The Bus Services Act 2017 (the Act) was introduced in a bid to combat the perceived challenges faced by the bus industry following deregulation in the 1980s and to allow some local authorities greater control over the bus services being operated in their area. Two new operating models were introduced: franchising and enhanced partnerships (EPs). In this article, the Stephenson Harwood rail and bus team explores the key characteristics of both franchising and EPs, as well as some of the potential benefits – and pitfalls – of each model.

The Act gives authorities new powers to create and award bus operating franchises. Bus franchising works in a similar way to rail franchising; potential operators bid competitively for the right to operate a bus franchise in accordance with requirements set by the franchising authority. The Act also allows authorities to opt for the EP model. EPs build on Quality Partnership Schemes which were an option provided by the Transport Act 2000. EPs place significant emphasis on collaboration and agreement between the authority and the operator with the aim of improving bus services in a particular area.

Recent years have seen increasing interest in these two models, in particular since Transport for Greater Manchester announced in June 2017 that it would be awarding 11 contracts under the franchising model as part of major bus reform in its city region – and the first of the awards were announced by Andy Burnham just before Christmas 2022. You can find the first article in this series here which looks at bus franchising opportunities in more detail.

Bus franchising

Under franchising arrangements, the bus route, services, timetables and frequencies, as well as any service quality standards, will be determined entirely by the franchising authority.  The specification determined by the authority will be put to market as part of the competition to appoint operator(s) for those services.

As with rail franchising, potential operators must take part in a bidding process to win a contract to provide the bus services. Contracts are typically issued for an operator to run a package of routes within a particular geographical area and will contain the terms on which the authority wants to buy the service, with the market responding with proposals and pricing. Once the contract comes into effect, no other operators can run bus services within the area unless the authority has given its approval.

Authorities are not allowed to provide the bus services themselves (for example, by setting up a new municipal bus company to "win" the franchise). The services must be provided by commercial, private operators, which should encourage competition in the bidding process.

Franchising powers are only automatically available under the Act to Mayoral Combined Authorities, of which there are only 10 in the United Kingdom:

• Cambridgeshire and Peterborough
• Greater Manchester
• Liverpool City Region
• North of Tyne
• South Yorkshire
• Tees Valley
• West Midlands
• West of England
• West Yorkshire
• North East Combined Authority

When a franchising scheme is set up, the authority must name an individual who will be held accountable for it; usually this will be the Mayor of the Combined Authority.

Areas not covered by a Mayoral Combined Authority can apply to the Secretary of State to obtain franchising powers. To be successful, the authority must demonstrate that they have a good track record in delivering transport improvements within their area and that they are able to deliver a bus franchise.

Once an authority has franchising powers, the process does not stop there. Next, the authority must produce an assessment or 'business case' for the proposed franchise scheme using data gathered from incumbent bus operators in its area. The purpose of the business case is to make sure all of the impacts, risks and practical implications of introducing a franchising scheme have been carefully considered. These must be compared against alternative courses of action and the benefits, impacts, costs and risks of each considered. Essentially, this process is about making sure the authority is fully informed before a decision is taken about whether to proceed with franchising.

A consultation is then needed on the franchising proposals, which allows a range of stakeholders including passengers, local businesses and existing bus operators to provide their comments. Existing bus operators are unlikely to be keen on the proposed scheme if their existing business is in jeopardy. Finally, at least a six-month transition period is needed before the scheme is implemented, giving time for both new and incumbent operators to transition.

EPs

One of the key differences with an EP is that these are entered into by agreement rather than, in the case of bus franchising, being imposed. As part of an EP, authorities and operators must agree upon shared aims and actions to improve the bus services within their area. This might include better ticketing and pricing systems, more modern and varied payment methods, new and improved vehicles, better service scheduling, or route improvements. There will be no competition for an EP; instead the authority will typically enter into the enhanced partnership with one or more incumbent operators in the area.

EP agreements must include an 'EP plan'. The EP plan is a high-level document that outlines the overarching objectives and vision for bus services within the area. An EP plan will usually also include an analysis of the current local bus market and explain how the objectives will be achieved.

EPs will also include 'EP schemes', which supplement the EP plan by setting out the specific actions required to achieve the overall vision and objectives. This should include operational requirements that the operator must comply with, for example any vehicle specifications or ticketing structures, as well as any actions required of the authority.

Unlike franchising, EPs are not restricted to only Mayoral Combined Authorities and any city may seek to set one up. To commence an EP, the local authority (or authorities, if working together) must publish a notice confirming their intention to create an EP. EPs can vary considerably in scope and may be set up to improve services across an entire region, or in an area as concentrated as a local high street. As with franchising, a public consultation will be held on the EP proposal to give stakeholders a say on the anticipated plans.

Also unlike franchising, an EP may only be progressed if it gains support from the majority of bus operators in the area (75% or more). The legislation allows for operators to provide their input at key milestones in the development of the EP, which gives them the power to stop it from progressing if they consider any part of it to be difficult to implement or detrimental to their position. Ultimately, collaboration between the authority and the operator is at the heart of an EP and both parties must work together to agree how the services will be run.

Which is better: franchising or an EP?

• The main argument in favour of bus franchising is that authorities will have a thorough understanding of the bus services their region requires. In theory, they should be in the best position to decide the specifics of the services to be delivered. Franchising gives authorities full control in deciding the bus routes, frequencies and running hours of the services, meaning they can be set at a level that best suits the area and its passengers, rather than at a level that has been compromised with the operators. As the authorities have overall control, they will find it easier and quicker to modify any of the services or operator requirements in order to adapt to changes within the industry or changes in passenger demand.
• Turning to EPs, the key benefit they bring to regions is their focus on enhancing services within the area. In an EP, authorities must assess the status of current bus services, identify any room for improvements and set tangible actions to achieve those improvements. Whilst setting up a franchise does require the creation of a business case and a public consultation, there is not the same requirement to try and improve bus operations in the region. Without the incentive to enhance the services, it is very possible that operators and passengers could continue to encounter the same kind of issues with the services each time a franchise is renewed.
• If an authority controls other local transport services in addition to buses, such as trams or local train services, then the decision-making powers it has under franchising means it could seek to create an integrated transport system. A simpler, unified local transport system, such as that Transport for Greater Manchester has aspirations to deliver, can bring passenger benefits such as more efficient timetabling, or more straightforward, cost-effective ticketing structures and systems. That isn't to say that an integrated transport system cannot be set up under an EP, but it will likely be much more difficult to do so as an authority.
• EPs involve transport authorities and operators working together to agree upon shared objectives for local bus services and the manner in which those objectives will be achieved. This encourages authorities and operators to build more effective and transparent relationships in which each party understands the other's aims, expectations, and limitations. If an EP works well, it can lead to successful long-term relationships and form the basis of a productive and sustainable partnership model.
• Franchising schemes are designed to encourage competition between operators as they bid against one another to win the rights to operate various franchises. Competition should mean that operators seek to increase their standards and perhaps deliver better value for money as they try to stand out against competitors. It also creates an incentive to deliver outstanding services and develop a good track record which will increase the chances of that operator winning more franchises in future.
• EPs can be set up by any transport authority, unlike franchising which is only automatically available to Mayoral Combined Authorities. This means the majority of authorities have to jump through fewer procedural hoops in order to initiate an EP. The wider availability of EPs might indicate that they are the government's preferred operating model, which could mean that legislative and funding decisions are likely to be more favourable towards EPs.

Ultimately, there isn't really an answer to which is best as it will depend upon what the local authority wants to deliver for the benefit of those living in the area. No one size fits all and these options allow local authorities to do what they think best.

In the first article in this series, which can be found here we took a look at operator opportunities for bus franchising if that is the route an authority goes down.