01.31.09

Increased roadwork outsourcing is costing Texas taxpayers

Posted in Around The State, Money In Politics, Privatization, Road Issues, Transportation, Uncategorized at 3:59 pm by wcnews

From the WacoTrib, Roadwork outsourcing up, at high cost. The article states that TxDOT has started outsourcing most of it’s road repairs since 1995 and that “[m]uch of the shift has been at the direction of privatization-minded lawmakers.”

As the state’s largest user of contract services, the Texas Department of Transportation has embraced outsourcing more than any other state agency, putting three of every four dollars it spends in the pockets of private companies. In 2007, that amounted to $6 billion, according to a 2009 Texas Sunset Advisory Commission report.

The highway department has always hired out its road construction. But in recent years it has steadily increased the number of private contractors it hires to do other work, such as road maintenance and repairs, and engineering and design work.

And as a review of recent agency contracts and internal audits shows, in many cases the contractors are more expensive — at times, vastly more expensive — than having state employees do the same work.

The agency often has no choice: It farms out work because the Legislature restricts the number of workers it can have. “Whether we contract out is not something we decide,” said Zane Webb, director of the department’s maintenance division, who retired from the state Friday after 26 years.

A basic tenet of outsourcing is that private-sector employees work more cheaply and efficiently. But in 50 out of 60 repair and maintenance categories in the agency’s 2008 Statewide Detailed Maintenance Efficiency and Analysis Report, an internal audit, in-house work was cheaper than hiring out.

Take potholes: According to the report, the nearly 13,800 potholes state employees filled during the last fiscal year cost an average of $23 each to repair. The 2,000 potholes repaired by private contractors, meanwhile, cost an average of $129 each — about five and a half times the state worker rate.

The report also shows that the agency spent about $17 million sealing cracks on state roadways last year. When state employees did the work — on about 8,000 linear miles — it cost $327 per mile. Private contractors repaired about 17,000 linear miles at a cost of $812 per mile — more than double the state’s cost.

Why the difference? The state’s repair costs generally are lower because of reduced overhead, explained Webb. Since the transportation department maintains offices statewide, assembling local crews is a relatively simple matter.

In addition, he said, the state has no built-in profit margin: “We don’t have shareholders. We have taxpayers.”

Hiring private engineers and designers often is more expensive than using the state’s professionals, too. An internal analysis comparing the cost of in-house engineering work with contract engineers on nearly $10 billion-worth of road projects between December 2005 and November 2008 shows that private engineers charged about three times what the state employees cost, as a percentage of the total contract.

“I can tell you without question it is substantially more costly to turn out a set of plans with a consultant than with in-house engineers,” agreed Webb.

So how does the transportation department justify hiring expensive private labor when the work could be done cheaper in-house?

“Sometimes, it’s not always about saving money,” Webb said. “It can be about politics.”

[...]

A 1995 law, for example, required that “the department shall use private sector engineering-related services to assist in accomplishing its activities in providing transportation projects.” Legislators set the minimum outsourcing level at 35 percent of the agency’s engineering workload.

Today, about 60 percent of the transportation department’s engineering work is outsourced. Between 2003 and 2007, the number of all professional services contracts – agreements in which the transportation department hires outside engineers, architects, surveyors, etc. to do its work — jumped 70 percent, according to the Sunset Advisory Commission. The value of those professional services contracts outsourced to private firms soared 255 percent over the same period.

“The will of the Legislature is to use private contractors and consultants to the greatest extent possible,” explained Barton.

Not surprisingly, contractors often are behind pushes for more transportation spending.

The Safer Roads Coalition, a political action committee made up largely of road engineers and contractors, spent more than $100,000 successfully promoting Proposition 12 in the three months leading up to the November 2007 election, according to Texas Ethics Commission reports. The measure authorizes the state to borrow up to $5 billion to spend on highway improvements, nearly all of which will flow to private contractors.

The article debunks many, if not all, of the will-worn, pro-privatization arguments, that never come to pass.  Privatization almost always winds up costing the tax payer more.   Just like a privatized/corporate toll road in certain specific circumstances they may be a better option.  But overall state employees will do a better, less expensive job.  It shouldn’t be any surprise that our state’s effort to privatize most of the roadwork in Texas has wound up costing taxpayers much more money.

2 Comments »

  1. Amerloc said,

    January 31, 2009 at 8:42 pm

    We have an interesting dilemma: the low-end-of-the-totem-pole state employee may well make more than the round-‘em-up-at-Home-Depot employee of the private contractor, so that from some points of view state work would be cheaper if privatized.

    But that argument ignores a couple of things:

    (1) Doing the same job day in and day out makes you faster. So you can get back to the shop and surf the web.

    (2) State employees don’t have to pay shareholders. Who sit at home and surf the web.

    So if we want the most folks spending money on eBay to support the economy in its time of distress, we’d be better off letting the state do the work.

  2. Eye on Williamson » Privatizatoin not living up to the hype in Texas said,

    February 10, 2009 at 11:01 am

    [...] health and HUMAN services and CHILD protective services.  (Although it was reported recently that privatization isn’t cheaper when it comes to road repair.)   Just a couple of things that came to mind when reading this [...]

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