Availability of transport, meaning network coverage in time and space;
– Commercial accessibility, concerning availability of selling points;
– Logical accessibility, concerning availability of information;
– Financial accessibility, addressing tariff regimes and levels (e.g. affordability)

35. Assessing commercial performance
 Commercial performance is directly related with clients
satisfaction and requires close identification with clusters
of clients, which form specific market segments with
differentiated expectations
 Factors influencing the customers quality perception:
– Previous experience;
– Level of information;
– Social statute
– Price paid that either meets or not their expectation
 Aspects to be considered in the assessment are:
regularity, continuity of service, comfort, convenience and
security

36. Impacts of commercial performance
• First, the impact on citizens’ use of public
transport measured by passenger.kms in public
transport;
• Second, the impact on traffic
congestion, measured through market share of
public transport;
• Third, the impact on the financial situation of the
Operators and authorities (reduction of
subsidyneeds), measured through the revenue
obtained.

37. Some pitfalls of UPT
performance assessment
 To truly assess the performance of UPT systems longitudinal comparisons
are important but misrepresentative. We must assess transversal
comparisons between system in different cities or urban areas
 Careful thought should be given to the factors influencing transversal
comparisons, since they can potentially biases the interpretation of
indicators, such as: organizational settings, geographical
characteristics, land-use patterns, intermodality and diversity of modes
 The separate analyze of performance dimensions should be
complementary to the preliminary analysis of market structure to enable
the full understanding of the dynamics of the system.

38. Across Latitudes and Countries
Bus Rapid Transit
Center of Excellence
Regulatory Organization and Contractual Relations Between Agents
´
Rosário Macário
rosariomacario@ist.utl.pt
Instituto Superior Técnico
Lisboa, Portugal
Thanks for participating !