Assessing competition impacts in Adelaide’s bus contracting market

Public transport procurement needs to balance the benefits of competitive tendering with the long-term sustainability of the market. For Adelaide’s bus contracts, this included considering whether contracting arrangements could concentrate market share and affect competition in future procurement rounds.

The challenge

Under the South Australian legislative requirements applying at the time, the Auditor-General’s review of Adelaide’s bus contracts included considering whether a proposed contracting regime would give an operator a monopoly, or a market share approaching a monopoly. The review also needed to consider whether the arrangements would develop and maintain sustainable competition.

These requirements had attracted scrutiny during an earlier procurement process. In 2005, the Auditor-General criticised the South Australian Department of Transport’s consideration of competition, finding that the “analysis and consideration of sustainable competition and the avoidance of monopoly … (had been) … inadequate.”

For the subsequent procurement in 2010–11, a thorough assessment of the competition implications of the contracting options was therefore an important part of the decision-making process.

Our approach

NineSquared consultants were engaged to assess the competition impacts of the contracting options being considered by the Department.

Our work brought together a review of the relevant legislation and an assessment informed by the economic principles of competition and monopoly. We developed a comprehensive report examining the contracting options against the competition issues the Department needed to consider.

A central distinction in this type of assessment is between competition for the market, when operators bid to deliver services, and the market structure that remains after contracts are awarded. A competitive tender process needs to be considered alongside the implications of the resulting allocation of contracts for sustainable competition over time.

Our assessment provided an economic and legislative basis for considering these issues within the procurement process.

The outcome

The report supported the Department’s consideration of the competition implications of the proposed contracting arrangements.

The South Australian Auditor-General subsequently described the advice provided as “substantial and compelling” and concluded that the issue had been “thoroughly and appropriately considered.”

The project demonstrates the role of economic analysis in public transport procurement: helping decision-makers assess contracting options against legislative requirements while considering the longer-term implications for competition.