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.

7 January 2004
Washington,United States; British Columbia,Canada; Massachusetts,United States; Virginia,United States; Oklahoma,United States; Texas,United States; Florida,United States

Background (Show)

Lesson 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.

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Synopsis of WSDOT Review of Highway Maintenance "Outsourcing" Experience

Author: Nicole Ribreau

Published By: Washington State Department of Transportation

Source Date: 7 January 2004

URL: http://www.wsdot.wa.gov/maintenance/pdf/outsourcing.pdf

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Lesson ID: 2009-00477