Are contractors wasting public money? We don't know
Public works projects in the United States cost far more than they should. From subway lines to light rail to roads and bridges, the price tag on projects is huge, while other countries get infrastructure for much less.
Much of the pushback against the $7 billion Union Station master plan came from people incredulous that, even with all of the smaller projects rolled up in that report, the price tag would still come out so high. I argued that we shouldn't be afraid to spend that kind of money on good public works, but neither should we spend that kind of money if we can get the same for much less.
Stephen Smith makes a persuasive case that US taxpayers often pay several times more than other countries for projects that take longer to complete and deliver less benefit to the public. Smith puts the blame on agencies overusing consultants and contractors:
A huge part of the problem is that agencies can't keep their private contractors in check. Starved of funds and expertise for in-house planning, officials contract out the project management and early design concepts to private companies that have little incentive to keep costs down and quality up. And even when they know better, agencies are often forced by legislation, courts and politicians to make decisions that they know aren't in the public interest.Some blame public employee unions, but projects even cost far more here than in heavily unionized nations like Spain.
US agencies rely more and more on contractors, and there are advantages. Sometimes they can get something done faster and more efficiently. It's hard to hire public employees, and even harder to fire them if they turn out to do a bad job.
Another advantage of hiring contractors is less transparency and therefore less bad press. The Washington Examiner's local reporters have been relentlessly FOIAing documents on spending at agencies like WMATA and the Metropolitan Washington Airports Authority (MWAA). Sometimes, these FOIAs turn up a serious misuse of funds, like Liz Essley's series on MWAA giving contracts to former board members. Other times, they turn up some expenses that maybe could have been a little less, but they might not, like a WMATA trip to Japan.
Meanwhile, the reporters have almost no way to tell if a contractor is spending funds wisely. To build Beltway HOT lanes, Fluor-Transurban is getting $409 million directly from Virginia, $585 million in loans from the Federal Highway Administration, $586 million in subsidized bonds and $349 million in private equity. They also will get all of the money from driver tolls on the lanes. Are they making any sweetheart deals? How much are they spending on travel? Since they are a private entity, FOIA doesn't apply.
This sets up a perverse arrangement. Virginia can give a huge payoff to Fluor-Transurban, and we don't know all the details of how funds will be spent. After the dollars are awarded, taxpayers are still paying but without the visibility of public agencies. While the total dollar figure gets a lot of press, most people can't really evaluate it; a number in the hundreds of millions doesn't mean much intuitively.
Some argue that private entities don't need the same level of scrutiny because they had to bid competitively for the contract and are accountable to shareholders. While true, that doesn't mean a contractor is being frugal. Smith writes:
The MTA must continue to award contracts to the lowest- price bidder, and without the ability to hold bad contractors accountable, Littlefield said, the agency turns to "writing longer and longer and longer contracts, expressly prohibiting every way it has been ripped off in the past." The byzantine contracts that come out of this process drive entrants away, limiting competition and pushing up costs.As for shareholders, they reward a company for profit, not low costs. Shareholders would actually reward a company for successfully overcharging taxpayers. Plus, shareholders, like the public, don't have a lot of visibility into a company either. If shareholders really held companies accountable, why do many private companies spend so lavishly on executive perks that aren't necessary?
When some functions happen in public agencies and some in contractors that just get payment from public agencies, the public has oversight of one and not the other even though both might have waste. Given the sky-high cost of projects in the US, we can only guess that there must be waste by contractors. Until agencies and the public can successfully oversee contractors and hold them accountable, the US will be unable to build the infrastructure needed to support a growing economy.
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