Thinking | 7 July 2022

Electric vehicles charge contractual and procurement issues

By Catie Moore and Eleanor Hall

Governments are taking bold and much-needed steps toward a zero-emissions future by acquiring more electric vehicles for transport fleets, setting targets for the replacement of diesel fleets and in some cases mandating electrical fleets in their tenders. While this shift towards electric is encouraging from a sustainability perspective, the transition away from traditional diesel-operated vehicles within our bus networks exposes several issues within the current contractual and procurement frameworks, which are not equipped to cater for the shift.

Last year, the Victorian Department of Transport announced a contract with public transport company Kinetic, which will bring 36 fully electric buses to the network by 2025, and five by June 2022. The City of Newcastle also unveiled its first electric truck as it pushes toward a fully electric fleet. In Tasmania, the state is funding a trial by Metro Tasmania of both hydrogen and electric zero-emission busses this year.

As we welcome a new era of environmentally sustainable public transport, the challenge for governments and transport operators alike will be to find a balance in a modified contractual and procurement framework so that new and future technologies can be integrated into the network with certainty and without disruption to its users.

Current agreements fall short

In Australia and many parts of the world, urban transport services are delivered by the private sector in conjunction with State governments. Generally, our States retain or receive assets and enter into franchise agreements with private contractors to operate and maintain the services.

Current bus franchise agreements in Victoria and New South Wales do not envisage the large wholesale changes to the franchising environment required to transition from diesel to electric fleets. For example, the Victorian model has been drafted on the assumption that buses will be replaced like-for-like (ie one diesel bus is replaced with another newer diesel bus). Yet going electric is a major change with many knock-on effects, as diesel and electric fleets require different maintenance regimes owing to the differences in technology, service and safety requirements.

Depots will need to be refitted, maintenance staff will need to be either replaced or retrained, and it’s possible new depots closer to high-voltage transmission lines will need to be acquired. This would create a period of flux and change, impacting timetables, transport routes and staffing.

Little flexibility under current contracts

Under the franchise models, private operators may apply to deviate from the bus replacement schedule, but this is generally limited to changes such as the date of replacement of the fleet, rather than a complete overhaul of the type of vehicle. This has consequences, depending on the jurisdiction, for relief from the performance monitoring regime during any transition phase, or the extra costs associated with the transition to an electric fleet.

In Victoria, operators have a general obligation to provide and maintain enough depots to meet their obligations under the franchise agreement. Yet the franchise agreement does not contain any arrangements for refitting depots to accommodate electric vehicles. Nor are there provisions in the Victorian franchise agreement or the New South Wales service contract for major changes to timetables and bus routes should they be required for electric fleets.

To tender or not to tender?

There are also questions around how contracts will be procured for electric vehicles. Most current contracts are not set up with the flexibility required to incorporate electric vehicles. There are risks of blow-outs in capital and operational expenditure, which means the private sector could feel compelled to charge higher prices.

Whether organising contracts via tender or open book, States must ensure the process is as contestable as possible, and must be mindful of the strategic asset issue even at trial or pilot phase. Negotiating contractual provisions that deal with these issues upfront will help smooth the transition towards electric and strike a balance between the interests of the States and private operators.

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