Transit Contracting Reexamined: Determinants of Cost Efficiency and Resource Allocation

Zullo, Roland
July 2008
Journal of Public Administration Research & Theory;Jul2008, Vol. 18 Issue 3, p495
Academic Journal
National Transit Data from 1993 through 2004 is analyzed to examine the effects of contracting out on the cost efficiency and resource allocation of motor bus and demand response services. For motor bus service, results indicate no difference in cost between in-house and fully contracted operations. Contracting has a weak curvilinear association to total cost, suggesting that the most cost-efficient agencies either fully contract or they provide full in-house service. In contrast, demand response contracting is associated with about 20% lower total costs. Competitive conditions or the choice by agencies to offer specialized services may explain this result. Transit agencies that contract with multiple motor bus providers pay a cost premium, whereas multiple providers have no effect on demand response cost Contracting does not affect the growth of cost for either service. An examination of expense subcategories reveals no reduction in administrative expenses when agencies contract services and only a partial reduction in nonoperational maintenance expenses. Overall, the results call into question the efficacy of competitive contracting models of transit service delivery and the use of fully allocated costing methods in make-versus-buy decisions.


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