Transit contracting works when agencies pay for performance

When transit agencies face rising costs or declining service, contracting with a private operator looks like either a cure-all solution or a threat to public transit. Neither view truly reflects how contracting works. 

The separation of responsibilities depends on the contract. For example, in Douglas County, Georgia, as part of a 2025 agreement with transportation company Via, the company handles service planning, routing technology, call-center operations, vehicles, maintenance, and marketing, while the county sets service requirements and priorities, administers the contract, and monitors performance. This is how many contracted transit agreements work. 

Competitive procurement allows agencies to compare providers, replace poor performers, and add services without immediately expanding in-house capacity. A 2013 Government Accountability Office (GAO) survey found that 61% of the 463 agencies that responded contracted for some operations or support services. Among large agencies, the share reached about 92%. Respondents cited lower costs, specialized expertise, greater flexibility, and the ability to launch service without first purchasing vehicles, building facilities, or hiring an entire workforce. 

But not all transit modes are contracted equally. According to 2024 National Transit Database (NTD) data, purchased transportation accounted for about 61% of demand-response operating expenses but only about 1% of heavy-rail operating expenses. Rail systems require a more specialized skillset that not all contractors possess. However, some U.S. rail systems and most systems in Europe and Japan are contracted, indicating it is feasible. 

Where competition exists, contractors that fail to meet performance standards risk penalties, lower evaluations, or contract termination. These consequences create financial incentives to address maintenance, staffing, and complaints, but they do not guarantee better service. GAO found mixed evidence. Some studies reported no measurable difference from in-house operations, while others found more collisions or breakdowns. Results depend on contract design and enforcement.

Effective contract enforcement requires criteria that evaluate service delivery, reliability, safety, vehicle condition, preventable breakdowns, and complaints in ways that meet the jurisdiction’s goals. Giving one measure too much weight can distort an operator’s decisions. For example, an operator could improve on-time performance or reduce reported breakdowns by cutting routes or canceling trips. 

This kind of contracting only works if agencies select operators capable of meeting the contract’s performance standards. The Federal Transit Administration (FTA) allows best-value procurement rather than requiring selection based solely on the lowest price. An unusually cheap proposal may rely on unrealistic staffing assumptions, deferred maintenance, or service levels the bidder cannot sustain. Evaluating factors such as safety, past performance, workforce and maintenance plans, management experience, and financial capacity alongside price gives agencies a better chance of selecting a reliable operator. Agencies must then verify performance, audit reported results, and enforce the agreement throughout the contract.

Transit agencies across the country are already applying these principles. Foothill Transit shows how a public agency can retain control while private companies operate service. Foothill sets routes, fares, service levels, and capital plans, while Keolis and Transdev operate and maintain its buses. After Foothill replaced routes previously run by the Southern California Rapid Transit District with competitively contracted service, ridership rose about 30%. One comparison found that Foothill carried 14% more riders than continued public operation was projected to carry, with no evidence that service quality worsened. Foothill’s current Keolis contract also ties incentives to on-time performance, customer service, and maintenance.

Wilson, North Carolina, shows another reason agencies contract services. Rather than develop and operate the new service in-house, the city hired Via to run RIDE, which replaced its fixed-route bus system. In 2024, RIDE provided 63% more trips at a 37% lower operating cost per trip than Wilson’s former system. The switch also expanded coverage and reduced wait times at similar funding levels, giving Wilson specialized operating capacity without having to develop those capabilities in-house.

Cost savings are possible, but they should not be assumed. Running services in-house can sometimes be less expensive, especially if an agency already has the staff, facilities, and management needed to operate efficiently. Transportation Research Board (TRB) Special Report 258 reported that earlier federally funded studies found operating-cost savings of about 10% to 50% for some competitively contracted bus and demand-response services. However, the report warned that these results are difficult to generalize because the studies used different methods and often did not fully include procurement, contract administration, monitoring, and other transaction costs. Reported savings resulted from lower contractor wages and benefits translating to greater efficiency. As labor is the primary operating cost of transit services, lowering these costs while maintaining or improving service quality is crucial to improving efficiency. 

The broader lesson is that successful contracting relies more on how agencies design, procure, and manage contracts than on whether the service is public or private. Agencies considering contracting should therefore follow four principles:

1. Contract only services with clearly assigned responsibilities and measurable performance standards.
2. Use best-value procurement rather than selecting operators based on price alone.
3. Tie payment and contract renewal to measurable rider outcomes, including reliability, safety, completed service, and customer experience.
4. Retain the staff, data, and authority needed to verify performance and enforce every agreement.

Transit agencies should decide who operates each service based on the required capabilities, available competition, total cost, and verified performance. Neither a contractor nor an in-house department should keep the work simply because it already has it. If another arrangement can provide better service or needed capabilities at a justified full cost, the agency should make the change.

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