Highway Maintenance. Some states have discovered that outsourcing maintenance of urban roads and of
highways can cut costs by 25 to 50 percent.117
In Pennsylvania, Hempfield Township outsources road repair
and resurfacing for roughly $40,000 per year, far less than the cost of just one full-time employee and equipment to do the work in-house.118 In Aspen, Colorado, city officials contracted with Koch Materials Company to rehabilitate and warrant roughly one-third of the city’s streets, not directly to save money but to cut construction time from six years to one year and to allow the city to shift existing personnel and equipment to rehabilitate and better maintain the rest of the city’s streets.119
Massachusetts’ Outsourced Highway Maintenance Grows as It Succeeds
In the early 1990s, Massachusetts launched a pilot project, contracting for all routine highway
maintenance in Essex County.120 The contract was quantity based—the state DOT continued to determine what work would be done and paid only for those specified tasks. The contract greatly improved highway conditions, delivering considerably more work for the same amount of money. The contract saved between $1.7 million and $2.1 million in operating costs in its first year. According to a Kennedy School analysis, the contractor was 21 percent more cost-effective than the state had been.
On the heels of the pilot project’s success, the DOT decided to expand the program to the whole eastern part of the state. Private firms and existing employees bid on the contracts (seven of them)— private firms won four, public employees three. With the union wins, the DOT was able to keep layoffs down to 150 people. The seven contracts saved the state $7.5 million the first year and delivered $10 million more in services than the year before. Since the DOT pays only for services it specifies and the contracts made the firms and employees more productive, both sides won by getting more work done. The new highway maintenance system brought other improvements as well, as competition changed in-house management practices and workers’ compensation claims fell 60 percent, overtime decreased 70 percent, and sick leave decreased 50 percent.
The expanded program went so well that in 1996, the DOT moved to competitive contracting of highway maintenance statewide. It offered 14 contracts, and half each were won by public employees and private firms. In 1998, the DOT rebid the contracts, with no media attention—it had become just a way of doing business. The bottom line for the DOT is that between 1991 and 1999, the annual highway maintenance budget fell from $40 million to $25 million while the amount of maintenance performed grew.
A 1998 report by the Washington Institute Foundation states that “if managed properly, contracting with the private sector for highway maintenance reduces costs and improves the quantity and quality of service.” The report cites a recent audit of the Washington State DOT finding that contracting with private firms to 121
maintain state highways would cut costs by 10 percent or more, as much as $25 million per biennium.122
audit pointed to evidence from Massachusetts, British Columbia, Virginia, Texas, and Indianapolis, where
Hilke, Cost Savings From Privatization, p. 8; and Eggers et al., Cutting Local Government Costs, p. 41.
“Pennsylvania Local Governments Look to Private Sector for Resurfacing,” Pennsylvania Privatization Monitor, vol. 4, no. 3 (February 2000).
“Team Concept Succeeds with Pavement Management,” Public Works (April 2000), pp. 50–51.
Based on a presentation by Charles Kostro, deputy commissioner, Massachusetts Highway Department, at the AASHTO workshop “Contract Maintenance: Closing the Gap,” Nashville, Tennessee, September 20–22, 1999.
Dennis Lisk, Highway Maintenance: Putting the Market to Work, Policy Brief 98-07 (Seattle: Washington Institute Foundation, September 1998), p. 1.