Program: Highway maintenance

Appropriation:

All from Special Revenue Funds:

$232,911,100

 

Total:

$232,911,100[2]

Program Description:

This appropriation funds routine and heavy maintenance on the state’s roads and highways, much of which is currently done by state, county and municipal employees.

Recommended Action:

The state could create an asset-management system (as required by Public Act 499 of 2002) with the objective of maintaining a well-defined quality of roadbeds and rights-of-way. Once technical standards are established, private contractors and the existing municipal workforces would have the right to bid on the work in competition with each other.  Contracts would be granted to qualified winning bidders. 

Virginia’s Department of Transportation shifted the state’s interstate highway maintenance on 250 miles of road to private contractors in 1997 using an asset-management, performance-based system.  Maintenance quality has improved while costs have fallen.  The program was so successful that four years later the District of Columbia turned over the maintenance of its highways to the same contractor, proceeded to complete pothole repair back-logs within a few months.

MDOT has valuable experience contracting for road maintenance.  As an experiment in 1994, and despite political opposition, the agency contracted with a private firm (ABC Paving Company) for maintenance of 121 lane-miles of I-496 and US-27 near Lansing.  MDOT extended the firm’s first $2 million contract once before re-opening the contract for bids again in 1997.  ABC won the bid again, this time for 43 months of maintenance for $3.2 million.

MDOT did not renew ABC’s contract after the 43-month agreement expired.  It was revealed at that time that MDOT had never calculated the state’s cost to maintain the same roads maintained by ABC.  Therefore, it was difficult if not impossible to judge the financial success of the privatization effort.  Various attempts to estimate the state’s cost were made after the fact. Some suggested ABC’s costs were higher than the state’s costs; others suggested ABC was competitive even with municipal road-maintenance workforces that benefit from large economies of scale.  In the end, the state missed an opportunity to test this type of privatization because it did not understand its own costs well enough to compare them to those of competing bidders.  MDOT could build on this experience now by fully assessing its own costs of road maintenance so they may be compared to those of private bidders.

Numerous studies of cost saving and performance from competitive contracting for public services and infrastructure — both around the United States and abroad, and within federal, state and local governments — suggest that cost savings average between 25 and 30 percent over previous government costs.[3] If Michigan were able to achieve just 25 percent savings, competitive contracting would yield annual savings of $58,227,775.  Savings: $58,227,775.