Editor’s note:This article is part of a series on Hawaii’s runaway school bus costs. Read other articles in the series.
UPDATED 10/14/11 1:15 p.m. CORRECTION:This article has been updated to reflect the fact that at least one mainland bus company used to operate in Hawaii.
The nation’s second-largest school bus company may soon be rolling into Hawaii.
Durham School Services, based in Chicago, has obtained the paperwork necessary to bid on school bus contracts up for grabs next month. A company official says Durham’s interest in the market was sparked after reading Civil Beat’s Taken For a Ride series, which documents how the lack of competition among local bus companies is to blame for runaway transportation costs.
If it bids and is successful, Durham would be the first mainland company to enter the Hawaii school bus market in recent history.1
“We’re in the initial stages of evaluating if it’s the right market to enter, whether now is the right time, and if so, by what method,” said Rick Klaus, vice president of sales for the company, which operates about 16,000 school buses in 30 states and Canada.
Klaus and a colleague visited Hawaii last week to meet with school district officials, research the local job market and scope out real estate for a potential operating base.
The school district is currently soliciting bids on 17 contracts containing 88 school bus routes. The contracts would begin in July 2012 and run through June 2018. The invitation for bids comes as the federal government investigates possible collusion in setting prices in Hawaii.
Klaus told Civil Beat it appears that local companies’ bids are so high that Durham could come in and undercut them.
The company has long been interested in the Hawaiian market. Recently, an online news alert led him to Civil Beat’s series that examined why the state is paying twice as much for transportation as it did six years ago.
Klaus’ company sees Hawaii’s school bus market as a unique opportunity for a new competitor.
“Prices have gone up and competition has essentially ceased to exist in Hawaii,” he said. “That’s one of the things that piqued our interest because, although those costs have increased nationwide, they have not increased anywhere near the proportion that the prices have increased in Hawaii.”
Until now, the relatively small size of the contracts was the biggest barrier to Durham’s entry into the Hawaii market. While small contracts are designed to be accessible for small local companies, they make it difficult for larger companies from the mainland to get a large enough contract to make an initial investment worthwhile, Klaus said. This is especially the case in a place like Hawaii, where the cost of setting up a business is comparatively high.
Other barriers included the distance and the expense of supporting a local operation from a mainland headquarters. Hawaii contractors’ bids also used to be much lower, making it a challenge to compete and turn a profit. That appears to be no longer true, Klaus said.
“We like to go to new markets where we’re welcome,” Klaus explained. “I’m not saying we weren’t welcome before, but the pricing that was in place five years ago did not seem to be that attractive.”
But now it is. And Klaus said he has found a facility on Oahu that would be suitable for an operating base, should Durham decide to bid on, and win, this year’s contracts for special education services. Forty-three percent of the transportation budget is spent on special ed students, even though they make up just 10 percent of the riders. Although there’s not been a single competitive bid for regular transportation routes since 2007, there has been a minimal amount of competition for special ed routes, Civil Beat’s analysis of 11 years of bid data shows.
The company is still analyzing the financial logistics of a move into the Hawaii market. It could be that Durham holds off until next year, or tries to acquire an existing local company.
“We will decide within the next two weeks whether we will submit a bid for this round of contracts,” Klaus said, adding that he won’t be able to say whether his company intends to make an offer until the actual bid opening on Dec. 15.
“Whether we do or don’t submit a bid this time around, that doesn’t necessarily mean we’re not interested in the market, but there are other considerations about how we might join in the competition, and when.”
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