A Dec. 15 memo from the Department of Transportation and Public Facilities commissioner tells his workforce to brace themselves for a sea change:
Marc Luiken explained that he is moving almost all of the design work out of the department and into the private sector. Seventy-six design jobs will be eliminated in the 2018 fiscal year’s budget, which starts July 1.
Luiken has a goal of operating with more contract staff and fewer in-house engineering staff, allowing design and construction work to scale up and down based on federal funding. He doesn’t want the State to maintain a large stable of engineers and other designers.
“The department currently contracts 55% of all design work and will strive to send all design work to contractors by FY2019,” Luiken wrote.
Luiken did not respond to a request for comment for this story.
COST SAVINGS OR COST TRANSFER?
It sounds like a cost-saving measure, but is it? Not necessarily, according to a study by Louisiana State University and Texas A & M University.
Their report, released in 2014, reviewed the widespread trend of privatizing engineering services, and concluded that transferring all these roles to the private sector creates no cost savings.
The study notes that factors that favor privatization include:
- more timely delivery of products
- more products delivered within the same time period
- greater innovation and efficiency prompted by market competition
- development of a more vibrant private sector
Factors that do not favor privatization include:
- cost of administering contracts with the private sector
- loss of technical expertise within the public sector agency, thereby reducing its ability to fulfill its responsibilities
- loss of independent quality control of state projects
- loss of interstate and federal collaboration and liaison opportunities such as the American Association of State Highway and Transportation Officials, peer review programs, Federal Highway Administration participation in state programs, and collaborative research, including technology exchange with other state DOTs and public agencies and research conducted at state Transportation Research Centers
GROWING COMPETENCIES VS. CALCIFICATION
Alaska DOT currently contracts about 55 percent of its design work to private companies. Because dollars for transportation and infrastructure projects are usually passed through from federal transportation grants, those contracts don’t necessarily go to the mom-and-pop engineering firms, but often to the big international companies that happen to do work in Alaska, such as HDR and CH2M Hill. There can be no in-state preference when it comes to federal dollars.
The design contracts still need oversight, so for every four state jobs that are transferred to the private sector, one job of overseeing the contract (or a handful of design projects) must remain at the department.
But DOT is experiencing a brain drain, according to those familiar with the department. The long-time employees with 30 years of experience are leaving due to retirement, and several dozen jobs will be moved to the private sector. There is not a core group of up-and-coming people with the experience to manage several design projects at once.
Most of the jobs that will be moved into the private sector will come from Anchorage, Fairbanks and Juneau offices, where the bulk of design work is done.
“The big thing is whether there is enough core competency left internally to administer the work,” said one source close to DOT. “Someone has to know enough about the work so they can assess the value of what the state is getting from consultants.”
Design is typically 10 to 20 percent of a project’s budget, so cost overruns can run through the money quickly. It takes senior-level experience to identify problems and head them off before they become costly mistakes.
At the same time, DOT is a massive department with more than 3,000 employees. Such bureaucracies typically develop calcification as employees seek to protect their jobs. Reducing the size of bureaucracies can be disruptive but also have the benefit of encouraging efficiencies.
Maybe this is an area where DOT is getting it right and trying something new. It would be nice to see the same mindset applied to the Alaska Marine Highway System, where privatizating contracts could deliver much greater cost savings and make the operationof the sytem more financially sustainable.
The commissioner’s memo to employees, in its entirety:
Today, Dec 15, the Governor released his SFY 2018 budget. Our operating budget reflects a reality that is facing all state agencies and all Alaskans. DOT&PF fared well on some fronts and faces challenges on others.
In the budget narrative you will read:
The Department of Transportation and Public Facilities is embarking on an aggressive plan to get more projects completed from the available federal transportation funding by shifting to private contractors not only for construction but for the design phase as well. The department will increase work to the private sector while shrinking internal design staff. This has the added advantage of bolstering the private sector economy. By operating with more contract staff and fewer in-house engineering staff, the department will balance public and private sector specialized expertise and be able to quickly scale up and scale down based on available funding.
Including this budget component, there are 11 Department of Transportation and Public Facilities components with design staff. Among the 11 components there are 76 design position eliminations in this budget. These reductions represent the initial phase of the plan to maximize the use of private design contractors while reducing the proportion of design work done in-house to among the lowest in the nation. The department currently contracts 55% of all design work and will strive to send all design work to contractors by FY2019. Department of Transportation positions that remain after this initiative will be responsible for project management and contractor oversight as opposed to hands-on engineering work. During the Governor’s FY2018 amended submission, and in subsequent budget cycles, more design positions will be identified for deletion.
This narrative reflects the expectation that DOT&PF will transfer a significant portion of our design work to the private sector. As noted above, 55% of our design work is already sent to the private sector. Governor Walker and the Office of Management and Budget staff expect a majority of the remaining work will also be transferred to private sector consultants. This offers a significant challenge for our department and a departure from our current business model. We will work together to make this transition as seamless as possible.
As we transition, I am committed to two critically important goals:
First, we will honor and care for our people as changes are implemented. Please remember, your Leadership Team and I rely on and value greatly the quality, experience, and contribution of all of you. Our One DOT&PF is real and we will continue with the themes of trust and teamwork as we go forward. We will do everything in our power to be collaborative, transparent, and respectful.
Second, we must navigate an aggressive transition timeline while minimally impacting our federal program. We must be able to continue to produce quality project designs in a manner that allows us to obligate our annual federal program.
Finally, I want to speak to you from my heart and say that even as our practices change, our mission and our core values remain constant. Thank you for all the great things that each and every one of you do for our department and for our state.