When Wilson, North Carolina, replaced its fixed-route bus system with a contracted on-demand service in 2024, the city delivered 63% more trips at a 37% lower operating cost per ride than its former system, according to a new commentary published by the Reason Foundation. The analysis examines how transit agencies across the United States use private contractors to operate public services, finding that success depends less on whether a service is public or private than on how agencies design, procure, and manage their contracts. Contracting is already widespread, but outcomes vary dramatically based on enforcement and contract structure.
The commentary cites 2024 National Transit Database figures showing that purchased transportation made up roughly 61% of demand-response operating expenses but only about 1% of heavy-rail operating expenses. A 2013 Government Accountability Office survey found that 61% of 463 responding agencies contracted for some operations or support services, with that share climbing to approximately 92% among large agencies. Earlier federally funded studies reviewed by Transportation Research Board Special Report 258 reported operating-cost savings of about 10% to 50% for some competitively contracted bus and demand-response services, though the report cautioned these results are hard to generalize due to differing methods and incomplete accounting of procurement, contract administration, monitoring, and other transaction costs. Foothill Transit saw ridership climb about 30% after replacing routes previously run by the Southern California Rapid Transit District with competitively contracted service, with one comparison finding Foothill carried 14% more riders than continued public operation was projected to deliver.
The analysis points to contract design as the determining factor in whether contracting improves service. According to the report, the Government Accountability Office found mixed evidence when reviewing contracting outcomes—some studies reported no measurable difference from in-house operations, while others found more collisions or breakdowns. The commentary notes that where competition exists, contractors that fail to meet performance standards risk penalties, lower evaluations, or contract termination, creating financial incentives to address maintenance, staffing, and complaints, though these consequences don't guarantee better service. Foothill Transit's current contract with Keolis ties incentives to on-time performance, customer service, and maintenance.
The reason results vary so widely comes down to how agencies write and enforce their agreements, the commentary explains. Effective contract enforcement requires criteria that evaluate service delivery, reliability, safety, vehicle condition, preventable breakdowns, and complaints in ways that align with 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. The Federal Transit Administration allows best-value procurement rather than requiring selection based solely on the lowest price, since an unusually cheap proposal may rely on unrealistic staffing assumptions, deferred maintenance, or service levels the bidder can't sustain. As labor is the primary operating cost of transit services, reported savings resulted from lower contractor wages and benefits translating to greater efficiency, though the commentary warns that running services in-house can sometimes be less expensive, especially if an agency already has the staff, facilities, and management needed to operate efficiently.
The commentary offers four principles for agencies considering contracting: contract only services with clearly assigned responsibilities and measurable performance standards; use best-value procurement rather than selecting operators based on price alone; tie payment and contract renewal to measurable rider outcomes, including reliability, safety, completed service, and customer experience; and 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, the analysis concludes. Neither a contractor nor an in-house department should keep the work simply because it already has it.