With those limitations in mind, we can at least make a broader survey of the evidence on cost savings from outsourcing infrastructure projects and further explore problems with the existing literature.
1. The Evidence on Cost Savings from Outsourcing Infrastructure Projects
There are a fair number of studies of cost savings from outsourcing infrastructure projects, as well as a great deal of case study evidence. We will only touch on some highlights of this wealth of evidence—enough to demonstrate that if cost saving is the goal of outsourcing, it can be achieved. How much import cost saving
should have in driving an outsourcing issue depends on the case.
International Infrastructure Outsourcing. Various forms of outsourcing dominate much of the infrastructure development going on worldwide. In 1999, one survey documented 789 road, rail, airport, seaport, water/wastewater, and electric-power projects (costing a total of over $363 billion) under construction and being delivered under some form of outsourcing arrangement, and nearly three times that many outsourced projects were being planned or financed.106 The World Bank has advocated outsourcing and privatization as crucial tools for developing infrastructure in less-developed nations while keeping costs down.107 And specific evaluations show cost savings from outsourcing—for example, the United Kingdom’s Private Finance Initiative led to average savings of 17 percent from outsourcing infrastructure financing and project delivery.108
The World Bank has advocated outsourcing and privatization as crucial tools for developing infrastructure in less-developed nations while keeping costs down.
Water and Wastewater Utilities. A number of studies have shown that outsourcing water and wastewater utility management and facility development can cut costs by 10 to 40 percent.109 Usually, outsourcing reduces the rate increases that were planned prior to privatization, and it sometimes supports rate decreases.
In Milwaukee, outsourcing cut the city’s annual wastewater operating costs by 30 percent, for projected total savings of over $148 million. After one year, those cost savings allowed the city to cut sewer fees by 15.5
Atlanta’s outsourcing produced even more dramatic results. The city water system was significantly out of compliance with environmental standards, and the water utility’s own estimate of the cost to upgrade the system and achieve compliance called for a water rate increase of more than 100 percent. Instead, the city chose to outsource upgrading, operating, and maintaining the water utility for 20 years. The agreement cuts the cost of upgrading and operating the utility by 44 percent and reduces the water rate increase for the
“1999 International Major Projects Survey,” Public Works Financing (October 1999), p. 10. “Private Goes Public,” p. 33. Arthur Andersen, et al., p. 53.
Studies surveyed in John Hilke, Cost Savings From Privatization: A Compilation of Study Findings, Reason Foundation How-to Guide No. 6 (Los Angeles: Reason Foundation, 1993), pp. 16–17; and NAWC, A Survey of the Use of Public-Private Partnerships, p. 36.
City of Milwaukee, April 1999.