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33 There is broad recognition that recent investment levels in transportation infrastructure have been and remain inade- quate. As a result, the pressure on state DOTs to do more with less has never been greater, and agencies continue to actively pursue opportunities to lower costs while striving to maintain or even improve performance. In the maintenance arena, this has led an increasing number of state DOTs to consider the options of outsourcing and publicâprivate partnership for some maintenance services. Although cost is not the only factor that must be consid- ered when exploring such alternative delivery methods, it is most often cited by advocates, both for and against, in order to support their position. To date, however, there has been no widely accepted process for determining the costs asso- ciated with performing highway maintenance if done by the transportation agency itself. Furthermore, on review of many existing reports and audits that compare in-house and outsourced costs, it is evident that often, some of the ele- ments making up the total agency cost of an activity are not properly considered or, in some instances, are not included. The cost elements most frequently missed or mishandled are those related to maintenance program and agency-wide (or enterprise) support. The full cost determination process described and demonstrated in this report is designed to fill this gap. 4.1 Full Cost Determination Process The process developed is flexible enough that it can be ap- plied to any specific maintenance activity, and it ensures that the resulting full cost incorporates a fair share of both main- tenance program and enterprise support. The full cost deter- mination process is composed of the following five steps: 1. Gather and classify maintenance program activities and expenditures, 2. Allocate maintenance support expenditures to line activities, 3. Gather and classify enterprise programs and expenditures, 4. Allocate a portion of enterprise support expenditures to the maintenance program, and 5. Combine cost categories to derive full cost. The process strongly encourages a team approach and should include agency personnel that are knowledgeable about the maintenance program, agency financial account- ing practices, and agency information systems. The process developed leverages well-established OMB guidelines for the identification and allocation of indirect costs, and exist- ing state DOT approaches to satisfying FHWAâs indirect cost allocation requirements. Consistent with the use of a team approach and OMB guidelines, and contrary to initial expectations, the full cost determination process does not vary as a result of differences in agency, maintenance pro- gram, and/or maintenance activity characteristics. The only variation between calculations relates to the inputs and sources of data that are leveraged in each step of the process. The full cost process developed is practical and robust, as demonstrated by its application to six state DOTs, with con- siderable variation in maintenance program structure, geo- graphic location and characteristics, agency size, and infor- mation systems environment. The benefits of performing the full cost calculation go beyond satisfying the objective to enable the calculation of any maintenance activityâs full cost, thereby providing a critical input into agency decisions regarding in-house ver- sus contractor performance of any particular maintenance activity. Gathering the necessary data and performing the calculation requires a thoughtful review of the maintenance program structure and activities as well as the distribution of expenditures to activities and to the different elements of C H A P T E R 4 Conclusions and Suggested Research
cost. Additional applications and benefits of performing the full cost calculation may include ⢠Identifying potential improvements to the maintenance program structure and activities as well as the processes and management systems used for recording accomplish- ments and expenditures associated with each activity (e.g., identification of opportunities to establish separate in-house versus contractor activities in order to improve the allocation of contract support and administration ex- penditures, recording of accomplishment data, and full unit-cost calculations). ⢠Providing an ability to compare maintenance costs between different geographic areas and/or highway functional classes, which may in turn provide insight into the influences of other, external effects on costs (e.g., road characteristics, traffic volume and composition, terrain altitude, and weather). ⢠Performing the calculation annually, which may help agen- cies improve LOS-based budgeting models and reduce reliance on prior-year expenditures during budget develop- ment cycles. ⢠Helping agencies to identify training needs for maintenance field personnel and supervisors in the area of recording man hours, equipment usage, and material consumption. Finally, the purpose of the full cost determination process de- veloped in this project is to enable an agency to estimate its full cost for performing any particular maintenance activity. This report includes documented examples of the full cost calcula- tion for six DOTs. However, comparing various elements of these calculations should be avoided. Each agency differs with respect to overall agency structure and scope, organizes its maintenance program differently, has different numbers and definitions of maintenance activities, and differs in its treatment and classification of different expenditure types based on these characteristics as well as its information systems environment. As a result, comparing full costs, full unit costs, program sup- port multipliers, enterprise support multipliers, and/or over- head rates of the calculations documented here, or undertaken externally, is both meaningless and futile. 4.2 Suggestions for Additional Research Maintenance program structure, activity definitions, and management systems. It is clear from this study that the abil- ity to determine the full cost of any particular maintenance ac- tivity is influenced by maintenance program structure, activity definitions and units of accomplishment, the quality of prac- tices for recording expenditure elements, and the types and fea- tures of agency management systems. There is no doubt that certain program structures, activity definitions and units of accomplishment, practices, and management systems lend themselves to more accurate full cost calculations than others. Research to identify such characteristics might help agencies make adjustments to their maintenance programs and man- agement systems in order to enhance their ability to calculate and understand the full costs of maintenance activities. Indirect cost allocation procedures. A comprehensive review of state DOT indirect cost allocation plans might be a useful supplement to this study. These plans document the approaches used by state DOTs to allocate allowable indirect costs to projects and activities that are eligible for federal participation and may include additional approaches that could be used in the full cost determination process. Maintenance delivery decisions. The process developed during this project provides transportation agencies with a methodology for determining the full cost for performing a particular maintenance activity. The primary application of this process is to provide input to agency decisions regarding in-house versus contractor delivery of maintenance. A logi- cal next step would be to work with one or more agencies considering contracting maintenance activities, calculating their full cost using the process developed in this project, and comparing it to contractor prices, then identifying and describ- ing the other key considerations when making this decision. The critical point here is that although the ability to assess and compare in-house versus contractor costs is very important, it is not the only issue, and research that explores the complete range of considerations associated with the maintenance delivery question would be very useful to the transportation community. 34