Public transport is threatened by procurement crisis

With fewer suppliers willing to participate in procurements and more contracts being terminated prematurely, public transport risks becoming both less reliable and more expensive for society. To reverse this trend, fairer risk-sharing, better collaboration, and compensation models that promote quality and long-term sustainability are required.

Commuter train traffic in Stockholm clearly illustrates the consequences of today's procurement crisis. When only one bid was received in the latest procurement round, politicians chose to halt the process, citing the increased risk. However, the result of stopping the procurement was anything but positive. Passengers have suffered from significant delays and cancelled departures, which has contributed to passenger satisfaction dropping to 58 percent in 2024 from 71 percent in 2022, according to surveys by the traffic authority in Region Stockholm. At the same time, operating costs have increased by over 35 percent since 2019 according to Region Stockholm, mainly due to the emergency contracts that purchasers are forced to enter into when agreements are terminated prematurely. Terminated contracts also contribute to a decrease in suppliers' interest in participating in new procurements.

In hindsight the phasing out of the clients' internal competence in favour of outsourced operations and maintenance, which has been ongoing since the 1990s, has proved to be a major mistake. The original belief that private operators would drive efficiency and innovation has, in practice, led to fragmented responsibility and a loss of system knowledge. Today, we see the results in the form of an unbalanced risk distribution, where the suppliers bear a disproportionately large share of the burden – without sufficient incentives to make the long-term investments that actually benefit travellers.

Three main reasons for today's procurement crisis:

Lack of collaboration between buyers and suppliers

Instead of working towards common goals, many buyers set unreasonable requirements and pressure suppliers, which creates uncertainty and discourages participation in procurements. One example is the requirement that the entire bus fleet must be electrified, despite the fact that the market does not yet have the capacity to deliver at that scale.

Unbalanced risk distribution

Today's agreements largely protect the purchasers, while the suppliers are expected to bear a disproportionately large part of the economic risks. The result is that fewer players submit bids, competition decreases, and costs increase. In bus transportation, for example, suppliers are forced to bear the costs of roadworks that affect travel times – something they cannot influence.

Misguided incentives in compensation models

By basing compensation on the number of kilometres covered, without taking into account the complexity of traffic or passenger demographics, incorrect incentives are created where providers prioritise simpler rural routes over more densely populated transport corridors in cities.

To restore balance in public transport procurement, purchasers must change their approach to:

• Design more balanced agreements with a fairer distribution of risks, where both the client's and the supplier's interests are taken into account. The client should take long-term responsibility and bear a significant part of the total risk to ensure high-quality public transport.
• Strengthen internal procurement competence by building a larger and more coordinated management organisation, which can plan better, understand its assets (such as tracks, vehicles, control centers) and engage in a constructive dialogue with suppliers.
• Revise the compensation models so that they shift from being solely based on quantity in terms of kilometres driven, to also considering the complexity of the lines, passenger volumes, and traffic conditions.

Read the article in Swedish.