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United States Government Accountability Office: 
GAO: 

Report to Congressional Committees: 

September 2013: 

Public Transit: 

Transit Agencies' Use of Contracting to Provide Service: 

GAO-13-782: 

GAO Highlights: 

Highlights of GAO-13-782, a report to congressional committees. 

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 generalizable to all transit 
agencies. GAO also reviewed relevant studies and literature on transit 
contracting. 

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. 

What GAO Recommends: 

GAO is not making recommendations in this report. DOT and Department 
of Labor reviewed a draft of this report and had no comments. 

View [hyperlink, http://www.gao.gov/products/GAO-13-782]. For more 
information, contact David J.Wise at (202) 512-2834 or wised@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

Contracting Is a Prevalent Means of Providing Transit Services: 

Transit Agencies Use Many Methods to Select and Oversee Contractors: 

Transit Agencies and Contractors Cite a Mix of Benefits and Challenges 
of Contracting; Unions Primarily Note Disadvantages: 

Concluding Observations: 

Agency Comments: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: Of Transit Agencies That Contract, Percentage That Contract 
Out Different Aspects of Operations, by Mode: 

Table 2: Top Factors Considered by Transit Agencies when Deciding to 
Contract Service, by Mode: 

Table 3: Of Transit Agencies That Do Not Contract Some or All 
Operations, Percentage That Reported Reasons for Not Contracting: 

Table 4: Transit Agencies, Contractors, Local Unions, and Citizens' 
Advisory Groups Interviewed, by Location: 

Figures: 

Figure 1: Number of Surveyed Transit Agencies That Do and Do Not 
Contract Services, by Mode: 

Figure 2: Of Transit Agencies That Contract, Number That Use Each 
Method for Selecting Contractors: 

Figure 3: Of Transit Agencies That Contract, Number That Use Each 
Method for Assessing Quality of Contracted Services: 

Abbreviations: 

ADA: Americans with Disabilities Act of 1990: 

ATU: Amalgamated Transit Union: 

DART: Dallas Area Rapid Transit: 

FTA: Federal Transit Administration: 

MAP-21: Moving Ahead for Progress in the 21st Century Act: 

METRA: Chicago Metropolitan Rail Authority: 

RLA: Railway Labor Act: 

RTA: Nashville Regional Transportation Authority: 

RTD: Denver Regional Transportation District: 

TWU: Transport Workers Union: 

WMATA: Washington Metropolitan Area Transit Authority: 

View GAO-13-824SP Key Components: 
Public Transit: Survey of Public Transit Agency Officials on 
Contracting Out Public Transit Operations and Other Services 
[[hyperlink, http://www.gao.gov/products/GAO-12-824SP], an e-
supplement to GAO-13-782. 

[End of section] 

GAO:
United States Government Accountability Office: 
441 G St. N.W. 
Washington, DC 20548: 

September 26, 2013: 

The Honorable Tim Johnson: 
Chairman: 
The Honorable Mike Crapo: 
Ranking Member: 
Committee on Banking, Housing, and Urban Affairs: 
United States Senate: 

The Honorable Bill Shuster: 
Chairman: 
The Honorable Nick J. Rahall, II: 
Ranking Member: 
Committee on Transportation and Infrastructure: 
House of Representatives: 

Millions of passengers use transit services on a daily basis in the 
United States, and many of the local transit agencies that provide 
these services receive federal funding. To meet the needs of these 
passengers in a challenging economy, transit agencies need to use 
federal and other resources wisely, while also ensuring quality and 
safe service. Some transit agencies have found that they can save 
money by contracting out some or all of their services with private 
contractors, 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 (MAP-21) 
mandated that GAO report on a number of issues related to transit 
contracting to the House Committee on Transportation and 
Infrastructure and the Senate Committee on Banking, Housing, and Urban 
Affairs.[Footnote 1] In this report, we identify (1) the extent that 
transit agencies contract public transit operations and services and 
reasons for doing so, (2) methods transit agencies use to select and 
oversee contracted services, and (3) potential benefits, challenges, 
and disadvantages of contracting out public transit operations and 
other services. 

To determine the extent transit agencies contract public transit 
operations and other services, the factors they consider when deciding 
to contract, and the methods used to select contractors, we surveyed 
all 637 transit agencies that reported to the Federal Transit 
Administration's (FTA) National Transit Database in 2011 and that 
operate fixed-route bus; demand response; the Americans with 
Disabilities Act of 1990 (ADA) paratransit; and/or heavy, light, or 
commuter rail service. We received responses from 463 transit agencies 
for a response rate of 73 percent.[Footnote 2] Estimates and responses 
to survey questions in this report refer only to the views of the 
respondents. The survey was a census and we did not try to extrapolate 
the findings to the agencies that chose not to respond. For further 
information on our survey, see appendix I. We also interviewed FTA 
officials responsible for maintaining the National Transit Database to 
gather information about the type of information collected about 
transit contracting. To provide additional insight on the reasons 
transit agencies decide to contract, methods they use to select and 
oversee contracted services, and potential benefits, challenges, and 
disadvantages of contracting out public transit operations and other 
services, we interviewed officials from 10 transit agencies. We 
judgmentally selected these transit agencies to provide a range of 
geographic locations, populations served, transit modes, agency sizes, 
and contracting practices. At each location, we interviewed private 
transit contractors, citizens' advisory groups, and local 
unions.[Footnote 3] The interviews from these locations are not 
generalizable to all transit agencies. In addition, we interviewed 
officials from the American Public Transportation Association, 
Community Transportation Association of America, and national labor 
unions representing operators and maintenance workers, as well as 
Federal Railroad Administration officials regarding their oversight 
role for commuter rail services. We also performed a literature review 
of transit contracting studies and articles. Further details on our 
scope and methodology can be found in appendix I. 

We conducted this performance audit from October 2012 to September 
2013 in accordance with generally accepted government auditing 
standards. Those standards require that we plan and perform the audit 
to obtain sufficient, appropriate evidence to provide a reasonable 
basis for our findings and conclusions based on our audit objectives. 
We believe that the evidence obtained provides a reasonable basis for 
our findings and conclusions based on our audit objectives. 

Background: 

Transit agencies provide transportation services in a variety of ways. 
For purposes of this report, we used the following descriptions of 
transportation modes: 

* Fixed-route bus service: rubber-tired passenger vehicles operate on 
fixed routes and schedules over roadways. Diesel, gasoline, battery, 
or alternative fuel engines power vehicles. This category also 
includes bus rapid transit, commuter bus, and trolley bus. 

* ADA paratransit: vehicles operate in response to calls or requests 
from passengers. It uses buses, vans, or taxis to provide 
complementary ADA paratransit service for individuals with 
disabilities who are unable to use a fixed-route system. These 
services are associated with or attributed to ADA compliance 
requirements.[Footnote 4] 

* Demand response (also referred to as dial-a-ride): vehicles operate 
in response to calls or requests from passengers. Demand response uses 
small buses, vans, or taxis to provide transportation service that is 
not on a fixed route or schedule. For example, transportation may be 
provided for individuals whose access may be limited, or whose 
disability or health condition prevents them from using the regular 
fixed-route bus service. For purposes of this report, we have defined 
these services as unrelated to ADA requirements. 

* Commuter rail: vehicles operate along electric or diesel-propelled 
railways and provide train service for local, short distance trips 
between a central city and adjacent suburbs.[Footnote 5] 

* Heavy rail: vehicles operate on electric railways with high-volume 
traffic capacity. This mode has separated rights-of-way, sophisticated 
signaling, high platform loading and high-speed rapid-acceleration 
rail cars operating singly or in multi-car trains on fixed rails. 

* Light rail: vehicles operate on electric railways with light-volume 
traffic capacity. The mode may have either shared or exclusive rights-
of-way, low or high platform loading, or single or double car trains. 

The transit contracting industry in the United States is characterized 
by a few large providers that operate nationwide, some mid-size 
regional providers, and numerous small, local providers that primarily 
operate bus, demand response, and ADA paratransit service. Transit 
agencies can contract out various aspects of their operations with 
contractors, such as operating the service, vehicles, maintenance, 
security, and administrative services. Contracting arrangements can 
range from the transit agency's contracting out all aspects of its 
operations, as is the case for a delegated management contract, to 
contracting out only one component of operations, such as maintenance. 

The federal government has a limited role in overseeing transit 
contracting. FTA tracks transit agencies' contracting practices 
through reports submitted by transit agencies to the National Transit 
Database. Additionally, FTA oversees transit contracting, along with 
other aspects of transit agencies' operations, through procurement 
reviews and triennial reviews that focus on whether transit agencies 
have followed federal regulations and have appropriate systems in 
place for contracting, among other things. The Federal Railroad 
Administration oversees commuter rail operations but does not conduct 
any reviews of contracting practices. The Department of Labor is 
responsible for issuing what is commonly referred to as "Section 
13(c)" certifications, which certify that fair and equitable labor 
protection arrangements are in place for employees who may be affected 
by certain grants of federal financial assistance.[Footnote 6] When 
existing transit service is contracted out, Section 13(c) protections 
may be triggered, including assurances of employment and priority of 
reemployment. According to officials at the Department of Labor, after 
a search of their records and to the best of their knowledge, there 
has never been an instance where a transit agency has been unable to 
contract out public transit operations and other services because 
doing so would jeopardize Section 13(c) certification from the 
Department of Labor. 

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. By 
size of agency, 52 percent of small agencies, 69 percent of medium 
agencies, and 92 percent of large agencies had at least one service 
that they contracted out.[Footnote 7] 

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. Among the approximately 61 
percent of surveyed agencies that reported contracting, more agencies 
reported contracting for ADA paratransit than for any other service. 
Results from our survey shows that of 359 respondents that provide ADA 
paratransit services, 204, or 57 percent, contract out this service. 
Seven of the 10 transit agencies we interviewed also contract out ADA 
paratransit services. (See figure 1.) 

Figure 1: Number of Surveyed Transit Agencies That Do and Do Not 
Contract Services, by Mode: 

[Refer to PDF for image: vertical bar graph] 

Number of transit agencies: 

Transit type: Fixed-route bus; 
All or some contracted out: 167; 
None contracted: 228. 

Transit type: ADA paratransit; 
All or some contracted out: 204; 
None contracted: 154. 

Transit type: Demand response; 
All or some contracted out: 133; 
None contracted: 81. 

Transit type: Commuter rail; 
All or some contracted out: 19; 
None contracted: 5. 

Transit type: Heavy rail; 
All or some contracted out: 1; 
None contracted: 7. 

Transit type: Light rail; 
All or some contracted out: 6; 
None contracted: 19. 

Source: GAO survey, April 2013. 

Note: The numbers in this figure and the rest of the tables and 
figures throughout the report refer to the number of transit agencies 
that responded to a particular question and may not be consistent 
throughout the report. For example, 396 transit agencies indicated 
that they provide fixed-route bus service, but only 395 responded to 
the question about whether or not they contract out service. 

[End of figure] 

Interviewees report that contracting ADA paratransit occurs for 
various reasons, including the following: 

* ADA paratransit requires specialized training and equipment that can 
be difficult to provide because agencies may lack staff, expertise, or 
resources needed to train workers, according to a transit agency 
official we interviewed. 

* Contracting for this service can be more cost effective than 
providing the service in-house. According to an industry group we 
spoke with, ADA paratransit operations are very expensive and for 
agencies, contracting this service is viewed as a way to potentially 
save money. 

* Contracting ADA paratransit allows agencies to remove themselves 
from the day-to-day operations and reduces the risk and liability 
associated with operational responsibility, according to another 
transit agency official we interviewed. 

We found the extent that surveyed transit agencies contract varies by 
type of service, but among transit agencies that contract out, 
operations are most often contracted across all modes, followed by 
maintenance services. (See table 1.) 

Table 1: Of Transit Agencies That Contract, Percentage That Contract 
Out Different Aspects of Operations, by Mode: 

Operations: 
Heavy and light rail (N=7): 71%; 
Fixed-route bus (N=167): 96%; 
Demand response (N=133): 97%; 
ADA paratransit (N=204): 97%; 
Commuter rail (N=19): 95%. 

Maintenance: 
Heavy and light rail (N=7): 71%; 
Fixed-route bus (N=167): 83%; 
Demand response (N=133): 78%; 
ADA paratransit (N=204): 75%; 
Commuter rail (N=19): 89%. 

Security: 
Heavy and light rail (N=7): 57%; 
Fixed-route bus (N=167): 31%; 
Demand response (N=133): 24%; 
ADA paratransit (N=204): 26%; 
Commuter rail (N=19): 58%. 

Administrative services: 
Heavy and light rail (N=7): 43%; 
Fixed-route bus (N=167): 72%; 
Demand response (N=133): 72%; 
ADA paratransit (N=204): 73%; 
Commuter rail (N=19): 63%. 

Vehicles: 
Heavy and light rail (N=7): 29%; 
Fixed-route bus (N=167): 26%; 
Demand response (N=133): 47%; 
ADA paratransit (N=204): 40%; 
Commuter rail (N=19): 37%. 

Other: 
Heavy and light rail (N=7): 14%; 
Fixed-route bus (N=167): 11%; 
Demand response (N=133): 9%; 
ADA paratransit (N=204): 11%; 
Commuter rail (N=19): 21%. 

Source: GAO survey, April 2013. 

Note: Responses do not add to one hundred percent because agencies 
were able to select more than one category. The other category 
includes scheduling, dispatching, reservations, ticketing, grant 
management services, and training. Heavy and light rail are combined 
due to the small number of agencies providing this service and 
similarities between the modes. 

[End of table] 

As shown in table 1, in each of the modes, less than half of the 
agencies that contract out include vehicles in their contracts. In our 
interviews with transit agencies and contractors, officials told us 
that transit agencies generally provide their own vehicles for several 
reasons: 

* Owning vehicles gives the agency more flexibility to terminate a 
contract if needed, because it can be very difficult for an agency to 
quickly find another contractor with vehicles to provide continuous 
service. 

* Purchasing and owning vehicles used in the transit service can 
attract bidders who would otherwise be hesitant to buy expensive 
vehicles: 

* without the assurance that they would be used beyond the initial 
length of the contract. 

* Owning the vehicles gives the agency more control in making 
decisions about vehicle replacement or major repairs, such as 
replacing engines or transmissions. This can lower costs because the 
contractor may anticipate and budget for these costs in a contract 
without knowing for certain if they will be needed, in order to 
minimize their own risk. 

Reasons for Contracting Decisions: 

According to our survey, the factors that transit agencies considered 
when deciding to contract a particular mode of service vary based on 
the mode and by needs of individual transit agencies. (See table 2.) 

* For fixed-route bus, demand response, and paratransit service, the 
factors that were considered most often were reducing costs and 
improving efficiency. 

* For commuter rail, the factors that were considered most often were 
starting new service and improving efficiency. 

* For heavy and light rail, the factors that were considered most 
often were starting new service and being directed to contract by the 
Board of Directors. 

Table 2: Top Factors Considered by Transit Agencies when Deciding to 
Contract Service, by Mode: 

To reduce costs: 
Heavy and light rail (N=6): 33%; 
Fixed-route bus (N=160): 68%; 
Demand response (N=122): 70%; 
ADA paratransit (N=200): 74%; 
Commuter rail (N=18): 39%. 

Starting new service: 
Heavy and light rail (N=6): 67%; 
Fixed-route bus (N=160): 43%; 
Demand response (N=122): 41%; 
ADA paratransit (N=200): 33%; 
Commuter rail (N=18): 83%. 

To improve efficiency: 
Heavy and light rail (N=6): 33%; 
Fixed-route bus (N=160): 61%; 
Demand response (N=122): 58%; 
ADA paratransit (N=200): 59%; 
Commuter rail (N=18): 56%. 

To allow for more flexible service: 
Heavy and light rail (N=6): 33%; 
Fixed-route bus (N=160): 41%; 
Demand response (N=122): 54%; 
ADA paratransit (N=200): 46%; 
Commuter rail (N=18): 44%. 

Directed to contract by Board of Directors: 
Heavy and light rail (N=6): 50%; 
Fixed-route bus (N=160): 23%; 
Demand response (N=122): 20%; 
ADA paratransit (N=200): 23%; 
Commuter rail (N=18): 44%. 

To provide higher quality service: 
Heavy and light rail (N=6): 33%; 
Fixed-route bus (N=160): 36%; 
Demand response (N=122): 44%; 
ADA paratransit (N=200): 38%; 
Commuter rail (N=18): 44%. 

Source: GAO survey, April 2013. 

Note: This table lists the categories with the highest percent of 
responses. Other potential responses with lower percentage of 
responses included expanding existing services; lack of availability 
of funding, equipment, or facilities to expand or start service; 
federal funds were available for contracting; and to meet state 
mandate or law. The table includes the responses of agencies that 
decided to contract out. Below we will discuss the top three reasons 
for contracting out service. Heavy and light rail are combined due to 
the small number of agencies providing this service and similarities 
between the modes. 

[End of table] 

Our literature review indicated these factors vary because needs and 
costs vary by mode, as well as the individual needs of transit 
agencies. Thus, for one transit agency, the cost of procuring vehicles 
and building facilities and expertise needed to operate the service 
may be a paramount concern, whereas it may be less of a concern for 
others. For example, commuter, heavy, and light rail services have 
high start-up costs because of the infrastructure and vehicles needed 
to operate the service, and, as supported by our survey results, 
starting new service is a primary factor in their decision to contract 
out for service. For fixed-route bus, demand response, and paratransit 
services, the start up costs are typically much lower. 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. Although the factors that affect the decision to 
contract vary across modes, reducing costs is consistently taken into 
account, according to our survey, interviews, and literature review. 
The previous table shows that among our survey respondents that 
contract out, reducing cost was the most often cited factor. This 
finding was supported by our interviews with transit agency officials 
and the literature, which indicated that wage rates are lower for 
contracted drivers and operators, in part because: 

* Contractors can "reset" wage rates to the market rate by hiring new 
operators at entry-level wage rates, according to some contractors we 
interviewed. 

* Contractors may not always provide pensions and other benefits for 
contract workers. 

* Contractors may have lower health insurance rates for their 
employees because of the large number of employees under their 
coverage. 

As we will describe later in this report, unions have concerns 
regarding the lower wages and benefits for contract workers. 

Some agencies, such as the Washington Metropolitan Area Transit 
Authority (Washington, D.C.) and the Metropolitan Rail Authority 
(Metra) (Chicago, Illinois), have found it more cost effective to 
contract out a portion of their services. Officials from the 
Washington Metropolitan Area Transit Authority told us that it is more 
cost effective for contractors to provide ADA paratransit service 
because of their reduced labor costs. Officials at Metra said they 
would not achieve cost savings by directly operating two of their 
commuter rail services currently contracted out to the Burlington 
Northern/Santa Fe and Union Pacific Railroads. Officials stated that 
first, the freight railroads own the track and they would not be able 
to negotiate new track agreements with the railroads that would 
produce any more cost savings than what is in their present agreement. 
Second, they gain efficiencies from sharing certain overheads such as 
management personnel and facilities. If Metra had to create separate 
standalone facilities and staffing, this would be more expensive. 
Third, if Metra directly operated the service, then both Burlington 
Northern/Santa Fe and Union Pacific Railroad employees would be 
brought under Metra's collective bargaining agreements, which pay a 
higher wage rate than the freight railroads. 

Starting new service. According to survey respondents as well as 
transit agency officials and contractors that we interviewed, transit 
agencies may contract out in order to avoid high start-up costs, 
including the cost of new services, procuring new vehicles, hiring 
staff, and obtaining facilities. For example, officials from the 
Nashville Regional Transportation Authority (Nashville, Tennessee) 
told us that they contract their commuter rail service because they 
lacked facilities to house or maintain their vehicles. Also, 
contracting out services can enable agencies to offer services they 
would otherwise not be able to provide--such as service that is 
located away from their main service area--because it is not cost 
effective. For example, while New Jersey Transit directly operates 
some of its services including fixed-route bus service, officials said 
when they create new services or expand other services it makes more 
sense for them to contract out, particularly in areas that lack a 
service garage or where there would be long travel times to where 
drivers store their vehicles at the end of the day. 

In addition, from our interviews, we found that some transit agencies 
contract out when starting new service because they do not have the 
capability to perform transit services in-house. For example: 

* New Orleans Regional Transit Authority (New Orleans, Louisiana) 
entered into a 10-year delegated management contract with a contractor 
that covers all planning, operations, and maintenance to quickly 
restore and rebuild the transit services and infrastructure that 
hurricane Katrina destroyed. 

* Yuma County Intergovernmental Public Transportation Authority (Yuma, 
Arizona) contracts out all operations and maintenance for both its 
fixed-route bus and ADA paratransit services because it has only been 
in existence a short time and has not developed the capability to 
perform these services in house. 

Improved efficiency and flexibility: According to our survey, improved 
efficiency and flexibility are two other primary considerations for 
contracting out service. Contractors and transit agency officials that 
we interviewed said that in some cases, contractors can operate more 
efficiently by having operators split their time between transit 
during the peak hours and other services, such as charter services--
which are not typically provided by transit agencies--during other 
times of the day. 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. According to one contractor we 
interviewed, offering part-time employment or flexible schedules may 
be also preferable for some employees. 

Other factors. Legislative requirements that mandate or limit a 
transit agency from using a certain level of contracting, is another 
reason that can influence certain agencies' decisions to contract out 
service. However, state laws were not a leading factor in contracting 
decision-making, according to our survey respondents and seven transit 
agency officials that we interviewed.[Footnote 8] For example, the 
state of Colorado limits the amount of contracting used by the Denver 
Regional Transit District (Denver, Colorado) to 58 percent. According 
to agency officials whom we interviewed, the cap on contracting has 
not had much impact on the agency's contracted services, which are 
currently about 56 percent of their bus and ADA paratransit 
operations. At the federal level, as described previously, when 
existing transit service is contracted out, Section 13(c) protections 
may be triggered, including assurances of employment and priority of 
reemployment. 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. 

Agencies that do not contract out any transit services or that 
contract out some, but not all aspects of their operations, also do so 
for reasons that vary by mode. 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. For commuter rail services, cost 
effectiveness was not among the primary reasons transit agencies 
reported for not contracting out service. 

Table 3: Of Transit Agencies That Do Not Contract Some or All 
Operations, Percentage That Reported Reasons for Not Contracting: 

Want to maintain control over operations: 
Heavy and light rail (N=26): 62%; 
Fixed-route bus (N=272): 67%; 
Demand response (N=100): 66%; 
Paratransit (N=182): 61%; 
Commuter rail (N=4): 50%. 

No reason to change to contracting: 
Heavy and light rail (N=26): 31%; 
Fixed-route bus (N=272): 56%; 
Demand response (N=100): 50%; 
Paratransit (N=182): 46%; 
Commuter rail (N=4): 50%. 

Contracting was not found to be cost effective: 
Heavy and light rail (N=26): 27%; 
Fixed-route bus (N=272): 28%; 
Demand response (N=100): 26%; 
Paratransit (N=182): 33%; 
Commuter rail (N=4): 0. 

Challenges presented by Section 13(c): 
Heavy and light rail (N=26): 19%; 
Fixed-route bus (N=272): 19%; 
Demand response (N=100): 9%; 
Paratransit (N=182): 14%; 
Commuter rail (N=4): 25%. 

Contracting is not allowed in union contract: 
Heavy and light rail (N=26): 15%; 
Fixed-route bus (N=272): 20%; 
Demand response (N=100): 4%; 
Paratransit (N=182): 11%; 
Commuter rail (N=4): 25%. 

Source: GAO survey, April 2013. 

Note: The transit agencies whose responses are represented in the 
table are the survey respondents that did not contract out for any 
services or that do not contract out for some portion of their 
services. The responses do not add to 100 percent because agencies had 
the option of selecting more than one reason. Heavy and light rail are 
combined due to the small number of agencies providing this service 
and similarities between the modes. 

[End of table] 

Of the transit agencies that we interviewed, one transit agency does 
not contract out for any service and five transit agencies only 
contract out some modes, and they cited similar reasons as our survey 
respondents for their decisions not to contract out service. One 
transit agency that we interviewed that did not contract out any 
service--Western Maine Transportation Service (Auburn, Maine)--said 
that they never considered contracting. Transit agency officials 
stated that this was due in part to difficulty in finding a contractor 
willing to implement a costly drug and alcohol program that met FTA 
standards and also because the cost to contract out maintenance 
services would have been more expensive than directly operating it 
themselves, according to a comparative analysis performed by the 
transit agency of the cost to contract out versus the cost of 
operating it themselves. In addition, one transit agency contracted 
out service in the past and decided to bring the service back in-
house. Dallas Area Rapid Transit (Dallas, Texas) used to use a 
contractor for its fixed-route bus service and later decided to 
provide the service using transit agency staff because, according to 
officials, in addition to local economic conditions and declining 
sales tax revenues, the contractor was not meeting service 
requirements and key performance indicators for maintenance of transit 
agency-owned vehicles. More recently, beginning in fiscal year 2012, 
the agency decided to keep operation of certain bus routes in-house 
after an analysis determined that the agency's costs to operate the 
service were lower than the privately contracted options. 

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. (See figure 2.) The most common method 
(used by 200 transit agencies that responded to our question) is 
competition through a request for proposals, wherein the transit 
agency solicits offers for the service to be provided. 

Fewer than 50 transit agencies that responded to our survey that use 
contracting use each of the following methods: 

* orders under pre-existing contracts,[Footnote 9] 

* sole source or preferred vendors, 

* exercising a contract option,[Footnote 10] and: 

* selection from a list of preferred vendors. 

Figure 2: Of Transit Agencies That Contract, Number That Use Each 
Method for Selecting Contractors: 

[Refer to PDF for image: horizontal bar graph] 

Number of responses: 

Method for selecting contractors: Selection from a list of preferred 
vendors: 26. 

Method for selecting contractors: Exercise of contract options: 38. 

Method for selecting contractors: Sole source or preferred vendors: 47. 

Method for selecting contractors: Orders under pre-existing contracts: 
47. 

Method for selecting contractors: Competition through request for 
proposals: 200. 

Source: GAO survey, April 2013. 

Note: "Exercise of contract options" was not listed as a potential 
survey response. "Other" was listed as a survey response with the 
option to write in a response, and 38 respondents indicated that they 
exercised a contract option. 

[End of figure] 

Officials we interviewed at eight of the nine transit agencies that 
use contracting said that they had at least three offers in response 
to their most recent solicitations for each mode operated, except when 
obtaining offers for the operation of their commuter rail services. 
Officials noted that it might not be cost effective for other 
contractors to make an offer on some commuter rail contracts because 
of specific circumstances, such as one contractor owning the tracks. 

In selecting a contractor, transit agencies may be required to 
consider potential conflicts of interest. Nearly all (99 percent) of 
the agencies that we surveyed that use contracting have an ethics 
policy or standards in place that prohibit conflicts of interest. 
Furthermore, nearly all (99 percent) consider federal law, 
regulations, and guidance prohibiting conflicts of interest for 
contractor employees and businesses when contracting out. 

Once the transit agency makes the decision to contract and selects a 
contractor, the two parties enter into a contract. Among other things, 
the contract specifies compensation, which can be structured in 
several ways. It may specify fixed-price compensation, which is based 
on a set price. For example, the payment may be a fixed amount per 
month. Compensation can also be hourly, so that the contractor pays 
based on the number of hours that the service is provided, which can 
be for the number of hours when the transit service is collecting 
fares or from the time the vehicles leave the facility until they 
return. Finally, the contractor can be compensated on a per-trip or 
per-mile basis, wherein the transit agency pays based on the number of 
trips provided or miles traveled. According to our survey, transit 
agencies structure compensation in their contract in various ways, 
including fixed price, price per revenue service based on hours or 
miles, price per vehicle miles or hours, and number of passenger trips 
provided. Contracts also specify the terms of service. For transit 
agencies that we interviewed, the most common contract term--used by 
six of the nine transit agencies that use contracting--was a 5-year 
initial contract period, sometimes including the option to extend into 
additional years. With respect to public access to contracts, federal 
regulations require transit agencies that enter into contracts using 
FTA grants to use their own procurement procedures that reflect 
applicable state and local laws and regulations.[Footnote 11] Of the 
transit agencies that responded to our survey that contract out, 92 
percent allow public access to all of their contract documents, 6 
percent allow public access to some of their contract documents, and 1 
percent do not allow public access to any of their documents.[Footnote 
12] 

Contractor Oversight: 

Transit agencies reported undertaking a variety of activities to 
assess the quality of contracted services. 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. (See fig. 3.) About 84 
percent of the surveyed transit agencies that contract out services 
reported having a specific unit or department to conduct oversight. 

Figure 3: Of Transit Agencies That Contract, Number That Use Each 
Method for Assessing Quality of Contracted Services: 

[Refer to PDF for image: horizontal bar graph] 

Number of responses: 

Method for assessing quality: Other methods: 25. 

Method for assessing quality: Third party inspectors: 86. 

Method for assessing quality: Real-time monitoring: 163. 

Method for assessing quality: Performance metrics: 180. 

Method for assessing quality: On-site inspections: 209. 

Method for assessing quality: Periodic reports or meetings: 218. 

Source: GAO survey, April 2013. 

Note: Agencies could select more than one category. 

[End of figure] 

Transit agency officials whom we interviewed described how they use 
various methods, arrangements, and metrics they use to oversee 
contractor performance. For example: 

* Officials at all of the nine agencies that use contractors told us 
that they oversee contractors' performance through activities such as 
routinely communicating with their contractors, either through 
periodic meetings or on as needed basis; inspecting contractors' 
facilities or vehicles; and/or using real-time monitoring devices 
installed on vehicles. 

* 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. For example, in March 2013, the Washington 
Metropolitan Area Transit Authority signed a contract with a company 
to oversee the performance of the three transit contractors that 
operate its ADA paratransit services. Officials told us that using 
contractors to oversee the day-to-day performance of the contractors: 

* frees up in-house staff for more high-level oversight and management. 

* 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. For example, the Denver Regional 
Transit District uses a set of performance metrics, such as on-time 
performance and the number of complaints received from customers to 
measure the contractor's performance for its fixed-route bus service. 
The performance metrics are used to determine performance incentives 
or penalties. Likewise, officials from the New Orleans Regional 
Transit Authority said that they include performance incentives and 
penalties in their delegated management contract. Among the contract's 
provisions is a requirement for the contractor to reduce costs by 25 
percent (adjusted for inflation) within 5 years in order to receive an 
automatic extension. The contractor said that it has already met this 
goal by focusing on safety throughout the organization, a focus that 
has reduced claim costs and related expenditures. Also, the contractor 
has changed the maintenance procedures and fleet operations and better 
managed the inventory of parts, which have also enhanced cost 
efficiencies. According to the contractor, during this 5-year period 
it has experienced increased service and ridership levels while 
meeting its cost-reduction goals. Conversely, officials from Yuma 
County Intergovernmental Public Transportation Authority do not 
include performance incentives in their contracts because they expect 
the contractor to always perform at a high level of service; however, 
they do have penalties for certain violations such as accidents. 

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. According to our 
literature review, transit agencies view contracting as advantageous 
when new services need to be established quickly, based on the 
assumption that private firms can mobilize faster than a public 
agency.[Footnote 13] Also, we have previously mentioned that starting 
new service is a primary consideration for contracting out service, 
according to our survey respondents (see table 2). 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, a 2005 study found that 
transit agencies use contracting to try out new service, as one agency 
did to provide new lines in outlying areas, because managers suspected 
that those new lines would have very low ridership and would not be 
cost effective. That study indicated that, according to the manager, 
contracting was more efficient because the contractor used smaller 
vehicles and had lower labor costs than the transit agency.[Footnote 
14] 

* Contracting can be used to maintain service levels. According to our 
survey respondents' write-in answers on how transit service 
contracting has met their expectations, three transit agencies 
reported that contracting for certain services has allowed the transit 
agency to maintain service that would have been discontinued due to 
budget reductions. For example, one transit agency that contracts out 
its paratransit service with a ridership of about 52,000 per month 
reported that this service would have been cut due to cost constraints 
were it not for contracting. 

* Provides access to contractor's expertise and resources. Two of the 
10 transit agency officials whom we interviewed contract to gain the 
expertise and the resources that a contractor can bring to their 
transit operation. For example, according to New Orleans Regional 
Transit Authority officials, the agency used a contractor because the 
officials felt that the contractor had the expertise and experience to 
lead the agency back to full recovery after Hurricane Katrina. 

* Shifts risk of providing service to contractor. According to a 2007 
study, when contracting for operation of services requiring buses, the 
transit industry has moved toward providing the vehicles and even the 
maintenance facility to a contractor.[Footnote 15] As a result, the 
contractor assumes greater financial risk in terms of providing the 
insurance that is required for the vehicles. Transit agency officials 
we spoke with cited this transfer of risk as a benefit. For example, 
an official at Yuma County Intergovernmental Public Transportation 
Authority told us that contracting reduced the transit agency's 
insurance costs by 45 percent or more. Additionally, according to this 
official, insurance costs are typically higher for new transit 
authorities than for contractors, because they often do not have the 
same degree of experience operating transit services. 

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. Based on 
studies of contracting, some transit agencies have not accepted 
contracting because it does not provide an economic benefit equal to 
the risks associated with delegating service control to a contractor. 
[Footnote 16] Specifically, according to this 2008 study, absent a 
compelling economic return that includes discounted future savings, in-
house delivery of transit services is preferable because it provides 
managers with a direct line of authority to adjust services to meet a 
community's demand for services or deal with unforeseen service events. 

* Requires a complex request for proposal and contract-monitoring 
process. Officials at two transit agencies told us that the 
contracting process is complex, long, and arduous. For example, 
officials from the Denver Regional Transportation District told us 
that they start the contract solicitation process approximately one 
year prior to the expiration of the existing contract. The process 
includes writing the scope of work, updating requirements (which 
includes getting input from various departments within the agency), 
issuing the request for proposal, evaluating the responses, 
negotiating with the selected contractor, and monitoring any start-up 
activities, thus costing the agency time and money. In addition, 
studies suggest that the costs of monitoring the contractor's 
performance may, in some cases, outweigh the benefits. In particular, 
a recent study found that transit agencies may need to keep in-house 
staff to evaluate and monitor contracts, which can reduce efficiency 
gains and related cost savings.[Footnote 17] Another study suggests 
that the transaction costs that transit agencies incur when they draw 
up requests for proposals, evaluate offers, negotiate contracts, and 
monitor contracts with private providers could offset or even exceed 
cost savings from contracting transit service operation and management 
functions.[Footnote 18] 

* Requires transit agency to address labor issues. According to one 
study, transit agencies that are unionized must consider how organized 
labor would react to a contracting decision.[Footnote 19] This study 
suggests that transit agencies face opposition to contracting from 
unions representing their employees. While a union may concede to 
contracting out new services, it tends to show much stronger 
opposition to contracting out existing services, which threatens union 
members' current jobs. However, according to the study, while most 
agencies with some in-house service are sensitive to union resistance 
to contracting, they may also face financial distress and must find 
ways to increase cost efficiency. Under such conditions, agencies need 
to maintain a good relationship and open communication with the union. 
This situation enables both parties to work together to simultaneously 
increase the cost efficiency of the in-house service while avoiding 
significant job losses due to contracting. Even when transit managers 
are aware of other strategies for increasing cost efficiency, they 
need cooperation and concessions from the union to implement them. 

Contractors' Views: 

Contractors we interviewed cited the following benefits to contracting. 

* Provides cost savings. Contractors told us that they are able to 
increase efficiencies while reducing costs to transit agencies. For 
example, one contractor told us that his company includes in its 
contracts with transit agencies technology for routing and scheduling 
that is proprietary and, therefore, not available to transit agencies 
outside of a contract. Another contractor told us that its contracts 
provide access to specialized routing technology, which transit 
agencies would otherwise have to spend a great deal of money to 
purchase. Also, according to another contractor, providing the 
insurance on the vehicles that it uses can be a significant savings 
depending on the size of the transit agency. As previously mentioned 
in this report, contracting can also be a way for transit agencies to 
potentially lower their health insurance costs. For example, 
contractors with large numbers of employees may have lower health 
insurance rates and be able to offer lower rates to their employees. 
As a result of these and other efficiencies, one contractor told us 
that if it were to exclude the cost of capital assets (vehicles and 
facilities) the operating costs for the contractor would be 
significantly lower, usually in the range of 15 percent to 35 percent. 
However, expected cost savings do not always come to fruition. For 
example, based on anecdotal evidence from our literature review, one 
transit agency brought transit services back in house after it found 
that its arrangement with its contractor was too expensive. The 
contractor had a 5-year contract that was terminated in less than 3 
years. 

* Provides access to contractor's expertise and resources. Contractors 
also cited the expertise and resources that they can bring to a 
transit agency as a benefit to contracting. One contractor we 
interviewed told us that it brings specific knowledge and expertise in 
areas such as training, and resources, such as customer call centers, 
and thus allows the transit agency to focus on its own or management 
strengths. Additionally, another contractor told us that contracting 
allows a private company to provide resources that the transit agency 
does not have. For example, transit agencies might receive access to 
expertise for technical issues and labor negotiations, as well as 
discounted purchasing rates for fuel, vehicle parts, and other 
equipment, because of the large amount purchased by the contractor to 
cover several transit agencies' operations. 

* Increases labor flexibility. Contractors cited labor flexibility as 
a benefit to contracting. For example, according to one contractor, 
contracting offers the transit agency more labor flexibility, in that, 
if additional staff is needed to perform a particular service the 
contractor generally has greater flexibility to quickly bring in the 
needed staff, because it has the resources of the entire company, 
whereas the transit agency may be limited in that regard. Another 
contractor said that its company's labor agreements are not very 
restrictive in terms of how the workforce is deployed or scheduled. 
For example, the contractor can cross-train staff, and if a dispatcher 
is needed to drive or a driver is needed to perform dispatching 
functions, its labor agreements generally allow those things to 
happen, which increases efficiencies. 

The contractors we interviewed cited few challenges to contracting. 
Three of the six contractors we spoke to said that the capital 
investment that is required for a contract might prevent them from 
bidding. Also, according to one contractor, the biggest barrier that 
exists to contracting is transit agency funds. Transit agencies are 
sometimes forced into a contracting arrangement based on price rather 
than value because of funding constraints. 

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. This 
statement is consistent with what we heard from some transit agencies 
regarding the source of cost savings associated with contracting. 
Recent studies we reviewed also suggest that this is the case. For 
example, one study of 12 transit agencies found that cost savings 
accrue primarily as a result of private transit labor consistently 
earning lower wages and fewer benefits compared to similar public 
sector employees.[Footnote 20] Moreover, one local union official that 
we spoke with told us that the wages for the transit-agency bus 
operators it represents are generally higher than the contractors' bus 
operators' wages. A new bus driver starts at about $12-13 per hour for 
the contractors and $15 per hour for that transit agency, according to 
that union official. Additionally, this union official told us that 
while wages for contractor employees and transit agency employees tend 
to be at the same level at the top of the pay scale, it takes 
contractor employees longer to reach the top levels. However, 
according to national union officials, commuter rail employees covered 
under the Railway Labor Act receive comparable wages and benefits 
whether employed by transit agencies or contractors. 

The national and local union officials we interviewed stated that 
contracting might lead to decreased level of safety, poor service 
quality, and hidden costs. 

* Decreased level of safety. Local union officials we spoke with said 
that contracting decreases the level of safety, possibly because, in 
their view, contracted employees receive less training than transit 
agency employees. For example, one local union official told us that 
the local transit agency provides 8 weeks of classroom and on-the-road 
training whereas the contractors provide 5 weeks of training. Another 
local union official told us that the contractor reduced its training 
course to 2 weeks from 3 (the amount provided by the transit agency). 
In addition, one union official told us that privatized buses are not 
as safe as agency buses. For example, the official said that he had 
seen private buses on the road with side view mirrors held in place 
with duct tape. Two studies published since 2002 discussed the quality 
of contracted services, and one noted that contracted service had 
higher rates (by 70 percent) of vehicle collisions and the other 
reported that service quality may be lower among low cost contracted 
operators.[Footnote 21] However, as previously mentioned in this 
report, officials at all of the nine agencies we interviewed that use 
contractors told us that they oversee contractors' performance through 
various activities, including inspecting contractors' facilities or 
vehicles, and none of the officials that we interviewed raised 
concerns about safety. Additionally, one transit agency told us that 
officials inspect the contractors' buses on a daily basis to determine 
their condition or whether preventive maintenance or repairs have been 
performed. The agency also reviews performance data related to 
customer complaints, on-time performance, accidents, and maintenance, 
which it compiles in a monthly performance report. 

* Poor service quality. Union officials we spoke with generally agreed 
that because contractors are profit driven, they may not have 
incentives to provide the same level and quality of service as the 
transit agencies. According to one union official, the contractor will 
only provide the level of effort mandated by the contract, whereas the 
agency will go above and beyond to ensure high-quality service. Recent 
literature has discussed the quality of contracted services, with one 
study finding that contracted service had more vehicle breakdowns (by 
36 percent).[Footnote 22] Anecdotal evidence from the literature shows 
that some contractors are having difficulties in providing quality 
service. For example, a contractor took over paratransit operations in 
a Florida county in the summer of 2012, and by May 2013, due to 
performance failures, such as vehicle breakdowns, accidents, 
maintenance requirements, and other problems; the county fined the 
contractor $2.2 million. The county has since directed the transit 
agency to find a second service provider by November 2013, to help 
provide paratransit services. Also, as discussed earlier, one transit 
agency that we interviewed ceased using a contractor for its fixed-
route bus service because of concerns about service quality, among 
other issues. However, one union representative we spoke with thought 
that the quality of service may actually be better under a contractor, 
because contractors are penalized for not meeting performance 
measures, such as on-time performance, as discussed earlier in this 
report. 

* Hidden costs. Union officials cited hidden costs incurred by transit 
agencies related to activities such as proposal evaluation and 
contract monitoring as a disadvantage to contracting. As previously 
mentioned in this report, transaction costs that public agencies incur 
when they draw up requests for proposals, evaluate offers, negotiate 
contracts, and, monitor contracts with private providers could offset 
or even exceed cost savings from contracting transit service operation 
and management functions. Moreover, one local union official we spoke 
with told us that privatization adds a level of management, which can 
create inefficiencies and duplication of effort. For example, he told 
us that one transit agency that he represents has two sets of street 
supervisors--one for the contractor and another for the transit agency-
-each doing the same work. Also, if a private contractor fails to 
provide service on a route, the transit agency is ultimately 
responsible and must find other means to operate the route. 

Riders' Views: 

According to our interviews with five of the six citizens' advisory 
groups that are affiliated with transit agencies, the quality of 
service was generally viewed as being comparable whether provided by 
the transit agency or a contractor. The Denver Regional Transit 
District conducted a customer satisfaction survey and found no 
measurable difference in customer satisfaction between in-house and 
contracted services. In addition, Dallas Area Rapid Transit citizens' 
advisory group said that the level of service has been good with 
contracting. Lastly, the advisory board for Metropolitan Rail 
Authority told us that the public generally does not know whether a 
contractor or the transit agency operates services. 

Concluding Observations: 

Contracting is not a one-size-fits-all approach for providing transit 
services. For some transit agencies, contracting may be the most cost-
effective way to provide service, because transit agencies can benefit 
from access to certain technologies or reduced labor, fuel, and 
insurance costs. For other transit agencies, contracting may be 
impractical because of additional costs incurred from the bidding 
process and contractor oversight. Given our challenging economy, it is 
important that transit agencies are able to make decisions that allow 
them to use federal funds in the most efficient manner while also 
considering factors such as providing high quality service, regardless 
of whether these services are provided by transit agency employees or 
contractors. 

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. 

We are sending copies of this report to interested congressional 
committees, the Secretary of the Department of Transportation, and the 
Secretary of the Department of Labor. In addition, this report will be 
available at no charge on GAO's web site at [hyperlink, 
http://www.gao.gov]. 

If you or your staff have any questions or would like to discuss this 
work, please contact me at (202) 512-2834 or wised@gao.gov. Contact 
points for our Offices of Congressional Relations and Public Affairs 
may be found on the last page of this report. Individuals making key 
contributions to this report are listed in appendix II. 

Signed by: 

David J. Wise: 
Director, Physical Infrastructure Issues: 

[End of section] 

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? 

To address our questions, we conducted a web-based survey of all 637 
transit agencies that reported to the Federal Transit Administration's 
(FTA) National Transit Database in 2011 and operate fixed-route bus; 
demand response; ADA (Americans with Disability Act) paratransit; and 
heavy, light, or commuter rail services and asked about their 
contracting practices in 2011. We excluded transit agencies that 
received a reporting waiver. The survey was conducted from March 4, 
2013, to April 23, 2013. To prepare the questionnaire, we pretested 
potential questions with transit agencies of different sizes and that 
operate all of the modes to ensure that (1) the questions and possible 
responses were clear and thorough, (2) terminology was used correctly, 
(3) questions did not place an undue burden on the respondents, (4) 
the information was feasible to obtain, and (5) the questionnaire was 
comprehensive and unbiased. On the basis of feedback from the four 
pretests we conducted, we made changes to the content and format of 
some survey questions. The results of our survey can be found at 
[hyperlink, http://www.gao.gov/products/GAO-13-824SP]. 

To identify transit agencies to survey, we conducted interviews with 
the appropriate FTA officials responsible for the National Transit 
Database to learn about information collected from transit agencies 
regarding transit contracting and obtain contact information. We 
contacted all of the transit agencies in advance, by e-mail, to ensure 
that we had identified the correct respondents and to request their 
completion of the questionnaire. After the survey had been available 
for 1 week, and again after 2 and 4 weeks, we used e-mail and 
telephone calls to contact transit agencies who had not completed 
their questionnaires. Using these procedures, we received responses 
from 463 transit agencies for a response rate of 73 percent. The 
results of our survey are not generalizable to all transit agencies. 
Estimates and responses to survey questions in this report refer only 
to the views of the respondents. The survey was a census survey, and 
we did not try to extrapolate the findings to the agencies that chose 
not to respond. Because this was not a sample survey, there are no 
sampling errors. However, the practical difficulties of conducting any 
survey may introduce errors, commonly referred to as nonsampling 
errors. For example, difficulties in how a particular question is 
interpreted, in the sources of information that are available to 
respondents, or in how the data are entered into a database or were 
analyzed can introduce unwanted variability into the survey results. 
We took steps in the development of the questionnaire, the data 
collection, and the data analysis to minimize these nonsampling 
errors. For instance, a survey specialist designed the questionnaire 
in collaboration with GAO staff who have subject-matter expertise. 
Further, the draft questionnaire was pretested with four transit 
agencies to ensure that the questions were relevant, clearly stated, 
and easy to comprehend. When the data were analyzed, a second, 
independent analyst checked all computer programs. Finally, we 
analyzed nonresponding transit agencies for evidence of bias. We found 
that transit agencies that provide heavy rail were less likely to 
respond to our survey than other transit agencies.[Footnote 23] 

To obtain in-depth information and contracting experiences from local 
jurisdictions, we interviewed transit agencies at ten sites across the 
country. (See table 4.) At each location, we attempted to interview 
private transit contractors, citizens' advisory groups, and a local 
union. We judgmentally selected these locations based on geographic 
location, population served, transit modes, agency sizes, and 
contracting practices. The interviews from these locations are not 
generalizable to all transit agencies. 

Table 4: Transit Agencies, Contractors, Local Unions, and Citizens' 
Advisory Groups Interviewed, by Location: 

Location: Auburn, Maine; 
Transit agency: Western Maine Transportation Service; 
Contractor[A]: None; 
Local union[B]: None; 
Citizens' advisory group[C]: None. 

Location: Bourbonnais, Illinois; 
Transit agency: River Valley Metro Mass Transit District; 
Contractor[A]: First Transit; 
Local union[B]: Amalgamated Transit Union (ATU) Local 1745; 
Citizens' advisory group[C]: None. 

Location: Chicago, Illinois; 
Transit agency: Chicago Metropolitan Rail Authority (METRA); 
Contractor[A]: None; 
Local union[B]: None; 
Citizens' advisory group[C]: Citizens Advisory Board. 

Location: Dallas, Texas; 
Transit agency: Dallas Area Rapid Transit (DART); 
Contractor[A]: MV Transportation; 
Local union[B]: ATU Local 1338; 
Citizens' advisory group[C]: DART Citizens Advisory Committee. 

Location: Denver, Colorado; 
Transit agency: Denver Regional Transportation District (RTD); 
Contractor[A]: First Transit; 
Local union[B]: ATU Local 1001; 
Citizens' advisory group[C]: RTD Customer Panel. 

Location: Nashville, Tennessee; 
Transit agency: Nashville Regional Transportation Authority (RTA); 
Contractor[A]: Transit Solutions Group; 
Local union[B]: ATU Local 1235; 
Citizens' advisory group[C]: None. 

Location: Newark, New Jersey; 
Transit agency: New Jersey Transit; 
Contractor[A]: Twenty-First Century Rail Corporation; 
Local union[B]: Transport Workers Union (TWU) International 
Representative on behalf of TWU Local 229; 
Citizens' advisory group[C]: North Jersey Transit Advisory Committee, 
South Jersey Transit Advisory Committee, and Senior Citizens & 
Disabled Resident Transportation Advisory Committee. 

Location: New Orleans, Louisiana; 
Transit agency: New Orleans Regional Transit Authority; 
Contractor[A]: Veolia; 
Local union[B]: None; 
Citizens' advisory group[C]: Special Transit Services Committee. 

Location: Washington, D.C.; 
Transit agency: Washington Metropolitan Area Transit Authority (WMATA); 
Contractor[A]: Diamond Transport; 
Local union[B]: None; 
Citizens' advisory group[C]: WMATA Accessibility Advisory Committee. 

Location: Yuma, Arizona; 
Transit agency: Yuma County Intergovernmental Transportation Authority; 
Contractor[A]: First Transit; 
Local union[B]: ATU Local 1433; 
Citizens' advisory group[C]: None. 

Source: GAO. 

[A] If we obtained a national perspective on contracting from a 
contractor in one location, we did not interview officials affiliated 
with the same contractor at other sites we visited. In one location, 
we did not interview the contractor because the transit agency 
contracts with freight railroads to operate and maintain the service. 

[B] In some locations, the local union representative did not return 
our phone calls to set up interviews or did not wish to be 
interviewed. In one location, we did not interview the local union 
because the transit agency does not contract and in another location 
we did not interview the local union because we gathered commuter rail 
union perspectives at the national level. 

[C] Some locations did not have an active citizens' advisory group. 

[End of table] 

We also interviewed the American Public Transportation Association, 
Community Transportation Association of America, and national labor 
unions representing operators and maintenance workers including the 
American Federation of Labor and Congress of Industrial Organizations, 
the Amalgamated Transit Union and the Transport Workers Union, 
International Brotherhood of Teamsters, and representatives of the 
following unions for commuter rail operators and maintenance workers--
International Brotherhood of Electrical Workers, Brotherhood of 
Railroad Signalmen, National Conference of Firemen & Oilers, 
Brotherhood of Maintenance of Way Employees Division, Sheet Metal Air, 
Rail and Transportation - Sheet Metal Workers' International 
Association, Transport Workers Union, Transportation Trades 
Department, International Association of Machinists, Sheet Metal Air, 
Rail and Transportation-United Transportation Union, and the 
Brotherhood of Locomotive Engineers and Trainmen. We also interviewed 
Federal Railroad Administration officials regarding contracting of 
commuter services and Department of Labor officials to understand 
their role when transit agencies decide to contract out services. 

We also reviewed and synthesized information from our body of work and 
relevant literature on contracting out transit services in the United 
States. We reviewed citations identified through a search of databases 
containing peer-reviewed articles, government reports, and "gray 
literature," including Transport Research International Documentation, 
Social SciSearch, and PROQUEST.[Footnote 24] Publications were limited 
to the years after 2001. After an initial review of citations, 37 
articles were selected for further review. To collect information on 
the articles, we developed a data collection instrument to gather 
information on the articles' scope and purpose, methods, findings and 
their limitations, and additional areas for follow-up, including a 
review of the bibliography to determine the completeness of our 
literature search. To apply this data collection instrument, one 
analyst reviewed each article and recorded information in the data 
collection instrument. A second analyst then reviewed each completed 
data collection instrument to verify the accuracy of the information 
recorded. We summarized the findings and limitations of the articles 
based on the completed data collection instruments, as well as areas 
for additional research identified in the articles. 

We conducted this performance audit from October 2012 to September 
2013 in accordance with generally accepted government auditing 
standards. Those standards require that we plan and perform the audit 
to obtain sufficient, appropriate evidence to provide a reasonable 
basis for our findings and conclusions based on our audit objectives. 
We believe that the evidence obtained provides a reasonable basis for 
our findings and conclusions based on our audit objectives. 

[End of section] 

Appendix II: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

David J. Wise, (202) 512-2834 or wised@gao.gov: 

Staff Acknowledgments: 

In addition to the contact named above, Teresa Spisak (Assistant 
Director), Stephanie Purcell, Carl Barden, Dwayne Curry, Leia 
Dickerson, Lorraine Ettaro, Kathy Gilhooly, Cathy Hurley, Stu Kaufman, 
Alex Lawrence, and Amy Rosewarne made key contributions to this report. 

[End of section] 

Footnotes: 

[1] Pub. L. No. 112-141, § 20013, 126 Stat. 405, 693-694 (July 6, 
2012). 

[2] Responses to that survey are found in [hyperlink, 
http://www.gao.gov/products/GAO-13-824SP] (e-supplement). 

[3] Some locations did not have an active citizens' advisory group, so 
we could not interview its members. In some cases, the same private 
provider served more than one of the transit agencies that we selected 
for interviews. In these cases, we interviewed each private transit 
provider once and obtained their views related to their contracts 
nationwide. 

[4] Paratransit service is defined in Department of Transportation 
regulations as "comparable transportation service required by the ADA 
for individuals with disabilities who are unable to use fixed route 
transportation systems." 49 C.F.R § 37.3. 

[5] Commuter rail operations are covered under the Railway Labor Act 
(RLA). Special bargaining dispute resolution procedures applicable to 
publicly owned and operated rail commuter carriers were added in 1981. 
45 U.S.C. § 159a. The RLA is administered by the National Mediation 
Board, an independent federal agency. 

[6] When federal funds are used to acquire, improve, or operate a 
transit system, federal law requires arrangements to protect the 
rights of affected transit employees. 49 U.S.C. § 5333(b). These 
arrangements must be approved by the Department of Labor before FTA 
can release funds to grantees. The terms and conditions of the 
protective arrangements are included in the grantee's agreement with 
FTA. 

[7] We defined small agencies as those serving a population less than 
or equal to 200,000, medium agencies as those serving a population 
between 200,001 and 1,000,000, and large agencies as those serving a 
population greater than 1,000,000. 

[8] This was not cited as one of the top factors in our survey because 
only a limited number of states have such mandates, and only transit 
agencies in those states would cite this as a factor. 

[9] Some contracts permit customer agencies to place orders for goods 
and services when specific needs arise. 

[10] To exercise an option means to use a provision in an existing 
contract to extend the term of that contract. 

[11] 49 C.F.R. § 18.36(b)(1). 

[12] Percentages do not add to 100 due to rounding. 

[13] Martin Wachs, Karen Trapenberg Frick, and Brian Taylor, 
Contracting for Public Transit Services in the US: Evaluating the 
Tradeoffs, in OECD/ITF, Privatisation and Regulation of Urban Transit 
Systems, OECD Publishing (2008). 

[14] Hiroyuki Iseki, Amy Ford, and Rachel J. Factor, "Contracting 
Practice in Fixed-Route Transit Service: Case Studies in California," 
Transportation Research Record: Journal of the Transportation Research 
Board, 1927 (2005). 

[15] Jeffrey C. Arndt and Linda K. Cherrington, The Role of Private-
for-Hire Vehicles in Texas Public Transit, Texas Transportation 
Institute, The Texas A&M University System (2007). 

[16] See for example, Roland Zullo, "Transit contracting reexamined: 
determinants of cost efficiency and resource allocation," Journal of 
Public Administration Research and Theory, (2008). 

[17] Suzanne Leland and Olga Smirnova, "Understanding Local 
Government's Decision to Contract Out for Transit," paper prepared for 
the Association for Budgeting and Financial Management Meeting, 
Washington, D.C. (2009). 

[18] Hiroyuki Iseki, "Effects of contracting on cost efficiency in 
U.S. fixed-route bus transit service," Transportation Research Part A: 
Policy and Practice, 44 (2010). 

[19] Iseki, Ford, and Factor, "Contracting Practice," 88. 

[20] Wachs, Trapenberg, and Taylor, Contracting for Public, 57-58. 

[21] Wachs, Trapenberg, and Taylor, Contracting for Public, 57. 
Collision data are from a sample of approximately 320 transit agencies. 

[22] Wachs, Trapenberg, and Taylor, Contracting for Public, 57. 

[23] Among other things, MAP-21 required us to report on the size of 
populations served by contracted services and the extent of 
unionization among contracted employees, We included questions in our 
survey; however, we found the responses to these questions to be 
unreliable due to the large number of transit agencies that did not 
provide this information or selected "don't know" as a response. 

[24] "Gray literature" publications may include, but are not limited 
to, the following types of materials: reports (pre-prints, preliminary 
progress and advanced reports, technical reports, statistical reports, 
memoranda, state-of-the art reports, market research reports, etc.), 
theses, conference proceedings, technical specifications and 
standards, noncommercial translations, bibliographies, technical and 
commercial documentation, and official documents not published 
commercially (primarily government reports and documents). 

[End of section] 

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