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Two-tender approach to procure rural bus services

The procurement for bus services provided by the Ministry of Education (MoE) was conducted through an innovative two-tender approach. By doing so, MoE enabled small operators to compete for routes in their local communities.

Reducing barriers to education

While caregivers are ultimately responsible for getting students to school, the Ministry of Education assists students who do not have access to public transport and where distance from their closest school is a barrier to education. The Ministry is the second-largest purchaser of passenger transport services in New Zealand, and is responsible for:

  • delivering approximately 40 million passenger journeys each year
  • assisting over 100,000 students to get safely to and from school
  • managing contracts with around 70 transport providers for bus, ferry and taxi services.

A lifeline for regional communities

“Although comparable in size to an urban public transport operation, Ministry-funded school transport services run primarily in rural and peri-urban areas, and therefore support some of New Zealand’s most isolated rural communities.”

James Meffan  Group Manager School Transport

Suppliers contracted by the Ministry to deliver bus services vary considerably in size, from large bus companies to ‘mum and dad’ operators with only a handful of bus routes (or even just one route). For many of these operators, school bus services are a crucial source of revenue.

In planning the procurement process for new contracts, the Ministry determined that an open competitive tender of routes bundled in large groups would offer the best value for money. However, some within the industry raised concerns that this approach might put small regional operators at a disadvantage, leading the Ministry to reconsider its procurement approach within a public value framework.

Rethinking procurement to support thriving and sustainable communities

Following the Government’s commitment to supporting thriving and sustainable regional economies, the Ministry reconfigured the procurement process as two tenders to ensure opportunities for smaller regional suppliers. While the procurement team considered a range of split procurement options, including direct negotiation with smaller suppliers, a two-tender approach allowed the Ministry to ensure greater opportunities for suppliers of all sizes, including new entrants. To do this, the Ministry sought proposals and awarded contracts in two stages:

Tender 1 (July–December 2020) Tender 2 (December 2020–May 2021)
  • Up to 10% of routes
  • Routes offered individually
  • Allowed smaller suppliers to compete for routes in their local communities
  • All remaining routes (i.e. not awarded in Tender 1)
  • Routes offered in groups
  • Aimed at larger transport providers

Suppliers could opt in to the tender that best suited their aspirations: Tender 1 for those with more modest aspirations and Tender 2 for those who wished to compete for a larger share of the market. To ensure that self-definition worked as intended, successful respondents who secured a contract through Tender 1 were not eligible for award in Tender 2.

Tender 1 was completed in December 2020 and resulted in 28 smaller, regional suppliers (including 6 new entrants) securing contracts to deliver school bus services. Tender 2 was completed in May 2021 and resulted in 18 suppliers securing contracts to deliver 1,931 routes.

Achieving better public value through flexibility

Redesigning the procurement process with a view towards broader outcomes required flexibility and a willingness to rethink conventional approaches. Because the redesigned approach required a longer procurement timeline, the Ministry also extended its current contracts with operators by 12 months to ensure continuity of service and provide sufficient transition time to new contracts. While a focus on broader outcomes may lead to higher costs in the near term, this approach has enabled the Ministry to deliver greater long-term public value.

School transport - Ministry of Education Te Tāhuhu o te Mātauranga

School Bus Procurement - Ministry of Education Te Tāhuhu o te Mātauranga

Implementing broader outcomes

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