Abstract
When UK bus services were deregulated in 1985 a system of competitive tendering was introduced for the provision of socially necessary services. Tendering for these services may be on a "net subsidy" or "gross cost" basis, that is, with the payment to the operator being either the net difference between cost and revenue or the gross (total) cost of the service. While the former is attractive, a comparison of both methods indicates the overall cost by the contracting authority is generally lower under the gross cost method, due to the reduced risk perceived by the operator. (Author/publisher).