Executive summary

Bus transitways are intended to improve public transport outcomes in selected areas.

The Liverpool to Parramatta Bus Transitway (LPT) is public infrastructure, built and owned by the State Government, and is the first of a planned network of rapid bus transitways for Western Sydney.

The LPT was first announced in 1998, and was opened in February 2003. Competitive bidding was sought to run the bus services on the transitway between Liverpool and Parramatta, and the State Transit Authority (STA) won the eight-year contract. STA operates the LPT through a subsidiary company, Western Sydney Buses (WSB).

The objective of this audit was to examine whether the LPT is being used as originally envisaged, and to determine factors for success and issues requiring careful management in planning future transitways.

The audit focuses on two distinct aspects: the role of government agencies (particularly the Ministry of Transport [MoT] and the Roads and Traffic Authority [RTA]) in planning and building the transitway and the stations, and the STA’s operation of buses on the LPT.

Audit opinion

The LPT project is promising, but results to date are mixed.

On the positive side, the LPT project has already demonstrated the potential of transitways and helped shape the new bus contracts currently being implemented. Lessons learnt from this transitway have also been applied to the North-West Transitway.

WSB has achieved a high level of customer satisfaction and strong growth in patronage. Operating losses are reducing, and the chances of the LPT becoming a profitable route in the medium term are promising. The potential for synergies with other planned transitways, and extensions of the current route to link with new growth areas, is also high.

However there were three particular aspects of the initiating and planning process that were not well handled.

First, governments must have sound information in order to decide which projects they will allocate funds to.

The cost of the LPT to taxpayers grew substantially from the time it was first announced in 1998 - from $98 million to a final cost around $346 million. There were both major changes to the scope of the LPT project after its first announcement and large increases in the cost of the project at various stages.

If the Government had better cost estimates available to it and a clearer understanding of the scope of the project at the time a decision was required, it may well have decided that there were other projects that gave greater public transport (or other) benefits for the money involved.

Second, despite the LPT being a significant public investment, not all the benefits it was intended to achieve were defined in a measurable way. Hence it will be difficult to evaluate its benefits against its costs and assess whether the project provides good value for money.

Finally, the STA process in bidding for the bus service contract had two major shortcomings:

§          Senior STA management submitted the bid (and arguably won the contract) on the basis of needing no government subsidy over the contract period, whereas all other bidders required a subsidy. The ‘no subsidy’ bid was based, in turn, on patronage assumptions that were some 65% higher than the STA’s own (admittedly conservative) research suggested. The STA has been unable to find any documentation to support this higher patronage assumption.

This lack of documentation represents very poor management. More importantly, it leaves open the inferences that STA management used whatever patronage assumptions were needed to support a ‘no subsidy’ bid, and that STA management had not properly advised the STA Board of the bid assumptions and their inherent risks.

§          As the largest provider of bus services, the STA had a far greater ability than other bidders to absorb any losses that arose from LPT services. The lack of proper documentation about the bid decision-making process exposes the STA to accusation that it used its market power to win the contract in a way that the other proponents could not match.

Summary of recommendations

Commit to build projects only after the feasibility study

We recommend that:

§          the Minister for Roads, the Minister for Transport and the Minister for Planning only announce the specific cost and timing of major transport projects once reasonably firm information is available, such as the results of a feasibility study (page 23)

§          the Budget Committee of Cabinet initially fund only feasibility studies of major projects, as a basis for subsequent decisions whether to proceed or not (page 23).

Manage project costs better

We recommend that the Roads and Traffic Authority (RTA):

§          improve consultation with relevant stakeholders at key stages of the project development (page 26)

§          ensure its revised methodology for cost estimation, project management and risk assessment is applied to all major projects (page 28)

§          prepare a detailed cost estimate for each project after the conditions of approval are received and before detailed design and construction work (page 28).

Reduce cost of building transitways and other transport projects

We recommend that:

§          the Ministry of Transport (MoT) seek to amend the legislation governing light rail requirements for transitways (page 24)

§          the RTA develop a proposal for a fairer land acquisition process for transport corridors, and submit this proposal for consideration by the Minister for Commerce (page 30).

Improve the transparency of commercial decisions

We recommend that:

§          the STA document and retain all analyses behind major bidding decisions (page 36)

§          the STA Board ensures it has timely and full information before deciding on major bidding decisions (page 36)

§          MoT clarify the future role of WSB in the LPT operations (page 57).

Maximise the use and potential of transitways

We recommend that:

§          The RTA and the MoT, in consultation with the Department of Planning (DoP), review ways to reduce travel time on the LPT (page 54)

§          MoT ensure that transitway services integrate with other bus services from commencement of operations (page 39)

§          MoT integrate local and trunk services as the new contract for the Region which encompasses the LPT is finalised (page 57)

§          MoT examine whether strategic bus corridors could be built up to
transitway-style corridors over time (page 58)

§          DoP subject all current proposals for transitways to integrated review and detailed planning (page 58).

Evaluate the benefits of transitways

We recommend that:

§          the MoT and RTA conduct a post evaluation of the LPT project outcomes after five years of operations (page 56)

§         the NSW Treasury make post evaluation of all major transport projects a condition of funding and approval, and revise their guidelines to explicitly require such post evaluation (page 56).

Audit findings

Chapter 2

How much did the LPT cost taxpayers?

The 31 km LPT project cost taxpayers a total of $346 million to build when it was originally expected to cost $98 million for a 20 km route. We found the contribution of each stage of the project development to the $248 million cost increase was as follows:

§          $100 million (40%) at the feasibility study stage – the RTA reached this estimate after establishing the full scope of the project and land acquisition costs. These had not been determined when the announcement of the commitment to build the project was made

§          $60 million (24%) at the environmental impact assessment and determination stage – a court challenge instigated by an existing bus operator delayed this process 12 months. Most of this cost increase, about $47 million, resulted from other modifications to the proposal reflecting early feedback from stakeholders to the Environmental Impact Statement (EIS).  The extent of modifications required generally reflected an inadequate understanding of stakeholder requirements

§          $88 million (36%) at the construction and commissioning stage – the delay due to the court challenge and getting approval of the EIS left only 12 months for the construction of 16 km of the 20 km dedicated section of the LPT to meet the 2003 deadline. A detailed review of the cost estimate of the project was not done until about a year after construction started. We found no evidence that the RTA had assessed the option of extending the deadline or staging the project before deciding to meet the deadline.

Chapter 3

Was the STA bid based on a sound business case?

We found that the ability of potential operators to fully develop their business cases was hampered with less than two months given for preparing bids for the LPT trunk service.

The STA bid projected an average 2.8 million passenger trips a year on the LPT. It anticipated making losses in the first two years, breaking even during year three and generating positive shareholder value for the term of the contract. The STA was the only bidder that did not anticipate requiring government subsidy to run services.

In preparing to bid for the trunk service, an internal STA paper put forward three estimates of patronage and recommended the moderate estimate of 1.7 million passenger trips a year. The high estimate was a figure of 4.3 million projected from the MoT tender documents.

We found that the decision to go higher than the recommended 1.7 million figure was justified, as that level was reached within the first two and a half years of operation. However, the scale of the increase from the patronage assumed in the STA bid, being 65% above the moderate estimate, in our view warranted substantiation, not just judgment. Without this, it was not possible for us to review the business case thoroughly.

The figures chosen made the difference between the STA bid projecting a profit or loss, and hence whether government support would be needed.  For such an important variable to be changed based on judgment alone was not appropriate in our view. STA do not agree.  They contend that their judgment was reasonable, and that patronage estimates are notoriously difficult. We do not dispute this, but we believe that stronger substantiation would have been prudent.

Chapter 4

How well has WSB operated the LPT services?

WSB, as operator of the transitway, reports regularly to the Ministry of Transport on performance against standards set in the contract. We found performance against key performance indicators was as follows:

§          customer satisfaction – WSB has achieved a high level of customer satisfaction and has had a low level of complaints about staff and services

§          patronage levels – patronage growth is strong, and outperforming any other Sydney bus route run by the STA. However, it still falls well short of the patronage projections in the bid. Cumulatively, actual patronage will be about three and a half million behind the projections in the bid by February 2006

§          financial performance - WSB has so far accumulated losses of about $9 million, which STA cross subsidises. STA has not requested additional government funding. While the losses are reducing rapidly, they are unlikely to be recovered over the contract period. Such losses are not unreasonable in the early stage of establishing a bus route, but they remain significantly different from the bid projections

§          punctuality and reliability of services - technology problems have prevented cost-effective monitoring of service reliability and punctuality as originally envisaged, although alternative methods were put in place. This and other issues have required WSB to negotiate several major contract variations, most of which have benefited passengers.

Chapter 5

Is the LPT being used to its full potential and is it delivering intended benefits?

Opportunities to stimulate further patronage growth and hence maximise the value of the LPT infrastructure are yet to be fully explored. We found that:

§          integration of bus services - the LPT has not been fully integrated into the public transport network largely because the LPT contract was introduced before the new bus reforms, which facilitate such integration, had been contemplated. To date, there has been virtually no non-trunk bus services using the LPT

§          potential to reduce travel time – while the operations appear to have reached the best achievable travel times (around 50 minutes off-peak, and up to 67 minutes during peak), further reductions are possible with additional bus priority measures at major intersections, and a reduction in the time-consuming cash transactions on-board buses

§           land use changes - redevelopment along the LPT has started in some significant ways. In the longer term, other measures will be required to ensure the sustained use and viability of the LPT as a public transport service

§          increased marketing of the LPT bus services - WSB and RTA have undertaken specific marketing activities that they have considered cost-effective to promote use of the LPT, but this could be reviewed.

The LPT was a significant public investment. Whilst it is perhaps too early to evaluate the benefits against those costs, we found that many of the benefits predicted in the planning stage are not defined in any measurable way, nor tracked or evaluated. Currently there is no mechanism to link funding to project performance for transport projects, and evaluations of completed transport projects are not typically conducted.

We also found that the LPT contract helped shape the development of the provisions of the new bus contracts currently being implemented as part of the Government’s bus reforms.  However, the future of this contract and the involvement of the STA/WSB in the operations of the LPT are still undecided.

Responses from agencies

Refer to Appendix 1 for responses from:

§            State Transit Authority

§            Roads and Traffic Authority

§            Ministry of Transport

§            Department of Planning

§            NSW Treasury