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Technical elements
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Planners are not expected to draft a concessions contract at the preparation stage; however, essential elements should be identified and preliminarily defined by the end of this stage. Drafting concession contracts is part of the structuring stage. This chapter supports the preparation stage by listing and briefly discussing the essential elements of a bus project’s concession contract, which is the most common contract in urban bus public-private partnerships (PPPs).1
TECHNICAL ELEMENTS
Operators’ remuneration plans
Remuneration plans are used to pay operators or concessionaires for providing the transportation service as incentives to provide an adequate level of service and to reduce risk to the concessionaire’s income. Despite the diverse range of procurement and payment mechanisms used, there are some core elements (Wallis, Bray, and Webster 2010; Wallis and Hensher 2007). These core elements are characterized by some mixture of demand and supply baseline and incentive-linked contracts:
• Fixed payments. This type of payment covers the passenger transportation services provided without considering the kilometers traveled and the demand served. Fixed payments protect operators from fluctuations in demand and thus make the operator’s revenue profile less risky (which is especially important if the operator needs to access finance). They do not necessarily provide an incentive to the operator to maintain the quality of service, but they can serve to increase demand, improve services, and decrease the possibility of default. • Payments based on operational variables. Payments per seat-kilometer or vehicle-kilometer are set at a fixed price for the number of kilometers traveled while providing the service. These payments depend not on demand but on the offer made by the concessionaire for the number of vehicles and seats used to provide the service. Therefore, they assure the operator stable revenue during the project term. This mechanism represents a risk to the quality of
