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corporate dominance | government

Secretary of State Audit Finds Contracting Out More Expensive

Ron Saxton, as governor, proposes to privatize some of the functions now performed by state employees. He tells the voters this action would reduce taxes. In reality, it costs the tax payers more money privatizing government duties than having state employees do the work. The work done by the private sector is usually done poorly where a state employee could have done better work. In some cases, state employees have to review or audit the private sector's work, which would have been cheaper if the state employees did it their own. Here is an article to support my rant.
Secretary of State Audit Finds Contracting Out More Expensive
 http://www.aeeo.org/SI-Journals/SI-spring-06.pdf

Following the national trend to hire engineer consultants has cost ODOT 20 percent more, according to the Secretary of State's audit released at the beginning of April. Using the funds allotted to the department from the 2001 Oregon Transportation Investment Act (OTIA), ODOT contracted out approximately 400 projects from July 2000 to June 2003. The auditors reviewed 12 of these contracts and determined that the Agency is not effectively negotiating contracts with outside engineers.
"This type of trend is being seen all over the country," Mary Louise VanNatta said. VanNatta, in her role as AEE Executive Director, is involved with the National Association of State Highway Transportation Unions (NASHTU) who watches this trend. In their recent "Highway Robbery" report, they cited 80% of studies show that contractingout costs more than doing the work in-house. The Secretary of State's audit addressed three major issues, suggesting that the Agency make significant changes in all three areas.
First, the audit showed inhouse design to be 20 percent less expensive than the cost to hire outside contractors. Between July 2000 and June 2003, the agency hired about 400 contractors, a value of approximately $54 million. The cost of the twelve reviewed contracts totaled about $1.4 million. The audit showed that the twelve projects could have been done for 20 percent less, nearly $284,000, by using in-house engineers. AEE field representative Chris Myers has a different opinion.
"The cost difference of contracting out is far greater than the 20% reflected in the Secretary of States audit," said Myers. "I am certain that that figure is far too low."
Myers, who retired from ODOT last year, worked on the team that selected contractors for the ODOT flexible service contracts. He found flaws in the recent audit release.
"They were missing a few critical details to accurately estimate the cost difference," he said.
Next, it determined that the department did not "aggressively negotiate to ensure a fair and reasonable price" nor did it have the information necessary to do so. The auditors found little evidence that price negotiations had occurred during the contract stage.
Often, "not to exceed" amounts were set for the projects that were the same as the contractors estimated price.
Myers disagrees with this assessment.
"We were handcuffed from the beginning," Myers said. "We were ordered that we could not discuss price, we could only negotiate the number of hours."
Lastly, the audit revealed the significant loss of expert engineers from the agency after the shift to contracted service began. Department employees are being recruited by consulting engineering firms at an alarming rate. Four of the twelve original administrators left the agency to work for contractors. The agency plans to reverse the problem by increasing engineering salaries, implementing a new engineering classification system, and renewing the Graduate Engineering Program.
While Myers is excited to hear the news of a salary increase for engineers, he is doubtful that the Graduate Engineering program will greatly improve the situation. It was recommended that the department implement a series of nine changes "to ensure negotiation of best price." Included in the list were such things as "review the local market for conditions for direct labor rates," "designate sufficient staff to review and analyze... rates," and "compare inhouse cost estimates to consultant proposals for each project."
The agency responded to each of the nine items, saying that they were all being implemented or in progress towards implementation.
"It's my opinion that the agency is just trying to whitewash the whole thing," Myers said.
To view a copy of the Secretary of State's Department of Transportation audit, visit  http://www.aeeo.org/documents/2006-101.pdf