Competitive tendering of local public transport services has been allowed in Norway since 1994. By
2005, 28 percent of all route production in Norway was procured on the basis of tendered contracts,
covering around 40 percent of all passengers. The majority of the tendered contracts were gross cost
contracts, whereas historically, most Norwegian contracts have been net cost contracts. This article
analyses the effect of competitive tendering on operating cost and subsidies paid. It is found that
competitive tendering reduces costs by 10 percent and that most of the cost reduction has been used to
reduce subsidies for public transport by local authorities. The effects of competitive tendering in Norway
are smaller compared to other countries. This can be attributed to the fact that the industry had improved
efficiency over a long period before competitive tendering was introduced.
