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Consultation to support the implementation of PTOM
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Consultation to support the implementation of PTOM
Consultation on proposed changes to the NZ Transport Agency’s
Procurement manual and operational policy to support the implementation
of the Public Transport Operating Model (PTOM)
© NZ Transport Agency
www.nzta.govt.nz
Published in April 2013
ISBN 978-0-478-40747-1 (online)
This document is available on the NZTA’s website at www.nzta.govt.nz/consultation.
Consultation to support the implementation of PTOM
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Foreword
If you are in the public transport sector, it is because you are interested
in delivering public transport systems that meet the needs of
communities around New Zealand. You are also likely to have been
involved in some way in the development of a new way of planning,
delivering and procuring public transport services, the Public Transport
Operating Model or PTOM.
The NZ Transport Agency has been part of the PTOM journey since the
very beginning, working collaboratively with many others from regions,
industry and the Ministry of Transport. We welcome the new partnering
approach and our role in helping regions and industry work more closely
together to achieve common goals for the benefit of public transport users.
All of us involved in the public transport sector have a part to play in the success of PTOM.
The Ministry of Transport is leading the process of legislative changes through the Land
Transport Management Amendment Bill 2012, which will create the high-level framework.
The NZ Transport Agency has an important role in investing in the outcomes that public
transport provides to the country – whether that is relieving congestion or improving
accessibility – and we determine operational policy and guidance, ensuring that the best
value for the money we invest is achieved.
The NZ Transport Agency’s primary mechanisms for developing policy to guide the
implementation of PTOM are through its Procurement manual, especially chapter 8
(Procurement procedure 3 – public transport services), chapter 10 (Rules) and its Guidelines
for the development of regional public transport plans (an amended draft of which will be
consulted on later in 2013). The proposed changes are in line with the strategy-based nature
of the Procurement manual and an enabling, principle-based approach to policy.
This consultation document focuses on changes needed to the Procurement manual and is
an important milestone in the implementation of PTOM. It has been developed with
stakeholders, building on the work of the Core Working Group, advice from the
Implementation Advisory Group and other forums. While the policy has been refined, most of
the principles are unchanged from the Core Working Group’s 2012 report
I ask you and your organisation to review these documents and provide us with feedback to
ensure we develop robust and workable policy. Please attend one of the workshops we are
organising to help explain the changes and contact my staff for any further information.
Thank you for your input so far in working with us to develop the draft policies. I look
forward to receiving your submission in June, so that we can finalise the new policy settings
later in the year.
Dave Brash
Group Manager Planning and Investment
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Contents
FOREWORD........................................................................................................................................................................ III
WHO SHOULD READ THIS DOCUMENT?........................................................................................................... VI
SUMMARY ........................................................................................................................................................................ VII
HOW TO USE THIS CONSULTATION DOCUMENT ....................................................................................... IX
A NOTE ON CONCESSIONARY FARE SCHEMES AND PTOM .................................................................... X
PART A – OVERVIEW ......................................................................................................................................................1
INTRODUCTION ................................................................................................................................. 1
APPLICATION OF PTOM TO DIFFERENT-SIZED MARKETS AND MODES ......................................................... 4
Bus markets......................................................................................................................... 4
Ferry markets ...................................................................................................................... 4
Rail markets ........................................................................................................................ 4
Modes other than rail and ferry ......................................................................................... 5
PTOM COMPONENTS ........................................................................................................................ 5
Units .................................................................................................................................... 5
Commercial units ................................................................................................................ 5
Tendered units .................................................................................................................... 6
Negotiated units (applicable mainly to larger regions) ...................................................... 6
Like-for-like units (applicable in regions where commercial registrations were in place
before 30 June 2011) .......................................................................................................... 6
Exempt services ................................................................................................................... 6
Regional public transport plans .......................................................................................... 6
Contracts ............................................................................................................................. 6
Commerciality ratio ............................................................................................................ 7
League table ........................................................................................................................ 7
Benchmarking ..................................................................................................................... 7
Fare setting ......................................................................................................................... 7
Information sharing ............................................................................................................ 7
Financial incentive mechanism ........................................................................................... 7
Annual business planning ................................................................................................... 7
Dispute process ................................................................................................................... 8
How the components apply to different public transport markets .................................... 8
PART B – PROPOSED CHANGES TO THE NZTA PROCUREMENT MANUAL ......................................9
INTRODUCTION ................................................................................................................................. 9
PROCUREMENT MANUAL CHAPTER 4 – STRATEGIC CONTEXT FOR PROCUREMENT....................................... 11
PROCUREMENT STRATEGIES............................................................................................................... 11
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PROPOSED CHANGES TO PROCUREMENT MANUAL CHAPTER 8 – PROCUREMENT PROCEDURE 3 – PUBLIC
TRANSPORT SERVICES ....................................................................................................................... 13
Strategic context ............................................................................................................... 13
Delivery models ................................................................................................................. 13
Supplier selection .............................................................................................................. 14
Contracts ........................................................................................................................... 14
Annual business planning ................................................................................................. 15
Financial incentive mechanism ......................................................................................... 15
Fare revenue protection .................................................................................................... 16
PROPOSED CHANGES TO CHAPTER 10 (RULES)..................................................................................... 17
Proposed changes to general rules ................................................................................... 18
Proposed changes to public transport specific rules ........................................................ 22
Proposed new rules ........................................................................................................... 25
PROPOSED CHANGES TO THE APPENDICES OF THE PROCUREMENT MANUAL .............................................. 27
Proposed additional table (procurement strategy checklist) in appendix A of the
Procurement manual......................................................................................................... 27
Proposed change to Procurement manual appendix D Procurement procedure decision
trees................................................................................................................................... 30
Proposed change to Procurement manual appendix G Monopoly suppliers ..................... 30
Proposed change to Procurement manual appendix H Definition of terms ..................... 30
PART C – PROPOSED ADDITIONAL GUIDANCE ...........................................................................................31
INTRODUCTION ............................................................................................................................... 31
1. PRINCIPLES FOR COLLABORATIVE RELATIONSHIPS.............................................................................. 31
2. ANNUAL BUSINESS PLANNING ........................................................................................................ 32
3. FINANCIAL INCENTIVE MECHANISMS ............................................................................................... 33
4. INFORMATION SHARING ............................................................................................................... 34
5. PERFORMANCE MANAGEMENT AND KEY PERFORMANCE INDICATORS .................................................... 34
6. CONTRACT TERMS ...................................................................................................................... 35
7. COMMERCIALITY RATIO – FOR A UNIT AND FOR THE REGION .............................................................. 36
8. LEAGUE TABLE ............................................................................................................................ 40
9. RESET MECHANISM ...................................................................................................................... 42
10. NEGOTIATION PROCESS FOR DIRECT APPOINTMENT ........................................................................ 43
11. CONTRACT FORM ..................................................................................................................... 45
12. LIKE-FOR-LIKE NEGOTIATION....................................................................................................... 45
13. COMMERCIAL UNITS .................................................................................................................. 46
14. OPERATOR INVESTMENT IN PUBLIC TRANSPORT INFRASTRUCTURE ..................................................... 49
15. GROUP TENDERS ....................................................................................................................... 49
16. FARE REVENUE PROTECTION ....................................................................................................... 50
IMPORTANT LINKS.......................................................................................................................................................51
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Who should read this document?
The primary audience for this consultation document is regions who will implement the
Public Transport Operating Model (PTOM) and who rely on the NZ Transport Agency
Procurement manual to guide the procurement of public transport services. Operators are
also a key audience because of the contractual relationship they have with regions.1 Other
stakeholders, such as consultants and procurement experts, may have an interest in the
proposed changes.
In this document ‘regions’ means regional councils and includes Auckland Transport, unitary authorities and
territorial authorities who have been delegated responsibility for managing public transport under the Local
Government Act 2002.
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Summary
1. The Public Transport Operating Model (PTOM) has been introduced by the government to
address concerns that increases in public spending on public transport were not being
matched by patronage increases.
2. PTOM is a combination of planning, funding, procurement and partnering tools that seek
to build stronger partnerships and improve relationships between regions and operators.
3. PTOM will be implemented by a combination of legislation, through the Land Transport
Management Amendment Bill 2012 and changes to the NZ Transport Agency (NZTA)
policy, primarily the Procurement manual (www.nzta.govt.nz/resources/procurementmanual/) and the Guidelines for the development of regional public transport plans
(www.nzta.govt.nz/planning/who-does-what/local-government/plans.html#transport).
4. This consultation document primarily addresses changes to the procurement and
partnering environment the NZTA will implement through its Procurement manual. It
also addresses changes to the Procurement manual that will mean revenue protection
measures must be included in contracts.
5. The planning of public transport is to be addressed in the NZTA Guidelines for the
development of regional public transport plans, which is to be reviewed and re-issued
later in 2013. Funding tools, such as the review of the funding assistance rate, are being
reviewed separately in 2013.
6. This document is structured so readers can assess the high-level changes, detailed policy
changes, and proposed amendments to the Procurement manual, especially chapter 8
(Procurement procedure 3 – public transport services) and chapter 10 (Rules).
7. The NZTA encourages all stakeholders who need to implement PTOM to read the
consultation document and respond within the 8-week consultation period. The most
significant changes are:

strategic procurement environment changes and the need to review regions’
procurement strategies, taking into account the legislative requirements and the
proposed changes to procurement procedures

partnering delivery model, which becomes the model for most contracts, with the
operator being selected using the price quality method

inclusion of annual business planning and other requirements in contracts, to ensure
both parties plan and invest in units to grow patronage and commerciality

adoption of a financial incentive mechanism2 in units to incentivise both parties to
grow patronage and revenue.
Note that this mechanism has previously been referred to as ‘risk and reward’ and ‘pain gain revenue sharing’. The
name has been changed to reflect more accurately what the mechanism is trying to achieve. Further information is
provided in the paper Proposed policy and guidance on partnering tools, including the financial incentive
mechanism (www.nzta.govt.nz/consultation/ptom/docs/proposed-policy-and-guidance-on-partnering-tools.docx).
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8. While the NZTA would appreciate any feedback stakeholders have on the consultation
document’s content, tone, ease of comprehension and workability, the key consultation
questions are as follows:
1. Are the changes to the Procurement manual (part B of this consultation document)
consistent with the aim and objectives of PTOM? If not, why?

Aim – to grow patronage with reduced reliance on subsidy

Objectives:
 Grow the commerciality of public transport services and create incentives for
services to become fully commercial
 Grow confidence that services are priced efficiently and there is access to
public transport markets for competitors
2. Are the changes workable in your area of responsibility? If not, why?
3. How could the proposed additional guidance in part C of this document be tailored to
meet the needs of your region and operational practices?
9. Once the consultation phase is complete the NZTA will consider submissions and finalise
the operational policy needed to implement PTOM. The Procurement manual and
guidance material will be updated and new policies confirmed.
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How to use this consultation document
This consultation document covers the proposed changes to key parts of the NZ Transport
Agency (NZTA) Procurement manual, as well as policies and supporting information that will
ultimately help implement the Public Transport Operating Model (PTOM). Note that this
consultation is not on the core components of the model itself, as this is government policy.
The document is laid out in the following parts:
Part A – Overview of PTOM components and how they will be implemented
Part B – Proposed changes to the Procurement manual
Part C – Proposed additional guidance
Further information is provided in the links throughout the documents and also in the
following:

a draft of proposed changes to chapter 8 of the Procurement manual
(www.nzta.govt.nz/consultation/ptom/docs/proposed-amendments-to-chapter-8-ofprocurement-manual.docx)

policies on partnering tools and financial incentive mechanisms, benchmarking and
group tenders (www.nzta.govt.nz/consultation/ptom)

an updated components table (www.nzta.govt.nz/consultation/ptom/docs/ptomcomponents-and-implementation-framework.pdf).

NZTA Procurement manual (www.nzta.govt.nz/resources/procurement-manual/)

Core Working Group report (www.nzta.govt.nz/consultation/ptom/docs/ptom-coreworking-group-report.pdf).
The primary focus of this consultation is to seek feedback on parts B and C and the changes
to chapter 8, although submissions on the policy papers and other attachments are also
welcome. This consultation is not directed at the model itself, which is government policy.
Consultation process
The NZTA has been developing operational policies and working with regions and operators
to implement PTOM. This process builds on the extensive work undertaken by the Core
Working Group3 which designed the major components of PTOM, discussions at the
Implementation Advisory Group4, and other stakeholder forums. The NZTA is now consulting
on changes to its Procurement manual and providing an opportunity for stakeholders to
provide feedback on operational policies.
We need to ensure that the proposed changes to the Procurement manual are fit for purpose
and that the policies and background information are sufficient in scope, clarity and
comprehensiveness. Regions will eventually rely on the finalised policy and guidance to
develop procurement strategies, adopt procurement procedures, produce requests for
The Core Working Group members were Auckland Transport (formerly Auckland Regional Transport Authority), Bus
and Coach Association representatives, Greater Wellington Regional Council, Ministry of Transport and the NZTA.
3
The Implementation Advisory Group is chaired by the NZTA and has representatives from Auckland Transport, Bus
and Coach Association, Environment Canterbury, Greater Wellington Regional Council and Waikato Regional Council.
4
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proposals and enter into contracts for public transport service provision 5. These policies will
also impact on operators through the procurement processes undertaken by a region and
the nature of the contractual relationship operators will have with regions.
The NZTA undertakes consultation on new policy development in a structured way,
consistent with government best practice. This is explained more fully in its Planning &
Investment Knowledge Base (www.nzta.govt.nz/resources/planning-and-investmentknowledge-base/). For PTOM, policy development has been developed as follows:

Awareness raising and discussion of policy issues within an advisory or working group,
and other forums

Draft policy papers and material were developed and distributed within the group for
comment.

More developed policy is being consulted on more widely with industry and the sector,
with ample time and opportunity being given for feedback/submissions in the
consultation phase.

Submissions will be considered in the development of final policy, including the
summary of key points, feedback to individual submitters, and an explanation of either
how the comments were included in the final policy or why they could not be
incorporated.
Fare revenue protection
This document is also consulting on a change to the Procurement manual to require public
transport services contracts to contain revenue protection measures to minimise fare
evasion. This change is being introduced because, in the PTOM partnering environment,
maximising farebox revenue and reducing fare leakage is equally important to both regions
and operators. The shift to integrated ticketing in Auckland and Wellington also introduces
an increased risk of fare evasion on rail services unless countermeasures are introduced.
A note on concessionary fare schemes and PTOM
The concessionary fare scheme (CFS) was introduced in the early 1990s, to protect operators
from any financial loss if the regions introduced a new concessionary fare after the net
contract was awarded (or came into effect). This provided for a ‘top up’ to be made to make
up the difference between the fare charged at the commencement of the contract and the
new concession. This was provided for in the National Land Transport Programme (NLTP)
under category, ‘W/C 513, Bus and ferry concessionary fares’.
In 2011 the NZTA reviewed work categories for the 2012–15 NLTP and removed W/C 513.
Any provision needed to cover legacy cases is to be included as a component of the cost of
services (W/C 511, Bus services or W/C 512, Passenger ferry services).
In some regions the removal of W/C 513 may impact on the calculation of commerciality
ratios (and in particular the regional commerciality ratio), and commercial units. CFS
payments for existing contracts will continue until the end of the contract. The NZTA will
work with affected stakeholders.
Note that some regions will be implementing elements of new operational policy in parallel with the consultation
period and should continue to work closely with NZTA representatives.
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Key questions
The NZTA is seeking any comment you may have on this consultation document (including
its content, tone, ease of comprehension, and workability). The key consultation questions
are as follows:
1. Are the changes to the Procurement manual (part B of this consultation document)
consistent with the aim and objectives of PTOM? If not, why?

Aim – to grow patronage with reduced reliance on subsidy

Objectives:
 Grow the commerciality of public transport services and create incentives for
services to become fully commercial
 Grow confidence that services are priced efficiently and there is access to public
transport markets for competitors
2. Are the changes workable in your area of responsibility? If not, why?
3. How could the proposed additional guidance in part C of this document be tailored to
meet the needs of your region and operational practices?
Supplementary questions are as follows:
i.
How will the proposed changes to chapter 8 of the NZTA Procurement manual work in
regions of various sizes? Is anything missing or superfluous?
ii. Can you suggest improvements to the changes proposed to the procurement rules
(chapter 10 of the Procurement manual) to cater for the implementation of PTOM from a
management and operation perspective in different regions? Are any rules confusing or
incomplete?
iii. How can the NZTA provide clear and sufficient guidance on implementing PTOM to
enable regions to proceed, given that implementation will occur through a mix of
legislation, planning (via regional public transport plans) and procurement (via the NZTA
Procurement manual)?
iv. Terms such as ‘partnership’ and ‘joint investment’ have a specific legal meaning and
refer to specific types of legal relationship, which are not envisaged in PTOM. How can
the PTOM partnering environment be best enabled without causing unintended legal
consequences for the contractual relationship between regions and operators?
v. What barriers still exist to the smooth implementation of PTOM in regions, and what
action is needed to overcome the barriers?
vi. What comments do you have on the content of the policy papers (for example, partnering
tools including financial incentive mechanisms, and benchmarking)?
vii. What comments do you have about the introduction of a requirement to include revenue
protection measures in contracts, or the form of that requirement?
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Consultation timeframes
The consultation period is 8 weeks. Submissions should be provided in writing to
Julie Alexander by 21 June 2013. Verbal comments (for example, questions raised at the
consultation meetings and workshops) will also be considered.
We expect to confirm the final policy later on in the year.
The NZTA will also be holding meetings and having discussions with stakeholders during the
consultation period.
Julie Alexander
Public Transport Investment Team
NZ Transport Agency, Private Bag 6995, Wellington 6141
DDI 64 4 8946754
julie.alexander@nzta.govt.nz
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Part A – Overview
Introduction
To give context to this document, in April 2012 the government announced a new
framework for the planning, procurement and delivery of public transport services – the
Public Transport Operating Model (PTOM). The model itself has been adopted as government
policy and is not up for consultation. The government expects the sector to respond to the
aim of growing patronage with less reliance on subsidy, and to achieve the following two
objectives:

Grow the commerciality of public transport services and create incentives for services to
become fully commercial.

Grow confidence that services are priced efficiently and there is access to public
transport markets for competitors.
PTOM responds to concerns about increases in public spending on public transport not
being matched by patronage increases (see figure 1), insufficient numbers of tender
responses in Auckland and Wellington, and a deterioration in relationships between some
bus and ferry operators and regions 6. These trends undermined confidence that the
government (central and regional) was receiving value for money from its investment in
public transport.
Figure 1 Cumulative change in central and local government expenditure on urban bus and
ferry services compared with cumulative change in bus and ferry trips (2000/01–2011/12)
National (bus and ferry) Network
400.0%
350.0%
300.0%
250.0%
200.0%
150.0%
100.0%
50.0%
0.0%
Total Investment in nominal dollars (percentage change from base year)
Total Investment in 2010 dollars (percentage change from base year)
Patronage (percentage change from base year)
In this document ‘regions’ means regional councils and includes Auckland Transport, unitary authorities and
territorial authorities who have been delegated responsibility for managing public transport under the Local
Government Act 2002.
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It is anticipated that PTOM will establish strong, collaborative public transport partnering
relationships7 between regions and operators, which are expected to contribute to achieving
best value for the money invested in public transport services.
The underlying framework and policies of PTOM were developed by a ‘Core Working Group’
of regions, the Bus and Coach Association, the Ministry of Transport and the NZ Transport
Agency (NZTA).
What is PTOM?
The introduction of PTOM represents a fundamental shift in the delivery of urban bus and
ferry services. Under PTOM public transport services that form part of the network identified
in the regional public transport plan (RPTP) will be grouped into units and provided under
contract to the region to enable stronger network coordination and a basis for investment.
Partnering contracts are designed to encourage greater collaboration between the
purchasers (regions) and suppliers (operators) of public transport services. These contracts
have two main features – financial incentive mechanisms over the life of the contract and
formal business planning. These incentivise the region and the operator to actively plan for
and monitor the performance of the unit, to grow patronage and revenue, which enhances
value for money. Long-term performance, particularly in the larger bus markets, is
incentivised by negotiating contracts with operators of the best-performing units in the
region. There is regular market testing to establish cost benchmarks, to allow new entrants,
and to ensure value for money is achieved.
PTOM implementation
At the time this consultation document was released, the Land Transport Management
Amendment Bill 2012 (LTMAB) had not been enacted, but will ultimately set the high-level
policy framework. The NZTA has a statutory responsibility under the Land Transport
Management Act 2003 (LTMA) to ensure that procurement procedures are designed to
obtain the best value for the money invested in land transport. The NZTA seeks to achieve
this by developing operational policy, primarily through the Procurement manual
(www.nzta.govt.nz/resources/procurement-manual/) and the Planning and Investment
Knowledge Base8 (www.nzta.govt.nz/resources/planning-and-investment-knowledge-base/)
and by issuing Guidelines for the development of regional public transport plans9
(www.nzta.govt.nz/planning/who-does-what/local-government/plans.html#transport). The
relationship between the different implementation levers and the PTOM components is
shown in figure 2 below.
7
Please note that these will not constitute a formal legal partnership.
8
Formerly the NZTA’s Planning, programming and funding manual.
Note that Guidelines for the development of regional public transport plans will be developed as a separate
exercise and will not be discussed further here.
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Figure 2 PTOM implementation framework
Legislation
Provides the high level
PTOM framework including
the requirement for all
services to be units under
contract to the region,
unless exempt.
Regional PT Plan
Guidelines
NZTA Procurement
Manual
Provide guidance on
network planning,
segmentation of
network into units,
fare setting and
policies
Sets out the
requirements for
procurement strategies,
provides pre-approved
procurement
procedures, tools and
procurement rules
Regional PT Plans –
transparent planning
framework and basis of
unit design
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Agreements and
contracts, annual
business planning –
legally binding
documents
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Application of PTOM to different-sized markets and
modes
The Core Working Group focused on developing an operating model for bus public transport
markets, and particularly on the larger bus markets. Other modes, such as rail and ferry
services, operate in different markets, with a range of investment profiles and operational
requirements. Subsequent work has been undertaken to determine which parts of PTOM
could be applied to regions with smaller bus markets and to other modes. Suggested
positions have been set out in this document.
However, some core components of PTOM (such as defining units, partnering contracts,
annual business planning and financial incentive mechanisms) will need to be implemented
in all regions and across all modes.
Bus markets
Most regions in New Zealand operate subsidised urban bus services that are affected by the
introduction of PTOM. Services are provided by private operators who carry the cost of their
capital assets (generally excluding transport interchanges, bus stops and call centres). These
operators contract to regions, which are legally responsible for designing the network and
providing the services. This is in contrast to some overseas jurisdictions, which provide
vehicles and depot facilities for operators to use under ‘management’ contracts.
Regional bus markets can differ greatly in size, from Auckland (with several hundred routes
and over 1000 buses) to Marlborough (with two routes and 1 bus). Regions also have very
different growth characteristics, which generally depend on population growth and the
maturity of the networks. Some regions outside of the big metropolitan areas have
experienced strong growth when coming from a low base, and there is confidence the
partnering, business planning and incentives that form the cornerstones of PTOM can further
strengthen this growth.
Ferry markets
Ferry markets in New Zealand have some differences and additional complexities compared
with urban bus markets. Investment tends to be ‘lumpy’, with high capital assets (for
example, new vessels can cost $2 million to $10 million) and specific requirements
according to sea and landing conditions. Ownership and leasing arrangements of public and
private marine infrastructure, such as wharves and other passenger utilities, are evolving
over time, often from private to public ownership, which adds further complexity (for urban
networks, road and rail space is a publicly owned asset). PTOM elements will apply to ferry
services that will be under contract to a region.
Rail markets
The rail sector in New Zealand is different again, primarily focused on the commuter rail
services in Wellington and Auckland. There are some interregional and tourism rail services
that would become exempt services or be excluded from regulation under the new
legislation.
The crown owns the rail network and traction infrastructure (for example, tracks,
electrification and signalling equipment) which is managed on its behalf by KiwiRail Network.
The cost of maintaining and renewing the existing rail network is recovered through track
access charges paid by regions.
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The NZTA provides funding assistance to commuter rail operations in Auckland and
Wellington. Regions own the commuter rail rolling stock and garaging/maintenance
facilities, most stations and associated infrastructure such as footbridges and car parks.
KiwiRail’s TranzMetro in Wellington and Veolia Transport in Auckland are contracted to
operate the services. The crown has provided capital to fund investment in commuter trains
through a variety of mechanisms, including grants and loans. However, recently crown
funding for trains and depots has been made via loans that are operationalised (that is, the
interest and capital cost is being repaid through services payments). PTOM elements will
apply to rail services that are under contract to the region.
Modes other than rail and ferry
A small number of services currently provide public transport services that are not bus, rail
or ferry, such as the cable car in Wellington and the elevator (or ‘vertical bus’) in Wanganui.
These services and any new services that are not bus, rail or ferry (including any light rail
services) will be dealt with on a case-by-case basis, and are not included in this document.
PTOM components10
The following gives a brief introduction to PTOM components that are designed to
incentivise the performance of both parties, while encouraging competitive markets. Regions
will use the components in their RPTPs, procurement strategies, procurement procedures,
requests for proposals (RFPs) and contracts to implement PTOM. The way the components
interact through the NZTA Procurement manual is the primary focus of the current
consultation process, as discussed in this document. More detail on each component can be
found later in this document.
Units
All services will be planned as units by the region and identified in the RPTP. A unit must at a
minimum be all services on one route for the full timetable, but can include more than one
route where a group forms a marketable whole. All units will have a contract with the region
guaranteeing exclusive operating rights, although there may be some crossover of units,
particularly on key arterials. What constitutes a unit will be legally defined. Separate units are
envisaged for each mode (for example, a single unit cannot have both a bus route and a
ferry route).
Commercial units
Commercial units are operated with exclusive rights under contract but without direct public
subsidy from the region and the NZTA (excluding the SuperGold card payments). Provided
services remain without direct public subsidy they will not be put out to tender. However,
they will still need to meet specific performance measures. The LTMAB proposes that the
NZTA will have a new function to approve procurement approaches for services that do not
receive a subsidy. Over time, the number of commercial units is expected to increase as
operators innovate and invest to improve their commerciality. The contract term is 9 years
and there is a process by which other operators could challenge at term end.
Based on the information sheet ‘Implementation of the Public Transport Operating Model update’ published by the
NZTA in July 2012 and available from www.nzta.govt.nz/resources/ptom-implementation-update/docs/ptominformation-sheet.pdf.
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Tendered units
At least a portion of the regional network must be competitively tendered, and for regions
with smaller or even medium-sized public transport markets, it is likely that all units will be
tendered. Ferry and rail markets are also relatively small public transport markets and so
ferry and rail units will most likely be tendered. The proportion of units to be tendered will
be determined by the region through its procurement strategy, and in larger public transport
markets this is influenced by the region’s overall commerciality ratio. Tenders will be based
on the gross annual operating cost of the unit. As part of the tendering process, the region
will provide the market with recent trend information about the unit, including patronage
and fare revenue. Contracts for tendered units will be for 9 years and a reset of the gross
operating cost will occur at 6 years. This is different from the NZTA indexation adjustments
for changes to the cost of inputs. In larger bus markets, tender prices will be used to
benchmark prices for negotiated units and gross cost resets.
Negotiated units (applicable mainly to larger regions)
In regions with larger bus markets, units that perform well relative to other units may be
directly negotiated with operators rather than going out to tender, consistent with a region’s
procurement strategy. This provides an incentive to improve the commerciality of a unit
since, if a unit performs relatively well, it will be renegotiated rather than tendered.
Negotiated units will have a term of 6 years. Cost benchmarking information from tendered
units will be used to inform direct negotiations and renegotiated contracts.
Like-for-like units (applicable in regions where commercial registrations
were in place before 30 June 2011)
In exchange for relinquishing commercial registrations, operators will be offered negotiated
units that contain an equivalent number of in-service kilometres to those held in existing
commercial registrations, with a once-only 12-year fixed term contract. These are a one-off
commercial arrangement, as part of the transition to PTOM. Gross cost resets will not apply.
Exempt services
Services that are exempt from being under contract to a region will be defined in legislation,
and be subject to relevant legislated provisions.
Regional public transport plans
Regional public transport plans (RPTPs) continue to be key statutory plans required by
legislation to give effect to the public transport component of regional land transport
strategies (soon to be replaced by regional land transport plans). The LTMAB states that all
regions must have adopted an RPTP prepared under the new Act by July 2015 or sooner if
they are going out to tender for units. An RPTP must be reviewed at least every 3 years and
contains unit descriptions and policies relating to the provision of public transport services.
Regions are responsible for adopting the plans but must engage with operators in
developing them, particularly when determining unit design and fare-setting policy. Plans are
publicly consulted on.
Contracts
Contracts provide a platform for partnering and monitoring performance, and will include
principles for collaborative relationships, an agreement for annual business planning,
updated key performance indicators and a financial incentive mechanism.
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Commerciality ratio
The commerciality ratio shows the portion of the costs of a service that is recovered from
fare revenue. It is calculated for each unit and for the region as a whole. It is used to
determine a unit’s placing on the league table and, in larger regions, consequently whether it
will be negotiated or tendered. The commerciality ratio for the region will also be used to
assess the region’s network as a whole. The regional commerciality ratio is similar in
concept to the NZTA farebox recovery ratio.
League table
The league table ranks all units in a region and will be published annually by the region.
Smaller bus markets, ferry markets and rail markets will only publish the commerciality of
units. In larger bus markets, league tables will be used to determine which units will be
negotiated and which tendered.
Benchmarking
All regions will use benchmarking information to inform the reset the gross cost of tendered
units and the negotiation of direct appointments (where appropriate). The benchmark
market price range will be derived from winning contract prices in markets, where there is
sufficient tender data (that is, in all large bus markets), and from alternative benchmarks
such as unit rates, cost model outputs and cost indexation, where there is insufficient tender
data. Benchmarking of the winning contract prices will initially be carried out by a
benchmarking advisor using a statistical analysis.
Fare setting
Regions will describe their policy for fare setting, which will apply to all units and be
consistent across the network, in their RPTP. Operators can have input to and potentially
influence fare setting through RPTP consultation and annual business planning with the
region.
Information sharing
Operators of all units will be required to provide patronage and revenue information (among
other information) to the region and the NZTA, to assist with the ongoing monitoring of the
performance of the unit. Recent revenue and patronage information for units going out to
tender will be shared with registered tenderers in a controlled manner.
Financial incentive mechanism
All partnering contracts will contain a financial incentive mechanism that will recognise that
the parties have a mutual financial interest in the positive performance of a unit. This will
share financial outcomes on an agreed basis related to patronage or a share of revenue.
Annual business planning
This is an annual process where the operator and region meet to review the performance of
the unit and agree a collaborative business plan to grow patronage and farebox revenue.
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Dispute process
Most disputes will be managed through standard contract clauses. In cases where operators
consider they have been adversely affected by a region’s decision about exempt services or
new services, there will be a right of appeal to the district court.
How the components apply to different public transport markets
Table 1 is an indicative guide to show which components will apply to the different public
transport markets.
Table 1 Guide to which PTOM components apply to which type of public transport market
All bus
markets
Large bus
markets
Ferry
markets
Rail markets
Units defined as per
legislation
Yes
Yes
Yes
Yes
Commercial units possible
Yes
Yes
Yes
Yes
Yes –
9 years
Yes –
9 years
Yes –
12 years
Yes –
12 years
Negotiated units and term
No
Yes –
6 years
No
No
Like-for-like units and term
Yes
Yes
Maybe
No
If there are
commercial
registrations
– 12 years
If there are
commercial
registrations
– 12 years
Depends on
LTMAB
definition of
exempt
services
Not
applicable
Partnering
Partnering
Partnering
Partnering
Yes
Yes
Yes
Yes
Yes –
bus only
Yes –
bus only
Yes –
ferry only
Yes –
rail only
League table – use position in
league table to incentivise
negotiated contracts
No
Yes
No
No
Cost benchmarking to inform
the prices of negotiated units
(based on tendered units)
No
Yes
No
No
Financial incentive mechanism
Yes
Yes
Yes
Yes
Gross cost resets for tendered
contracts and renegotiations
for negotiated contracts
Yes
Yes
Yes
Yes
PTOM component
Tendered units and term
Contracts
Annual business planning
League table – publish
commerciality ratio
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PART B – Proposed changes to the NZTA
Procurement manual
Introduction
The NZTA Procurement manual sets out its required approach for regions’ procurement,
including its statutory functions in terms of section 25 of the LTMA to approve procurement
procedures designed to obtain best value for money from National Land Transport Fund
investment. The manual sets out a strategic and enabling approach to procurement. Under
this strategic approach all regions are required to develop procurement strategies that are
endorsed by the NZTA. These strategies may use procurement procedures which have been
‘pre-approved’ by the NZTA or ‘advanced components’ that require NZTA approval, or
propose alternative procurement approaches if these can deliver better value for money
outcomes.
The manual sets out four procurement procedures, specific to four land transport funding
activities. Chapter 8 details the procurement procedure for public transport services, and
sets out the pre-approved and advanced components that regions may use when procuring
services, provided they have an endorsed strategy.
The key changes proposed to the manual are in chapters 8 and 10, and in the appendices.
The requirement for regions to be strategic in their approach to procurement remains, as
does the role of procurement strategies.
Part B of this document details the proposed changes to the following parts of the
Procurement manual:

Chapter 4 – Strategic context for procurement

Chapter 8 – Procurement procedure 3 – public transport services

Chapter 10 – Rules

Appendices.
Information on value for money and details of a new function for the NZTA to approve
procurement approaches for commercial units is provided below.
Value for money
Value for money, as defined in the Procurement manual, will remain and should continue to
be applied by regions when considering procurement. Value for money does not mean
‘lowest cost’. In chapter 3, the manual states:
In the context of procurement, value for money has been defined as:

‘the best available outcome for the money spent in procuring the agency’s needs’
(Australia New Zealand Government Procurement Agreement)

the ‘best possible outcome for the total cost of ownership’ (the guidance provided
by the Office of the Auditor General)

‘the optimum combination of whole-of-life costs and quality (or fitness for purpose)
of the good or service to meet the user’s requirement’ (HM Treasury, United
Kingdom).
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The above definitions are underpinned by a number of common concepts:

Benefits derived from procurement-related activities can be maintained or
enhanced through the procurement process.

Cost alone is not a reliable indicator of value for money.

Economic, social and environmental costs and benefits inform the procurement
whole-of-life value assessment.
In the context of land transport procurement in New Zealand, obtaining best value for
money spent means purchasing a good or service that delivers the output approved for
funding under s20 in an efficient and economic manner. Efficiency and economy have
both financial and non-financial attributes. Non-financial attributes may include:

quality (eg of the supplier or product)

impact on communities and the environment (eg positive or negative impacts on
connectivity, disruption and pollution)

design integrity (eg arising from capable and skilled suppliers)

innovation (eg meeting LTMA outcomes via an agreed output variation from that
originally specified)

whole-of-life considerations (eg when considering the longevity of value against
maintenance costs of different materials over the life of the asset)

training and development opportunities (eg by valuing suppliers that invest in
workforce capability)

health and safety practices (eg by valuing suppliers that meet certain specified
standards)

capital invested.
Procurement approaches for commercial units
The Land Transport Management Amendment Bill 2012 (LTMAB) proposes that a new
function11 be conferred on the NZTA which is relevant to its Procurement manual.
This new function will require the NZTA to approve procurement approaches for public
transport services for which the region does not intend to provide financial assistance (that
is, commercial units). For regions with commercial units, this is a major change in coverage
for their procurement strategies and procurement approaches.
Policies relating to the establishment, procurement and management of commercial units,
including guidance on a ‘challenge’ process by which other operators can bid for the unit at
the end of a contract term, are referenced in various parts of this document, with a summary
provided in part C.
Section 119 (3) of the LTMAB states ‘The approach to procurement specified in s 119 (2) (d) must, in relation to a
public transport service for which the regional council does not intend to provide financial assistance, be approved
by the Agency’.
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Procurement manual chapter 4 – Strategic context for
procurement
Chapter 4 of the Procurement manual sets out how the strategic approach to procurement
works and provides guidance on developing procurement strategies. In their procurement
strategies regions are expected to consider their procurement plans within a broader
strategic framework, covering factors such as:

the region's vision and objectives

obtaining value for money from all purchasing activity

effectively managing supplier markets

effectively managing risks associated with purchasing activity

enabling the best quality of goods and services to be obtained

ensuring probity and accountability for outcomes.
PTOM does not change the requirement to have a procurement strategy, but introduces a
new delivery model and other factors to be taken into account (see the next section in part
B), which contains the proposed changes to chapter 8 of the Procurement manual (that is,
Procurement procedure 3 – public transport services).
Procurement strategies
All regions will still need to have a current procurement strategy endorsed by the NZTA in
order to use the procurement procedures set out in the NZTA Procurement manual.
A key role for the procurement strategy is to set out the strategic context in which
procurement will occur, which delivery model is proposed, and how procurement procedures
will be used to obtain best value for money. Chapter 8 of the Procurement manual is the
procurement procedure for bus and ferry services, and the region is expected to carry out
detailed design and apply it to the regional market. This will include:

why the region chose a particular financial incentive mechanism

how group tenders will be dealt with

benchmarking methodology (if appropriate)

the tendering strategy

transition plans.
The procurement strategy can also be used to make a value for money case for the use of a
procurement procedure advanced component (for example, a supplier panel delivery model
for the provision of special event transport) or a customised procurement procedure unique
to the circumstances of a region or unit. Specific procurement procedure approval is
required from the NZTA to use either of these, with an expectation that the region has the
skills and capacity to apply and manage them.
While it is up to regions to consider the best way to develop procurement strategies, it is
common practice for them to develop and maintain discrete bus, ferry and rail components
of the region’s overall procurement strategy where these modes are procured. The modes do
however need to interact closely in a fully integrated network of routes and services.
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Rail procurement procedures are customised procurement procedures as there are only rail
public transport services in Auckland and Wellington and these currently have different
operational and contract characteristics. The NZTA proposes to continue having a separate
rail component within the procurement strategies. Regions procuring rail services should
continue to work with the NZTA to facilitate the endorsement of the rail component of
strategies and the approval of procurement procedures.
No change is proposed to the wording of chapter 4, but the NZTA does propose that
appendix A (the checklist for procurement strategies) be expanded to include a table specific
to public transport, setting out matters to consider when developing a procurement strategy
in the PTOM environment. Please refer to the table ‘Proposed additional table (procurement
strategy checklist) in appendix A of the Procurement manual’ on page 27.
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Proposed changes to Procurement manual chapter 8 –
Procurement procedure 3 – public transport services
Chapter 8 of the Procurement manual contains requirements for the procurement of bus and
ferry public transport services, and is an approved procurement procedure. In order to use
this procurement procedure, regions must have a procurement strategy endorsed by the
NZTA. The proposed changes to chapter 8 can be viewed as tracked changes in a separate
document (www.nzta.govt.nz/consultation/ptom/docs/proposed-amendments-to-chapter-8of-procurement-manual.docx). Please review these changes and provide feedback.
Figure 3 shows the structure of the procurement procedure, where a strategic assessment is
used to help regions select the most appropriate delivery model and supplier selection
method for procuring units. Major changes are proposed across each of the four parts of the
procurement procedure.
Figure 3 Public transport procurement procedures
Procurement procedures
Rules
Strategic
context
Delivery
models
Supplier
selection
methods
Contracts
Strategic context
Regions will still be required to consider each specific procurement event in the context of
their procurement strategy and determine if the approach is still valid, if changes are
required or if a departure from the NZTA-endorsed regional procurement strategy is
necessary. All regions need to review and update their strategy to include PTOM
requirements, and seek NZTA endorsement, before looking to procure any further public
transport services.
Chapter 4 (Procurement strategies) of the Procurement manual, and the proposed addition
to chapter 4 appendix A, will be essential references for reviewing current strategies and will
help regions assess whether procurement activity is still consistent with their strategy.
Delivery models
To accommodate the PTOM approach, the NZTA proposes the introduction of a new delivery
model, the Partnering model. The Partnering model builds on the existing Shared Risk model
already used with significant success in infrastructure procurement, but not used in public
transport to date. The Partnering model is not a formal legal partnership, but rather reflects
a collaborative approach between regions and operators.
The current Design and Implement and Shared Risk models will be withdrawn for public
transport services procurement, but would still be available for procuring public transport
infrastructure (see chapter 6 of the Procurement manual –
www.nzta.govt.nz/resources/procurement-manual/). The Staged and Supplier Panel delivery
models will be retained for low-value short-term contracts (for example, trial, special event
or emergency services). The proposed changes are summarised in figure 4 below.
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Figure 4 Summary of proposed changes to delivery models
CURRENT
PROPOSED
TYPE OF SERVICES
Staged
Partnering
All scheduled urban PT
services
Shared Risk
Staged
Supplier Panel
Supplier Panel
Low-value short
contracts
Emergency contracts, etc
Design and Implement
The significant change is that almost all urban public transport services will be delivered
under the Partnering model, which will be available to all regions once their revised
procurement strategy has been endorsed by the NZTA.
The Staged delivery model will still be available for low-value contracts, while the Supplier
Panel delivery model would remain an advanced component, requiring regions to set out
how they propose to establish and use a panel, and to seek specific NZTA approval.
Supplier selection
Under the Partnering delivery model suppliers for tendered units will be selected using the
price quality supplier selection method. Suppliers for negotiated units (as envisaged in larger
bus markets) will be selected by direct appointment, and those for any new commercial units
will use a quality-based supplier selection method.
The procurement procedure decision trees in appendix D of the Procurement manual have
been updated to demonstrate the new Partnering delivery model and approach to supplier
selection. The updated decision trees can be viewed in a separate document
(www.nzta.govt.nz/consultation/ptom/docs/proposed-amendments-to%20appendix-d-ofprocurement-manual.docx).
Contracts
The NZTA proposes adding PTOM-specific partnering tools to the minimum requirements
expected of all contracts. These include principles for collaborative relationships, annual
business planning, financial incentive mechanisms
(www.nzta.govt.nz/consultation/ptom/docs/proposed-policy-and-guidance-on-partneringtools.docx), and key performance indicators12.
Contracts will be an important mechanism to help develop the new partnering culture and
will need to reflect the following:

mutual (but clear) responsibilities, accountabilities and outcomes

mutual values, benefits and risks

leveraging investment from both parties (and third parties, as appropriate)

culture of honesty, transparency and mutual respect to produce win-win solutions

excellent communication, both internally and externally
Note that a separate process is underway to determine measures and approaches for improving public transport
performance monitoring and reporting.
12
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
cooperation in a non-adversarial environment of trust

willingness to listen, to learn, to innovate and to develop capability (sharing and learning)

efficiency in management and support systems that helps reduce costs.
Contracts will also provide incentives for the partners to grow patronage and fare revenue.
The use of an appropriate contract form is important. A 3-tier contract form is proposed.
While tiers can be combined for smaller regions, the overall scope of contracts for all regions
remains the same. The 3 tiers are:

Regional agreement – a strategic (but individually signed) agreement between all
operators and the region setting out matters of consistency (for example, principles for
collaborative relationships).

Partnering agreement – an agreement between an individual operator and a region
setting out how the parties will work together, including aspects such as key
performance indicators and reporting requirements.

Unit agreement – an agreement for each operating unit containing details of services,
including schedules, route coverage and peak vehicle requirements.
Annual business planning
Annual business planning is a key element of contracts. Under the proposed changes it is
expected that the operator and region will review the performance of the unit every year and
agree a collaborative business plan to grow patronage and farebox revenue. Annual business
planning will ensure that the region and operator work collaboratively in a structured and
systematic manner to improve the service and manage the obligations of the contract. The
parties will be expected to ensure adequate resourcing of the annual business planning
process (staff time, management commitment and investment in initiatives).
Annual business planning is intended to apply to all services and modes. For example, smallscale services that primarily provide a social service are an opportunity for regions and
operators to work together to improve the customer experience, and potentially to increase
patronage and thus revenue. In such cases the annual business plan may just document any
agreed improvements or areas where the region and operator will work together, such as
marketing, communications and resources (for example, printing timetables for the service).
The scale and scope of the annual business plan should be commensurate with the expected
benefit, size of the market and size of the unit.
Financial incentive mechanism
The financial incentive mechanisms are another key element of contracts. Regions and
operators will need to include an incentive mechanism in each partnering contract. The
mechanism should be appropriate for the nature of the unit(s).
The financial incentive mechanism will need to comply with the following proposed policy
principles, which the NZTA will use to assess regions’ procurement strategies, procurement
procedures and requests for proposals (RFPs). The financial incentive mechanism will:

incentivise both parties to collaborate to grow patronage and revenue

take account of unit and regional market characteristics

contribute to value for money

apply to all subsidised units and may apply to commercial units by agreement

be separate from NZTA cost indexation
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
be simple to apply and administer.
There are two broad types of financial incentive mechanism: patronage-based and revenuebased. The NZTA will provide one or more examples of the two types of mechanism in the
Procurement manual to assist regions, but does not propose to specify a single default
incentive mechanism.
Regions will be expected to state in their procurement strategies why they chose a
mechanism and how it will be applied (see the partnering tools policy paper at
www.nzta.govt.nz/consultation/ptom/docs/proposed-policy-and-guidance-on-partneringtools.docx).
Fare revenue protection
A change to section 8.6 of the Procurement manual is proposed to require that regions
include a fare revenue protection approach in contracts. See part C, section 16 for further
information.
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Proposed changes to chapter 10 (Rules)
The procurement rules in chapter 10 of the NZTA Procurement manual will need to be
updated to reflect the new PTOM environment, and will provide an important ‘bottom line’
for regions. The rules will be mandatory requirements.
The main rule changes proposed are:

changes to ‘general’ rules around what must be documented and what must be included
in an RFP, and consequently contracts, to reflect new PTOM tools (for example,
commerciality ratio, league table, financial incentive mechanisms, annual business
planning) – note that these rules apply to all procurement procedures in the Procurement
manual, including procurement of physical works and professional services

changes to public transport specific rules to introduce PTOM contract terms (12, 9, 6
years) and to remove prescription around contract size, variations and lead-in times (as
these should be considered within the unit framework)

new rules to set out PTOM direct appointment (negotiated units, benchmarking), like-forlike transition, information requirements for tenderers.
This section shows current rules with proposed wording changes. All proposed deletions are
identified using ‘strikethrough’ (for example, strikethrough) and new wording is highlighted
in red. A brief explanation of the rationale for the changes is also included.
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Proposed changes to general rules
These rules apply to all procurement procedures in the Procurement manual, including
procurement of physical works and professional services.
Rule
10.6 Documentation and publication requirements
Why are
changes
needed?
The proposed changes would require the region to publish and document
the commerciality ratios (see part C, section 7: Commerciality ratio) and
league table (see part C, section 8: League table) of all units, and details of
all negotiated public transport services contracts (see part C, section 6:
Contract terms).
Proposed
change
1. An approved organisation must develop, maintain and document
procurement policies and procedures for, at a minimum:

delegating authority, duties and responsibilities related to the use of
the procurement procedures contained in this manual

managing conflicts of interest, particularly in the supplier selection
process

publishing contracts let

advising successful suppliers and unsuccessful suppliers of the reasons
for their appointment or non-appointment and the detail of the
information to be provided to each.
2. An approved organisation must ensure that its procurement policies and
procedures are publicly available and current at all times.
3. An approved organisation must have available its procurement strategy,
along with evidence of its endorsement by the NZTA and the date of its last
review.
4. An approved organisation that procures public transport services must
publish annually the regional commerciality ratio and a league table for
each public transport mode using the commerciality ratios of all public
transport units within the region.
5. An approved organisation must maintain records of its procurement
activity. Records must contain, at a minimum:

sufficient detail to demonstrate that procurement procedures approved
under s25 of the LTMA have been used

sufficient detail to permit review and meet the NZTA’s audit
requirements

the reasons for decisions made, including, for each contract, the
rationale for selecting a particular delivery model and supplier selection
method.
6. An approved organisation must publish all RFPs in a manner that allows
the relevant supplier markets to respond in a timely and informed manner.
Where an EOI or RFI stage (or both) is used, and precedes the preparation
of an RFP, this requirement will be satisfied by publishing the first stage
and then working only with those suppliers that respond. Where a
prequalification system is used, this requirement will be satisfied by
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regularly publishing the existence of the system and inviting suppliers to
apply for prequalification. This rule does not apply to closed contests or
direct appointment. Refer to section 10.9 Direct appointment and closed
contest for low dollar value contracts.
7. An approved organisation must publish within one month details of all
contracts let or direct appointments made under section 10.11 Direct
appointment where competition reduces value for money or Rule 10.PR1
Direct appointment for a supplier of a public transport unit that are valued
at $50,000 or more. Details must be available for a minimum of 6 months
and must include the name of the supplier, the estimated value of the
outputs and a brief description of the outputs to be delivered.
Rule
10.8 Competition for supply
Why are
changes
needed?
Under s25 of the LTMA, the NZTA must also consider the desirability of
enabling fair competition and encouraging competitive and efficient
markets. This means that the default position of the Procurement manual
is that all supplier selection processes must begin as a competitive
process, unless there is a specific reason why a direct appointment of
closed contest is likely to deliver better value for money.
Proposed
change
1. Every supplier selection process must commence as an open
competitive process in which all potential suppliers are invited to engage.
2. Notwithstanding the above, procurement activity that meets the
requirements for closed contest supplier selection or direct appointment is
exempt from this requirement. Refer to:

Rule 10.9 Direct appointment and closed contest for low dollar value
contracts.

Rule 10.10 Direct appointment of a monopoly supplier

Rule 10.11 Direct appointment where competition reduces value for
money

Rule 10.PR1 Direct appointment of a supplier for a public transport
unit (see page 25).
3. Approved organisations must make provision, in all RFPs, for potential
suppliers who accept the invitation to engage in a supplier selection
process to withdraw from the process.
Rule
10.12 RFP contents and conformity
Why are
changes
needed?
The proposed changes would set out the financial incentive mechanism
(see part C, section 3), annual business planning (see part C, section 2)
and performance management and key performance indicators (KPIs) (see
part C, section 5) of partnering contracts in RFPs. It would also require
the region to set out the processes for potential tenderers wishing to
access historic patronage and revenue information (see part C, section 4),
and when group tenders are allowed and how they will be evaluated (see
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part C, section 15).
An additional proposed change would be to require fare revenue
protection measure(s) and monitoring of fare evasion to be included in
the contract.
Proposed
change
1. An approved organisation must ensure that every RFP contains, at a
minimum:

a clear statement of the scope of the procurement activity and
intended outcome

a description of the delivery model to be used

the supplier selection method to be used

the attributes against which proposals will be assessed, including
(where applicable) the weights for price and non-price attributes

a description of how price will be used in the proposal evaluation
process (where applicable), including a description of how any
proposal price may be modified

whether alternative proposals are permitted and, if not, why

whether a conforming proposal is required when an alternative
proposal is submitted

a statement about how variations to the contract will be managed

proposed contract terms and conditions, including (where applicable)
the proposed standard form of contract

a statement that personnel listed in any proposal must be available to
provide the services

a statement about the quality assurance system requirements

any proposed arrangements for bonds and retentions and for testing
the financial viability of participants in a supplier selection process

a statement about the proposed limit on the liability of the supplier(s)
(only where professional services are being sought)

a statement about the process to be followed in the event of errors or
omissions in proposal documents

the approved organisation’s policy on late proposals

a proposed schedule for the process, including contract award and
contract commencement dates

a description of the method (if any) for contract price adjustment for
cost fluctuations.
2. An approved organisation must ensure that every RFP for public
transport services also contains:

a description of the financial incentive mechanism(s) to be used

a description of the annual business planning process that will be
followed

the process to be followed for the tenderer to obtain revenue and
patronage information for the unit
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
patronage and revenue data, if available (see rule 10.PR3: Information
for tenderers, page 26)

mechanisms for negotiating service-level variations for all contracts
longer than 12 months

when group tenders are allowed and how these will be evaluated

a method of testing the cost implications of service growth scenarios,
using the contract variation rates proposed by an operator

revenue protection measures to minimise fare evasion.
2. An approved organisation must not, during a supplier selection
process, act in a manner that is materially inconsistent with the process
set out in the RFP.
3. An approved organisation must not let a contract that is materially
different from that described in the RFP.
Consultation to support the implementation of PTOM
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Proposed changes to public transport specific rules
These changes are to public transport specific rules to introduce PTOM contract terms
(12, 9, 6 years) and to remove prescription around contract size, variations and lead-in times
(as these should be considered within the unit framework).
Rule
10.23 Lead-in times for public transport services contracts
Why are
changes
needed?
The proposed change would require regions to identify in their
procurement strategies the lead-in times that they require for units of
various sizes (measured in terms of peak vehicle requirements), rather
than this being prescribed in the rules. The change removes prescription
about lead-in times and allows more flexibility.
Proposed
change
1. For contracts providing for 20 or fewer buses, the time between contract
award and commencement of service must be no less than four months.
2. For contracts providing for more than 20 buses, the time between
contract award and commencement of service must be no less than nine
months.
1. Lead–in times from tender award to commencement of services must be
sufficient to allow a successful tenderer to acquire the resources necessary
to deliver the services.
Rule
10.24 Maximum term of a term service contract for public transport
services
Why are
changes
needed?
The proposed rule change is to reflect the contract terms for different units
that form part of PTOM (see part C, section 6: Contract terms).
Proposed
change
1. An approved organisation must not let a term service contract for a term
greater than 12 years, including any initial term plus any optional term
extension(s).
These are the default contract terms for the specified types of units.
Regions wishing to use a different term should include the rationale for any
such change in their procurement strategy for NZTA approval.
1. The term for a term service contract will be:

12 years for like-for-like transitional contracts

12 years for rail and ferry units

9 years for commercial units

9 years for tendered bus units

6 years for negotiated bus units.
2. An approved organisation must not:

let a term service contract with term arrangements (initial term plus any
optional term extension(s)) different from that set out in the RFP

vary the term arrangements of a term service contract once it has been
let.
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3. Notwithstanding the above, the term of a term service contract may be
extended within the following limits and circumstances:

up to 3 months, where the approved organisation has experienced
unexpected difficulties in re-tendering

up to 2 years to a maximum of 12 years, to bring together or stagger
contract expiry dates when a significant restructure of services is
required to implement a service review set out in an operative RPTP or
contained in a procurement strategy that has been endorsed by the
NZTA.
Rule
10.25 Maximum contract size for public transport services
Why are
changes
needed?
As all units will have a contract, the maximum size of contracts will be
determined through the unit design process in the RPTP. Therefore, the
proposed change is that this rule is deleted.
Proposed
change
Delete rule.
Rule
10.26 Contract service level changes for public transport services
Why are
changes
needed?
More flexibility to adjust service levels within units is envisaged under new
partnering contracts. Approved organisations will be expected to include
mechanisms for calculating the incremental additional cost of service-level
changes within their procurement strategies.
Proposed
change
Delete rule.
Rule
10.27 Contract price adjustment for input price variation public
transport services
Why are
changes
needed?
The proposed change is to clarify that the application of indexation on the
annual gross cost of all contracts will not apply to commercial units. For
bus and ferry services, NZTA indices are available online. Indices for other
modes should be developed in consultation with the NZTA. .
Proposed
change
1. All public transport services contracts (except those for commercial
units)of more than a term of 12 months must provide for price adjustment
on the annual gross cost to compensate for input cost fluctuation (inflation
and deflation) using an appropriate index approved by the NZTA:

Price adjustments must be paid on a quarterly basis, from the
commencement of the service operation.

Price adjustments must reflect movements in the index, from the
quarter in which tenders closed or negotiations were concluded.

Both gross and net contracts must be adjusted for inflation on the gross
Consultation to support the implementation of PTOM
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cost, and the basis for determining the gross cost must be published in
the tender documents.

The most recent version of the indices will always apply, including any
changes to the composition or weighting of index components.
Rule
10.28 Fare adjustments – public transport services (net contracts)
Why are
changes
needed?
This rule is being retained during the transition period. Once all units are
under partnering contracts this rule will be phased out, as the impact of
fare changes on contract amounts will be managed through contract
provisions and the financial incentive mechanism.
Proposed
change
Delete rule once current net contracts have transitioned to partnering
contracts.
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Proposed new rules
The proposed new rules are to accommodate new PTOM components, such as direct
appointment (negotiated units, benchmarking), like-for-like transition and information
requirements for tenderers.
Rule
10.PR1 Proposed new rule: Direct appointment of a supplier for a
public transport unit
Why are
changes
needed?
Currently all services must be competitively tendered unless they meet the
conditions for direct appointment under rules 10.9 (Direct appointment
and closed contest for low dollar value contracts),10.10 (Direct
appointment of a monopoly supplier) or 10.11 (Direct appointment where
competition reduces value for money). As direct negotiation is a
component of PTOM, and in most cases this will not meet the criteria
under existing rules, a new rule is needed to enable contract terms
including price for units to be negotiated. To ensure fair outcomes and
value for money, the NZTA is proposing that an independent negotiation
advisor be involved in this process. The role, terms of reference and
conditions of engagement will be developed in collaboration with regions
and operators.
Proposed
new rule
1. Approved organisations may directly appoint suppliers for public
transport unit contracts where those services do not require subsidy
(commercial units).
2. Approved organisations may, with the approval of the NZTA, directly
appoint suppliers, taking into consideration:

how the approved organisation will determine which units are
negotiated

how the approved organisation will ensure that direct appointment will
not compromise the competiveness of the regional market for public
transport services

the benchmarking and negotiation processes set out in appendix x13.
3. If an approved organisation proposes directly appointing a supplier
under 1 or 2 above that approved organisation must use an independent
negotiation advisor from a panel maintained by the NZTA to assist with the
negotiation process.
Rule
10.PR2 Proposed new rule: Gross cost resets
Why are
changes
needed?
PTOM contracts with a term of more than 6 years will have a price reset at
the 6-year point based on benchmarked data (which may involve the use of
unit prices and cost models where there is insufficient benchmark
information). In regions with small bus, ferry and rail markets that do not
Please note that appendix X will be developed once consultation has occurred and will be informed by stakeholder
feedback on the information provided on benchmarking and negotiation processes set out in part C, section 10:
Negotiation process for direct appointment, and the benchmarking policy paper
(www.nzta.govt.nz/consultation/ptom/docs/proposed-policy-and-guidance-on-benchmarking.docx).
13
Consultation to support the implementation of PTOM
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have recent tender information, unit rates and cost model information will
need to be used to assure a value for money outcome. This is not covered
under existing rules so a new rule is required
Proposed
change
1. All public transport service contracts with a term longer than 6 years,
excluding those that have been awarded as part of the like-for-like
negotiations, will have a price reset of the gross annual cost informed by
benchmarked price data (see appendix x) at 6 years.
Rule
10.PR3 Proposed new rule: Information for tenderers
Why are
changes
needed?
PTOM enables patronage and revenue data to be provided to registered
tenderers. Due to the commercially sensitive nature of some of this
information, rules around its release are required.
The amount of the deposit will need to be sufficient to deter enquiries
from non-genuine tenderers but not so high that it inhibits competition.
Proposed
change
1. As part of the RFP process the approved organisation must make
available to tenderers the three most recent years’ patronage and revenue
information for the unit, subject to the tenderer placing a refundable
deposit and signing a confidentiality agreement.
2. The deposit is to be refunded after the contract has been awarded,
within a reasonable time.
Rule
10.PR4 Proposed new rule: One-off transition for like-for-like units
Why are
changes
needed?
To transition to PTOM, negotiation needs to occur with the operators of
existing commercially registered services (that are not defined as exempt
under new legislation) to establish like-for-like units. As this is a one-off
negotiation with different characteristics from other PTOM negotiation
processes, a separate transitional rule with a fixed life is proposed.
Proposed
change
1. Operators providing commercially registered services under the Public
Transport Management Act 2008 as at 30 June 2011, that are not exempt
services, are to be directly appointed as the suppliers of units having inservice kilometres equivalent to the total in-service kilometres that were
operated as registered commercial services.
2. The price for the contract exchanged for registered commercial services
shall be negotiated in accordance with new rule PR1: Direct appointment of
a supplier for a public transport unit (see page 25).
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Proposed changes to the appendices of the
Procurement manual
Changes are proposed to four sections in the appendices of the Procurement manual:

Appendix A – additional table related to PTOM components for the procurement strategy
checklist

Appendix D – new decision trees to reflect the changes to chapter 8

Appendix G – changes to monopoly suppliers (update Ontrack to KiwiRail)

Appendix H – new definitions for a ‘partnering contract’ and ‘group tenders’.
Proposed additional table (procurement strategy checklist) in appendix A
of the Procurement manual
Note: this checklist should be read in conjunction with the suggested procurement strategy
topic checklist that forms the current appendix A of the Procurement manual.
Checklist reference (from
Procurement manual
appendix A) and heading
Public transport procurement
element to be included
Source of further information
2.1 Strategic objectives
and outcomes
Review of the region’s RPTP
See the LTMAB and the NZTA
updated Guidelines for the
development of regional public
transport plans14
2.4 Other relevant factors
(policy context)
Allocate all services, including
approved organisation provided
school bus services, into units
See the LTMAB
3.2 Identification of highrisk or unusual
procurement factors
Assessment of current commercial
registrations
See part C, section 12: Like-forlike negotiation
4.1 Analysis of supplier
market
Assessment of competitiveness of
regional public transport market,
including any barriers to entry
See section 4.4 of the
Procurement manual
4.2 Analysis of current
procurement spend and
profile
Assessment of current contracts,
expiry dates and any early
termination clauses
See part C, section 12: Like-forlike negotiation
5.1 Confirmation of
specific strategic objectives
Identify where existing commercial
registrations will be transitioned to
like-for-like contracts
See part C, section 12: Like-forlike negotiation
14
Note that a separate process is underway to update the RPTP guidelines.
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Checklist reference (from
Procurement manual
appendix A) and heading
Public transport procurement
element to be included
Source of further information
5.1 Confirmation of
specific strategic objectives
Calculate commerciality ratio for each
unit and for the region and establish
league table
See part C, section 7:
Commerciality ratio and part C,
section 8: League table
5.1 Confirmation of
specific strategic objectives
Set out the principles that will inform
the partnering relationship and
contract management with operators
See part C, section 1: Principles
for collaborative relationships,
and part C, section 3: Financial
incentive mechanisms
5.2 (bullet 2) procurement
approach – nature of the
activities
Develop transition plan for new
tendered PTOM contracts, including
phasing of tender rounds
See part C, section 6: Contract
terms
5.2 (bullet 2)
Identify any units that will be
negotiated
See part C, section 10:
Negotiation process for direct
appointment
5.2 (bullet 2)
Establish a benchmarking process to
inform pricing for negotiated units
See NZTA benchmarking policy
(www.nzta.govt.nz/consultatio
n/ptom/docs/proposed-policyand-guidance-onbenchmarking.docx)
5.2 (bullets 2 and 6)
Procurement approach –
includes risk identification
and management
Describe the financial incentive
mechanism to be included in
contracts
See part C, section 3: Financial
incentive mechanisms and
NZTA policy
(www.nzta.govt.nz/consultatio
n/ptom/docs/proposed-policyand-guidance-on-partneringtools.docx)
5.2 (bullet 3) Aggregation,
bundling and contract term
Describe the circumstances under
which group tenders will be
considered, any strategy or policies
that may limit groups and the broad
approach to evaluating such tenders
See part C, section 15: Group
tenders and NZTA group
tender policy
(www.nzta.govt.nz/consultatio
n/ptom/docs/proposed-policyand-guidance-on-dealing-withgroup-tenders.docx)
5.2 (bullet 4) Delivery
models and supplier
selection methodology
Describe tender evaluation
methodology
See ‘Proposed amendments to
chapter 8 of the Procurement
manual’
(www.nzta.govt.nz/consultatio
n/ptom/docs/proposedamendments-to-chapter-8-ofprocurement-manual.docx)
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Checklist reference (from
Procurement manual
appendix A) and heading
Public transport procurement
element to be included
Source of further information
5.2 (bullet 7) Contract
management
Describe the contract and pricing
model to be used
See ‘Proposed amendments to
chapter 8 of the Procurement
manual’
(www.nzta.govt.nz/consultatio
n/ptom/docs/proposedamendments-to-chapter-8-ofprocurement-manual.docx)
5.2 (bullet 7 and 6.3)
Develop an annual business planning
process
See part C, section 2: Annual
business planning
5.2 (bullet 7)
Establish process for managing
service-level variations to contracts
See part C, section 6: Contract
terms
5.2 (bullet 7)
Establish a benchmarking process and
mechanism for gross cost resets
See part C, section 9: Reset
mechanism and NZTA
benchmarking policy
(www.nzta.govt.nz/consultatio
n/ptom/docs/proposed-policyand-guidance-onbenchmarking.docx)
6.3 Performance
measurement and
monitoring
Establish a set of KPIs and how these
will relate to the NZTA’s requirements
See part C, section 5:
Performance management and
KPIs, Procurement manual
chapter 11, and results of the
NZTA process to determine
measures and approaches to
improve public transport
performance monitoring and
reporting.
6.3
Link annual business planning to
reporting and relationship
management requirements
See part C, section 5:
Performance management and
KPIs and part C, section 11:
Contract form
6.3
Objectives against which the NZTA
will evaluate procurement strategies
6.4 Communication plan
Develop communication plan for the
market
Note: the Procurement manual does not include a procurement procedure for rail passenger
services – Chapter 8 is the procurement procedure for bus and ferry services only. Rail
procurement procedures used to date have all been customised procurement procedures.
Regions developing a rail component for their procurement strategy and rail procurement
procedures should continue to work with the NZTA to facilitate endorsement of the strategy
and approval of any customised or advanced procurement procedures.
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Proposed change to Procurement manual appendix D Procurement
procedure decision trees
A new set of decision trees are proposed to recognise the changes to chapter 8. These can
be viewed in a separate document (www.nzta.govt.nz/consultation/ptom/docs/proposedamendments-to-appendix-d-of-procurement-manual.docx).
Proposed change to Procurement manual appendix G Monopoly suppliers
Monopoly supplier
Outputs
Lines companies
Lines charges
Maintenance of street lights where fittings are owned by the
lines company
Owners of existing street
lighting infrastructure
(Sale of) existing street lighting infrastructure
Utility services operators
Relocation of services for infrastructure, maintenance or
construction projects
ONTRACK KiwiRail Network
Level crossing works
Road/rail bridge works
Track access
Property owner
Property for an infrastructure project
Proposed change to Procurement manual appendix H Definition of terms
Partnering contract A public transport service contract for a unit, which reflects principles
of a commitment by the supplier and the region to use resources and leverage off both
parties’ investment to achieve shared outcomes through business planning, financial
incentive mechanisms and other initiatives.
Public transport services Public transport services include the purchase of new or upgraded
contracted public transport service units that form part of the agreed network and servicelevel provision as identified in the regional public transport plan.
Group tender A tender offer made by a supplier conditional on more than one contract in a
group being awarded to that supplier. A group tender is not an alternative proposal as
defined in this manual – see the definition of an alternative proposal in appendix H.
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Part C – Proposed additional guidance
Introduction
More detail on the application of certain PTOM components is provided in this section. This
detail will ultimately sit in the tools and appendices section of the Procurement manual, or
the NZTA’s Planning & Investment Knowledge Base.
A colour-coding system has been used to guide readers through part C:
All regions
Proposed minimum requirements applicable to ALL regions for bus
services
Existing
commercial
service
registrations
Proposed process for regions with existing commercial registrations that
form part of the public transport network identified in the RPTP, to
transition to PTOM.
Auckland,
Wellington,
Canterbury
Proposed additional requirements for Auckland, Wellington and
Canterbury bus markets and optional tools for other regions.
Ferry
Proposed requirements for regions that have urban ferry public transport
services.
Rail
Proposed requirements for regions that have urban rail public transport
services.
1. Principles for collaborative relationships
All regions
PTOM is a fundamental shift in the way public transport services are
provided. The shift is away from the traditional ‘specify/provide’ model.
PTOM has some similarities to the alliancing environment prevalent within
the infrastructure industry. The LTMAB sets out in s 114 some high-level
principles to guide the NZTA, regions and operators of the government
expectation in implementing PTOM.
As part of implementing these high-level principles, the NZTA is
proposing the Partnering delivery model and new partnering contracts.
Partnering contracts will contain principles similar to those within alliance
contracts, such as working together on shared objectives as investors,
sharing revenue and risks (as appropriate) and joint planning of future
business direction for a unit or units. Listed below are some operational
principles that will underpin the new contracting model, and some
suggested contract wording for partnering contracts.
Core principles

Mutual (but clear) responsibilities, accountabilities and outcomes

Mutual values, benefits and risks
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
Leveraging investment from both parties (and third parties, as
appropriate)

Culture of honesty, transparency and mutual respect to produce winwin solutions

Excellent communication, both internally and externally

Cooperation in a non-adversarial environment of trust

Willingness to listen, to learn, to innovate and to develop capability
(sharing and learning)

Efficiency in management and support systems to help reduce costs.
Suggested contract wording for partnering contracts
Participants will act in good faith, with trust and mutual respect in relation
to the rights of the other parties under this agreement, including but not
limited to:

being fair, reasonable and honest

doing all things reasonably expected of it by the other participants to
give effect to the spirit and intent of this agreement

not impeding or restricting the performance of another participant’s
responsibilities under this agreement

establishing an integrated collaborative team environment to
encourage the open, honest and efficient sharing of information, and
mutual learning

committing to establish a culture of no blame to minimise disputes

having at least one representative from each of the parties at contract
management decision-making meetings,
2. Annual business planning
All regions
Every year, the operator and region will review the performance of the unit
against key performance indicators and agree a collaborative business
plan to grow patronage and farebox revenue.
Annual business planning will ensure that the operator and region work
collaboratively in a structured and systematic manner to improve the
service and manage the obligations of the contract.
Annual business planning should be carried out for all units. Even smallscale services may have opportunities for regions and operators to work
together to improve the customer experience, and potentially increase
patronage. In such cases the annual business plan should be
straightforward, just documenting any agreed improvements, or areas
where the region and operator will work together, such as marketing,
communications and resources (for example, printing timetables for the
service).
The scale of the approach should be commensurate with the expected
benefit and size of the market.
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3. Financial incentive mechanisms
All regions
All partnering contracts will incorporate a financial incentive mechanism to
incentivise the parties to maximise unit performance.
The mechanism will:

incentivise both parties to collaborate to grow patronage and revenue

take account of unit and regional market characteristics

contribute to value for money

apply to all subsidised units and may apply to commercial units by
agreement

be separate from cost indexation

be simple to apply and administer.
The financial incentive mechanism will ensure that both parties have a
mutual financial interest in the positive performance of a unit, or ‘skin in
the game’, and encourage them to collaborate to achieve the goal of
growing patronage (and hence revenue) to reduce reliance on public
subsidy. It is one of three contract partnering tools, along with key
performance indicators and annual business planning.
Regions will be required to include an appropriate incentive mechanism in
each partnering contract. This will need to comply with the above policy
and be approved by the NZTA through procurement strategy endorsement
and procurement procedure approval processes.
There are two broad types of mechanism: patronage-based and revenuebased. The former links the incentive directly to patronage change,
through a ‘per passenger’ payment by the region to the operator. The
latter shares revenue change on a proportional basis. Either approach
could include a threshold, cap or floor, but should be distinct from any
payments for indexation, achievement of KPIs, or other contractual or
business planning related payments. The NZTA will provide one or more
examples of the two types of mechanisms to assist regions, but does not
propose to specify a single default mechanism.
The risk associated with uncertainty is an important consideration.
Regions will need to carefully consider the trade-off between contract price
and the degree of sharing, particularly on the downside, and identify an
incentive mechanism that will provide the most efficient price over the life
of each contract.
Other important considerations include the growth profile of each unit
under consideration and its commerciality. The incentive mechanism will
be as important in low-growth, low-commerciality units as it is in highgrowth high-commerciality units, but may differ in application.
A separate policy paper provides further information on this topic
(www.nzta.govt.nz/consultation/ptom/docs/proposed-policy-andguidance-on-partnering-tools.docx).
Consultation to support the implementation of PTOM
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4. Information sharing
All regions
Operators of all units will be required to provide patronage and revenue
information to the region and the NZTA.
To help create a level playing field for non-incumbent operators, patronage
and revenue data for the previous three years pertaining to the unit that is
being tendered for will be made available to registered tenderers.
Revenue information for commercial units will not be made public, unless
the service is to go out to tender due to operator withdrawal or breach of
contract terms.
In order to protect this information from inappropriate use, registered
tenderers will need to sign a confidentially agreement and pay a
refundable deposit to the council. The deposit would need to be large
enough to deter parties who are not serious about tendering, without
providing a barrier to those who are. This may vary, depending on the size
of the unit and the market. The deposit would be refunded once the
contract is awarded, within a reasonable time.
In the event that patronage and farebox information is not available for
units (for example, where a major service review is undertaken or new
units are established), regions may wish to let contracts for the first year
or two without a financial incentive mechanism until information is
available about the unit. A financial incentive mechanism that is more
aligned to other units in the region can then be negotiated with the
operator.
5. Performance management and key performance
indicators
All regions
Key performance indicators (KPIs) measure service quality and delivery on
a range of qualitative and quantitative factors, to provide feedback to the
parties and enable them to continuously improve performance.
Regions will be required to monitor contract performance against a
minimum set of KPIs. Reports with a monthly breakdown of key
transactional data are to be provided to the NZTA for national monitoring
purposes either every month or every three months (that is, quarterly).
Other data on tendering and negotiation rounds will need to be provided
on an ‘as required’ basis to enable the NZTA to report to the government
on PTOM implementation.
Chapter 11 of the Procurement manual will be changed to reflect the new
KPIs. Further information on this is being developed through a separate
process to determine measures and approaches for improving public
transport performance monitoring and reporting.
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6. Contract terms
All regions
Tendered bus units
Tendered bus units will have a term of 9 years with a gross price reset at
6 years (note that this is different from a 6-year contract with an optional
3-year extension, commonly described as a 6+3). The reset is on price
only and is not intended to be an opportunity to end the contract. Any
performance issues should be managed through the contractual
relationship.
The 9-year timeframe for tendered contracts has been chosen to enable
3-yearly tendering negotiation rounds and to:

provide bus operators with more business certainty to encourage
investment in their assets and marketing to grow patronage in the
public transport units they operate

promote better joint planning and service delivery between operator
and region, as both parties have a longer period over which to
develop a partnering relationship

enhance both parties’ willingness to innovate as the trust, knowledge
and skills of each party develops, and the term is not at risk.
For smaller contracts the term can be less than 9 years provided that a
‘value for money’ case is made in the procurement strategy and approved
by the NZTA.
Commercial units
Commercial units will have a term of 9 years. This is to provide an
incentive for operators with negotiated units high in the league table to
increase the commerciality until no subsidy is required, and for operators
with commercial units to continue to maintain a high level of
commerciality.
Regions with
commercial
service
registrations
under the
Public
Transport
Management
Act 2008
(PTMA)
Regions with commercially registered public transport services under the
Public Transport Management Act 2008 that form part of the public
transport network identified in the RPTP will be required to provide
operators of those services with like-for-like units with equivalent inservice kilometres for a 12-year term as part of the transition to PTOM.
While an exact equivalent may not always be possible, regions should
strive to ensure that the unit or units are as closely aligned as possible to
the quantity of in-service kilometres of commercially registered public
transport services.
The long 12-year term for like-for-like negotiated units recognises the
value to operators of existing commercial service registrations that will
cease to exist under the PTMA. These are one-off terms, after which the
new term will be either 6 years or 9 years depending on whether the unit
is negotiated, tendered or fully commercial.
Consultation to support the implementation of PTOM
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Auckland,
Wellington,
Canterbury
Negotiated contracts, other than commercial units or like-for-like
contracts, will have a 6-year term.
In larger markets all contract terms will have fixed end dates to ensure
ongoing alignment between tender and negotiating rounds, and to ensure
confidence in costs. Contracts will have an indicative term, but may be
shorter than this to ensure alignment of end dates.
The term for negotiated units has been set at 6 years to:

provide an operator sufficient time to become established in a new
area

retain market tension

align with tendering cycles to ensure confidence in benchmarked
costs.
Ferry
The term for ferry units will be 12 years to recognise the high costs,
‘lumpy’ investment profile and economic life of vessels.
Rail
Rail assets are expensive, predominantly publicly owned, and have a long
life. Contracts will generally be management contracts with less private
sector investment. However, specialist rail skills are required and the
potential disruption generated by a change of operator is considerable.
On balance, a contract term of 12 years is proposed.
7. Commerciality ratio – for a unit and for the region
All regions
The commerciality ratio is a financial calculation that measures unit
performance by assessing the proportion of revenue generated by public
transport users against the cost of providing the services. The expectation
is that ‘commerciality’ will grow over time, through growth in revenue, a
decrease in costs, or both.
The calculation and publication by the region of the commerciality ratio
for each unit and the region as a whole is a new requirement.
Calculating commerciality ratios
The formula for commerciality ratio is:
Commerciality ratio = revenue / cost
For the purpose of the commerciality ratio calculation:

Revenue is defined as including all farebox revenue generated by a
service, including the farebox revenue to be applied to financial
incentive mechanism payments plus SuperGold payments. It excludes
revenue generated through charter work using vehicles that are also
used for public transport services.

Cost is defined as including the annual gross cost of a service, and
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payments, both positive or negative, related to indexation, the
financial incentive mechanism, and KPIs15. The cost reflects the price
paid to deliver services by fare-paying passengers and regions.
Concessionary fare payments, whether separately identified or not, are
treated as a cost.
Inputs into the formula are provided by incumbent operators, as agreed
with the region.
Unit commerciality ratio
The commerciality ratio of the unit indicates over the life of the contract
whether the unit performance is improving, and should be actively
monitored by both the region and the operator.
Unit commerciality ratios should be calculated for each unit in the region
at least annually. It acts as an incentive for operators of all units to
increase commerciality.
The commerciality ratio of a commercial unit is 100%.
Regional commerciality ratio
The regional commerciality ratio, and the change trend, will indicate
whether the overall objectives of PTOM are being achieved in the region.
The regional commerciality ratio is calculated using the same data as for
unit commerciality ratio, summed across all units both subsidised and
commercial. The regional commerciality ratio is not an average of the
individual unit commerciality ratios.
Regional commerciality ratios need to be calculated for each mode – bus,
ferry and rail.
The regional commerciality ratio is similar in concept to the NZTA’s
farebox recovery ratio, although each ratio has a different purpose. The
NZTA is reviewing the farebox recovery policy.
In regions where there is only one unit, the regional commerciality ratio is
also the unit commerciality ratio.
Both the unit and regional commerciality ratios will be published in a
league table for the region (see part C, section 8: League table).
Auckland
Wellington
Canterbury
The regional commerciality ratio will measure overall performance in the
region and help guide the decision as to the proportion of bus units to be
directly appointed by negotiation versus competitively tendered. The use
of the Blended commerciality will help guide which units will be
negotiated.
Regional commerciality ratio
In addition to the above guidance, the regional commerciality ratio guides
the proportion of units, measured in in-service vehicle kilometres, that will
be directly negotiated versus competitively tendered.
For example, if a regional commerciality ratio is 45%, then approximately
15
Financial incentive mechanism and KPI payments are excluded from the calculation of the blended
commerciality ratio. This point is discussed further below.
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45% of the total in-service kilometres, not 45% of units, are anticipated to
be negotiated, and 55% of the total in-service kilometres will be
competitively tendered.
The region can take other factors into account when determining the
correct proportion of units to be negotiated (see part C, section 10:
Negotiation process for direct appointment). The region must set out the
rationale in its procurement strategy.
Units can vary in size and commerciality ratio, and a stylised example in
figure 5 shows how the proportion of units to be negotiated will be
determined.
Figure 5 League table example
Regional commerciality ratio = 45%
Total in-service kilometres = 10,374,662
45% of total in-service kilometres = 4,668,598
Actual amount of in-service kilometres to be negotiated = 4,416,980
Actual number of units to be negotiated = 5
Unit
Blended
commerciality
ratio (%) – see
definition below
In-service
kilometres
Negotiate
or tender
A
87
223,765
Negotiate
B
75
455,667
Negotiate
C
62
1,067,089
Negotiate
D
57
1,756,109
Negotiate
E
53
914,350
Negotiate
F
48
1,478,345
Tender*
G
47
635,123
Tender
H
41
1,230,876
Tender
I
38
824,764
Tender
J
34
998,798
Tender
K
29
1,609,721
Tender
L
27
76,345
Tender
M
26
104,010
Tender
* The region may decide that although less in-service kilometres are being
negotiated than 45%, negotiating Unit F will compromise their ability to
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tender enough units to maintain an ongoing confidence in costs.
Conversely, a region could negotiate more than the quantity of in-service
kilometres determined by the regional commerciality ratio and this will
depend on the size of the units. Regions will need to set out the rationale
for their approach in their procurement strategy, to be endorsed by the
NZTA.
Blended commerciality ratio
The Blended commerciality ratio measures the relative performance of
units within a region. The Blended commerciality ratio will be calculated,
and used to create the league table. Further guidance is given in part C,
section 8: League table, on how to establish the league table when data is
not available to calculate commerciality ratios as the transition to PTOM
proceeds.
The Blended commerciality ratio will initially be calculated using the
following two components:

Unit commerciality ratio – for the previous year – but calculated
excluding any financial incentive mechanism and KPI payments.

Change in this commerciality ratio of a unit in comparison to the
change of other units within the league table.
Once the first term of PTOM contracts has ended, a third component can
be added, if the region is certain that all data is accurate and reliable,
namely:

Change in passenger kilometres relative to other units.
The Blended commerciality ratio is the weighted sum of its components
and like its component parts is expressed as a percentage. Weights to be
given to each component are as follows.
When the first two components only are available
Component
Weight
Unit commerciality ratio
0.8
Relative change in commerciality ratio
0.2
When all three components are available
Component
Weight
Unit commerciality ratio
0.8
Relative change in commerciality ratio
0.1
Relative change in passenger km
0.1
For example, if the unit commerciality ratio were 60%, the relative change
in commerciality ratio 80% and the relative change in passenger km 70%
the Blended commerciality ratio would be:
(60 x 0.8) + (80 x 0.1) + (70 x 0.1) = 63%
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Explanatory note
The ‘relative change’ value for a unit, in either commerciality ratio or
passenger kilometres, is calculated as follows:
Relative change value for a unit = (change value for the unit – change
value for the unit with the lowest value) / range of change values for all
units in the region.
Both change values and relative change values are to be expressed as
percentages. The unit that shows the greatest positive change will have a
relative change value of 100% and the unit with the least change (possibly
the greatest decline) will have a relative change value of 0%.
Financial incentive mechanism and KPI payments are excluded when
calculating Blended commerciality ratios to avoid creating a perverse
incentive. Inclusion of a significant positive financial incentive payment,
made in recognition of an operator’s efforts to grow patronage and
commerciality, lowers the commerciality ratio and dampens the impact of
the operator’s high performance, which could lower the unit’s ranking in
the league table. Inclusion of KPI payments, applied in terms of the
contract, would also distort the outcome. The ‘bottom line’ of the Blended
‘commerciality ratio’ calculation is therefore equal to the annual gross cost
adjusted by indexation.
Ferry
Rail
The same formulae should be used for ferry units, as set out above in the
section for ‘All regions’.
The same formulae should be used for rail units, as set out above in the
section ‘All regions’.
8. League table
All regions
The league table ranks the commerciality ratios of units in a region and
will be published annually, to inform regions, operators and the public. It
will encourage improved performance across the network and competition
between operators of units outside of tender rounds. This will apply in all
regions even where there are low numbers of units and operators.
In regions with more than one public transport mode, separate league
tables will be established for each mode.
In regions with only one unit, information about that unit will be the
league table.
High revenue-generating or performing units will be ranked at the top of
the table and low revenue-generating or performing units at the bottom.
Transition to PTOM
In the transition period while new units are established, league tables will
be determined as follows:

The region will estimate the commerciality ratio of a new unit using
best endeavours and based on as much historical revenue and cost
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information of the services as is relevant, and agree this with the
operator. This could be an iterative process. The agreed figure will
become the year 0 commerciality ratio, and the figures for each unit
will be used to determine a preliminary league table. The regional
commerciality ratio should be calculated as set out in part C, section 7.

Auckland,
Wellington,
Canterbury
Once the new units have been operating for a year, the region will be
able to confirm the commerciality ratio of the unit, using the unit
commercial ratio calculation. The unit commerciality ratios will be used
to establish the league table.
In regions with larger markets, the bus league table along with unit
commerciality ratios will be used to assess which units will be negotiated
or tendered, in accordance with the region’s endorsed procurement
strategy (and as set out in figure 3 in part C, section 7.
A prerequisite for negotiating units is having adequate cost-benchmarking
data and a clear plan for the timing of tendering and negotiation rounds,
taking account of lead times as unit contracts expire.
Units higher in the league table that have performed well relative to other
units are more likely to be negotiated with the incumbent operator. Those
lower in the table that have not performed well relative to other units are
more likely to be put out to tender. However, the final decision about
which units will be negotiated rests with the region in consultation with
operators. The approach to determining which units will be negotiated
should be set out in the procurement strategy.
The proportion of units to be negotiated and tendered will be based on the
regional commerciality ratio as discussed earlier (see part C, section 7).
Transition to PTOM
In the transition period while new units are established, league tables will
be determined as follows:
Ferry

The region will estimate the commerciality ratio of a new unit using
best endeavours and based on as much historical revenue and cost
information of the services as is relevant, and agree this with the
operator. This could be an iterative process. The agreed figure will
become the year 0 commerciality ratio, and the figures for each unit
will be used to determine a preliminary league table. The regional
commerciality ratio which in turn will be used to identify which units
will be directly negotiated and tendered should be calculated as set out
in part C, section 7.

Once the new units have been operating for a year, the region will be
able to confirm the commerciality ratio of the unit, using the unit
commercial ratio calculation. The unit commerciality ratios will be used
to establish the league table.

Once the new units have had a second year of operation, the blended
commerciality ratio should be used to establish the league table.
Ferries will be clearly separated from bus and rail units in a separate
league table, and cross-modal cost benchmarking will not be undertaken.
As most ferry markets are likely to have low numbers of units, the
commerciality ratio and league table will be used to monitor trends in
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commerciality, but will not drive decisions about which units will be
negotiated. It is unlikely that ferry units will be negotiated due to a lack of
cost-benchmarking data.
For information on how to establish a league table for ferry units, see the
section ‘All regions’ above.
Rail
The commerciality ratio of rail unit(s) should be published separate from
bus and ferry services.
For information on how to establish a league table for rail units, see the
section ‘All regions’ above.
Value for money and performance will be tracked by comparing the annual
reports of Auckland and Wellington metro rail, and through the
Australasian metro rail benchmarking study.
9. Reset mechanism
All regions
The annual gross cost of tendered contracts with a term of 9 years will be
reset at the end of year 6. The reset process will be informed by
benchmarking using a benchmark market price range derived from market
tender data in markets where there is sufficient tender data (that is, all
large bus markets). Supplementary information should be used as
appropriate (see the benchmarking policy and guidance paper –
www.nzta.govt.nz/consultation/ptom/docs/proposed-policy-and-guidanceon-benchmarking.docx). Where there is insufficient market tender data
alternative benchmarks, such as unit rates, cost model outputs and cost
indexation may be used,
A cost reset on the same basis will also occur where a unit has undergone
a significant service review that requires revisiting the current gross cost
estimate or where an incumbent operator wishes to turn a subsidised unit
into a fully commercial unit.
The cost reset is intended to recognise that agreements need to ensure
value for money is being achieved in longer term, and a reasonable
balance is being maintained between operator profit and the expenditure
of public funds.
Over time, indexation payments, changes in farebox recovery and financial
incentive mechanisms may shift the balance between value for money and
sustainable revenue. The reset process is designed to restore the balance.
Additional detail is provided in the benchmarking policy and guidance
paper.
Auckland,
Wellington,
Canterbury
The Auckland, Wellington and Canterbury bus markets are expected to
generate sufficient market tender data to provide a benchmark market
price range using Data Envelopment Analysis (see part C, section 10 and
the benchmarking policy and guidance paper for additional detail –
www.nzta.govt.nz/consultation/ptom/docs/proposed-policy-and-guidanceon-benchmarking.docx).
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Ferry
The annual gross cost of ferry contracts will be reset at the end of year 6.
As there are likely to be a low number of units in ferry markets, there will
be insufficient market tender data to provide a benchmark market price
range. Instead, the cost reset will be informed by unit rates, cost model
outputs and cost indexation.
Rail
The annual gross cost of rail contracts will be reset at the end of year 6.
The cost reset will be informed by unit rates, cost model outputs and cost
indexation.
10. Negotiation process for direct appointment
Auckland,
Wellington,
Canterbury
In larger bus markets, a proportion of units will be negotiated to provide
an incentive for operators to grow commerciality and patronage, and to
recognise their contribution to reducing reliance on public subsidy. The
rationale for negotiating units will be included in the region’s procurement
strategy and is discussed in part C, section 7: Commerciality ratio, and
part C, section 8: League table.
As negotiated units will not go through a competitive tender process, the
NZTA proposes that a new Direct Appointment rule is added to the
Procurement manual to enable incumbent operators to be directly
appointed following negotiation. See proposed new rule 10.PR1: Direct
appointment of a supplier for a public transport unit, page 25.
A negotiation advisor must be involved in all negotiations under new rule
10.PR1.
Proposed negotiation process
Pre-negotiation
Formal benchmarking will be used to derive a market price range, within
which the price of a negotiated contract would be expected to lie if the
contract was tendered in a competitive market. Data Envelopment Analysis
will be used to establish the range, using winning tender prices and
associated unit characteristics (peak vehicles, service kilometres and
service hours) to create the range for a negotiated unit based on the
negotiated unit’s own characteristics. Benchmarking will be initially carried
out by a benchmarking advisor commissioned by the NZTA.
The benchmarking dataset will include winning group tenders, tenders
from current tender rounds and all post-PTOM tender rounds that have
taken place during the last 6 years, with prices adjusted for inflation. The
contract price used will include any price variations agreed before the
contract began but will not be adjusted in any way by a ‘supplier quality
premium’.
Regions will need to consider unit and tender process design from a
benchmarking perspective when developing their procurement strategy, to
ensure that there is sufficient benchmarking data and it is based on an
appropriate mix of tendered units (for example, size, growth and
commerciality). See the benchmarking policy and guidance paper for
additional detail (www.nzta.govt.nz/consultation/ptom/docs/proposedpolicy-and-guidance-on-benchmarking.docx).
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An operator will submit a legally binding offer for a negotiated contract to
a region, which will consider the offer in light of the benchmark range. The
offered contract price will generally be accepted if it is within the range,
and the operator appointed under proposed new rule 10.PR1.
Negotiation
Where the price submitted by an operator falls outside the benchmark
range, negotiation between the parties will commence.
Supplementary information may be used to inform the negotiation, such as
the outputs of cost models, or details of variables that may affect the price
of the individual unit in question, such as dead-running, topography or
congestion. The NZTA is also investigating the use of component price
ranges to provide further supplementary information.
Once the parties have reached an agreement that is fair to the operator
and represents best value for money for the NZTA and the region over the
life of the contract, the supplier will be appointed under proposed new rule
10.PR1 (see page 25).
If no agreement can be reached, the parties will jointly appoint an
adjudicator to adjudicate.
The negotiation advisor will prepare a draft report on the process and
outcome of the negotiation. The region will be provided with an
opportunity to comment on the report before it is finalised and given to
the NZTA.
Additional detail is provided in the benchmarking policy and guidance
paper (www.nzta.govt.nz/consultation/ptom/docs/proposed-policy-andguidance-on-benchmarking.docx).
Role of the negotiation advisor
The negotiation advisor primarily represents the NZTA’s interest as an
investor providing 50% of the subsidy with regional partners, but also
provides confidence in the process and outcome for the region and
operator. The cost of the negotiation advisor will be 100% funded by the
NZTA in pre-negotiations, but shared between the region and the NZTA
based on the standard funding assistance rate if negotiation is required.
The NZTA will establish and maintain a panel of negotiation advisors that it
considers to have suitable experience and skills. The terms of reference
and criteria for this panel are yet to be developed. The NZTA will be
seeking input from operators and regions likely to negotiate contracts
under PTOM.
The negotiation advisor will be used for all negotiations under the
proposed new rule 10.PR1, including like-for-like transitions from existing
commercially registered public transport services.
The advisor will not be required for negotiations under the existing direct
appointment rules in the Procurement manual:

10.9 Direct appointment and closed contest for low dollar value
contracts

10.10 Direct appointment of a monopoly supplier

10.11 Direct appoint where competition reduces value for money.
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11. Contract form
Auckland,
Wellington,
Canterbury
A 3-tier contracting model is proposed for larger regions. Two or more
tiers may be combined as appropriate.
Each of the 3 contract tiers is described below.
Regional agreement
A strategic agreement between all operators and the region setting out
matters for consistent treatment across the region (for example,
principles for collaborative relationships). Any operator who intends to
provide services in the region must be a signatory to the regional
agreement.
Partnering agreement
An agreement between an individual operator and the region setting out
how they will work together, including aspects such as KPIs and
reporting requirements.
Unit agreement
An agreement for an operating unit that will contain details of services,
including contract payments, schedules, route coverage and peak vehicle
requirements.
All regions
Other regions may combine tiers.
Ferry
Ferry unit contracts may combine tiers.
Rail
Rail unit contracts may combine tiers.
12. Like-for-like negotiation
Regions with
commercial
service
registrations
Regions will need to transition any public transport services currently
registered as commercial under the Public Transport Management Act
2008 (PTMA), depending on how these services are defined under the
LTMAB.
Initially, there are 3 possible transition paths for current commercial
service registrations:

Services that will form a full unit, as identified in an RPTP, may
become a commercial unit (see part C, section 13: Commercial units).

Services that form part of a unit or units will be transitioned into likefor-like units.

Services defined as exempt under new legislation will need to follow
the legislated requirements.
Note that there is an Order In Council mechanism in the LTMAB that
provides an additional pathway for exempt services to become units, and
vice versa, and commercial units may be formed in this way in the future.
In regions with existing commercial services that form part of a unit or
units, careful consideration should be given to how like-for-like units will
be accommodated. This may require some units to be designed slightly
differently to provide operators holding existing commercial
Consultation to support the implementation of PTOM
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registrations an equivalent number of in-service kilometres, without
making such units either so large or otherwise altered that competition
for other tendered units is significantly adversely affected.
The main principle to be followed when determining like-for-like
contracts is that incumbent operators are to receive in-service kilometres
equivalent to their existing quantum of in-service kilometres operated
under existing registered commercial services at 30 June 2011. Where
possible, units with the higher commerciality ratios should be
negotiated.
Tender rounds will need to be held to provide cost-benchmark prices
before any like-for-like contracts can be entered into. In regions where
benchmarking is not possible, other arrangements will need to made to
ensure confidence that value for money is being achieved.
Regions will need to follow the process for negotiation set out above (see
part C, section 10: Negotiation process for direct appointment).
13. Commercial units
All regions
Commercial units do not receive a subsidy from regions, but may receive
some fare reimbursement through the SuperGold card free off-peak
public transport scheme.
Commercial units will still be operated under a partnering contract with
similar terms to those for tendered and negotiated units. Regions and
operators will work collaboratively and undertake annual business
planning (see part C, section 2: Annual business planning) to grow
patronage and revenue.
Part of a unit cannot become commercial. A commercial unit must be a
whole unit as identified in the RPTP.
Indexation will not apply to commercial units.
Financial incentive mechanisms will be optional for commercial units.
Establishing commercial units
There are 3 main pathways to establish a commercial unit:

Under the PTMA, commercially registered services that were offering
a full timetable with standard fares as at 30 June 2011 and are
identified as a unit in the RPTP will be transitioned to commercial
units through a process similar to that for like-for-like units, but will
not receive any subsidy (see part C, section 12: Like-for-like
negotiation). Where the commercial registrations do not align with
units, the like-for-like transition process should be followed.

Over time, existing units may increase in commerciality until they no
longer require subsidy. Such services will transition to commercial
units at the end of the contract term by agreement with the operator.
In effect this means that when the negotiation process for a new
contract takes place, this contract will not receive any subsidy.
Further contract terms will continue to be negotiated as usual,
recognising the value of exclusivity and the infrastructure, marketing
and support the region provides to the service.
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
New units may be established as part of RPTP development (identified
either by the council or operators) that do not require subsidy, and
will be let through a tender process. If, after investigating the
potential unit, the region believes it could be run effectively without
any subsidy the region will run a tender process using a qualitybased supplier selection methodology. If no tenders are received to
operate the unit without a subsidy, and the region considers that the
unit will make an important contribution to the public transport
network, the unit can be treated as a tendered unit.
End of contract term for commercial units
Commercial units that reach the end of their contract term will be
renegotiated for a further 9-year term where:

there is no challenge by another operator (see the challenge process,
below)

the region is satisfied with the performance of the unit and the
operator

the operator wishes to continue providing the unit.
The negotiation process for commercial units will be consistent with the
process for negotiated units for the quality-based aspects of the services
as per new rule 10.PR4: One-off transition for like-for-like units, page 26.
If an operator chooses not to continue to operate a commercial unit it
will give the region 12 months’ notice of its intention to cease providing
the unit, to enable the region to tender for an alternative service
provider. Regions should ensure that notice periods are clearly set out in
the contract.
Challenge process
To retain a competitive market for public transport services a challenge
process has been developed allowing a new operator to submit a bid to
the region to operate a commercial unit when the unit contract is near
the end of its term. The incumbent operator will be offered an
opportunity to match the challenger’s proposal before the final decision
is made.
When submitting a challenge bid, an operator should provide the region
with a business case for the unit that may include:

how the bid complies with PTOM, the strategic environment and how
the operator will run the business in a manner that integrates the
unit into the wider network

marketing and operations plans – this is an opportunity to advance
any innovative ideas that could fit with or extend the region’s plans

a financial plan and risk analysis

the operator’s existing business and market share, and how the unit
would relate to these.
In assessing the bid, the region will need to consider the business plan
presented by the challenging operator and take into account the:
a) performance of the unit, considering factors such the relative change
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of the commerciality ratio
b) patronage trends, and potential for future growth
c) overall performance of the incumbent operator, including the
achievement of KPIs and the partnering relationship
d) any potential negative and/or positive impacts arising from changing
operators
e) due diligence on the challenging operator
f) the impact on future competition for tendered services.
If the challenger fails to reach a binding agreement with the region
through the negotiation, the unit will revert to the incumbent.
Ferry
Ferry commercial units do not receive a subsidy from regions, but may
receive some fare reimbursement through the SuperGold card free offpeak public transport scheme. These units will still be operated under an
exclusive contract with terms similar to those for tendered and
negotiated units. Regions and operators will work collaboratively and
undertake annual business planning (see part C, section 2: Annual
business planning) to grow patronage and revenue.
Part of a unit cannot become commercial. A commercial unit must be a
whole unit as identified in the RPTP.
Indexation will not apply to commercial units. Financial incentive
mechanisms will be optional for commercial units.
Establishing commercial units
There are 2 main pathways to establish a ferry commercial unit:

Over time, existing units may increase in commerciality until they no
longer require subsidy. Such services will transition to commercial
units at the end of the contract term by agreement with the operator.
In effect this means that when the negotiation process for a new
contract takes place, this contract will not receive any subsidy.
Further contract terms will continue to be negotiated as usual,
recognising the value of exclusivity and the infrastructure, marketing
and support the region provides to the service.

New units may be established as part of RPTP development (identified
either by the council or operators) that do not require subsidy, and
will be let through a tender process. If, after investigating the
potential unit, the region believes it could be run effectively without
any subsidy the region will run a tender process using a qualitybased supplier selection methodology. If no tenders are received to
operate the unit without a subsidy, and the region considers that the
unit will make an important contribution to the public transport
network, the unit can be treated as a tendered unit.
For ferry commercial units, use the arrangements set out above in the
section ‘End of a contract term’ and ‘Challenge process’ under ‘All
regions’.
Ferry services defined as exempt under the LTMAB will continue to
operate as required by the legislation.
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14. Operator investment in public transport infrastructure
All regions
Opportunities for operators to make substantive investments in public
transport infrastructure or other assets and obtain a return on that
investment exist but require the prior approval of the NZTA.
The arrangement would be on commercial terms separate from the
service delivery contract and structured so that the return on the
investment was related to the benefits accruing. Barriers to future
competition must not be created. This arrangement would not provide
for extended tenure to current pre-determined terms of the service
delivery contracts.
All operators, where relevant, would have unencumbered access to or
use of the infrastructure or other facility for the full duration of the term
of the agreement.
15. Group tenders
All regions
Operators may choose to tender for a group of units and offer a
discounted price if awarded all units within the group. Operators would
be required to include a bid price for the group of units and a bid price
for each unit within the group that could stand if awarded on its own, in
case the group tender is not awarded. Each unit will remain a discrete
entity and be separately contracted.
All regions will need to consider their approach to group tenders.
Proposed changes to rule 10.12 (page 19) will require regions to include
their approach to group tenders in RFPs. The NZTA’s group tender policy
paper (www.nzta.govt.nz/consultation/ptom/docs/proposed-policy-andguidance-on-dealing-with-group-tenders.docx) provides background
information.
As a general consideration, group tender proposals should be allowed so
as to achieve a balance between best value for money and sustaining
competitive markets. Regions will need to consider the following:

Impact on the market – the way units have been structured and the
timing and location of units tendered will have a bearing on the
market response.

Incumbent operators will have natural advantages such as the
location of depots. The allowed grouping of units can maximise
tender value but could compromise competition.

New entrants – encouraging new entrants to the market is an
important aspect of PTOM, which requires consideration when
establishing a group tender policy and in requests for tenders (for
example, when adjacent units of different sizes are tendered).

Long-term market dominance – care needs to be taken to avoid
operators grouping units to dominate the market, which would be to
the detriment of new entrants and robust competition in tender
rounds. Healthy markets maintain operators of differing sizes.
The grouping of tenders can generate many permutations and
combinations, making tender evaluation difficult and inefficient. Limiting
the number of times a unit can be included in a group, the number of
combinations an operator can submit, and possibly the peak vehicle
numbers are ways of managing the evaluation process.
Consultation to support the implementation of PTOM
Page 50
16. Fare revenue protection
All regions
The introduction of PTOM and partnering contracts shifts the
responsibility for fare revenue protection from one party, either the
service provider or the region, to both parties. This is because the
financial incentive mechanism is intended to share changes in fare
revenue. Therefore, regions and service providers should discuss and
agree on measures to manage fare evasion.
In addition, the introduction of electronic smartcard public transport
ticketing systems will lead to significant changes in ticketing processes,
particularly on rail services. Rather than inspecting all tickets, as is
current practice, passengers will be obliged to have paid a fare and only
a portion of tickets will be checked by inspection officers.
Without effective deterrence and enforcement measures the risk of fare
evasion can markedly increase in open travel networks, such as the
Auckland and Wellington rail networks, and greater risks also emerge for
bus transport.
The Ministry of Transport, the NZTA and Police have been working
together to develop a broader package of measures largely to manage
the risks for rail in Auckland and Wellington. These measures are being
developed through a process separate from this consultation.
However, to accompany these measures, and in response to the
changing contract environment under PTOM, amendments are proposed
to the Procurement manual to require approved organisations to include
in their tender documentation and public transport service contracts fare
revenue protection measures and monitoring of fare evasion. See rule
10.12: RFP contents and conformity (page 19). The monitoring
requirements for fare revenue protection are being progressed through a
separate process to determine measures and approaches for improving
public transport performance monitoring and reporting.
While the approach will vary from region to region, all contracts will be
required to include measures to minimise fare evasion. The measures
should reflect the actions expected of both parties and the
circumstances and risks in the region.
Regions should consider including a fare revenue protection policy in
their procurement strategy.
Auckland,
Wellington,
Canterbury
Ferry
Rail
Regions may wish to adopt a revenue protection strategy.
See the information set out above in the section for ‘All regions’.
See the information set out above in the section for ‘All regions’.
Consultation to support the implementation of PTOM
Page 51
Important links

Proposed amendments to chapter 8 of the Procurement manual
(www.nzta.govt.nz/consultation/ptom/docs/proposed-amendments-to-chapter-8-ofprocurement-manual.docx)

Proposed amendments to appendix D of the Procurement manual (procurement
procedure decision trees) (www.nzta.govt.nz/consultation/ptom/docs/proposedamendments-to-appendix-d-of-procurement-manual.docx)

Proposed policy and guidance on benchmarking
(www.nzta.govt.nz/consultation/ptom/docs/proposed-policy-and-guidance-onbenchmarking.docx)
Benchmarking options: frontier and component cost analysis
(www.nzta.govt.nz/consultation/ptom/docs/benchmarking-options-frontier-andcomponent-cost-analysis.pdf) and Data to be provided in benchmarking report
(www.nzta.govt.nz/consultation/ptom/docs/data-to-be-provided-in-benchmarkingreport.pdf), both by COVEC for the NZTA
Peer review of proposed methodology for benchmarking PT operator bids
(www.nzta.govt.nz/consultation/ptom/docs/peer-review-of-proposed-methodology-forbenchmarking-pt-operator-bids.pdf), by PricewaterhouseCoopers for the NZTA.

Proposed policy and guidance on partnering tools, including financial incentive
mechanisms (www.nzta.govt.nz/consultation/ptom/docs/proposed-policy-and-guidanceon-partnering-tools.docx)
The Hensher report is available on request (contact Julie Alexander on
Julie.alexander@nzta.govt.nz or 04 894 6754)
The COVEC report is available online at
www.nzta.govt.nz/consultation/ptom/docs/partnership-models-analysis-of-options.pdf.

Proposed policy and guidance on dealing with group tenders
(www.nzta.govt.nz/consultation/ptom/docs/proposed-policy-and-guidance-on-dealingwith-group-tenders.docx)

PTOM components and implementation framework
(www.nzta.govt.nz/consultation/ptom/docs/ptom-components-and-implementationframework.pdf)

NZTA procurement manual (www.nzta.govt.nz/resources/procurement-manual/)

Core Working Group report (www.nzta.govt.nz/consultation/ptom/docs/ptom-coreworking-group-report.pdf)

Cabinet papers, legislation, etc relevant to PTOM:
www.transport.govt.nz/ourwork/Land/PTOM/
Consultation to support the implementation of PTOM