Privatization and Leasing: Is either option right for you?

Jack Corley
Operations Manager (retired)
VMS, Inc.
Richmond, Virginia

Privatization of road winter maintenance operations is not new. Public agencies for many years have used privately owned trucks to supplement their own fleets during times of severe winter conditions. This practice has been expanded in recent years as public agencies have responded to pressures to reduce staffs and equipment fleets.

Recognizing this trend and its impacts, VMS, Inc., a highway asset management company headquartered in Richmond, Virginia, asked Richard R. Stapp, P.E. and Rodney A. Pletan, P.E. to identify the best, most creative contract provisions currently being used by public agencies to outsource winter maintenance services. Stapp and Pletan are well qualified in the field of winter maintenance operations having held the state maintenance engineer positions with the Wyoming and the Minnesota DOTs, respectively.

The survey they designed asked three questions:

  1. Does your department outsource any winter snow and ice control service to either private or other public agencies?

  2. If "yes," does your department initiate a formal document with them to provide winter maintenance services?

  3. If "yes," would you send a copy of the proposed contract or agreement for our review?
This survey was sent to:
  • 48 state DOTs
  • 4 highway or toll authorities
  • University of Iowa Snow and Ice Mailing List
  • 9 Canadian provinces
  • 3 foreign countries
The responses revealed that:
  • 17 self-performed all winter maintenance operations
  • 9 used other public agencies
  • 19 used the private sector
The authors analyzed the responses and reported them in a document entitled "Best Practices of Outsourcing Winter Maintenance Services." They found that the general practice of the agencies that supplemented their fleets with privately owned equipment was to pay for the service on an hourly basis.

Another finding was that most contracts for the delivery of winter maintenance services are written to specify input or output levels and that very few of them specify the outcomes to be achieved.

Input level performance specifications define the number and size of trucks desired and how they will be equipped. A shortcoming of this type of contract is that contractors can minimally comply with the specification requirements without producing the desired service. These contracts place the responsibility for achieving the desired outcome entirely upon the agency with no risk transferred to the contractor.

Output level performance specifications that define chemical application rates, plowing speeds, or the sequence of crew call-out may be used to supplement input requirements. This combination comes closer to ensuring that a given output will be achieved. Contracts of this type transfer some risk to the contractor; however, the planning and direction of the work still rests with the agency.

Outcome level performance specifications, on the other hand, clearly define the outcomes to be achieved and require the contractor to plan, schedule and perform all work necessary to accomplish the outcomes. Significant, if not all, risk is transferred from the agency to the contractor when lump-sum payments are combined with outcomes-based specifications.

The six agencies that used this progressive type of contract differed in the magnitude of work covered by the contract but they all required contractors to achieve clearly specified outcomes.

The Virginia DOT has a five-year contract with VMS, Inc. for full asset management of 250 miles of interstate highways. This outcomes-based contract requires that one lane in each direction of travel be kept open at all times during periods of winter precipitation and that all lanes and shoulders be free of frozen precipitation within 24 hours after the cessation of precipitation. Payment is made on an annual lump-sum basis, regardless of the severity of the winter.

Outcomes-based contracts are not the answer for all agencies, at least not in the short run. Few contractors have the equipment or the technical expertise to plan, schedule and carry out winter maintenance operations because public agencies traditionally have done them with their own forces and equipment. Additional opportunities to perform this kind of work will provide the incentive for contractors to equip themselves to compete for this new kind of work.

The use of outcome level performance specifications provides public agencies an additional tool to use in winter maintenance operations. They can use this tool along with the more traditional ones to formulate the most cost-effective and efficient strategies for dealing with future storms.

The full report is on the VMS, Inc. website, vmsom.com. It can be found by clicking on News, then on Professional Papers.

Jack Corley can be reached at 804-261-8008 or at Jcorley@vmsom.com.