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Suggested citation: Marcucci, E., Valeri, E., Stathopoulos, A., Gatta, V. (forthcoming) Local public transport, service quality and tendering contracts in Venezia, E., (a cura di), Urban Sustainable Mobilit, Franco Angeli, Milano.

LOCAL PUBLIC TRANSPORT: SERVICE QUALITY AND TENDERING CONTRACTS

Eva Valeri1, Amanda Stathopoulos2, Edoardo Marcucci3, Valerio Gatta4

1. Introduction

Public transport is of extreme relevance for ensuring a sustainable modal distribution in urban areas across the globe (Hensher 2007). Local Public Transport (LPT) policies generally promote collective sustainable mobility in metropolitan areas encouraging travellers to give up mobility with their private vehicle. In recent times much attention has been placed on the quality of LPT services. A gradual loss of LPT market shares, especially in urban centres, is due to its specific characteristics such as low frequencies in certain areas/hours, lack of flexibility, privacy and inconvenience. These LPT features reduce its capability to respond quickly to the changing market needs. As a response to some of these deficiencies, the last two decades have seen public transport industry involved in a process of competitive regulation, economic deregulation and privatization. Tendering contracts5 (TC) have emerged as the preferred policy tool. Their

1 University of Trieste, eva.valeri@phd.units.it. 2 University of Trieste, amandairini.blombergstathopoulos@phd.units.it. 3 University Roma Tre, emarcucci@uniroma3.it. 4 University Sapienza, valerio.gatta@uniroma1.it. 5 Competitive tendering refers to the awarding of an exclusive right to operate a route, or a network of routes, to an operator (or possibly a consortium) following a competitive process (ICLEI 2003).

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aim was to achieve cost efficiency and cost effectiveness to identify the mix of inputs used to produce a given level of output at the lowest cost6. Service quality control in TCs is a way to ensure both cost savings as well as a predetermined service quality level for consumers.

This paper highlights the importance of service quality control in the LPT industry. In particular, we illustrate a method to measuring service quality taking a consumers perspective into account. Finally, we study the relevance of including service quality control systems into TCs.

The paper is organized as follows. We begin with a historical overview of quality in the LPT sector, with attention to the role given to service quality provision by legislators. After over viewing the evolution of quality, we focus on different methods employed to measure service quality, in particular the Stated Preference (SP) approach. Moreover, we point to the importance of including contractual controls of the service quality levels in TCs. In the third section we overview empirical studies analyzing service quality using discrete choice models. A discussion section concludes.

2. Quality in local public transport

The first actions to introduce the notion of service quality coupled with the idea of a citizens right to a certain level of service quality for local public services emerge in the early 90. The British Citizens Charter along with the Public Services Charter in France and the Public Administration Charter in Spain are crucial documents addressing all public service stakeholders (such as customers, citizen taxpayers, planning authorities, employees and operators) to guarantee the quality and efficiency of these services.

In particular, LPT was among the first areas where service quality levels, including its monitoring and quantification, has been investigated. The underlying idea was that by improving the service quality it would be possible to attract more users to the LPT. A larger reliance on public modes would contribute towards solving several problems such as congestion, pollution, noise, etc., associated with private transport.

6 For further analysis of the competitive tendering effects on operating costs and subsidies in public transport refer to Bekken et al. (2006), Alexanderssson et al. (1998), Johansen (1999), Longva et al. (2005) and Wallis and Hensher (2005).

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Given the waves of liberalization and deregulation processes and the general increase in public expectations regarding quality, LPT operators have felt a strong need to radically overhaul previous regulatory and organizational frameworks. For many years these companies have operated in a static environment independent from customer expectations and needs. In recent times, a process of change has started. Many LPT operators are increasingly active in emphasizing the importance of delivering high-quality services to customers (Cunningham et al. 1995, Friman 2004, Ieda et al. 2000). Furthermore, they seek to implement ways or/and tools to assess and monitor the level of service quality provided to measure the performance and effectiveness of transport service. This allows the operators to improve the service quality offered along with the efficiency and cost effectiveness.

2.1 European Commission initatives

The concept of service quality in public transport has received great attention from the European Commission (EC). The Directorate General DG VII of the Commission shows a strong interest in this issue, funding a series of initiatives (IV and V Framework Program) aiming to implement tools for the development and measurement of total quality of service provided.

In the following we briefly point out the earliest and most significant initiatives taken by the EC:

ISOTOPE (Improved Structure and Organization for Transport Operations of Passengers in Europe): its focus was on analyzing LPT organizational structures in European countries. It started 1996 and finished in 1997;

QUATTRO (QUality Approach in Tendering urban public TRansport Operations): it formalized useful information and recommendations for TPL operators to improve quality through the use of Benchmarking techniques. The project was active between December 1996 and May 1998;

PILOT (Pilot Benchmarking Exercise): in 1998 it established the benchmarking value and promoted its importance as a useful tool for European public authorities and operators;

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EQUIP (Extending the Quality of Public Transport): it has prepared a handbook to enable the self-assessment of the service quality level within the transport passenger area in urban areas.

An experts team (CEN) was created to standardize procedures and to implement efficiency and quality indicators in order to promote a qualitative approach to LPT activities and to focus on consumers preferences and needs.

2.2 National initiatives

There are numerous initiatives by LPT operators to pursue efficiency, effectiveness and cost control of the service. However in many cases, these were not automatically translated into qualitative improvements of the system.

The European framework is fairly homogeneous. Overall, British and Scandinavian countries have given more attention to quality control and its inclusion in TCs. In particular, the Copenhagen Transport Authority is the foremost example of a systematic use of customer surveys as a basis for monetary incentives for LPT operators (Muren, 2000).

3. Service quality and measurement

In recent years, institution, companies and academia have gradually focused their attention on service quality and the passengers customer satisfaction. In particular, public transport, since long dominated by a production-oriented approach, is tending towards a customer-oriented approach. This change underlines and reiterates the importance of analyzing and measuring service quality in view of the fact that an improved service quality might attract more users. For this reason, the development of service quality measurement techniques is necessary especially for LPT service contracts.

3.1 Measuring service quality

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In the literature many service quality aspects are studied. In this section we focus on the methods to measure service quality. This aspect is very complex due to the specific characteristics of LPT, such as intangibility, heterogeneity and inseparability of production and consumption (Parasuraman et al. 1985). The issue is even more complicated due to the use of several measurement methods (subsequently identified).

First of all, one needs to discuss data collection methods. Customer satisfaction surveys, usually implemented with a questionnaire, are the most common tools to measure service quality and data are generally gathered through different conceptual models, such as: the SERVQUAL method (Parasuraman et al. 1988, Deveraj et al. 2002, Hartikainen et al. 2004, Lai 2006, Too, Earl 2009), the SERVPEF method (Cronin, Taylor 1992), the Normed Quality (Teas 1993) and the Zone of Tolerance (Zeithaml et al. 1993). In particular, the SERVQUAL method is a multi-item scale for measuring service quality and to determine the relative importance of the different dimensions influencing customers overall quality perceptions on a seven-point Likert scale. The main idea is to identify the gap between expectations and perceptions. It identifies the most salient quality dimensions for each target market and compares itself to the competition in terms of strengths and weakness regarding these particular dimensions (Parasuraman et al. 1988).

Another way to obtain data for measuring service quality is based on SP analysis that overcome some critical factors linked to the use of scales. These include: psychometric problems, conceptual basis and difficulty in translating evaluations into quantitative measures (Gatta, Marcucci 2007). In particular, quality is linked to the utility achieved by the consumers. The utility of each choice alternative is composed by a systematic and a random component. The framework theory is the Random Utility Theory (RUT), originally proposed by Thurstone (1927). Here, service quality dimensions (attributes) are needed to diversify the hypothetical alternatives.

Furthermore, the data processing techniques should be discussed. There are two main categories of techniques for determining the relative importance of the attributes considered (Eboli, Mazzulla 2008):

i) multivariate statistical analysis: quadrant and gap analysis, scatter graphs, factor analysis, cluster analysis, bivariate correlation, etc.

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(Akan 1995, Berger 1993, Bhave 2002, Cuomo 2000, Hartikainen et al. 2004, Hill 2000-2003, Kano et al. 1984, Zeithaml et al. 1986);

ii) model-based techniques: discrete choice models (Ben-Akiva, Lerman 1985, McFadden 1975-1981, Train 2003, Cascetta 2001, Cherchi 2003), regression and structural equation models (Bollen 1989, Coelho 2003, Grnoldt, Martensen 2005).

In this paper we focus on the latter category. Particular attention is paid to SP studies and to discrete choice models (Eboli, Mazzulla 2008, Gatta, Marcucci 2007, Prioni, Hensher 2000, Hensher 2001, Hensher, Prioni 2002, Hensher et al. 2003). Multinomial or mixed logit models can be employed to estimate attribute coefficients. A Service Quality Index (SQI) is estimated by appropriately considering the impact different attribute levels have on customers utility. This index shows a global customer satisfaction on behalf of the users based on customers preferences (Gatta, Marcucci 2007). The SQI is an aggregate indicator of the total output of numerous service attributes as perceived by each passenger. For this reason, attribute identification and selection are strategic and relevant steps to which the maximum attention needs to be given. The SQI quantification supports the economic regulator and LPT operators to benchmark service effectiveness (Hensher, Prioni 2002).

3.2 Incorporating quality indices into tendering contracts

Having pointed out the importance of quality both in the LPT industry and in TCs, the present section proposes ways in which quality and its control could be insert in TCs. On this issue there is a substantial literature (Muren 2000, Kennedy 1995, Alexandersson et al. 1998, Laffont, Tirole 1993, White, Tough 1995).

The definition and identification of a SQI would allow us to review the competitive tenders structure to take into account improvements of service quality (Hensher, Prioni 2002). Muren (2000) conclude that to control and verify service quality, in particular for LPT, it is desirable to include it in the TCs, as in Scandinavian countries and in London. Kennedy (1995) and Alexandersson et al. (1998) find cost savings attributable to the introduction of service quality specifications in the TCs both in London

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bus system (-20%) and in Swedish local bus services (- 10%). Controlling service quality levels in these contracts, in addition to improving the service itself, could be a way to reduce costs by offering appropriate incentives to LPT operators.

With reference to the method of inserting SQI into the tendering process, Hensher and Prioni (2002) discuss ways that regulatory authorities could utilize the SQI in the contract design phase to specify how much service improvement they demand compared to current levels. In cases where multiple LPT operators provide service in the same area, knowing the SQI of each LPT operator, the regulatory authorities may require the LPT operators to adjust their performances to the best SQI level achieved. Alternatively, they can define a target level potentially reached by bidders that may be also incentive compatible (Hensher, Prioni 2002). The authors point out, moreover, that it is appropriate to consider predefined improvements using the SQI + z7 formula like shown in Table 1.

Tab. 1: Including SQI targets in the contract design

Current Service Description: Attributes SQI target after Operator Reliability Bus fare

Clean Enough

Travel time etc. Realised

2.5 yrs

5 yrs

1 2 minutes late 2.1 60% 25

minutes... 1.4 1.6 1.8

2 1 minutes late 2.4 78% 26

minutes... 1.3

3 1 minutes late 2.0 80% 21

minutes... 2.0 Source: Hensher, Prioni 2002, pag. 107

In Table 1, the SQI is composed by four attributes: reliability, bus fare level, level of cleaning and travel time. Regulatory authorities can decide not to vary these attributes or to allow operators to update them when conditions are changed. In the second case the operators must always match their performance against previous SQI targets.

7 The z value may be determined through negotiation between the institution and

the operators.

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4. Empirical studies

Over the past years LPT service quality has become a widely studied topic. A substantial portion of the literature has focused on measuring quality via SP methods that reflect the importance of perceived service quality from a users perspective. In this section hence we highlight this kind of studies.

According to these studies, the notion of service quality may be defined by a wide range of attributes. A first difficulty lies in describing some of these, more abstract features. Indeed while travel time, frequency of departure and fare are all easily defined this might not be the case for information provision, reliability or driver attitude (Paulley et al. 2006).

An important contribution is offered by Prioni and Hensher (2000), Hensher and Prioni (2002) and Hensher et al. (2003). These authors carried out a pilot survey for the Institute of Transport Studies (ITS) in 1999 on urban and suburban passenger transport investigating the role of trade-off methods. Hensher and colleagues proposed an approach to quantify a SQI for the Australian bus industry. Thirteen attributes, each with three levels, were used. Estimating a Multinomial Logit (MNL) model these attributes were all statistically significant, in particular service reliability, bus fare, access time and travel time. The results of these papers enable the identification of significant attributes, their weights and their contribution to the SQI. Indeed they defined and quantified SQI level for each segment. Moreover, Hensher and Prioni (2002) operationalized the SQI as a regulatory tool specifying how this index may be included and monitored in TCs (as shown in section 2.2). Estimating a MNL model, they provided recommendations on how quality could be built into a possible future government performance assessment regime, including calculating value for money in commercial bus contracts. This would also give insights into the effectiveness of service levels from a passengers viewpoint and identify which service aspects are working best and which need more improvement. Hensher and colleagues (2003) compared the service quality

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levels within and between bus operator. They estimated a Nested Logit (NL) model.

In Italy, Gatta and Marcucci (2007) conduct a SP survey (choice-based conjoint analysis8) to study five different geographical areas in the Marche region. They obtained a measure of service quality by defining a SQI both for each area and overall. The estimates were achieved through both MNL and NL. They considered 5 attributes (bus fare, delay, frequency, travel time, availability) respectively with 5, 5, 3, 3 and 5 levels. As expected, bus fare, delay and travel time were found to be sources of negative utility while service frequency and service availability offered positive contributions. In particular, service availability is the most important attribute in explaining user satisfaction in each segment. In fact, increasing the amount of time between service inception and service closure has the greatest effect in improving the SQI. Recently Eboli and Mazzulla (2008) implement a SP experiment to measure service quality of public transport in Cosenza (Italy) for a specific category of users: students from the University of Calabria. The authors conducted an empirical procedure to simulate user choices. All attributes in the MNL model showed the correct sign and were all statistically significant at the 95% level of significance. In particular, with respect to the 9 attributes considered, the parameter of bus fare and frequency had the highest values in the model. Improvements of service quality could be quantified as a consequence of an improvement of the service quality attributes. The utility of each alternative hence represents an SQI of each bus package and the parameter values are the attribute weights.

Conclusion

The present paper had two main purposes. Overall we highlighted the relevance of measuring LPT service quality. After pointing to the attention that the notion of quality has received, both at the European level and from individual nations, we overlooked the different methods to measure service

8 Choice-based conjoint analysis is a decompositional SP method which involves the administration to a individuals sample of a series of choice exercises. Each choice exercise consists on multiple profiles that are combinations of attribute levels controlled by the design of experiment administered.

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quality. In particular, we stressed the need of specific and appropriate methodologies for assessing the quality of services. Special attention was paid to SP methods and discrete choice modelling as the basis for the estimation of a SQI index. The second objective was to underline methods to include service quality control systems into TCs. In the literature there is general agreement defining the TCs such as the best tools to achieve cost efficiency and cost effectiveness following deregulation and liberalization processes. For this issue, especially Hensher and Prioni (2002) and Muren (2000) provided valuable guidance.

Illustrations of empirical studies have supported the previous statements. Particularly Hensher and Prioni (2002) have dealt both with the SQI definition and its inclusion in TCs. They underline the relevance of considering SQI in the design of TCs thus ensuring not only cost efficiency but also service effectiveness for LPT operators.

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