CON CLUS ION S A N D P O L I C Y B R I E F N O .

1 3
R E COMME N DATION S
In order to keep up with growing need for
infrastructure investment and with changing envi-
ronments, public-works agencies must employ
additional cost-effective resources to ensure deliv-
ery of all necessary services. Outsourcing is one
method of achieving best value for each dollar
invested. Improvements in the cost accounting
of state agencies through implementation of new
accrual accounting standards—and further moves
toward full-cost accounting—will help decision
makers obtain a clearer picture of overhead costs.
The RPPI report makes several specific recommen-
dations to policy makers:

1 The benefits of infrastructure outsourcing are

rich and varied. Government decision makers,
as the customers, can choose goals of outsourcing,
INFRASTRUCTURE OUTSOURCING:
be they quick project completion, lower costs, or
LEVERAGING CONCRETE, STEEL AND ASPHALT THROUGH
some other goal. PUBLIC-PRIVATE PARTNERSHIPS

2 Avoid a narrow focus on cost comparisons

and start evaluating the best-value options.
Cost comparisons are, at best, educated estimates
adjusted for accounting differences and often
neglect differences in quality, reliability, risk, and
other factors that affect best value.
Innovative outsourcing is changing the face of infrastructure delivery in the United States. Record
economic growth has fueled the desire to rebuild and improve the nation’s infrastructure. While state
and local governments have always outsourced some infrastructure services and projects, the number
of vital infrastructure projects needing attention has led these agencies to seek even more outside
help. Unfortunately, federal legislation and tax and grant policies often stand in the way of state and
local infrastructure outsourcing. Reason Public Policy Institute’s policy study Infrastructure Outsourcing:

3 Evaluate all options available for structuring an
outsourcing or partnership. Choosing among
the rich variety of types of outsourcing and project
delivery can let government officials work with pri-
vate partners to customize the outsourcing or part-
nership to meet their particular needs and achieve
specific goals.
Leveraging Concrete, Steel and Asphalt Through Public-Private Partnerships brings together for the first
time a broad array of evidence on the motives and outcomes of outsourcing and public-private partner-
ships to deliver infrastructure projects.
TH E TR E N DS
Surveys show that outsourcing infrastructure services is a wave that continues to swell, affecting many

4 Understand the growing role of private-sector

industries in the delivery of public infrastruc-
ture. Currently, a massive backlog of highway,
school, water, and sewer projects plagues most of
the nation. Public agencies can ill afford to ignore
the ability of the private sector to help meet project
demands and manage project costs.
different types of public-works agencies across the nation. Most state agencies with responsibility for
infrastructure, such as environmental, recreation, and transportation facilities, as well as public buildings
and prisons, have expanded their use of infrastructure outsourcing over the last five years and plan
to outsource even more over the next five years. Each year, local governments outsource more
projects—landfills, water and sewer facilities, jails, public buildings, roads, and more.
Outsourcing and public-private partnership arrangements have evolved with greater use to include:

n Design. Contracting for architectural and specialty designers.

Reason Public Policy Institute
3415 S. Sepulveda Blvd., Suite 400
Los Angeles, CA 90034
310-391-2245; 310-391-4395 (fax)
www.rppi.org; www.privatization.org
n Engineering. Engineering consultants can meet increased demand or provide special expertise.
n Construction. Contracting for construction of part or all of a project or even for integrated design-
build (DB) by a single firm (or consortium).
n Maintenance. Private firms playing a more inte-
TH E B E N E F ITS OF
gral role in projects by actually guaranteeing
maintenance services when the project is built,
OUTS OUR CIN G
including DBM (design-build-maintain) and A wealth of evidence demonstrates that outsourcing can be an
DBOM (design-build-operate-maintain) con- effective tool that governments can use to deliver infrastructure
tracts that shift greater risk and responsibility to projects and capture a broad range of benefits. Outsourcing part or
the private sector. all of infrastructure projects helps governments to:

n Operation. Local governments in particular n Achieve improved quality;

have long contracted for operation of facilities, n Accommodate peak demand;
and operation is increasingly integrated with n Speed project delivery and meet deadlines;
design and construction in DBO (design-build-
n Gain access to expertise;
operate) and similar contracts.
n Improve efficiency;
n Turnkey. Projects that are a combinations of
the above, such as BOT (build-operate-transfer), n Spur innovation;
BOOT (build-own-operate-transfer), and the n Better manage risks; and
like, where the private sector delivers a com-
n Cut or contain costs.
plete project ready to operate.
The first seven benefits are often overlooked in the public debate,
but research shows that they often drive actual outsourcing deci-
sions. Infrastructure Outsourcing: Leveraging Concrete, Steel and
Asphalt Through Public-Private Partnerships provides the first system-
atic overview of all the potential benefits of outsourcing infrastruc-
ture projects, with both research summaries and case studies to help
public officials find solutions they can use themselves.

Given the dominance of cost issues in so many public debates,

the report provides a comprehensive review of the cost-comparison
literature for outsourcing infrastructure projects. It is, in fact, a
poor collection of literature with an implausible range of findings,
n Maintenance. Private firms play a more integral role in projects by actually guaranteeing maintenance services when the project is built, including an almost sole focus on highway projects, and most conducted by
DBM (design-build-maintain)and DBOM (design-build-operate-maintain)contracts that shift greater risk and responsibility to the private sector. the very agencies threatened by the competition of outsourcing.
Underlying these discrepancies are inconsistent methodologies,
n Operation. Local governments in particular have long contracted for operation of facilities, and operation is increasingly integrated with design and poor data, the exclusion of important cost factors, and widely vary-
construction in DBO (design-build-operate) and similar contracts. ing measurements. Moreover, the evidence of costs savings from
n Turnkey. Projects that are a combinations of the above, such as BOT (build-operate-transfer), BOOT (build-own-operate-transfer), and the like, outsourcing the designing, building, and maintaining of water and
where the private sector delivers a complete project ready to operate. sewer projects, public buildings and facilities, prisons, landfills, and
the like is largely ignored.

Upon thorough examination of the data, it is clear that outsourcing

and public-private partnerships are beneficial in some areas but not
WH Y OU TS OU R CIN G ? a magic wand to solve all infrastructure delivery problems. However,
Public agencies have entered into these partnerships because strain on their budgets, need for additional personnel for a limited duration, project creating a competitive environment in which public-works agencies
delivery demands, and lack of personnel or expertise have left them unable to meet the infrastructure demands of thriving economies. In 1998, the work in tandem with consultants, as well as compete for contracts
American Society of Civil Engineers estimated the cost of repairing and updating the nation’s infrastructure to be $1.3 trillion. with private-sector players, shows tremendous promise for improv-
ing infrastructure delivery. The literature shows that (a) design costs
But outsourcing is not just about cost savings. Surveys and case studies indicate that governments look to public-private partnerships in order to
were lowest in states that used a mix of private- and public-sector
achieve best value-to get the most for each dollar, not cheap infrastructure at cheap prices. Indeed government agencies report that flexibility, access
work and (b) states that used contracting had a slower growth of
to personnel or skills not available in-house, increasing political support for outsourcing, and tapping of private-sector innovation all are important
design costs than did states that did not use contracting.
drivers of outsourcing.