Transit agencies provide transportation services in a variety of ways. For purposes of this report, we used the following descriptions of transportation modes: Fixed-route bus service: rubber-tired passenger vehicles operate on fixed routes and schedules over roadways. Diesel, gasoline, battery, or alternative fuel engines power vehicles. This category also includes bus rapid transit, commuter bus, and trolley bus. ADA paratransit: vehicles operate in response to calls or requests from passengers. It uses buses, vans, or taxis to provide complementary ADA paratransit service for individuals with disabilities who are unable to use a fixed-route system. These services are associated with or attributed to ADA compliance requirements. Demand response (also referred to as dial-a-ride): vehicles operate in response to calls or requests from passengers. Demand response uses small buses, vans, or taxis to provide transportation service that is not on a fixed route or schedule. For example, transportation may be provided for individuals whose access may be limited, or whose disability or health condition prevents them from using the regular fixed-route bus service. For purposes of this report, we have defined these services as unrelated to ADA requirements. Commuter rail: vehicles operate along electric or diesel-propelled railways and provide train service for local, short distance trips between a central city and adjacent suburbs. Heavy rail: vehicles operate on electric railways with high-volume traffic capacity. This mode has separated rights-of-way, sophisticated signaling, high platform loading and high-speed rapid-acceleration rail cars operating singly or in multi-car trains on fixed rails. Light rail: vehicles operate on electric railways with light-volume traffic capacity. The mode may have either shared or exclusive rights- of-way, low or high platform loading, or single or double car trains. The transit contracting industry in the United States is characterized by a few large providers that operate nationwide, some mid-size regional providers, and numerous small, local providers that primarily operate bus, demand response, and ADA paratransit service. Transit agencies can contract out various aspects of their operations with contractors, such as operating the service, vehicles, maintenance, security, and administrative services. Contracting arrangements can range from the transit agency’s contracting out all aspects of its operations, as is the case for a delegated management contract, to contracting out only one component of operations, such as maintenance. The federal government has a limited role in overseeing transit contracting. FTA tracks transit agencies’ contracting practices through reports submitted by transit agencies to the National Transit Database. Additionally, FTA oversees transit contracting, along with other aspects of transit agencies’ operations, through procurement reviews and triennial reviews that focus on whether transit agencies have followed federal regulations and have appropriate systems in place for contracting, among other things. The Federal Railroad Administration oversees commuter rail operations but does not conduct any reviews of contracting practices. The Department of Labor is responsible for issuing what is commonly referred to as “Section 13(c)” certifications, which certify that fair and equitable labor protection arrangements are in place for employees who may be affected by certain grants of federal financial assistance. When existing transit service is contracted out, Section 13(c) protections may be triggered, including assurances of employment and priority of reemployment. According to officials at the Department of Labor, after a search of their records and to the best of their knowledge, there has never been an instance where a transit agency has been unable to contract out public transit operations and other services because doing so would jeopardize Section 13(c) certification from the Department of Labor. Contracting is a prevalent means of providing transit services, with about 61 percent of the 463 transit agencies that responded to our survey reporting they contract out some aspect of their operations. By size of agency, 52 percent of small agencies, 69 percent of medium agencies, and 92 percent of large agencies had at least one service that they contracted out. According to our survey, among the agencies providing such services, paratransit, demand response, and commuter rail are more likely to be contracted out, and fixed-route bus, heavy rail, and light rail are most often operated by the transit agency. Among the approximately 61 percent of surveyed agencies that reported contracting, more agencies reported contracting for ADA paratransit than for any other service. Results from our survey shows that of 359 respondents that provide ADA paratransit services, 204, or 57 percent, contract out this service. Seven of the 10 transit agencies we interviewed also contract out ADA paratransit services. (See fig. 1.) Interviewees report that contracting ADA paratransit occurs for various reasons, including the following: ADA paratransit requires specialized training and equipment that can be difficult to provide because agencies may lack staff, expertise, or resources needed to train workers, according to a transit agency official we interviewed. Contracting for this service can be more cost effective than providing the service in-house. According to an industry group we spoke with, ADA paratransit operations are very expensive and for agencies, contracting this service is viewed as a way to potentially save money. Contracting ADA paratransit allows agencies to remove themselves from the day-to-day operations and reduces the risk and liability associated with operational responsibility, according to another transit agency official we interviewed. We found the extent that surveyed transit agencies contract varies by type of service, but among transit agencies that contract out, operations are most often contracted across all modes, followed by maintenance services. (See table 1.) As shown in table 1, in each of the modes, less than half of the agencies that contract out include vehicles in their contracts. In our interviews with transit agencies and contractors, officials told us that transit agencies generally provide their own vehicles for several reasons: Owning vehicles gives the agency more flexibility to terminate a contract if needed, because it can be very difficult for an agency to quickly find another contractor with vehicles to provide continuous service. Purchasing and owning vehicles used in the transit service can attract bidders who would otherwise be hesitant to buy expensive vehicles without the assurance that they would be used beyond the initial length of the contract. Owning the vehicles gives the agency more control in making decisions about vehicle replacement or major repairs, such as replacing engines or transmissions. This can lower costs because the contractor may anticipate and budget for these costs in a contract without knowing for certain if they will be needed, in order to minimize their own risk. According to our survey, the factors that transit agencies considered when deciding to contract a particular mode of service vary based on the mode and by needs of individual transit agencies. (See table 2.) For fixed-route bus, demand response, and paratransit service, the factors that were considered most often were reducing costs and improving efficiency. For commuter rail, the factors that were considered most often were starting new service and improving efficiency. For heavy and light rail, the factors that were considered most often were starting new service and being directed to contract by the Board of Directors. Our literature review indicated these factors vary because needs and costs vary by mode, as well as the individual needs of transit agencies. Thus, for one transit agency, the cost of procuring vehicles and building facilities and expertise needed to operate the service may be a paramount concern, whereas it may be less of a concern for others. For example, commuter, heavy, and light rail services have high start-up costs because of the infrastructure and vehicles needed to operate the service, and, as supported by our survey results, starting new service is a primary factor in their decision to contract out for service. For fixed-route bus, demand response, and paratransit services, the start up costs are typically much lower. As a result, transit agencies may place more importance on reducing costs or providing more efficient service when making the decision to contract out for service. Reducing costs. Although the factors that affect the decision to contract vary across modes, reducing costs is consistently taken into account, according to our survey, interviews, and literature review. The previous table shows that among our survey respondents that contract out, reducing cost was the most often cited factor. This finding was supported by our interviews with transit agency officials and the literature, which indicated that wage rates are lower for contracted drivers and operators, in part because: Contractors can “reset” wage rates to the market rate by hiring new operators at entry-level wage rates, according to some contractors we interviewed. Contractors may not always provide pensions and other benefits for contract workers. Contractors may have lower health insurance rates for their employees because of the large number of employees under their coverage. As we will describe later in this report, unions have concerns regarding the lower wages and benefits for contract workers. Some agencies, such as the Washington Metropolitan Area Transit Authority (Washington, D.C.) and the Metropolitan Rail Authority (Metra) (Chicago, Illinois), have found it more cost effective to contract out a portion of their services. Officials from the Washington Metropolitan Area Transit Authority told us that it is more cost effective for contractors to provide ADA paratransit service because of their reduced labor costs. Officials at Metra said they would not achieve cost savings by directly operating two of their commuter rail services currently contracted out to the Burlington Northern/Santa Fe and Union Pacific Railroads. Officials stated that first, the freight railroads own the track and they would not be able to negotiate new track agreements with the railroads that would produce any more cost savings than what is in their present agreement. Second, they gain efficiencies from sharing certain overheads such as management personnel and facilities. If Metra had to create separate standalone facilities and staffing, this would be more expensive.