London Transport remains the sole operator of buses within the capital, and it determines the routes and the frequency of bus services before putting them out to tender. Much as the Government would love to see London's buses deregulated and in private hands, it will be some time before that arrives - 1995 is the latest forecast.
The bewildering variety of coloured buses that can now be seen fighting through the London traffic is the result of a process of putting routes out to tender that has been gathering pace for seven years.
London Buses is big business, with a turnover of some pounds 550m per year, and 4 million passengers a day. Subsidy is now down to about 20 per cent of costs.
Contracting out started, with government encouragement, in 1985, when Route 81, from Hounslow to Slough, became the first to be put out to tender and the contract was won by a small coach operator, Len Wright Travel, later called London Buslines.
The idea was, of course, to reduce costs to London Buses by imposing competitive pressures both on routes put out to tender and those retained in-house. About 250 of London Buses' 400 routes have been put out to tender but this only represents 40 per cent of mileage, because the shorter and smaller routes were offered first.
Nick Newton, general manager of London Transport's Tendered Bus Division, says that at first London Transport had to ensure that there were potential operators ready to bid for the contracts. 'We started with small outer-suburban routes because there were more likely to be existing operators interested in providing services.'
They then moved to large outer suburban, inner suburban and eventually central London routes. Three years ago Route 24, which runs from Hampstead Heath to Pimlico via Parliament Square, became the first route passing through central London to be put out to tender. The pounds 3m annual contract was won by Grey- Green. Next month there will be another landmark, when tenders are received for Route 19, the first 'crewed' route (with both driver and conductor).
Of the 253 routes put out to tender so far, just over half the contracts - and 55 per cent of the mileage - have been won by bids from the 10 large London Buses subsidiaries, such as Selkent, Leaside and others, whose logos now adorn red buses.
However, Mr Newton says that savings have been made both on contracts won in-house and on those won by private firms: 'The average saving in costs is around 15 per cent.'
Routes were also selected for contracting out on the basis of their previous performance. Those that were losing the most money or had poor reliability were put out to tender first, because they were thought to offer the most scope for improvement.
The financial performance of a route is, in fact, immaterial to the operators, although there are penalties if a contracter fails to provide the required mileage or frequency of service. The contractor only bids to operate the route, and hands over all the revenue each month to London Transport. London Transport provides electronic ticket machines and has an extensive inspection system aimed at ensuring that revenue does not go astray.
The 17 private operators are generally pleased with the way the system runs, although they would like their contracts to last longer than the currently normal two or three years.
If the operator has correctly calculated the costs, then providing a bus service without concern for the revenue is, as John Pycroft, managing director of Grey-Green, which is the third-largest private operator, with 120 buses and 13 routes, puts it, 'a nice little earner'. However, he adds: 'We deserve it because we have invested heavily and we have worked hard to keep costs down.'
As Grey-Green does not have access to LT garages, it has to do 93,000 miles a year of empty running on the 24 route alone to get the buses from Hampstead Heath to its Stamford Hill depot. This major cost disadvantage compared to LT must be offset by greater efficiency elsewhere.
The private operators have kept their costs down by challenging long established union practices, so that drivers spend more time 'wheel-turning rather than sitting on their bottoms at the depot', as Mr Newton put it.
The unions argue that wages have been forced down by the introduction of competition. Mr Newton believes that take-home pay has been largely unaffected but that staff now have to work harder or longer to get it.
The staff has to be flexible. Mr Pycroft says: 'We are not fettered by 60 years of union agreements. If there's a shortage of drivers, the supervisors and inspectors will volunteer to drive the buses.'
Grey-Green's staff are, nevertheless, still unionised. 'You wouldn't get that in London Transport. We have also set up a system which allows those who want to work longer hours and others who want short hours to do so, rather than employing everybody on the same basis.'
So far the impact of all this, apart from the change in colour of the buses and an improvement in performance, has been minimal on passengers. The contracting-out process is something of a prelude to the real revolution, when deregulation and privatisation could bring much greater changes.
The Government has been notably hesitant over deregulation of London's bus routes. Measures were expected to be announced in the Queen's Speech after the general election, but they were postponed, with priority being given to rail and coal privatisation instead.
Outside London, buses were deregulated in 1985 and the outcome is still a matter of fierce political controversy. The Government points to a 19 per cent increase in bus mileage, but detractors say that the 16 per cent fall in passengers is the more significant figure.
Legislation is now expected in the next Parliament and this would be implemented in 1995.
The shape of privatisation has been largely decided. A London Bus Executive will be created and the bus subsidiaries will be privatised. Price Waterhouse is due to report to the Government next month on whether the 10 large bus subsidiaries can be privatised before deregulation, as LT is seeking. It will also report on how an interim contracting-out regime would work.
The key phrase in last year's consultation paper is: 'The Government takes the view that the present system is planning-led and that central planning, however expertly it may be conducted, is not an acceptable substitute for the free play of market forces.' Those are words to strike terror into the hearts of London Transport's management and also, more surprisingly, into those of some of the potential operators.
As Mr Pycroft of Grey-Green says: 'I don't think either the industry or passengers will benefit from unfettered competition.
'Outside London, you can't even get a combined bus timetable because operators are not keen to advertise each other's services. Usage will undoubtedly decline.'
He will, nevertheless, be in there vying for some of the routes.