Franchising Delivery Model – Sydney Ferries
Problem
- The Sydney Ferries Corporation, a state-owned corporation, was established in 2004 to provide passenger ferry services in Sydney. A 2007 Government inquiry into Sydney Ferries’ operations found that it had not achieved many productivity gains, had many cultural problems, and did not have the required management tools in place to run its operations effectively.
Improvement
- The NSW Government, through Transport for NSW (TfNSW), franchised the operations of the Sydney ferry services to the Harbour City Ferries (HCF) consortium (comprising Transdev and Broadspectrum), under a seven-year franchising agreement commencing July 2012. Transdev acquired Broadspectrum’s share of the joint venture in December 2016. It was awarded a new nine-year AUD1.3 billion (USD1 billion) contract in 2019 under the banner of Transdev Sydney Ferries.
- Under this franchise agreement, TfNSW retained all fare revenue, control over the fare structure, control over routes and timetables, and ownership of the original Sydney Ferries fleet of vessels and shipyard maintenance and berthing facilities.
- Transdev Sydney Ferries was responsible for operating ferry services in Sydney and for providing upkeep and maintenance of the vessels and shipyard maintenance facility.
- The franchise agreement sets out specific and measurable key performance indicators (KPIs) that Transdev Sydney Ferries must achieve, including those relating to service reliability, punctuality, accessibility, customer satisfaction, and asset condition and maintenance. Under the franchise agreement, Transdev Sydney Ferries’ performance against these KPIs must be communicated in writing to NSW Government at pre-determined intervals. Failure to meet a KPI results in the NSW Government imposing a financial penalty on Transdev Sydney Ferries using a formula defined in the franchise agreement.
Stakeholders
- TfNSW – Contract Manager
- Transdev Sydney Ferries - Franchisee Operator
Timeline
- March 2011 – Coalition government elected with franchising of Sydney’s ferry services as one of their election policies
- July 2012 – HCF consortium commenced operating Sydney ferry services on a seven-year contract
- December 2016 – Transdev purchased its joint venture partner’s share of the franchise
- July 2019 – HCF consortium commenced operating as Transdev Sydney Ferries on a new nine-year contract
Results / impact
- A NSW Government audit conducted in February 2016, halfway through the franchise contract, found that franchising resulted in total cost savings of around AUD100 million (USD76 million) in 2013-2014 dollars.
- The 2012 HCF contract price was found to be approximately 12% per annum less than that of the preceding Sydney Ferries contract price after accounting for transaction costs.
- The performance of HCF against KPIs had been generally good and comparable to that of Sydney Ferries over the 27 months of its contract at that time.
- Based on the 2016 audit, customer complaints were down slightly, and on-time running, and customer satisfaction was up slightly. Collisions and groundings were up, but well below the specified acceptable level.
- TfNSW has a KPI monitoring process in place and this and the findings of the audit report were used to inform the competitive tender process that was completed in 2019.
Key lessons learnt
- A review into the franchising process by the NSW Auditor’s office in 2016 found the Sydney Ferries franchising process was successful primarily due to the following factors:
- TfNSW and NSW Treasury undertook detailed analysis prior to proceeding with the franchise approach that included a robust assessment of whether the franchising approach was likely to lead to cost savings, service improvements, and effective cost risk transfer to the private sector. This included drawing on previous market sounding exercises.
- TfNSW adopted a two-stage tendering process that ensured that the best value bid was accepted and was sufficiently robust.
- TfNSW’s contract with the franchisee was largely well-designed and included KPIs that promoted effectiveness and were developed through a robust process, and a mechanism for TfNSW to require the franchisee to undertake service improvement projects in the event of underperformance.
- TfNSW implemented a comprehensive process for managing the contract with the franchisee and obtained assurance that information it has on the franchisee’s performance is reliable.
- The findings of the NSW Auditor’s office report in 2016 were used to inform the subsequent tender process that was completed in 2019. The 2019 tender process included many of the elements discussed above and incentivised innovation into the sector (one of the key benefits of involving private sector participants). This has resulted in the trialling of on-demand ferries on certain routes within Sydney Harbour – the trials were suspended during the COVID-19 pandemic and are set to recommence following encouraging initial trials.[1] Additional innovation to be delivered by Transdev Sydney Ferries includes the design and build of new vessels and further offer commitments including replacement of ferry operational telematics systems, replacement of closed-circuit television systems, and ISO 55001 accreditation.
Notes
| [1] |
https://www.intelligenttransport.com/transport-news/98143/australias-first-on-demand-ferry-concludes-initial-trial/ |
Useful links and related resources
NSW Audit Office report on project
Last Updated:
15 October 2021