Infrastructure Policy Forum
Texas CEC Commentary
February 2, 2009
Public vs. Private
The debate over public and private roles in government can be passionate. Bureaucracies always try to protect their turf, none quite so relentlessly as TxDOT. But the public should expect a more objective and balanced reporting of the issues than it got from the Austin American-Statesman's recent story on private sector contracting at the DOT. The story was based on TxDOT's internal assessment that it performs services, including engineering, less expensively than the private sector. It’s hardly a surprise that the agency would make that assessment. State DOTs for decades have been producing studies intended to justify their 1950s business model based on large public engineering staffs.
However, no less an authority than the U.S. General Accounting Office reviewed those studies last year and concluded: "We identified a number of methodological issues and other limitations that make it difficult to make any conclusions about whether consultants are contractors are more or less expensive than public employees over the long term." The GAO cited challenges in obtaining reliable data, difficulties in accurately assigning overhead, a lack of systematic effort to determine the benefits of contracting out, and the failure to consider long-term implications of public employees, such as pension costs.
Another comprehensive review of these studies (by a former DOT director) concluded that "states do not account for their overhead in a manner that is directly comparable to the private sector. . . . The accounting rigor demanded of the private sector is largely absent among the states."
So it seems likely that one reason the Legislature has ignored TxDOT’s “studies” is that they’ve concluded the studies are largely self-justifying bunk.
The fact is that by common private sector measures of productivity, TxDOT has twice the number of personnel that should be required to do the work that it has to do, even without increasing the level of outsourcing. And once generous public retirement benefits, sick leave, vacation, and holidays are considered, these personnel cost more than an average private sector engineer. Add in little or no accountability for schedule or budget and the only way the public sector can generate lower costs with twice the number of people paid as much or more is if the director of engineering is the Minister of Magic from Harry Potter. Or creative accounting.
The appropriate way to look at TxDOT’s costs is this: what does it take in pre-construction planning and engineering costs to deliver a certain amount of construction, as compared to other, more privatized models for delivering construction. These costs are pretty clearly identified in Goals A (Planning) and B (Construction) of TxDOT’s budget in the state’s General Appropriations Act and in data from the Comptroller.
The results show that TxDOT's overall cost of planning, designing, and managing construction on the state's highway system is ten percent higher as a percentage of construction than modern DOTs such as Florida and at least a third higher than the state's toll road agencies, which rely heavily on the private sector. Instead of spending it on roads, Texas spends money on maintaining an engineering and project delivery staff that has more licensed engineers than Houston, Dallas, Austin, the Lower Colorado River Authority, and Harris County combined. The overriding rationale for this is that it's always been done this way.
If you look at all the public or private construction project delivery entities that have good reputations for getting projects done in a timely fashion - DFW Airport, the Port of Houston, Methodist Hospital, city public works organizations, and on and on - none look like TxDOT. Zero. These entities rely on a 21st century model of project delivery - lean staffs, a commitment to excellence in program and project management, and a reliance on private teams of experts who execute projects, then leave the public payroll.
It should be noted that when it comes to planning, designing and managing the delivery of construction projects, "the private sector" isn’t one or two international conglomerates. In this area “the private sector” means hundreds of Texas-based, mostly small, businesses, including hundreds of women and minority businesses. In fact, when TxDOT made its famous billion dollar mistake in 2007 and took engineering work away from private firms (often overnight) to focus on keeping its staff busy, contracting with women and minority businesses was reduced by over $100 million annually.
This is a project delivery process that needs reform –
both in enhanced accountability and in size.
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