11.1 Remuneration arrangements and incentives

service, since the concessionaire will ensure that buses travel the routes at the decided frequencies and timings without necessarily paying attention to the quality and efficiency of the service, since these elements do not affect the payment expected. • Payments based on passengers transported. These payments depend on the number of users (demand), which encourages the concessionaire to provide efficient and high-quality service. However, this compensation mechanism is costly, since a risk premium must be paid in the event of insufficient demand to cover operating expenses. The public transportation authority (PTa) must guarantee the accuracy of the forecasted demand resulting from technical studies and also ensure that the return on investment will be within the promised timeline.

Therefore, the design of the payment mechanism is very important in a PPP, as it introduces key indexes or incentives meant to improve operations (Beltrán, Gschwender, and Palma 2012; Hensher, mulley, and smith 2013). some researchers have proposed designing a simplified payment model that can be used to ensure value for the government’s money (for example, Hensher, mulley, and smith 2013).

The payment mechanism must be decided when designing the concession, since the incentives to provide an adequate level of service and reduce the risk to the concessionaire’s income will depend on it. However, setting an effective mechanism often requires the PTa to have capacity for the planning, supervision, performance clauses, and high-quality execution of programs as well as the ability to apply the law and the concession. in this sense, as can be seen in table 11.1, depending on the characteristics of the operation, the PTa must use one or more payment mechanisms to allocate the incentives in an appropriate manner.

Defining the level of service

Defining service is a vital aspect of a concession, since it establishes the parameters that will guide the efficient provision and quality of service. The following are key operational variables:

• Routes. Determined routes on which the service operates • Frequency. number of units that must travel through a specific point of the route during a given time interval • Hours. start and end of service hours • Stops. stops required on the given routes

TABLE 11.1 Remuneration arrangements and incentives

REMUNERATION ARRANGEMENT

Catering demand Frequency Safety Risk and access to finance

FIXED PAYMENT PERFORMANCE-BASED PAYMENTS PASSENGER-BASED PAYMENTS

+ (if high demand) − (if low demand)

Capacity requirements for planning and monitoring

Source: Gómez-Lobo and Briones 2013. Note: − = the incentives generated by the payment mechanism cause a negative result; + = the incentives have a positive result or impact.

• Safety requirements. speed limits, specific rules, or expected behaviors in specific places or situations • Operation program. an instrument that defines and regulates the features of the transportation services that concessionaires must provide within the framework of the concession.

Monitoring and supervision

The mechanisms of monitoring and supervision help the authority to ensure that the public transportation service operates in accordance with the provisions of the concession and regulations in an appropriate and efficient manner. similarly, they can be articulated in a way that helps operators optimize planning and operations.

The following mechanisms are commonly used to carry out supervision and guarantee the efficient operation of the public transportation service:

• inspection visits by trained and qualified personnel, to places and offices providing the services and to the concessionaire, as well as to other facilities related to the provision of the service • a fleet management system, including verification and review of the operation and administration of the technical specifications of service provision—such as itineraries, authorized stops, schedules, frequencies, speed, type of units, operation and transporting of units, and other elements of operation • Periodic reports on technical, administrative, financial, and statistical data related to the operation of the service • citizen participation mechanisms, including user surveys and information dissemination systems • administrative audits, including reviews of the financial statements of the concessionaire and system operators • Obligation to provide information, such as global positioning system data from automatic vehicle location systems, to allow the authority to monitor compliance.

These mechanisms of evaluation and supervision are important to project an image of transparency, control, and institutional efficiency since they ensure the continuous provision of high-quality service and thus help mitigate operational risk. When relevant responsibilities are carried out by the authority, they are based on the administrative procedures established in the concession and applicable regulations. When they are carried out by a private firm, they are based on the relevant administrative and operational manuals.

To determine the effectiveness of particular technical and operational elements, the concession must contemplate the design and execution of evaluation instruments, such as quality indexes, performance indicators, and compliance indicators. This information can be used to help monitor the quality of service provision (punctuality, availability, use of appropriate technologies, accident rates, user services, and maintenance, including cleaning, among others) and its compliance with specifications provided in the applicable legislation. The following are several real-world examples:2

• Acabús. The quality index is reviewed quarterly and covers the parameters of punctuality (fulfillment of the offer), regularity (compliance with frequency standards), operational elements, accident levels, and the status of buses.