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Inhouse vs. Contracted Management and/or Operations

There are many factors that might come into play when you are deciding whether or not to use a third party contractor for your transit management and/or operations:  the cost associated with a particular program; available staff hours; level of expertise;convenience; state or local laws; larger planning strategies; control over operations,customer service and training standards. All of these factors should be evaluated in order to determine the best course of action for your agency.  Keep in mind that using a third party operator does not relieve the grantee from compliance with federal requirements.

If you decide that contracting out a program is the best action for your agency, you will have to decide how you will obtain a contractor, who will take part in that process, and the length of the contract.  Once a contractor is secured, you will have to determine the type of relationship you will have with your contractor and clearly define who is responsible for what tasks.

It is also important to be aware of the different contracting models, and deciding which model is best for your agency will depend on your needs and resources.  

  • The turnkey model of contracting is when a company takes care of everything from providing the management team and staff members to owning all necessary capital.  The only role your agency has is to oversee the contract. 
  • Another option is to contract for the key transit management officials while all other employees and capital would be your responsibility. 
  • The next contracting option is for all staff to be employed by a contractor while you own all capital. 
  • The last option is breaking out your contracts by service type.  For example, you could work with different contractors to provide the fixed route service, demand responsive service, and human service transportation.       
Regardless of which model you choose, be sure to cast a wide net when searching for a contractor and work to get as many responses to your proposal as possible.  This will ensure that you have a competitive bidding process and will allow you to find the best fit for your agency. 

It is important to remember that whether you administer a program in-house or use a contractor, all federal regulations must be followed. According to FTA Third Party Contracting Guidance, "each third party contractor and subcontractor is required to comply with the terms of its third party contract or subcontract, including requirements to extend those federally required clauses and provisions to its subcontractors at the lowest tier required." The person responsible for procurement within your agency must be aware that compliance with Federal requirements is a condition of being a subrecipient of Federal funds. 

To read FTA C 4220.1F, "Third Party Contracting Guidance," please click here.

This section will present two case studies: one agency that contracts out its operations and another that handles everything in-house. The case studies will describe the services each system provides,discuss the reasons for contracting/operating in-house and raise issues that you may be asked to consider when deciding whether contracting or in-house operating is right for your system.

Case Study One – Managing Your Operations In-house:  Crawford Area Transit Authority, Meadville, PA

The Crawford Area Transit Authority (CATA) provides service to Crawford County in the northwest corner of Pennsylvania.  Services include fixed bus routes in two cities and door to door transportation throughout the county.  In the past, CATA had contracted out its services but decided to bring it back in-house to regain direct control over all aspects of operations.  The following is taken from an interview with the Executive Director of CATA, Timothy Geibel, who discusses some of the factors considered when deciding whether to bring operations back in-house or keep them with a contractor.

Scheduling and personnel responsibilities

When you contract out your operations, it is the contractor’s responsibility to ensure that service is operating on the schedules you defined as the transportation provider.  The contractor also handles all personnel issues such as absent employees, vacation requests, disciplinary actions, and other issues that might arise.

At CATA, we assessed the additional work load that would be created by taking on the scheduling and personnel management, and we determined that it was more important to have the internal control over the daily operations than to work with a third party contractor and simply play the role of overseer. 

Managing bus drivers

When you contract out your operations, you the transportation provider do not have direct contact with or authority over the bus drivers.  Any issues that arise, such as complaints from riders, must go through the contractor,not through you.  While you can establish policies for the bus drivers, it is the contractor who will address the issue with the bus driver.

By bringing service in house, CATA is able to quickly address issues with bus drivers by both setting the policies and having direct interaction with the drivers when enforcing those policies.

Training standards

In contracted operations, you, the transportation provider, can establish guidelines for standard and refresher training, but it is the responsibility of the contractor to ensure that all drivers meet your guidelines. 

At CATA, we determined that it was in our best interest to have the ability to directly train, re-train and educate our drivers.   Managing operations internally does place a greater administrative burden on you, the transportation provider; however, from a risk management perspective, you will be better positioned to implement stronger training programs, refresher training and ongoing evaluations of bus drivers than would be possible if service was contracted out.    

Customer service

In most cases, under contracted operations, while you the transportation provider cannot address issues directly with a bus driver, you do field all calls, complaints and concerns from the public.  If a complaint comes in, you must work through the contractor to address the issue.  With internal operations, however, the transportation provider can speak directly to the bus driver to remedy the situation.

Cost-benefit analysis

We have found that if done properly, internal operations can be a more cost efficient option than contracting out operations.  A public transportation provider may be able to secure better liability and workers compensation insurance than a private provider if the transportation provider can document sound training and hiring practices. Internal operations also alleviate the need for paying contractor wages, contractor profit and overhead expenses at the contractor’s facility.  

Timothy Geibel also gives the following advice to systems that are deciding whether or not to contract out their operations:

  1. Start planning early.  Transitioning operation of service should begin in the planning stages 9-12 months prior to the anticipated transition date. 
  2. Look at the expense per passenger for your system versus your peer transportation providers’ expense per passenger.  If your costs are significantly higher, you should consider assessing the feasibility of internal operations. 
  3. Receive input from your governing board.  Transitioning from contracted to in-house operations is a major project that needs buy-in from your Board of Directors, County Commissioners, or whoever is responsible for the oversight of your agency.
  4. Keep communication active.  Keep the key players informed of what is taking place.  Once a decision to operate internally is made, let your employees know.
  5. When transitioning to internal operations, give contractor employees an opportunity to apply for a position with your agency, and make it known that you will hire the best candidates for the positions.
  6. When a decision is made that service is to be operated internally rather than by a contractor, control the process for public information.  Be proactive in discussing any changes with the public.  There will most likely be opposition to any change, but if the public can understand that transitioning to internal operations will not affect service on the street, buy in from the public will be easier to obtain.
  7. Expect opposition from the contractor and be prepared to defend your decision to operate service internally.  Focus on responsible use of taxpayer funds and providing the most efficient service to the public.  In most cases, your contractor will not want to lose the contract as it will result in lost revenue to their organization. 
  8. Assess your current staffing levels.  Do you need to create additional positions within your organization to properly operate service internally?  Do you need to hire additional dispatchers, supervisors, etc?  These costs should be included in your assessment of making a transition. 
  9. Once the transition is made, track the results.  How are you doing?  Are your costs where you thought they would be?  If not, what factors changed?  What was missed in your assessment?

To read more about the Crawford Area Transit Authority, please click here.

Case Study Two – Contracting Out Your Services: Franklin Regional Transit Authority (FRTA), Greenfield, MA

The Franklin Regional Transit Authority (FRTA) provides service to 40 communities throughout four counties in western Massachusetts, covering the greatest and most rural geographic area in the state.  The Authority develops, finances and contracts for the operation of transportation facilities and services within its transit area, and daily activities are managed by the Administrator, appointed by the Advisory Board.  The following is taken from an interview with the Tina Cote, Administrator of the Franklin Regional Transit Authority. 

According to Chapter 161B Section 25 of the Massachusetts General Laws, regional transit authorities cannot operate service directly.  Instead, they must contract with private operators for the provision of service.  For a long time, the FRTA contracted with a local agency, but five years ago they put out an RFP to find a new contractor. During this period of time, FRTA was consolidating services with another agency and a great deal was in transition, making it a complicated situation for a contractor to take on.   A professional management company won the bid and, at the time of the interview, was in its fifth year of its contract with FRTA.  It is the first professional management contractor that has taken on this role.

The contractor employs the general manager who manages the day-to-day operations:  maintenance, drivers,dispatchers, schedulers, etc.  FRTA pays the contractor a management fee, which covers the cost of the general manager’s salary.  FRTA, however, oversees the rest of the budget.  This may change when the contract is put out to bid again, in which case FRTA would pay a larger management fee to the contractor, and the contractor would be responsible for ensuring that the budget is balanced and expenses remain within available funding. 

Tina Cote explained that she has daily contact with the general manager but this does not take much of her time. The contact might be as simple as reporting a request that a passenger’s payment card got stuck in a machine and he/she needs change.  She also meets with the general manager once a week to sit down and go over everything that’s taking place.  This system works well, and she contributes the success of the partnership to having a good general manager.  She also remarked that even if they did operate services in-house, they would still hire a general manager to oversee the daily tasks- a structure not unlike what is currently found with the contractor. 

Tina advises agencies that are considering putting their operations out to bid to be as specific as possible in the RFP and incorporate lessons learned from previous contracting experiences or issues you have run into with your in-house operations.  She also emphasized the importance of an opt-out clause in case the contractor is not the right fit.  Her first contract was for one year, with the option to renew for four years after.  FRTA had the option to terminate the contract at any point after the first year. 

Lastly, she emphasized the importance of a good general manager.  Ask for the contractor to include the resume of the person they are proposing to fill the position of general manager and set up an interview with that person. The general manager is the person you will have the most contact with,and he/she will be the person who will go to bat for you when things arise.  Because FRTA has such a strong relationship with their general manager, they have had a positive experience contracting out their operations.

For more information about the Franklin Regional Transit Authority, please click here.

As you can see from these case studies, the structure, capacity, environment, needs and resources of systems can be different, and because of this, what and how a system contacts with a third party will differ case by case.  However, you may find that pieces of the advice above might assist you in making a well-informed decision as to whether or not to contact out and how to structure that relationship. 

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