OUTSOURCING CONTRACT TERMS
OFFER INSIGHTS INTO BETTER
MANAGING SNOWFIGHTING
In North America as in the rest of the
world, most streets and highways are owned and operated by governmental agencies. When snow and ice control are required, employees
of those agencies, for the most part, operate agency-owned equipment to plow the roadways
and apply materials to preserve or restore safe driving conditions.
Over the past couple decades, citizen
demands to curtail taxes and demonstrate cost-effectiveness in delivering public services
have spawned an age of accountability that has swept over the management of all public
works activities. Private delivery systems
have been touted as a means of improving customer service and controlling costs.
In other areas of public works, pioneered
in the area of solid waste collection and disposal a generation ago, public agencies
contract with private companies to provide services otherwise performed by their own
employees. In snowfighting, until recent
years, such contracts were often limited to mobilizing supplemental resources when storms
overwhelmed agency personnel or equipment. More
and more, however, and particularly in Canada, contracting for winter maintenance has
become commonplace.
Two key lessons learned by public works
managers from their experience in contracting for solid waste services are, first, that
there are times when keeping some or all of the function in-house makes sense and, second,
that the management and information systems required for effective contracting-out can be
equally valuable in better understanding the total costs and more effectively allocating
resources even when the service is performed using agency crews and equipment.
There is much to learn from a study of Best
Practices of Outsourcing Winter Maintenance Services
-- coincidentally the title of a report issued last year by VMS, Inc.,
perhaps the largest private sector highway operations contractor in the U.S.
The experience and perspective of this
report are of great value to elected public officials who provide the resources and
overall policy for delivering a government’s service to its citizens. And also to public works professional anxious to
implement performance management systems that demonstrate effective provision of services
to meet or exceed the expectations of their “customers (i.e. taxpayers, motorists and
highway-dependent commercial interests). The
report also offers insight and instruction to would-be private sector contractors on those
steps they need to take to be an attractive alternative to agencies’ use of their
internal equipment and personnel. As the
report indicates, private firms often lack skill, expertise and experience in winter
maintenance since they are often an afterthought of highway construction contractors whose
workforce operates dump trucks and steamrollers during the other three seasons of the year
(but the availability of this workforce is often questionable because generous
unemployment benefit programs can often be tapped by construction workers who have
accumulated significant overtime).
Rod Pletan and Dick Stapp conducted the
study for VMS, compiling responses about outsourcing winter maintenance from over 70
different agencies in 40 states, 8 cities and 3 toll/turnpike authorities. The report gives the authors’ views of the
best and most creative contract language and provisions that are being used by public
sector owner-agencies today.
The report’s key finding: “… contracts should be written to
include both income level performance measurements and outcome based pay items.” In short, the report dismisses management of inputs
and even management of outputs. It
focuses on how outcomes “lead to value as measured by the
customer” (emphasis in the original).
For snowfighting, what, exactly, does this
mean? They explain:
“INPUTS are resources like
labor hours, equipment hours, material units, etc. and the monies expended for using these
resources.
“OUTPUTS are accomplishments
like lane-miles/kilometers plowed, lane-miles/kilometers sanded, trucks equipped, etc.
“OUTCOMES are bareness of
pavement, reaction time, friction, reduction in accidents, duration and frequency of
closures or chain ups, advance warning time to customers, etc.
“VALUE to the customer are
issues like comfort, satisfaction, feeling of security, being able to travel when and
where one wants to (access), being able to travel at own speed (mobility), advance
knowledge of what to expect, etc.”
In the past, managers have tended to count
quantitative inputs or outputs. The new
management paradigm requires policy-makers and managers to measure qualitative
outcomes and values (which need to be aligned so that changes in outcomes directly reflect
changes in customers’ perceived value of the service).
As an example, Minnesota DOT uses an outcome/performance measure, a
photo/narrative combination to measure crews against a “Regain Time” standard
that is the time from the end of the event until bare lanes are obtained. Sweden uses a variant, stipulating that their
“highest volume road shall be free from snow and ice no later than two hours after
the snow has stopped falling if the road surface temperature is above –8 degrees C
(18 degrees F). Further, during the period
when the snow is actually falling, the depth of snow shall not exceed 2 cm (0.8 in.) and
slush depth shall never be more than 1 cm (0.4 in.).”
It should be obvious, that the
outcomes/value measurement approach has equal value for in-house performance management as
well as utility in judging (and compensating) contractor performance.
In the past, contractors have been
rewarded on the basis of inputs or, better but still inadequate, outputs. Contractors would be paid based on how many hours
they operated their trucks or how many tons of salt they applied (inputs) or number of
lane-miles maintained or number of storms called out or rounds made (outputs).
The new philosophy advocated in the VMS
report focuses on outcomes (which are tied to value as perceived by the customers). Virginia DOT pays VMS an annual fee, for example,
to restore bare pavement within 24 hours after every storm – no matter how many
storms, how long they last, how much material is applied, etc. Kansas City, MO contractors are also paid lump
sums, but on a route-by-route basis, for servicing residential neighborhoods. The Maine DOT performance specification states: “The contractor shall schedule his work such
that by noon of the day following the end of the storm, three and a half (3½) feet of the
pavement will be exposed on each side of the centerline.”
More common than the pure
“outcomes” contracts, however, are hybrids of “input level pay items
with output or outcome level expectations. For
example, a contactor may be required to have his equipment report to work within a
specified period of time after being called (outcome based work accomplishment) but
he is reimbursed for the time the equipment is used plowing snow (input
based).”
Contracts are the means of determining and
rewarding performance, but, as the above examples suggest, they also serve to assign risk. No one likes risks, obviously. Politicians understand that whatever the means
adopted to deliver service, customer satisfaction (or dissatisfaction!) will be laid at
the feet of the elected officials who “own” the roadway – no matter whether
their own employees or contractors are actually providing the service. To date, most contracts have transferred little
risk to contractors – often to their great relief.
Agencies, however, the study found, are beginning to shift more risk to
their contract service providers – and this is working because private sector firms
are now investing more heavily in training their crews and building the professionalism of
their winter maintenance operations (just as most of them have long-since infused in their
regular construction operations). The adage
“to whom much is given, much is expected” comes into play – contractors
assuming more risks will expect to be compensated for those risks.
The authors summarize the “best
practices” of performance-based winter maintenance contracting. Whether an agency contracts the work or does it
themselves, the principles have equal validity. These
“best practices” include:
-
“Best practices are those
that address the fact that the private sector workforce may not be fully available and
trained, but clear contractual language is included that ultimately places the
responsibility on the private sector to develop, train and equip its own personnel as well
as bear most of the risk associated with fluctuating winter weather year to year.
-
Best practices are those that
understand the importance of contractors having an approved Snow and Ice Plan but confine
contractual language to measurable outcome-based performance measures with payment for
work correlated with measured performance achieved.
-
Best practices include insisting
that everything possible is done to connect the producer to the user-customer as opposed
to the producer simply doing work for the owner-agency (or a contractor representing the
owner).
-
Best practices are those that
generate a strong willingness and desire on the part of the private sector to conduct its
own R&D as a means of maintaining its own competitiveness and becoming most effective
and efficient in producing defined and measured outcomes.
-
Best practices are those where
producers benefit from proactively responding to RWIS based predictions of road surface
conditions and are encouraged to utilize anti-icing and other preventive methodologies to
more expediently meet customer expectations.
-
Best practices seek ways for such
advancements in knowledge to be transferred and shared as much as possible throughout the
entire industry as if it were public knowledge.
-
Best practices uses contract
language that maximizes the opportunity and responsibility for the private sector to prove
that they can be responsive, efficient and/or effective in producing winter maintenance
services to the public. After all, if they do
not, the owner-agency will ultimately be responsible for initiating corrective action
anyway.”
Source – Best Practices of Outsourcing Winter Maintenance Services, Research Project sponsored and funded by VMS, Inc., Richmond VA. Project Manager Robert H. Bourdon, P.E. July 1, 2001. Published in Salt and Highway Deicing, Spring 2002.
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