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Contracting Structure

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Contracting Structure.

Decisions about asset ownership will shape the contracting structure.

There may be separate contracts with the suppliers of each of the various components of the bike-share, which can include the following:

  • Hardware
  • Software
  • Operations

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The initial provision of infrastructure can be packaged with the operations contract or carried out as a separate contract. Combining infrastructure and operations provides an incentive for the contractor to supply high- quality infrastructure, so as to minimize maintenance costs over the life of the contract. However, given the large variation in the depreciation time of the hardware systems— stations, terminals, and the control center—it often makes sense for the city to procure these systems and issue a separate contract for operations. Creating separate contracts
for infrastructure and operations also can reduce implementation time, as was the case in Barcelona (Obis 2011).

The duration of the contracts that require investment into infrastructure are usually tied to the life span of that infrastructure, to allow for depreciation of the asset and a chance to obtain a return on the investment before having to invest in recapitalization. In London, the contract for the bike-share system is six years.

The operations and advertising on the bike-share system contracts coincide well with the lifespan of a bicycle, which in bike-share systems is three to five years. Recapitalisation of the fleet occurs after that. This is long enough to create an incentive for the operator to procure high-quality bicycles, but short enough to give the implementing agency the flexibility to find a new operator in the event
of lacklustre performance. This also creates potential for profitable branding on the bicycles and advertising possibilities. Generally, though, keeping revenue-generating advertising separate from operations is recommended for transparency reasons and to keep the operator focused on the core functions of bike-share.

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Publicly Owned and Operated

Under this type of contracting structure, the city plans, designs, implements, and operates the bike-share system. The city also owns all the assets of the system, and the financial risk lies entirely with the city. Operations could be contracted out to a parastatal or another government agency. The greatest advantage to this structure is that one entity is responsible for the planning, procurement, implementation, operations, and future expansion of the system. The downside to this type of business model is the potential inefficiencies that occur when a government- owned entity pursues an endeavour that private industry might do more efficiently.

In Germany, DB Rent (a subsidiary of the national train system, Deutsche Bahn) operates the Call-a-Bike system in cooperation with the city, and the system currently operates in more than sixty cities in the country. In this model, the public authority usually creates an internal entity to manage the entire project, including station siting and details of network development, operational planning, fee structuring, and collection and marketing.

The advantage to this type of organizational structure is that the public authority can prioritize the desired goals of the system— ideally, that it supports the larger public transportation system—over other incentives, such as profitability. The disadvantage of this approach is that it requires more public resources, and the public body also assumes operating efficiency and risk.

Publicly Owned and Privately Operated

This type of contracting structure means that the government owns the assets and a Smove.City provides the services. This can be a simple fee-for-service model, like in Barcelona or in Shanghai, China, where the fee is based on the number of bikes in the system. The procurement of bicycles for the system can be done by the government or it may be the responsibility of the operator.

The advantage of the publicly owned, privately operated model is that the private operator manages all logistics, the public owner has some control during key phases of the project, and operating details and system risk are not the responsibility of the public body. If the operator has no investment in the infrastructure, it is easier to do shorter contracts, like in Barcelona, where the contract is negotiated every year. This offers more flexibility for the city, but also requires more work (issuing tenders, negotiating, signing a contract every year).

Capital Costs and Financing

The capital costs include the assets, such as bicycles, stations (including docking spaces and terminals), IT system components, control center, maintenance equipment, and service and redistribution vehicles. Working capital, the costs of running the entity before revenue starts coming in, including pre-launch staffing, installation, marketing, website creation, and launch expenses, can also be capitalized.

Following is a more in-depth look at the main sources of capital costs.

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