in a contract with the Virginia Department of
Transportation, inspectors at VMS Inc. spotted a
rough patch on Interstate 95 north of Richmond, near the
Parham Road interchange. The company, which has a
10-year contract to maintain 1,250 lane-miles of
Virginia's Interstate system, paved it over. Two years
later, the same stretch of road started falling apart
VMS engineers took a closer look, they discovered that
there was a creek running under the road. The moisture
was affecting the entire roadbed and accelerating the
rate of deterioration of the pavement on the surface. Even
though VMS was not contractually obligated to make
capital improvements, it paid the expense of installing
under-drains out of its own pocket.
the drains, explains VMS President Rich Herlich, the
company faced the prospect of repaving the Interstate
four more times over the life of its 10-year contract.
It was cheaper to fix the underlying problem.
worked. Says Herlich: "We haven't touched it
theory, VMS didn't do anything that VDOT couldn't have
done if it had been maintaining that segment of the
Interstate itself. But that's not how VDOT conducts
business. Herlich contrasts VMS's actions with a similar
case near Fredericksburg. There's a spot that
VDOT has re-paved three times in the past 10 years, he
says, possibly because of water problems under the road.
difference between VMS employees and VDOT employees
isn't one of intelligence, expertise or professionalism:
It's the incentive structure the two organizations are
working under. As a profit-making enterprise with a
10-year contract, VMS concluded that it was more
profitable to fix the drainage problem. VDOT, which
operates in two-year budgetary framework, calculated
that it made more sense just to keep on patching.
lies a story. Acting on the premise that the state lacks
the funds to build enough roads to relieve traffic
congestion, Gov. Timothy M. Kaine has proposed raising
nearly $1 billion a year in transportation-related
taxes. The state Senate wants to raise somewhat more
money through a different mix of tax increases. And the
House of Delegates, though resistant to the idea of
raising taxes, proposes diverting revenue streams from
the General Fund to the Transportation Trust Fund.
common thread of each set of proposals is that the
Virginia's transportation system requires endless
infusions of money. In other words, it's easier to suck
the money out of the taxpayers (or the General Fund)
than it is to press the state bureaucracy to conduct its operations
in a most cost-effective manner.
estimates that the state could save about $200 million a
year by outsourcing the maintenance of all of its
Interstates as well as its primary and secondary roads
-- that's about 20 percent of the nearly $1 billion a
year the state spends on maintenance. And that's just
today. VDOT anticipates that rising costs in the
construction sector will inflate maintenance costs by
four percent annually, while the addition of roughly 200
miles of road each year to the VDOT system will add
another half a percent annually. At that rate,
maintenance costs will double in another 15 to 16 years
-- bringing potential savings from outsourcing to $400
million a year.
those sums, as large as they are, don't close the entire
transportation funding gap that our solons foresee, nor
do they touch a major underlying cause of traffic
congestion, Virginia's dysfunctional pattern of land
use. Furthermore, I'm well aware that Herlich has an axe
to grind. As one of two companies to whom VDOT currently
outsources Interstate maintenance, VMS surely stands to
gain a lot of business if legislators heed his advice.
But even with all those caveats, Herlich offers an
incisive critique. Virginians need to listen to him.
surprisingly, given his perspective, Herlich is not a
VDOT basher. He actually considers VDOT one of the best
run state transportation departments in the country.
tell people to visit other states," he says. "VDOT
has a heck of a road system."
philosophy is to make road maintenance the top funding
priority, and then to pay for new construction with
what's left over. By contrast, in many states the
philosophy is to build the roads, perform minimal
maintenance, go back to the federal government for
more money and fix what could have been maintained for a
fraction of the cost through timely repairs.
submitted proposals to more than 20 states, and we've
taken a close look at their roads," Herlich says. "Go to Missouri. Ride on Interstate 40
between St. Louis and Jefferson City. It's in terrible
condition." By his standards, Virginia
and Florida have the best-maintained roads in the
problem isn't the engineers at VDOT -- it's the rules
they work under. In a free-wheeling conversation with
Herlich, I identified four major reasons why, despite
VDOT's reputation as a superior transportation
out-sourcing makes sense.
two-year budgetary cycle creates a perverse set of
rewards. VDOT has an incentive to spend every dime in
the budget, whether the expenditure makes sense or not.
If the department doesn't spend it, it risks losing it
in the next budget cycle. "In
the past, the state paved 10 percent of its roads every
year," Herlich says. "You had some pretty good
roads that didnít necessarily need to get paved at
that point in time."
the short-term focus creates a partiality to patching
problems over rather than identifying underlying causes
and fixing them with funds not allocated in the two-year
budget. But the cost of repairs can increase at a
geometric rate. "Pay me now or pay me later," says
not talking about an asphalt resurfacing at $60,000 per
lane-mile. Youíre talking a complete reconstruction at
$1 million per mile!"
Outsourcing creates someone to hold accountable. VMS's
maintenance contract requires the company to meet 65
specific performance standards covering everything from
the size of pot-holes to the condition of the
guardrails, from the reflectivity of lane stripes to the
height of the grass along the road. (Believe it or not,
grass is not merely an aesthetic issue -- it affects
motorists' field of vision, and it also affects drainage
around the roads.)
gets penalized financially if it fails to meet the
performance standards. Who gets punished when someone
falls short at VDOT? "VDOT isn't going to penalize
itself. VDOT isn't going to give itself liquidated
damages," Herlich says. The fact is, VDOT
has a much bigger stick to enforce standards when itís
dealing with a private contractor than when itís
dealing with its own organization.
in sub-contracting. VMS can perform work less
expensively because it enjoys considerably more latitude
in whom it sub-contracts to. VMS doesn't actually
perform the maintenance with its own crews. It manages
the maintenance and sub-contracts the actual work to
private crews. VDOT suffers significant disadvantages.
State rules limit bidders on contracts to companies that
meet various licensing and bonding requirements.
Typically, only a handful of large companies meet those
can go out and find contractors that never worked on an
Interstate," Herlich says. "Mowers who work in
an office park but never worked on an Interstate.
Ironworkers to work on a guardrail. VDOT can get two
bids, I can get 10."
and risk. VDOT employees, like most state employees,
have an aversion to risk. Says Herlich: "If
youíre a VDOT official and try something that turns
out wrong, nobodyís going to say, 'Good try.'" No
one ever got in trouble by sticking to the budget.
by contrast, encourages creative solutions and
responsible risk taking. The company contracts with VDOT
to maintain roadway standards at a fixed price for 10
years at a clip. If the company can find a way to save
money, the savings go to its bottom line. As a
consequence, VMS scours the country -- indeed, the world
- for better ways to do things.
a private company," says Herlich, "we think
something will work because itís worked other places.
If it doesnít work, weíll fix it."
much money could the Commonwealth save by outsourcing
its road maintenance? It depends on how you count the
numbers, of course. The state of Florida, which has outsourced 50
percent of its Interstate maintenance, says that it was
saving 15 percent to 18 percent on the most routine
maintenance tasks like filling potholes. The potential
is considerably greater when the ability to think longer
term is taken into account.
contends that VMS has saved the Commonwealth about 25
percent so far on its Interstate contract. Some in state
administration may argue that the number is high, but
the fact is, no one really knows. VDOT's books aren't
set up in such a way as to readily calculate a number.
Herlich suggests that VDOT savings would be higher if
the bean counters took into account VDOT's overhead like
insurance, pensions, legal expenses and environmental
comparison is a little trickier with secondary and
primary roads, a realm where voters have an expectation
that they can call up their local delegate and get a pothole
fixed on their street. But Herlich thinks that savings
of 20 percent are achievable.
if Herlich errs on the optimistic side, that's still way
too much money to ignore. While some in the General
Assembly equate fiscal responsibility with raising
taxes, at least a few are looking for ways to save
money. Del. Leo Wardrup, R-Virginia Beach, has
submitted a bill that would require all maintenance on
Virginia's Interstate highways to be "carried out
under competitively bid contracts awarded by the
Commonwealth Transportation Board." (See HB
fate of Wardrup's bill will serve as a barometer for the
General Assembly's willingess to address Virginia's
transportation woes through structural reform rather
than higher taxes. It's only a start, but it's a darn
good one. If legislators have the best interests of the
citizens and taxpayers in mind, they need to give it
January 30, 2006