Federal-Aid Highways:

Increased Reliance on Contractors Can Pose Oversight Challenges for Federal and State Officials

GAO-08-198: Published: Jan 8, 2008. Publicly Released: Jan 8, 2008.

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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.

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.

Status Legend:

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  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: 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, the Secretary of Transportation should 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 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.

    Agency Affected: Department of Transportation

    Status: Closed - Implemented

    Comments: In January 2008, we reported that State Departments of Transportation (State DOT's) are increasingly reliant on consultant and contractor workforces, and existing oversight mechanisms are not always implemented effectively. Because State DOTs are becoming more reliant on contractors and consultants, there is increasing risk for conflicts of interest and independence issues to arise and potentially compromise the quality of Federal-aid highway projects. FHWA has conducted both local and national reviews that have identified, among other things, 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 by State DOT's. Therefore, we recommended that FHWA, as part of its ongoing quality assurance and risk management activities, give appropriate consideration to risks associated with contractors and consultants as FHWA division offices target their oversight activities. In response to our recommendation, since 2010 FHWA has developed a new policy related to contractor costs; updated guidance for the procurement, management and administration of engineering and design services; and recommended standard operating procedures in support of enhancing FHWA division office oversight and consideration of the risks associated with use and oversight of consultant services in the development and delivery of the Federal-aid highway program. FHWA has also worked closely with the American Association of State Highway and Transportation Officials (AASHTO) in the development of the updated AASHTO Uniform Audit & Accounting Guide and the updated FHWA guidance to ensure the use of contractors and consultants is considered in State DOT's assessment of risk, controls, monitoring, and oversight of work performed by consultants and contractors. These actions will help to ensure that State DOT's have the proper mechanisms in place to avoid failures in quality control procedures, and ensure contractor and consultant independence.

    Recommendation: 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, the Secretary of Transportation should 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 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.

    Agency Affected: Department of Transportation

    Status: Closed - Implemented

    Comments: In January 2008, we reported that State Departments of Transportation (State DOT's) are increasingly reliant on consultant and contractor workforces and that the Federal Highway Administration's (FHWA) oversight of how State DOT's use and monitor consultants and contractors was generally focused on ensuring that state processes related to this matter were in compliance with existing regulations, and had not sufficiently focused on the performance and effectiveness of those processes in protecting the public interest. Therefore, we recommended that FHWA develop and implement performance measures to better assess the effectiveness of state DOT's controls related to the use of consultants and contractors. In response to our recommendation, FHWA worked with the American Association of State Highway and Transportation Officials (AASHTO) and the Office of Management and Budget (OMB) to establish a process for State DOT's and local agencies to monitor and evaluate the use of consultants and contractor services when they conduct required audits. A section was added - Section I, under compliance requirements for highway planning and construction - to OMB's audit guide requiring State DOT's processes for using consultants and contractors to include a number of provisions aimed at performance and protecting the public interest, including one provision specific to monitoring and evaluating contractor performance. Furthermore, in 2010, FHWA developed standard operating procedures for FHWA division offices to conduct oversight of the policies, procedures, and practices State DOT's use in procuring consultant and contractor services that include a review of the OMB-required provisions. These actions will help to ensure that State DOT's use of consultants and contractors will focus on performance and protecting the public interest, and that FHWA will have the ability to more effectively monitor and gauge the performance of State DOT's processes for procuring consultant and contractor services.

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