The old Woden bus depot will be demolished to make way for a new storehouse for Canberra's buses, due to overcrowding in the Belconnen and Tuggeranong depots.
The Phillip depot was decommissioned in the mid-1990s but still houses derelict buses and Transport Canberra's community buses.
However an increase in demand for public transport, particularly in peak times, has caused the fleet to expand significantly, tender documents for the old depot's demolition said.
"The size of the fleet required to effectively meet the needs of the travelling public has grown significantly and the two existing depots are now operating well above their design capacity," it reads.
"New population centres in Gungahlin, West Belconnen and Molonglo have now been developed and there has been significant urban infill along major transport corridors. The resulting additional demand means that Transport Canberra can no longer effectively meet expectation with just two bus depots."
The government is in the process of reworking the ACT public transport network, with light rail to come online later this year.
It has also accelerated the rollout of its rapid bus services, with fast buses on eight new routes hitting the road by July.
As of last July, there were 432 buses in the ACTION fleet.
In 2016, the government promised to buy 80 new buses over the next four years as it expands the ACT bus network, with an extra 32 FTE bus drivers to be put on this financial year.
Last December, it signed a $23 million contract with Scania Australia to supply 40 disability compliant diesel buses over the next 16 months.
The government is also trialling two electric buses and one hybrid electric-diesel bus.
The equipment needed to recharge the electric buses is located at the Tuggeranong depot.
The tender said there was no room at the existing depots for the extra buses that will be needed as new suburbs open and services run more frequently.
The space shortage was also affecting maintenance of the fleet, as the workshops were built to maintain significantly fewer buses.
"This leads to maintenance being performed reactively, rather than in a programmed fashion," the tender said.
The ACT government spent $18.4 million last financial year maintaining ACTION buses.
Figures provided to the ACT Legislative Assembly in May revealed an average of 42 bus breakdowns a week, out of a total of 19,000 trips.
Electrical system and cooling system faults caused the highest percentage of breakdowns during 2016-17.
The new bus depot must be ready by July 2019 and fit 120 buses.
The tender for the demolition and remediation of the old Woden depot closes on February 6.