Understanding bidder behaviour: The case of the Mamelodi contract

Jackie Walters

Document Type

Journal Article

Publication Date

2020

Subject Area

place - africa, mode - bus, organisation - competition, organisation - contracting, economics - operating costs, economics - revenue

Keywords

Contracting risks, Revenue risks, Cost risks, Bidder behaviour, Contract characteristics, Contract design, Public transport contracting

Abstract

The South African government has had a nearly 17 year moratorium on new commuter bus contracts. In late 2017, the government lifted this moratorium which enabled the Gauteng Provincial Government to design a service for a number of operating areas, one of which was for the Mamelodi township to the east of Pretoria.From the outset, some operators expressed their reservations about the quality of the supporting information, especially the lack of detailed passenger and route information, and the lack of an escalation formula for the seven year contract. Bidders viewed these aspects as major cost risks that made it difficult to determine a competitive price for the service.The purpose of the research is to investigate how bidding companies viewed the Mamelodi contract when tendering for the service and to compare the results of the bidding process amongst the respective bidders. To achieve this objective a single case study strategy was followed. Use was made of a structured questionnaire to interview the bidding companies, documentary analysis such as the detailed specifications of the Mamelodi contract as well as obtaining financial and operating information from the bidding companies that could serve as a basis of comparison on how the companies responded to the tender requirements. These sources of information were triangulated to arrive at observations and conclusions.The results of the research indicated that there were major variances in annual passenger trip estimates, passenger revenue estimates, subsidy requirements and overall tender amounts, amongst the bidders. This is mainly as a result of incomplete passenger information and a lack of detailed route information, the lack of an adequate escalation formula and a requirement that bidders had to sub-contract 30% of their services to smaller operators. The higher costs for the service, compared to the cost of the incumbent operator, resulted in the tender not being awarded.Recommendations are that contracting authorities ought to supply as much information as possible in the design of public transport contracts in order to receive truly cost competitive bids. This ought to include detailed passenger numbers and related passenger fares (to determine overall revenue) and detailed route and network kilometres so that the bidders can determine their operating costs. In addition, contracts ought to include adequate escalation formulae (especially the correct weighting of cost elements) and where there are special requirements, such as sub-contracting of services, that such requirements can be reasonably executed by bidders.

Rights

Permission to publish the abstract has been given by Elsevier, copyright remains with them.

Comments

Research in Transportation Economics Home Page:

http://www.sciencedirect.com/science/journal/07398859

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