Friday, March 11, 2016

The Statewide Contracting Plan: Privatization Option

The Statewide Contracting Plan at its core proposes that road maintenance responsibility for local roads should largely be transferred to a cooperative agency that collectively supervises and pools resources for road maintenance for local agencies across an entire state.  What that primarily accomplishes is the creation of a means to simply combine resources to make the best of existing resources and employees so that costs go down while roadway standards improve.  The privatization option works on this principal, also, but with a twist: instead of shuffling existing employees from a local to regional level, the state instead requires all local agencies in their current form to be supervised by private engineering firms assigned to regions within a state.  These firms will be given the duties that would otherwise be assigned to a new agency statewide designed to handle this.

Could privatization be the solution for rural counties who are unwilling or unable to maintain their own roads to acceptable engineering standards?  This plan explores placing private firms in charge of clusters of counties and municipalities for the purpose of road maintenance.

The privatization option is by design a means to streamline and improve services by entrusting those services to one or more engineering firms who specialize in specific elements of traffic engineering and road maintenance.  This is done in lieu of developing in-house staff engineers and traffic operations.  In all, public-private partnerships are risky and will need to have safeguards in place to prevent monopolies, misuse of funds and political favoritism for certain firms over others.  In addition, the scope of a private firm will need to be limited to only maintenance and technical work to prevent private firms from having too much access to public funds creating a potential conflict of interest.  A private firm is not a government agency, so they should not be in charge of financing major construction projects with public funds.  The plus side of the privatization option, however, is that if it is structured correctly that the management can continually change preventing what continues to be a serious problem in public agencies: poor management that is never replaced because the employees have vested, protected jobs where they are impossible to fire, reassign or demote due to political connections.  However, politics are also part of private contracts.  This is why laws are needed to prevent firms from having undue influence thus an unfair advantage.

While privatization contracts are common in many local governments across the world they tend to be very sporadic in nature and are done on the whims of the state or local government.  In Georgia, the cities of Milton, Sandy Springs and Johns Creek initially contracted their roads to a private firm during the transition into cityhood, but they have since taken back that responsibility.  This plan is different in that privatization measures are mandated statewide as a means to consolidate that responsibility into a larger agency, but that agency is not to another unit of government.


The idea for a statewide cooperative under private management is similar to the public option, but because of the complications involved in a public-private partnership, a detailed list of rules and regulations are needed to make sure that such an agreement is in the best interest of the state, the local governments and the taxpayers.  Creating a for-profit motive means that greater checks and balances are needed to make sure that excess costs are kept to a minimum, cost savings are realized and local standards actually improve.  The elements of a private statewide contract plan are as follows:

  1. Structure
    • Contracts are based on the boundaries of federal regional planning commissions, but they are also based on a minimum population per region of 300,000 residents.  This means that, preferably, each regional contract area have on average a half-million residents.  States with low populations (under 1 million residents) may contract all local road responsibility to a single firm. 
    • Inversely, regions with less than 300,000 residents should be grouped with the next largest region in population so that one firm is managing both regions.  However, the combined regions are defined prior to any contracts being let.
    • Regions may line up with state DOT divisions to allow the state DOT division to better supervise the work conducted by private firms
    • Contracts will not be for single counties, cities or a patchwork of local agencies.  The region must be clearly defined by the state covering multiple jurisdictions, and the state government will need to create these regions.
    • Engineering firms will be responsible for overseeing all traffic control and routine maintenance and will operate as an employee of the state working on behalf of the counties, cities and towns
    • Funding provided to the firms will be limited to engineering and routine maintenance activities.  Major construction projects, including resurfacing, may only be planned, financed or enacted by a public agency.
    • Private firms may hire subcontractors to assist them in completing any activities they do not wish to perform in house although those terms must be agreed on by the sponsoring public agency.
  2. Competition
    • Each region assigned by the state will be required to be supervised by a different firm.  No single firm will be permitted to manage more than one region at the same time.
    • All firms will be hired on 5 year contract basis
    • After the 5 year contract terminates, the same firm may not work within the same region for two consecutive contracts, but that same firm may be rehired in that region after the next contract with another firm expires
    • If number of available firms is less than the number of regions, the state may create its own firm to operate on a five year contract in a region or multiple regions operating without a private firm or assign one firm to two regions each
      • This means that if the state has 10 regions and only seven firms bidded on those regions, the state will ultimately assign five firms to two regions a piece
    • Commission rates must be established by law based on an average commission rate provided by all bidders.  In the instance that a 10% commission is agreed on, a firm bidding on a region must not be allowed to retain more than 10% commission meaning that 90% must be put towards expenses and 10% is retained for profit.  The commission rate may vary, but it must be established by legal restraint.
  3. Employment
    • All local employees maintain current positions although attrition will be established to help streamline services where duplication is not necessary
    • Employees of the local agencies will remain employees of the local agency.  The private firm may recommend corrective action against an employee, but the decision to fire or rehire remains with the local agency.
    • New employees should be employees of the firm, not the local agency but a clause may be made that allows employees to transfer their employment to the new managing firm at the end of a 5 year contract to prevent forced relocation.
    • The private firm will have its own staff of engineers, inspectors and technicians who are used to oversee and assist all counties, cities and towns with traffic studies and road maintenance activities
    • If a county, city or town has one or more engineers hired expressly to handle road maintenance, they will become joint employees with the private firm under their direction working simultaneously with the local agency
  4. Standards
    • As a condition of the contract, all firms must comply with state and federal standards
      • State standards may be substituted for standards developed by a statewide multi-agency commission created in conjunction with recommendations from participating firms
      • Some state standards may be in excess of local budgets or needs (such as use of diamond grade sheeting), so having different standards in this case would make sense
    • The state reserves the right to supervise the activities of the firms to make sure they are following proper standards, following all protocols and meeting maintenance goals
    • Firms who fail to meet state and federal standards, misuse funds or fail to uphold their duties will be considered in breach of contract with penalties including termination, fines and/or removal from consideration from future contracts once their current contract expires
  5. Limitations
    • Private firms must respect local laws and ordinances and must structure all work based on the laws and ordinances of the county or municipality 
      • Example: if the town sets all speed limits to 25, the firm may not conduct an internal traffic study and raise the speed limit unless the town and/or state government agrees to the study or change
      • Example: if truck routes are established on local roads and streets, the private firm must obtain permission and make modifications as necessary if they plan on posting guide or route signs along restricted roads
    • Private firms may not commence any construction activities without the prior funding and approval of the state, county or municipality
      • Example: fictional Allen County funds a project for reconstructing Whiteoak Trail from a dirt road into a two lane paved road.  The private firm may only be involved in construction supervision paid for by funds used for the project.
      • Another engineering firm may be chosen for construction that is not in charge of maintenance
    • Private firms will only be permitted to maintain roadways maintained by counties and municipalities unless the state expressly expands that responsibility to cover state road maintenance within their assigned area
  6. Consolidation
    • Any private firm may consolidate any road maintenance function under their limited jurisdiction as long as there are no layoffs of existing government employees
    • Employees from more than one jurisdiction may be grouped together to provide specific duties if deemed reasonable by the private firm
    • Sparsely used and costly equipment will be stored and shared among all agencies and owned by the private firm
    • Duplication of services should be phased out wherever possible
    • Facilities and equipment may be combined, shared, taken out of use or relocated to best serve the needs of the region and to reduce costs 
  7. Oversight
    • The state should create a statewide agency designed to establish standards and to supervise the private firms to reduce the role of the state DOT
    • The statewide agency would be structured as an association made up of elected officials from each county, city and town involved to make sure that operations remain locally-driven
    • Policies and procedures may be further streamlined by creating the statewide agency
    • The agency would most likely have the same type of name as in the public version of the Statewide Contracting Plan such as "Tennessee Local Roads Commission"
    • The agency will also be able to oversee and approve contracts, set commission rates and serve as a liaison between local agencies, the private firms and the state DOT
    • In issues that the local roads commission does not adequately understand, they can defer all responsibility to the state DOT


Consider Texas DOT.  The state has 25 districts across the state to manage road maintenance activities on state highways.  They could commence a pilot project in the Atlanta District in Northeast Texas with an agreement with all nine counties in that region to hire a private firm to oversee road maintenance on all the county roads and municipal streets within that district.  As part of the pilot project, we can assume that the lowest bidder charges the state $9 million to provide engineering services and to assume maintenance responsibility on the county roads in the region coming out to $1 million per county.  It should be taken into account that the contract amount shown here is fictional with actual contract amounts unknown thus it may be much higher or much lower depending on actual costs.  The costs would then be shared between TxDOT and the counties with the state paying half and the rest divided by the 9 counties based on county population ratios.  The region as a whole contains a population of just under 320,000 residents.  This would mean Morris County, a county with a population of 12,000 residents, would pay $182,000 out of the total $4.5 million cost.  This contract would include engineering services, traffic control, roadway repairs, equipment costs and supervision of all the separate departments.

The 25 districts of Texas could serve as a model on how to create a privatized statewide contracting model.  Atlanta district is in the green on the northeast corner made up of 9 counties.  If each of these 25 districts had a private engineering firm supervising county and municipal street maintenance it would greatly improve county road standards in a state with 254 counties.  All private firms would be supervised by a statewide local roads commission with technical oversight provided by TxDOT if needed.

If the pilot project proves successful, and it is demonstrated that cost savings were made and/or local road standards improved then Texas DOT would begin to roll out this approach to all the other districts across the state.  Home rule would not be challenged in that the state itself would not be taking on that responsibility on behalf of the counties but instead hiring a private firm who was working on behalf of the counties and municipalities.  To better manage costs, Texas DOT may also consider hiring the same firm to provide maintenance of the state's farm-to-market roads.  In that plan, the state pays for the maintenance but the private firm oversees that work on behalf of TxDOT.


Competition is very important to make sure that sweetheart deals are not made that waste public funds and give only a couple deep-pocketed firms as much power as the state.  The danger of privatization is that the private firm would have an unfair advantage and cut corners using public funds much like many local agencies do today.  For that reason, safeguards must be put in place to make sure that public funds are used prudently and that no single firm ever has a specific advantage or control over a single area.  

To do this, engineering firms must be heavily restricted on bidding and contracts.  This means that each region must have a unique firm operating within the bounds of that region.  Furthermore, no firm may operate in a region for more than 5 years at a time.  More importantly, one firm cannot renew contracts with the same region consecutively placing that responsibility with at least one other firm every 5 years reducing the chance that one firm would be able to corner a market.  In addition, commission rates must be negotiated with a ceiling.  This means that the various firms come to an agreement with the state as to how much profit they must take to operate to prevent firms from taking in excess profits at the expense of actually maintaining the roads for which they are responsible.


Employment is a difficult issue in any change of management, but private firms will have to be restrained on their ability to supervise local agencies.  In time, all firms may eventually be operated by private employees, but initially all existing employees must remain government employees who remain the legal responsibility of whatever government agency they work for even if they are managed privately.  The private agency will not be able to hire or fire these existing employees, but attrition should be set to make sure that hiring by the public agency is frozen to allow the private firm to streamline costs as much as necessary.  Only the local agencies will be able to make employment decisions with existing employees in regards to firing and rehiring.  New hires would likely be employees of the firm and not the county, city or town.  However, due to the fluid nature of contracts existing employees would frequently be uprooted.  Thus, if requested, the government agency must be able to allow non-managerial employees who do not wish to relocate to be hired onto the new firm at the end of the contract with the old firm.  


Standards have been heavily discussed as part of the Statewide Contracting Plan.  In fact, the whole purpose of consolidating services is to improve standards beyond what a small county or municipality typically provides.  It is well known that a good private firm will often do a better and more thorough job than a public agency, but there are also bad firms who do not.  This means that the state must be able to supervise these firms, and the state must have the ability to terminate agreements with firms who do not follow proper standards or protocols.  If a firm misuses public funds, fails to complete projects, fails to meet proper standards or does not follow protocol in dealing with local agencies they will have face penalties including contract termination, fines and/or will not be allowed to ever contract for road maintenance services again in the state.  Most issues will likely be able to be mediated, but egregious actions by the private firm will be penalized.  This is one beauty of this method is that it is far easier to punish a private contractor who fails in their duties than it is another government agency who is often protected by home rule laws.

It should also be noted that standards may be created that differ from state standards in this system considering that state supervision would be limited to regulating the activities of the private firms.  If the statewide local roads commission elects to create separate standards from the state, they may do so if done in committee with the private firms hired to manage local roads.  The idea is not to have the state to take over local roads, so keeping a separate structure with limited state oversight is an ideal solution.


A private firm will not have the same powers as a government agency.  While that is obvious in any contract, the private firms will be provided with broad powers to provide road maintenance services on behalf of local agencies.  However, this is limited on the fact that they will have no access to construction funding, will not be involved in construction activities unless permitted to do so by the local or state agency and will not be permitted to operate outside the limits of local laws and ordinances.  That means if, for instance, a county has specific road design standards, landscapes the public right-of-way, has set truck restrictions or has set speed limits the private agency cannot work outside those parameters unless given permission to do so.  A private firm may also not conduct any activities on any roads not specifically assigned to them unless the state or other agency has agreed for them to do so.


Local government by nature has a massive amount of service duplication.  The majority of local governments are not laid out based on efficient use of resources, but on a view that a smaller geographic area will result in faster services and more responsive local government.  That may be true in many cases, but it does not work as intended for road maintenance.  It drives up the costs of maintaining roads while limiting the available of trained professionals to handle technical problems.  In almost all cases, a local agency is providing the same service in the same area as either another agency provides within the same or nearby area.  An example of duplication of services is having a state DOT office maintaining state roads within the same county as a county road department or multiple cities and towns maintaining their own roads within a county.  In some cases that makes sense if, say, a high population city is in the middle of a very high population county but in a rural area duplication of services does not work.

An example might be rural Oklahoma.  Bryan and Choctaw Counties both border each other.  Choctaw County has a population of 15,000 while Bryan has 42,000.  Inside Bryan County, 15,000 residents are chipped away in the city of Durant with 12 other incorporated municipalities carving away the county's tax base.  Choctaw has a couple of towns with the largest, the county seat, taking up a third of the county's population.  A clear duplication of services exists not only with the counties and municipalities within, but also these two bordering counties who both run their own operations with low populations and few resources.  

If a private firm assumed all of the county and municipal responsibility in ODOT Division 2, which both counties fall within, the first thing they would do is to combine these agencies where it makes sense.  Bryan and Choctaw forces might be combined, and the cities within would be combined with the county forces.  It does not mean that all counties within the region would operate as one unit, but what it would mean is that if they decided it would make sense to combine these forces sharing equipment, manpower and materials they would do so.  If over the term of the contract, five employees either quit, were terminated or died then the firm could either downsize the staff or hire their own employees to replace the lost employees.  Quite possibly the 9 counties in the region may be combined into 3-6 units operating under the umbrella of the firm in charge.


In no case should a private firm ever be entrusted to operate without constant supervision from a public agency.  In this case, the public option of the Statewide Contracting Plan is still valid, but with the technical side hollowed out.  Instead of organizing a public agency staffed with engineers and technicians supervising multiple local agencies as a single unit, multiple private firms are hired who already have that staff in place.  What remains of the public element is a political committee that has oversight of the private firms. left with a more political structure.  An association of all local government agencies would be formed to oversee and steer activities conducted by the private firms and to work on behalf of the state in establishing policies and procedures.  On behalf of the state, the agency will have permission to set commissions, manage firms and approve/reject contracts.  The statewide local roads commission may also hire its own chief engineer to oversee the activities of the private firms.


Transitions from one public agency to another are perilous, and the fear of job losses and titles are very real.  If the idea is to centralize road maintenance responsibility under a statewide unit, doing so with private forces may be the best way to do so.  By privatizing the process, it allows the entire process to be done on a trial basis without any disruption to existing local agencies.  Instead of consecutive five year contracts, the initial five year contract is the only contract allowing competing engineering firms to help transition a decentralized maintenance structure into a cooperative structure over a five year transitional period.  Using private forces will also allow outside input on how to better operate a centralized public agency working on behalf of local agencies.  When the transition is complete, the local roads commission will select employees from all participating firms to become employees of the statewide local roads commission with the private option transitioning to a public option.


In states with strong home rule, the ability to consolidate public services to a state or regional level is difficult and usually impossible.  If it is done based on a voluntary approach, the result is a piecemeal approach of participating and non-participating agencies with politics instead of need deciding who participates.  If participation is too low, it becomes difficult to pool resources resulting in status quo becoming the most appealing option.  Low participation also results in finger pointing if either a consolidated or free agency feels that the other has an unfair advantage.  This is a big reason why states have abandoned any efforts to directly aid local governments.  

In this plan, the state government stays hands-off with the day-to-day operations of local road maintenance, but they provide a means to supervise local roads indirectly by entrusting a private firm to do that job for them.  How the state does it is to personally fund operations costs thus giving a strong incentive for local participation.  Thus, the local government is likely to join if the costs to join are free.  The local agency will have to distribute resources for maintenance from their own funding, but they will not be held down with operations fees.

Privatization of road maintenance may also be a tool to clean up local waste and corruption as a private employee under contract obligation will not be affected politically the way a public employee would doing the same job.  The private firm makes those decisions with the cooperation of local governments while the state is there to put a stop to those decisions if the private firm is in major error.  Using the centralized privatization model allows local agencies to hand off responsibility for road maintenance to a larger firm that just happens to not be another government agency. 

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