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16 Oct 2019
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Are we paying too much to outsource the bus operations

In recent years, the government collects the revenue from the bus operations and tenders out the operations to the bus operators. 

This is supposed to be a good system to keep the cost of operations low through competition, but there is a risk that this system could be badly managed. 

I share my views.

The Land Transport Authority incurred a loss of $1 billion from the bus contracts. This means that the cost of the operations exceed the revenue by this amount. 

The buses collect a larger portion of the revenue from the integrated fares as most commuters take a bus before changing to a train. The fares for the initial trip takes up a big proportion of the total fare. This is the reason for the losses incurred by the train operators.

Why is the Land Transport Authority incurring such a big loss from the contracts, when they collect a bigger portion of the integrated fares?

I suspect that the government is paying too much for the bus contracts. This is reflected by the healthy profit margins of the bus operators.

The government relies on the tender system to award the bus contracts. As there are only a few bus operators, the tender system cannot be relied on to produce competitive prices. 

It is not difficult for the bus operators to have some understanding to share the business among themselves and ensure a good margin, in spite of the competition law.

What can be done to address this situation?

The government should set a cap on the fee for the operations. This can be worked out by studying the actual cost of the operations. Alternatively, it can also be calculated from the profits that are actually made by the operators. 

We have to provide a fair margin to attract the operators. But the tender price cannot exceed the cap that should be indicated by the government. 

Tan Kin Lian

Vote - is the government is paying too much for the bus operations?


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