The encyclopedia · Strategy & Leadership · Strategic decision · 1984–1995
London tendered its bus routes instead of deregulating — and cut costs nearly 20%
Where competition in the street fails, compete for the market: London's periodic route tenders cut costs ~20% and began halving subsidy.
London Regional Transport (LRT)
the move
By the early 1980s London's bus network was expensive and subsidy-hungry, and the government's instinct elsewhere was deregulation — letting rival buses compete on the same streets. London chose a different route: the 1984 London Regional Transport Act required LRT to tender activities where appropriate.
From 1985 LRT progressively tendered bus routes. Private operators and its own subsidiary bid for each contract, and the lowest credible cost won; contracts were retendered periodically, so the winner never grew complacent.
The measured results came fast: the initial trial of competitive tendering yielded cost savings of nearly 20 percent on the routes concerned, with mileage up; LRT expected real unit costs to fall over 2.5 percent in its first year and aimed to halve revenue support between 1984-85 and 1987-88.
Academic analysis of the full 1985-93 bid data estimated the cost saving from tendering at around 20 percent, with improved service quality, and put the highest estimated net benefit at £380 million.
why it works
- Tendering creates a contest for the market where on-street competition cannot work.
- Periodic retendering keeps incumbent operators honest between rounds.
- Public operators bid alongside private ones, keeping the comparison honest.
- The savings were measured on real bid data, not promised.
what transfers
Where head-to-head competition destroys a network's economics, auction the franchise: periodic tendering keeps market discipline without the waste of duplicating buses on the same street.
what came after
London kept the tendered model for three decades; costs per vehicle-kilometre fell by roughly half in real terms while service levels rose, and the London-style periodic-tender model became the reference for regulated bus markets worldwide, though competition later consolidated among a few large operators.
references
spotted an error? The archive wants to know.