Demand response (also referred to as dial-a-ride): vehicles  operate in response to calls or requests from passengers. Contracting Is a Prevalent Means of Providing Transit Services

		Extent of Contracting

Contracting is a prevalent means of providing transit services, with about  61 percent of the 463 transit agencies that responded to our survey  reporting they contract out some aspect of their operations. According to our survey, among the agencies providing such services,  paratransit, demand response, and commuter rail are more likely to be  contracted out, and fixed-route bus, heavy rail, and light rail are most  often operated by the transit agency. As a result, transit agencies may place more  importance on reducing costs or providing more efficient service when  making the decision to contract out for service. Reducing costs. Starting new service. Also, contractors may be able to provide service at a lower cost because  their workforce is more flexible, with a greater number of employees  working in part-time positions, resulting in decreased wage and benefit  costs. Other factors. At all nine of the transit  agencies we interviewed that use contracting, transit agency officials said  that provisions of Section 13(c) have not been a deterrent to contracting;  however, some transit agencies that responded to our survey reported  that challenges presented by Section 13(c) are a reason for not  contracting out service. As shown in table 3, for all modes except commuter rail,  the top three reasons to not contract are that the agency desired to  maintain control over operations, found no reason to change from the  transit agency providing service, or found contracting was not cost  effective. Transit Agencies Use Many Methods to Select and Oversee Contractors

		Contractor Selection

According to our survey responses, transit agencies use several methods  to select contractors. Among our survey respondents that  contract out services, the most commonly used methods are periodic  reports or meetings, on-site inspections, the use of performance metrics,  and real time monitoring. About 84 percent of the surveyed  transit agencies that contract out services reported having a specific unit  or department to conduct oversight. Seven of the nine agencies use in-house staff to monitor the  contractor’s performance, while two use third-party contractors to  perform this function. Seven of the nine agencies that contract out for some or all of their  transit services use metrics to establish performance incentives  and/or penalties in contracts. Transit Agencies and Contractors Cite a Mix of Benefits and Challenges of Contracting; Unions Primarily Note Disadvantages

		Transit Agencies’ Views

Transit agency officials whom we interviewed and the literature we  reviewed cite potential benefits to contracting for transit agencies, which  may vary based on the needs and circumstances of individual transit  agencies. Contracting can be used to start or expand service. Transit agencies  contract out for new services in order to avoid the high start-up costs,  including the cost of new services, procuring new vehicles, hiring staff,  and obtaining facilities, according to transit agency officials that we  interviewed. In addition to these reported benefits and their associated cost savings,  transit agencies and literature cite the following challenges to contracting  out transit services, which may, in some cases, outweigh the benefits or  cost savings:
Diminishes an agency’s direct control over operations. Increases labor flexibility. Union Views

Officials at national and local unions we spoke with said that whereas  contracting may provide some short-term cost savings to transit agencies,  the savings are almost entirely from lower wages and benefits paid by the  private companies to their employees. Agency Comments

We provided a copy of this report to the Department of Transportation  and the Department of Labor for review. The agencies had no comment  on the report. Appendix I: Objectives, Scope, and Methodology

To comply with the Moving Ahead for Progress in the 21st Century Act  (MAP-21) mandate we addressed the following questions: (1) What is the  extent that transit agencies contract public transit operations and services  and identify reasons for doing so? (2) What methods do transit agencies  use to select and oversee contracted services? (3) What are the potential  benefits, challenges, and disadvantages of contracting out public transit  operations and other services? The results  of our survey can be found at GAO-13-824SP. Using these procedures, we  received responses from 463 transit agencies for a response rate of 73  percent. The results of our survey are not generalizeable to all transit  agencies. At each location, we attempted to interview private  transit contractors, citizens’ advisory groups, and a local union.
Why GAO Did This Study

Some transit agencies have found that they can save money by contracting out some or all of their services with private providers, while others have found it more beneficial to use their own staff to provide services. The Moving Ahead for Progress in the 21st Century Act mandated that GAO review issues related to transit contracting. In this report, GAO identified: (1) the extent that public transit agencies contract operations and reasons why agencies decide to do so, (2) methods used to select and oversee contracted services, and (3) potential benefits, challenges, and disadvantages of contracting out public transit operations and other services.
GAO conducted a web-based survey of 637 transit agencies that submit reports to the Department of Transportation (DOT) and obtained 463 responses for a 73 percent response rate. The survey and results can be found at GAO-13-824SP . In addition, GAO interviewed federal officials, representatives from industry organizations, and national union officials. GAO also interviewed officials from 10 transit agencies, chosen based on a variety of characteristics, including geographic diversity, population served, use of contracting, and modes operated. At each transit location, GAO interviewed private transit providers, citizens' advisory groups, and local unions. The results of the survey and interviews are not generalizeable to all transit agencies. GAO also reviewed relevant studies and literature on transit contracting.
GAO is not making recommendations in this report. DOT and Department of Labor reviewed a draft of this report and had no comments.

What GAO Found

Contracting is a prevalent means of providing transit services. About 61 percent of the 463 transit agencies responding to GAO's survey reported they contract out some or all operations and services, while the rest reported that they do not contract out at all. According to GAO's survey, paratransit (services for the disabled), demand response (also known as dial-a-ride), and commuter rail service are most often contracted out, and fixed-route bus, heavy rail, and light rail service are most often operated by the transit agency. Operations are most frequently contracted out, followed by maintenance services. Transit agencies most consistently cite reducing costs as a factor influencing their decision to contract. Contracting can reduce costs because contractors' workforces are more flexible, with more employees working in part-time positions, and lower insurance costs, among other things. Transit agencies also frequently cited starting new service, improving efficiency, and allowing for more flexible service as reasons for contracting. State laws are generally not a reason for contracting, according to GAO's survey. Transit agencies that do not contract most often cited one of these three reasons: desire to maintain control over operations, no reason to change from the transit agency's providing service, or contracting was determined not to be cost effective.
Transit agencies GAO surveyed use various methods to select contractors and oversee contractor performance. To select contractors, most agencies used competition with a request for proposals. For oversight, transit agencies most commonly used periodic reports or meetings, on-site inspections, performance metrics, and real time monitoring, according to GAO's survey and interviews. About 84 percent of surveyed transit agencies that contract out services reported having a specific oversight unit. Of the nine transit agencies GAO interviewed that use contracting, seven used transit agency staff for monitoring, while two used contractors to perform this function. Seven of these agencies used performance metrics to establish incentives and/or penalties in contracts.
Transit agencies and contractors cited benefits and challenges to contracting, while labor unions primarily noted disadvantages--most notably, reduced wages and benefits and a potential decline in safety and service, among other issues. Specifically, transit agencies GAO interviewed and the literature cited benefits to contracting, which vary based on the individual needs and circumstances of transit agencies. For example, transit agencies that use contractors view contracting as advantageous when starting or expanding services in order to avoid start-up costs--such as the large capital cost of acquiring new vehicles and hiring new staff. Contractors reported they could improve transit agencies' operational efficiency by providing the latest technologies, such as routing systems and lower costs by providing more affordable insurance on vehicles. Transit agencies also cited some challenges to contracting, such as the agency's loss of direct control over operations. Officials from national and local unions GAO spoke with said that while contracting may provide some short-term cost savings to transit agencies, in their view the savings are almost entirely from lower wages and benefits paid by the private companies to employees.