Incentives and sanctions in gross contracts

Transcription

1 Incentives and sanctions in gross contracts Matti Lahdenranta Route 96 Consulting Oy NLTM & InformNorden Conference Helsinki

2 A project on incentives and sanctions in gross contracts Carried out in II V / 2016 for Finnish Public Transport Association Based on Authority and operator interviews and inquiries Analyses of effectiveness of different incentives and sanctions Experience of the consultant Goal: Development of an incentive scheme, which is effective, realistic and has possibilities to become widely accepted and which increases the quality of service and brings more passengers 2

3 Contents of the presentation Proposal for incentive and sanction scheme Main results of the interviews and inquiries Discussion of the relation between incentives and quality Deeper perspectives on two separate incentives Conclusions 3

4 Proposal for incentives Incentives: % of contract price Big cities Other cities Rural areas Passenger satisfaction 0,0 4,0 % X - Technical quality (vehicle condition etc.) 0,0 1,0 % X - - Demand 0,0 1,0 % - Performance bonus 0,0 0,1 % - (Punctuality) (In the future) In total 0,0 6,1 % In rural services Ticket income X X Present Proposal 4

5 Proposal for sanctions Sanctions: % of contract price Big Other Rural cities cities areas Missing departures Present average O,3 % X X X Buses below contract s requirements Present average 0,04 % X - - In total Present average > 0,3 % X Present 5

6 Proposal for other incentives Quality in competitive tendering: Weight Big Other Rural cities cities areas Price 65 % X X X Vehicles 25 % X X X Quality 10 % - Present quality % (passenger surveys, performance history) Quality promise % (passenger score, performance during the contract) In total 100 % X Present Proposal 6

7 Results of interviews and inquiries Number of interviews and inquiries: Authority Operator representatives representatives Interviews 7 8 Inquiries 8 5 Total

8 Major incentives 1/2 Customer satisfaction surveys: By both parties an excellent and fair incentive. Demand: 2/3 of authority and operator respondents in principal accepted, 1/3 disagreed because no objective measurement is available. 100 % 90 % 80 % Customer satisfactions as an incentive? % 90 % 80 % Demand as an incentive? % 70 % 60 % 50 % 40 % 30 % % No 50 % Yes 40 % % No Yes 20 % 20 % 10 % 10 % 0 % 0 % Authorities Operators Authorities Operators 8

9 Major incentives 2/2 Technical quality: A detailed feedback gives good tools for the operators to increase the technical quality. Punctuality: 3/4 of authority and operator respondents accepted (but objective measurement is difficult) 1/4 disagreed because there is no objective measurement available 100 % 90 % 80 % 70 % 60 % 50 % 40 % 30 % Quality of technical condition as an incentive? No Yes 100 % 90 % 80 % 70 % 60 % 50 % 40 % 30 % Punctuality as an incentive? No Yes 20 % 20 % 10 % 10 % 0 % Authorities Operators 0 % Authorities Operators 9

10 Major sanctions Missing departures: Clear and accepted Buses below contract s requirements: Accepted base for sanctions Operators wish more flexibility from authorities 100 % 90 % 80 % Sanctions based on missing departures? % 90 % 80 % Sanctions based on buses below contract's requirements % 70 % 60 % 50 % 40 % 30 % No Yes 60 % 50 % 40 % 30 % 12 8 No Yes 20 % 20 % 10 % 10 % 0 % Authorities Operators 0 % Authorities Operators 10

11 Quality in tender evaluation Yes, Quality could be a part of tender evaluation (4+4, 30 %): Present quality should be appreciated Companies with could quality will increase their market share which is desirable There are surveys results enough to make an objective evaluation The problem of new companies in the market can be solved No, Quality can not be a part of tender evaluation (3+5, 30 %): Objective evaluation can not be done Evaluation should be done based on the contract period, not to the past Criteria is discriminatory No opinion (8+4, 40 %) 100 % 90 % 80 % 70 % 60 % 50 % 40 % 30 % 20 % 10 % 0 % Quality in tendering? Authorities Operators No opinion No Yes 11

12 Description of the problem Incentives Bonus Net bonus Bad quality Good quality, more demand Sanction Sanctions 12

13 A deeper view to the problem Received quality, Paid net incentives Objective perceived quality, Objectively defined net incentives Factor N Factor N-1 Factor D Factor C, e.g. sanction for missing departures Factor A, e.g. customer satisfaction incentive Factor B, e.g. demand incentive Factor X, present quality in tender evaluation as an incentive 13

14 Some aspects of different incentives and sanctions: 1. Present quality in tender evaluation as an incentive To be discussed later on 2. Demand incentives To be discussed later on 3. Other incentives and sanctions are quite clear: Customer satisfaction incentive Technical quality incentive Performance incentive a small bonus to companies with better performance than the set target Sanctions (missing departures, buses not according to the contract) 14

15 Present and promised quality as an incentive New law of public procurement emphasizes the pricequality relation as the main criteria Quality as one criteria in tender evaluation could bring longterm quality-thinking among the operators Continuously increasing quality brings more demand 15

16 Quality-thinking should be encouraged It should not go like this: Contract by the book Cost savings Results, if any Bonuses, if any Better profit It should go like this: Raised motivation Quality investments Better results High bonuses Better profit 16

17 Quality-thinking requires motivation Is money the only incentive we need? No! We all know that the salary is not the best motivator, we have to feel that we have Succeeded in our work Got good results and Got also recognition 17

18 Also the companies should be motivated Both the management and the personnel require high motivation to produce good quality Incentives and sanctions are not the best motivators, all the employees have to feel that they have Succeeded in the work Positive feedback, smiling passengers, feeling of a good work done etc. Got good results High scores in passenger surveys, no missing departures etc. Got also recognition News in media Best passenger service in company X, received bonuses (company & employees) etc. Have a strong believe in success in the future Knowing that the quality to day helps the company to have success in the market in the future creates everyday efforts for high quality among the employees 18

19 Key question: How to motivate the personnel? Incentives Quality bonuses spur the personnel but only a few times per year (if paid) Present quality taken into account in tendering motivates the personnel to good quality in their everyday work New and better vehicles might motivate the drivers and mechanics Low price in tender gives advantage in competition but no motivation to the personnel Advantage in tendering 19

20 Demand as an incentive Reasons why this proposal do not include an idea that all or at least a high share of operator income should be dependent on demand like the trend in Sweden seems to be? The operator is very rarely the only operator in the area The operator has not influence to external effects like closing or opening a school or an enterprise, road construction etc. -> in cases the demand collapses the bus company do not have the full power to cut the service The operator has not the full influence on service level because it has been decided by the authority at least on a general level On detailed time schedule planning the operator cannot have total freedom, e.g. schedules on main corridors should not be based on picking the passengers from stops one minute before the competitor With risk of falling demand the offered price probably rises 20

21 One more point of view: Effects of incentives in pricing the bid Case 1: Quality incentives with limited risk of sanctions In bids a part of possible net bonuses is used to decrease the price. Case 2: Demand incentives with no risk of decreasing number of passengers In bids a part of possible bonuses is used to decrease the price. Case 3: Demand incentives with risk of decreasing number of passengers In bids the risk of decreasing number of passengers has to be taken into account. The risk of lower demand is not in the hands of the operator and therefore the risk probably increases the price. 21

22 Conclusion To improve the quality of public transport services we require: Reasonable incentives Fair sanctions and Quality in tender evaluation 22

23 Finally To improve the quality of public transport services also good partnership between the authority and the operators is required: Authorities: Authorities should create prerequisites for operators to produce high quality Operators: Focus should be in passenger satisfaction, not in short-term savings Both parties: Working together in real win-win partnership 23