Follow a rigorous financial approach for estimating the true costs & savings from outsourcing highway maintenance services.
Experiences from Massachusetts, Virginia, Oklahoma, Texas, Florida and British Columbia in outsourcing highway maintenance services.
Made Public Date
06/08/2009

91

Florida
United States

116

Texas
United States

32

Oklahoma
United States

966

Virginia
United States

988

Massachusetts
United States

961

Washington
United States

974

British Columbia
Canada
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Identifier
2009-00477

Synopsis of WSDOT Review of Highway Maintenance ""Outsourcing"" Experience

Background

State Departments of Transportation (DOT) frequently contract with management companies for highway maintenance services. In fact, recent years have shown that the practice of outsourcing highway maintenance services is an ever increasing trend. Determining when it behooves an agency to engage in contracting highway maintenance services and the extent to which outsourcing has realized cost savings is challenging. Evaluations of the outcome of outsourcing show that outsourcing can have mixed (and sometimes controversial) results. However, the literature suggests that the most effective outsourcing programs were based on sound cost/benefit analyses, and managed with suitable procurement and oversight procedures.

A review of highway maintenance outsourcing initiatives in several states (USA) and British Columbia (Canada) conducted by the Washington State DOT found varied outcomes and uncertain cost savings. The review entitled “Highway Maintenance Outsourcing Experience” concludes that part of the reason for the ambiguous character of the outsourcing programs lies in the complexities of transportation asset management and actual cost comparisons that involve asset inventories, economic cost/benefit analyses, performance measures and evaluations, etc. The review also suggests that agencies should follow a rigorous process for determining whether the outsourcing of services is likely to produce true cost savings and the desired services, as well as for developing the tools and mechanisms required to initiate, award, and oversee contracting efforts. As state agencies engage more and more in contracting highway maintenance services, their expanding experience is likely to lead to improved contracting processes and lessons learned applicable to state DOTs across the nation. The outsourcing experiences described in “Highway Maintenance Outsourcing Experience” provide some valuable lessons learned and best practices for agencies to apply in their future outsourcing endeavors.

Lessons Learned

State DOTs increasingly contract with private, for-profit firms for highway maintenance services as a means to make up for inadequate staffing at the government level, a need for specialized equipment or skills, and/or a political context which promotes privatizing government services. The success in achieving cost savings and delivering maintenance services depends heavily on the care with which the state agency has initiated and managed the contracting program.

A review of the outsourcing experiences of several states in the U.S. and of British Columbia in Canada, conducted by the Washington State DOT (WSDOT), suggests that delivering the anticipated savings from outsourcing highway maintenance services requires following conducting a careful financial assessment. As noted in the WSDOT review, as agencies develop a financial plan, it is important to take into account a short and long term of view of costs and savings. The WSDOT provides the following recommendations for state agencies that are considering and/or undertaking outsourcing highway maintenance services:

  • Assess direct as well as indirect costs. Establishing the true costs of an outsourcing plan requires considering the varied costs – both direct and indirect – associated with highway maintenance services. An accurate financial picture will not only take into account the direct costs of the vendor’s services and the avoided costs of the terminated in-house services, but indirect and longer-term costs as well. For example, what are the costs to dispose of unused equipment and facilities? What is the cost of worker displacement (e.g., re-training)? Are there secondary costs to losing or diminishing organizational knowledge and in-house worker capability? In the long term, what are the costs of losing equipment, facilities, and/or staff that may be needed in future emergencies? These types of questions should be addressed when determining the costs and savings of outsourcing.
  • Use asset inventories and asset management plans to understand the value of the existing asset base. Following an Asset Management System related to highway maintenance services will inform the decision-making in regards to outsourcing services. Asset inventories will help agencies manage the roadways and determine the areas in which privatization is beneficial to program delivery. Asset inventories are needed for auditing purposes and for determining how to use and safeguard assets. Finally, establishing asset inventories will inform funding decisions in a transparent process.
  • Account for the full costs of administering contracts. The WSDOT review of outsourcing endeavors reveals that the full costs of administering outsourcing projects were not accounted for in some cases. Full costs include contracting initiation, award, administration, management and oversight, and performance monitoring, performance reviews and audits throughout the duration of the contract. Costs should include those associated with the oversight of subcontracts to the vendor as well as contingency plans enacted in cases when the contract is suspended, curtailed or terminated.

The WSDOT review of outsourcing experiences revealed that ensuring the program delivery and value of outsourcing highway maintenance services requires that state agencies follow objective decision-making based on costs. Direct and indirect costs should be assessed for the short term or long term, as well as incidental costs for contingency plans. Asset inventories should be integrated in the outsourcing decision-making process, as well as the full expense of management and oversight of contracts. These recommendations support the goals of customer service, safety, efficiency, and mobility by addressing the maintenance of roadway assets and infrastructure.

Synopsis of WSDOT Review of Highway Maintenance ""Outsourcing"" Experience

Synopsis of WSDOT Review of Highway Maintenance ""Outsourcing"" Experience
Publication Sort Date
01/07/2004
Author
Nicole Ribreau
Publisher
Washington State Department of Transportation

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System Engineering Elements

Focus Areas Taxonomy: