States Have Increased the Contracting Out of Highway Activities, and Consultants and Contractors Increasingly Have Substantial Responsibility for Ensuring Quality and Delivery of Highway Projects

State DOTs have increased the amount and type of highway activities that  they have contracted out to consultants and contractors over the past 5  years. For example, the South  Carolina DOT began to increase its use of consultants to perform  construction engineering and inspection work in 2000. While some states have used these contracting techniques in their highway  projects, many states reported that they did not use them very often. State DOT officials responded in the survey that  their expectations for their contracting levels over the next 5 years are  based on their expectations for highway program funding levels,  legislative considerations, anticipated workload, and staffing levels. State DOTs Indicate That Lack of In-house Staff and Expertise Are the Most Important Drivers in States’ Contracting Decisions

State DOTs indicate that the most important factor in state DOTs’ decision  to contract out highway activities is the need to access the manpower and  expertise necessary to ensure the timely delivery of their highway  program, given in-house resource constraints. While state DOTs consider  cost issues when making contracting decisions, cost savings are rarely the  deciding factor in contracting decisions, and no state we interviewed  regularly performs formal assessments of costs and benefits before  deciding whether to contract out work. State DOTs Use Various Controls to Protect the Public Interest, but They Face Additional Challenges Arising from Current Contracting Trends

State officials we interviewed told us that they have sufficient tools and  procedures in place to monitor and oversee contractors to ensure that the  public interest is protected. With current trends in contracting state DOTs  face additional challenges in conducting adequate oversight and  monitoring. For projects using federal-aid highway funds, FHWA requires that a  state highway employee always have ultimate responsibility for successful  project completion. However, when consultants and contractors have  oversight or managerial roles on a project, the state highway employee  may be further removed from the day-to-day project activities. On a national level, FHWA has recently  conducted some reviews that touch on states’ use of consultants and  contractors. While FHWA has identified risks associated with the use of consultants  and contractors, the agency has not comprehensively assessed how, if at  all, it needs to adjust its oversight efforts to protect the public interest,  given current trends in the use of consultants and contractors. Recommendations for Executive Action

To more effectively and consistently ensure that state DOTs are  adequately protecting public interests in the highway program, given  current trends in the use of consultants and contractors, we recommend  that the Secretary of Transportation direct the Administrator of the  Federal Highway Administration, in the context of FHWA’s ongoing  activities related to quality assurance programs and risk management, to  work with FHWA division offices to (1) give appropriate consideration to  the identified areas of risk related to the increased use of consultants and  contractors as division offices work to target their oversight activities and  (2) develop and implement performance measures to better assess the  effectiveness of state DOTs’ controls related to the use of consultants and  contractors to better ensure that the public interest is protected. Appendix I: Objectives, Scope, and Methodology

This report addresses the following objectives: (1) the recent trends in the  contracting out of state highway activities; (2) the factors that influence  state departments of transportation (state DOT) in deciding whether to  contract out activities and the extent to which state DOTs assess costs and  benefits when making such decisions; (3) how state DOTs protect the  public interest when work is contracted out, particularly when consultants  and contractors are given substantial responsibility for project and service  quality and delivery; and (4) the Federal Highway Administration’s  (FHWA) role in ensuring that states protect the public interest.
Why GAO Did This Study

Pressure on state and local governments to deliver highway projects and services, and limits on the ability of state departments of transportation (state DOT) to increase staff levels have led those departments to contract out a variety of highway activities to the private sector. As requested, this report addresses (1) recent trends in the contracting of state highway activities, (2) factors that influence state highway departments' contracting decisions, (3) how state highway departments ensure the protection of the public interest when work is contracted out, and (4) the Federal Highway Administrations' (FHWA) role in ensuring that states protect the public interest. To complete this work, GAO reviewed federal guidelines, state auditor reports, and other relevant literature; conducted a 50-state survey; and interviewed officials from 10 selected state highway departments, industry officials, and FHWA officials.

What GAO Found

State DOTs have increased the amount and type of highway activities they contract out to consultants and contractors. State DOTs are also giving consultants and contractors more responsibility for ensuring quality in highway projects, including using consultants to perform construction engineering and inspection activities as well as quality assurance activities. Many state officials reported that they expect the amount of contracted highway activities to level off over the next 5 years, due to factors such as uncertain highway program funding levels. State DOTs indicated that the most important factor in their decision to contract out highway activities is the need to access the manpower and expertise necessary to ensure the timely delivery of their highway program, given in-house resource constraints. Officials said that they must contract out work to keep up with their highway programs. Of the 50 departments that completed GAO's survey, 38 indicated that they have experienced constant or declining staffing levels over the past 5 years. While state DOTs consider cost issues when making contracting decisions, cost savings are rarely the deciding factor in contracting decisions, and none of the 10 departments that GAO interviewed had a formal process in place for systematically assessing costs and benefits before entering into contracts. State DOT officials that GAO interviewed believe that they have sufficient tools and procedures in place to select, monitor, and oversee contractors to ensure that the public interest is protected. However, implementation of these mechanisms is not consistent across states, and state auditors reported weaknesses in several states. State DOTs also face additional challenges in conducting adequate oversight and monitoring, given current trends in the use of consultants and contractors. For example, while state employees are always ultimately responsible for highway project acceptance, they are increasingly further removed from the day-to-day project oversight. Officials from all 10 state DOTs that GAO interviewed said that current trends may lead to an erosion of in-house expertise that could affect the state DOTs' ability to adequately oversee the work of contractors and consultants in the long term. Because states have broad latitude in implementing the federal-aid highway program, FHWA has a limited role in states' use of consultants and contractors. Typically, FHWA's focus is on ensuring that state DOTs are in compliance with federal regulations when contracting out, such as ensuring that federal bidding requirements are met. FHWA has conducted both local and national reviews that have also identified various risks related to the increased use of consultants, including weaknesses in state quality assurance programs and an increased potential for conflicts of interest. While FHWA has identified these risks, it has not comprehensively assessed how, if at all, it needs to adjust its oversight efforts to protect the public interest, given current trends in the use of consultants and contractors.