Case Studies: Vélo’v, France

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Project Overview
Velo.png
Figure 1: Velo’V, France (Source: Cerema)
Lyon’s Velo’V, France
Project Type: Greenfield
Type of Project Financing: Private co-financing
Contract duration: 13 years
Budget: approx. €53 million 2004 (This cost includes the operating expenses (operation and maintenance) for the confirmed phase and two conditional phases of the contract, and the construction costs of 348 stations.)
Project Time Line
December 22, 2003: validation of the tender documents by the urban community of Grand Lyon (today Métropole de Lyon)
December 22, 2004: signing of the public contract
2006: decision to set up the first conditional phase
2007: decision to set up the second conditional phase
November 22, 2017: end of the contract


Introduction

Velo'V is a bike sharing network proposed by Grand Lyon (today Métropole de Lyon), mainly in Lyon and Villeurbanne. This service was set up in 2005. It now has 4,000 bicycles divided over 348 stations. These bicycles are available for short-term rental. Using a credit card, each user can:

  • rent one of the bicycles at any one of the 348 stations;
  • use this bicycle for a period not exceeding 24 hours (but rental prices are designed to be unattractive above one hour);
  • return the bicycle at any one of the 348 stations.

Fees for short-term rentals are limited, as this service is primarily financed by advertising revenues earned by the service provider from simultaneously operating street furniture (passenger shelters and advertising hoardings).

Although developed within towns that are already well served by public transport, the aim of the Velo'V service is to complement other modes of transport rather than replace them.

The Contracting Authority (Public Party)

The Velo'V service comes under the responsibility of Grand Lyon. On January 1, 2015, this inter-communality became “Métropole de Lyon” under law n°2014-58 of January 27, 2014. This resulted from the merging of the responsibilities of the former urban community of Grand Lyon and the Rhône Departmental Council and covers an area of 59 towns.

Métropole de Lyon is in charge of managing public spaces, which includes urban furniture. In this sense, this institution is responsible for installing and maintaining passenger shelters and advertising hoardings. This service is accomplished through a delegated management in the form of a public contract. The current contract, which runs for the period 2005/2018, has one special feature: in addition to the management of passenger shelters and advertising hoardings, it includes a fleet of bicycles available for short-term rental.

Although public transport is also within the jurisdiction of Métropole de Lyon, this service is delegated to Sytral, the transport authority of Metropole de Lyon and the Rhône Departmental Council. Vélo'V (the cycle hire service) and TCL (the Lyon public transport service) are, therefore, two services managed by separate authorities.

The Concessionaire (Private Party)

The successful tenderer for the public contract drawn up for the period 2005/2018 is J-C Decaux through its Cyclocity subsidiary.

The principle adopted is that of a public contract for the provision and operation of street furniture, within which J-C Decaux operates and maintains a set of urban furniture (2,200 bus stops and 536 information boards). Its main remuneration comes from the sale of advertising space on this urban furniture. This remuneration has to finance the construction, operation and maintenance of the bicycle service.

Users

Due to the location of the stations, the Velo'V service is aimed mainly at people moving within Lyon and Villeurbanne. Nevertheless, the service does not target specific users. The Velo’V service is accessible to all types of users (whether or not these live in Métropole de Lyon, are occasional users or others) provided that the user has a credit card or has signed up for a long-term subscription.

The tender for the contract, however, imposed a number of technical conditions to make the service as accessible as possible:

  • the system should be user-friendly;
  • the bicycle booking process should be brief;
  • the fees charged should remain modest.

The fee structure for this service offers a long-term subscription (for a year) and two short-term subscriptions (for a week or for a day). The system, therefore, captures both occasional users such as tourists and more regular users such as residents and employees in Lyon and Villeurbanne.

In 2014, the service was used between 20,000 and 25,000 times a day (or 8 million times for the year).

Key Purpose for PPP Model Selection

The choice of a public-private partnership (PPP) for constructing, operating and maintaining the service is due to both technical and financial reasons.

Financially, the chosen system enabled Grand Lyon (today Métropole de Lyon) to avoid having to fund the service directly. The latter simply gives up the advertising revenues that should have been paid by J-C Decaux for operating the urban furniture.

From the technical standpoint, in 2004/2005, the Velo'V project needed to show considerable innovation. While self-service bicycle systems had already been tested in the past (particularly in Rennes as of 1998), none of these systems had been developed on such a scale. 2,000 bicycles were made available to be put into service with the option of extending the offer to 4,000 bicycles, compared to about 900 bicycles in Rennes. The choice of a PPP made it possible to base responsibility for managing the project (both setting it up and running it) on the concessioner, whereas the same service directly controlled by the public authority would have necessarily required a longer period of time for staff to acquire the required skills.

In addition, several reasons justify the choice of including the Vélo'V service in a street furniture contract, rather than going through a public service delegation or a specific public contract:

  • Preliminary studies about developing a bike sharing service were led simultaneously with the completion of the urban furniture contract. Because of legislative changes, Grand Lyon had to renew the former contract in the form of a public contract;
  • These contracts have the distinctive feature of generating a profit. It was, therefore, decided to reuse this profit to finance the new service, which was necessarily loss-making;
  • The use of advertising revenues was facilitated in this case. In fact, the highest part of these resources was captured with the street furniture installed in the two main towns of the Metropole de Lyon. The Velo’V network is mainly available in these towns.

Project Timing

The Velo'V service is the first bike sharing network developed on a large scale. Following this, many French cities were to set up similar services.

In the case of the Velo'V service, the principle of launching the consultation was approved in July 2003. In September 2003, the consultation package was adopted by the Grand Lyon Community Council. The contract was signed in November 2004 with the scheme planned to come into service gradually between March and June 2005.

The contract is scheduled to end in November 2017. There have been no renegotiations of the contract to date; only four amendments to the initial contracts have been signed.

Number of Contracts signed

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Figure 2: Number of contracts signed with a bike sharing service in France, Source: Cerema


Project Locality and Market Geography

Due to the location of the stations, the Velo'V project can be considered as an urban project. This project, however, was designed to facilitate intermodality with other modes of transport in the Lyon urban area. Combined offers exist with subscriptions for the urban public transport network and car parks managed by Lyon Parc Auto (a semi-public company whose main shareholders are the city of Lyon and Métropole de Lyon). These offers do not entitle users to fare reductions, but extend the use-free period of Velo’V (1/2 hour for conventional subscription holders against one hour for users combining two subscriptions).

These offers are, therefore, intended to facilitate the use of Vélo'V for other people in addition to residents of Lyon and Villeurbanne. In this way, the impact of this urban project must be analysed across the entire Métropole de Lyon.

Procurement & Contractual Structure

Tendering

The contractual structure selected by Grand Lyon (today Métropole de Lyon) is a call for tender based on performance, a procedure defined in Article 36 of the French public procurement code. This procedure has now been repealed and has been replaced by a competitive dialogue procedure (Article 67 of the French public procurement code). This type of procedure can be used when:

  • the contracting authority is not objectively able to define the technical means required to meet the needs identified by itself, in advance and in sufficient detail;
  • the contracting authority is not able to draw up the financial or legal structure of the project.

In the case of the Velo'V project, these two conditions were met. The call for tender based on performance allows the contracting authority to define a detailed functional programme including the results to be achieved and indicators to judge the expected results. Each candidate puts forward a bid detailing the service to be provided. In the case of the Velo'V project:

  • the consultation package specifying Grand Lyon's expectations was validated in September 2003;
  • two candidates submitted a bid to the call for tender;
  • negotiations (in two stages) with the two candidates took place in July 2004;
  • following this, the final choice was made in October 2004.

The contracting process therefore took place over a period of 11 months.

Contract Structure

The contract is a public contract (a procedure defined in the French public procurement code). This contract covers construction, operation, maintenance, renewal and dismantling of the equipment (self-service bicycles, passenger shelters, advertising hoardings). The contract includes a confirmed part and two conditional parts:

  • In addition to providing passenger shelter and advertising hoardings, the confirmed part includes provision of a fleet of 2,000 bicycles;
  • conditional phase n°1 includes an additional 1,000 bicycles;
  • conditional phase n°2 includes an additional 1,000 bicycles;

The contract defines:

  • the costs of the different operations,
  • the amount of tax for occupancy of public space paid to Grand Lyon (today Métropole de Lyon) by J-C Decaux.

The public space occupancy tax is due as a consequence of the space occupied by the different types of street furniture within the public space. The contract defines the amount of this tax that is due and the part of the tax actually paid by J-C Decaux to Grand Lyon. In fact, only a fraction of this tax is actually paid, the rest of the amount due kept by J-C Decaux, which, on the basis of estimated advertising revenue, ensures the financial viability of the service.

In the 13 years of the contract, the amount of tax paid by J-C Decaux to Grand Lyon (and now to Métropole de Lyon) is €18.2 million (2004 prices).

The total amount for the services provided (for 2,200 passenger shelters, 536 advertising hoardings and 2,000 bicycles) is estimated by J-C Decaux at €31.7 million (2004 prices).

The costs of the two conditional phases 1 and 2 are estimated at €9.0 million (2004 prices) and €9.2 million (2004 prices), respectively. These estimates only partially reflect the cost of services since they take into account advertising revenues estimated by J-C Decaux. This amount of advertising revenue is data kept by J-C Decaux and is not mentioned in the contract.

The contract does not specify the fares for using the Vélo'V service; this amount is set unilaterally by Grand Lyon (today Métropole de Lyon). In the contract signed in 2004, Grand Lyon chose to keep all future revenue from fares. So this financial revenue is not taken into account by J-C Decaux in assessing the profitability of the service.

In addition, the contract states:

  • the conditions for setting up the Velo'V service;
  • the conditions and the resources allocated for operating it (including the regulation of the fleet between different stations during the operating periods);
  • the conditions for completion of the contract.


Risk Allocation

The contract defines the obligations of both parties. The holder of the contract is responsible for:

  • designing the service in response to conditions set out in the tender. Upon signing the contract, the design phase is almost complete as it took place during the negotiations;
  • the construction of all the equipment necessary to operate the service (stations, purchase of bicycles, information system for managing it, etc.);
  • operating and maintaining the service (distributing bicycles between the stations during operating periods, repairing bicycles, etc.)

The public authority is responsible for:

  • defining the fare system;
  • the location of stations and negotiating with landowners (mainly the municipalities concerned), enabling them to be constructed;
  • the choice of implementing the conditional phases of the public contract (moving from 2,000 to 3,000 bicycles and then to 4,000 bicycles);
  • Six months before the date of completion of the contract, Métropole de Lyon is allowed to exercise an option to purchase from the holder of the contract. The latter is free to either accept this option or not and to make its proposed price known. In the event of failure to agree on the purchase price for the equipment, the contract holder must dismantle all the equipment in the contract.

Based on the above, the allocation of risk in this contract is depicted in Figure 3.

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 Figure 3: Risk Allocation

Performance

The contract contains a number of service quality objectives entitling J-C Decaux to bonuses or subjecting it to penalties. These objectives were defined by the candidates during the negotiation process.

The main quality criteria used by the contract are:

  • The number of bicycles and stations in operation;
  • The availability of stations (avoiding having full or empty stations);
  • The level of cleanliness of stations and bicycles.

These criteria are designed to ensure user comfort and ease of use. The thresholds of the various quality criteria changed after signing the contract via an additional clause, but the way of calculating these has remained relatively unchanged. An incentive payment is also specified by the contract. It aims to ensure a good turnover of the bicycle fleet (i.e. both significant usage of the bicycle fleet and short duration of such usage). While this indicator existed in the initial version of the contract, it became necessary to revise the formula for calculating it (amendment dated November 13, 2006). It is based on the annual average daily rotation of bicycles. The amount of the incentive payment may not exceed 15% of commercial revenue.

Project Outcomes

The outcomes of the Vélo'V project can be analysed through the development of similar projects in French towns as of 2007 (see Figure 2). While the example of Rennes (1997) had remained isolated, the Vélo'V project highlighted:

  • the technical feasibility of large-scale bike sharing networks;
  • people's enthusiasm for this type of service.

In 2014, the Velo'V service counted between 20,000 and 25,000 users per day, or about 6 trips per day per bicycle. Because of the innovative nature of the project, few ridership or revenue goals had been assigned to the holder when the contract was signed. Consequently, it is difficult to line up these results with forecasts.

Project success, however, can be described in terms of use, through:

  • the speed with which the implementation of the conditional phases was decided upon;
  • the need for the contract holder to take on extra staff to meet the needs of maintenance and regulation.

Table 1- Vélo’V – 2015 rates (not including combined offers)
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While it was possible to make these changes without renegotiating, underestimation of maintenance and operating costs led Grand Lyon (today Métropole de Lyon) to increase the number of advertising hoardings (which means increasing advertising revenue for the operator) and redefining revenue sharing:

  • there was no sharing of fare revenue between operator and contracting authority in the original contract. These revenues were collected by J-C Decaux and paid to Grand Lyon (today Métropole de Lyon). A bonus incentive scheme linked remuneration of the service provider to use of the service;
  • an additional clause allowed the service provider to keep the revenues from subscriptions (about 60,000 annual subscriptions in 2014). Grand Lyon (today Métropole de Lyon) currently keeps only the revenues from service charges[1] (after the first free ½ hour which relates to approximately 4% to 5% of trips). Métropole de Lyon estimates, in 2015, that 50% of the operator's revenue is fare revenue (the remaining 50% being from advertising).

These necessary adjustments result from the success of the project. However, three disadvantages related to the form of the contract have been identified by Métropole de Lyon:

  • the lack of clarity about advertising revenue earned by the private service provider, which limits Métropole of Lyon’s knowledge of the business model for the service. This ignorance may be detrimental to its ability to encourage competition when renewing the contract;
  • in the case of absence of agreement between J-C Decaux and Métropole de Lyon, the contract specifies, at its completion, that J-C Decaux has to remove all the equipment. This clause may lead to an inconvenient interruption of service for users and, therefore, puts the service provider in a strong position when the contract is up for renewal.
  • public contracts display a certain rigidity in their openness to change. For example, the number of 348 stations was defined in the contract, and this figure could not change throughout the contractual period to cope with new demands. The only way to build stations in new areas was therefore to move older stations, which could hinder the development of the service.

[1]These fees are in shaded boxes in Table 1

REFERENCES

  • CEREMA, Contractualisation des vélos en libre-service en France, Etat des lieux 2005-2013, June 2015, 60 pages.
  • Communauté urbaine de Lyon, Marché de fourniture et de prestations de services, November 2004.
  • Roussel, Sophie, Vélo’V Un marché public innovant, Masters' dissertation, IEP de Paris, October 2005

http://www.velov.grandlyon.com/ : Consulted in January and June 2015