Go-Ahead Singapore gets further extension on Loyang bus contract

All winning bus contract bidders are subject to a contract period of five years, which can be extended by another two years. ST PHOTO: LIM YAOHUI

SINGAPORE - Bus operator Go-Ahead Singapore has been given an additional three-year extension on a deal to operate 31 public bus routes in the Loyang area.

This is the first time a tendered bus contract has been extended beyond the stipulated contract duration of up to seven years.

All winning bus contract bidders are subject to a contract period of five years, which can be extended by another two years if the company performs well.

The Loyang contract had already been extended and was to expire in September 2023.

It will now run until at least September 2026, in an unprecedented move by the Land Transport Authority (LTA).

The extension follows similar decisions that were made by LTA recently to lengthen expiring bus contracts rather than put them out for tender as was the intention when the bus contracting model was introduced.

This raises questions about whether there has been a shift in the Government’s approach and the impact this will have on competition.

Asked about this by The Straits Times, LTA said it will continue to tender bus packages regularly, but it did not provide details on when or which contracts will be up for grabs.

It said some bus contracts, including Loyang, were extended in the past year because of the impact of Covid-19 on the tendering timeline.

A delay in the readiness of replacement bus depots was also cited as a reason for some of the extensions.

For these extended contracts, the terms remain competitive and largely similar to the existing contracts, but with tighter bus service reliability standards, LTA added.

Said an LTA spokesman: “Competitive tendering remains a key principle of the bus contracting model. Given the evolving Covid-19 situation in the past few years, we had to ensure that essential bus services continue to run smoothly and efficiently without any disruptions.”

Introduced in 2014 to raise service standards and inject competition, the bus contracting model is a major overhaul of the public bus sector, which had previously been a longstanding duopoly between transport operators SBS Transit (SBST) and SMRT.

Under the contracting model, LTA owns all the operating assets and infrastructure, plans bus services here centrally and collects fare revenue.

Public transport operators bid for the right to run services, and are paid fees to do so at standards set by the authority.

Bus services are bundled into 14 packages by geographic area, each comprising about 20 to 30 routes, a bus depot, several bus interchanges and the buses themselves.

At first, three packages – Bulim, Loyang and Seletar – were put out for tender during the initial transition, while the remaining 11 packages continued to be run by then incumbents SBST and SMRT under negotiated contracts lasting two to 10 years.

LTA said then that these negotiated contracts would be put out for competitive tendering when they expired.

Since the bus contracting model fully took effect in 2016, only two negotiated contracts – Bukit Merah and Sembawang-Yishun – have been tendered out.

This means just five of the 14 bus packages have been put out for tender since 2014, and the pace has slowed further in recent years.

It has been almost three years since a bus contract was last contested, and in the past two years, the Government has opted to lengthen eight bus contracts, including the Loyang deal.

In 2021, SBST’s Sengkang-Hougang negotiated contract was supposed to expire, but it was extended by three years to 2024.

Five other SBST-negotiated contracts for Bedok, Tampines, Serangoon-Eunos, Clementi and Bishan-Toa Payoh were also extended by an average of three years in 2021.

This was part of an agreement between LTA and the transport operator to transition the Downtown Line to a newer version of the rail financing framework.

The Bedok contract would have expired in 2023, Tampines in 2024, Serangoon-Eunos and Clementi in 2025 and Bishan-Toa Payoh in 2026.

Neither LTA nor SBST has given the exact dates for when these five contracts will end, now that they have been lengthened.

An option to extend SBST’s Seletar tendered contract was also exercised in 2022, extending the deal by two years until March 2025.

Meanwhile, three other bus contracts – Bukit Merah, Woodlands and Choa Chu Kang-Bukit Panjang – are supposed to expire in 2023.

But with the clock ticking, there are no indications yet whether LTA will choose to extend them or tender them out.

SMRT, which operates the Woodlands and Choa Chu Kang-Bukit Panjang contracts, did not address questions about whether it is in talks with LTA over possible contract extensions, saying only that it will participate in upcoming tenders.

SBST, which operates the Bukit Merah contract, said it could not provide further details “as this is competitive information”.

This is the first time a tendered bus contract has been extended beyond the stipulated duration of up to seven years. ST PHOTO: KUA CHEE SIONG

For the Loyang contract, the expectation was that the package would be put out for competitive tender in 2022 or early 2023, given the time needed for LTA to assess bids and award a new contract, and for bus operations to be handed over if needed.

Past bus tenders have taken between seven and 10 months to be awarded.

One of two foreign operators to enter the Singapore market under the bus contracting model, Go-Ahead Singapore won the Loyang bid in 2015 with a tender price of $497.7 million.

The contract duration was meant to be from 2016 to 2021, but in the light of “strong operational peformance”, the option to extend the Loyang contract by two years was exercised by LTA in 2020, which meant that the contract was extended to 2023.

But it was revealed in April 2022 by Go-Ahead Singapore’s British parent company, Go-Ahead Group, that the bus operator was in active discussions with LTA about a further extension of the Loyang contract.

News that an extension had been granted was later made public in a LinkedIn post on Sept 29 by Mr Louis Rambaud, Go-Ahead Group’s director of group strategy and transformation.

When asked, Go-Ahead Singapore would only confirm that it had been granted the additional three-year extension.

The company did not respond to questions about why the extension was granted, what the terms of the new contract are, when talks with LTA began, how the extension would affect competition, and the operator’s outlook for the public bus sector here.

Singapore University of Social Sciences transport economist Walter Theseira said Singapore’s bus contracting model has for some time not kept to a strict principle of tendering, unlike in other cities that have a consistent bus tendering schedule, such as London.

The main benefit of competitive tendering is price discovery, and without the tenders in the early days of bus contracting, it would not have been possible to shake up the market then, Associate Professor Theseira said.

But there is an open question about whether tendering is the only way to maintain active competition in the public bus sector here, given the cost of such tender exercises and the uncertainty of dealing with new entrants, which the authorities may not want to deal with now that the industry has settled, Prof Theseira added.

“The reality also is that there is such a thing as having too many operators, given the need for each to have minimum scale,” he said.

Prof Theseira said he expects LTA to continue tendering out bus contracts, but the pace may be more flexible, especially since it is still not clear what the demand for public transport will be like post-pandemic.

He added: “Now that we have settled into a certain configuration, what is needed to keep the competition active? It could be a mix of tendering and benchmarking. I don’t think this was the original intent, but it seems to work for now.”

SMRT Buses managing director Tan Kian Heong said the bus contracting model has enhanced service standards and competitiveness.

He added: “We foresee that it will remain.”

* This story has been updated with SBS Transit’s response.

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