Small bus companies in eastern Ontario say changes to the way bus contracts are handed out in Ontario are driving them out of business, leading some to take the unusual step of bringing their only customer to court.

Last year, Ontario's ministry of education made it clear after the 2012 budget that school boards and their transportation authorities had to hire bus companies through a competitive request for proposals process.

The goal of the change was to make the hiring of bus companies "fair, open, transparent, and accountable," according to a statement from education minister Laurel Broten. The province set a goal in the 2012 budget that the move would also save $34 million over three years.

But small bus operators say the change will only serve to drive small, local, family-owned businesses out of the industry.

"A company can come in and bid one dollar less than us and we lose everything," said Eric Hochgeschurz, who runs Premier Bus Lines Inc. in the Carleton Place area, west of Ottawa.

"Once we — and by we I mean small and medium-sized businesses — are driven out of business you'll be left with three or four companies that ultimately run the province and that'll ultimately drive the price up," he said.

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Contracts to be renewed every 5 years

Hochgeschurz said smaller bus companies tied to a local community and dependent on the local school contract would have to sell off their fleets if they lost and they would not be able to mount another bid in five years for the next contract.

"We'll never be able to come back, once our businesses are destroyed, we'll be finished," he said.

Frank Healey, a spokesman for the Independent School Bus Operators and owner of Healey Transportation Ltd., which serves the Smiths Falls area, said the process favours the larger companies.

Key dates in bus company dispute

2004 | Agreements between school boards and bus companies required to be written contracts.

2009 | STEO is created to aid Upper Canada District School Board and the Catholic District School Board of Eastern Ontario in procuring bus contracts, though some were still procured through school boards.

2011 | STEO becomes incorporated and takes over school bus procurement for boards

Sept. 24, 2012 | STEO issues an RFP for procurement of student transportation services.

Nov. 19, 2012 | Seven rural bus companies in eastern Ontario file a statement of claim against STEO.

"The only business that can afford the possibility of losing a bid is one that is large enough to have service contracts in several areas of the province, that they can afford to bid the next time," said Healey.

"That leads to monopolies, it limits competition and I don't think that gives good value to the taxpayers in the long run," said Healey.

Claim filed against Student Transportation of Eastern Ontario

Hochgeschurz and Healey have joined with five other bus operators to file a claim in the Ontario Superior Court of Justice against the bus authority representing rural eastern Ontario — Student Transportation of Eastern Ontario (STEO).

STEO has contracts with 34 bus operators in the region.

The seven bus companies said because STEO is for the most part their sole client, the bus authority wields significant power in the relationship and therefore owes the bus companies a duty of care to ensure changes in the relationship are fair and transparent.

STEO refused to comment.

But in court documents, the organization argued a provincial law requires the change.

In its court filing, STEO also denied it owes the bus companies a duty of care and it said while it may be the only client of some companies, it does not control or restrict the businesses of the bus companies. The transit authority also stated at no time did it promise bus companies procuring bus contracts would remain "static and unchanging."

'We have to sue our friend,' says bus operator

Education minister Laurel Broten was unavailable for an interview, but she issued a statement saying the province was looking at ways to avoid monopoly situations, while at the same time it looks to seek savings through the procurement process.

"To help school boards avoid monopoly situations, my ministry has provided recommended strategies, like grouping routes in packages for seeking proposals for service, adapting a multiple award system to limit the percentage of business to be awarded to any one operator," she wrote in a response to CBC News.

Hochgeschurz said taking STEO to court was not an easy decision.

"We have to sue our friend, our customer, to convince the ministry they are wrong to try to force these RFPs," he said.

"School buses are my life, I love them, they're beautiful … but if you don't have a school contract, no one's in the market to buy a school bus. It's a big yellow tin can," he said.

Bus companies statement of claim by

STEO Statement of Defence by cbcottawa

With files from the CBC's Susan Burgess