Winter Highway Maintenance Audit

Ontario Auditor General Report Critical on Snow Maintenance Performance
Bonnie Lysyk, Auditor General of Ontario released the Special Report on Winter Highway Maintenance April 2015 that was requested by the Standing Committee of Public Accounts. This report provides a critical eye on winter maintenance service delivery changes at the Ministry and how these changes, primarily made to reduce operating costs, have negatively impacted on service levels and potentially reduced road safety. Although specific to Ontario, I suspect many jurisdictions that deal with snow management will find value in this report.

The report follows the change in service deliver from 100 percent in house services (prior to 1997) to a fully contracted service following 2000 and further shift of responsibility in 2009. The interesting part of the report is the drivers for the shift in service and the priorities that emerge as unexpected consequences develop through the changes in service delivery and management approach.

The shift from in-house to outsourced services was primarily driven by the need for cost savings. The method of outsourcing started with managed contracts wherein specific services such as plowing or sanding where contracted out with continued direction and patrolling being performed by ministry staff.

In addition to this managed approach, the ministry also introduced Area Maintenance Contracts were the service level shifted to be fully planned and managed by the contractor. The ministry would no longer oversee the delivery of the service but still required that the contractors follow ministry best practices and procedures and meet minimum material application rates etc.

In 2009, the ministry introduced Performance Based Contracts. This was significantly influenced by the economic downturn of 2008 when increased cost cutting demands where being made. The key difference in this contract arrangement is that the contractor is no longer told what means must be used to deliver the desired service, but only has to achieve the desired outcome. This approach puts the entire responsibility of how to deliver the service in the contractors hands. This is not an uncommon approach and is practiced in British Columbia, Quebec in Canada, and outside Canada in Alaska, Finland, Norway and Sweden.
The Move to Performance Based Contracts was for all the Right Reasons
The report identifies three main reasons for moving to this type of contract, and I'm sure many of us have referenced these same reasons for contracted services:

  • Service costs should decrease over longer term due to reduced contract administrative costs
  • Longer term contracts allows the contractor more time to pay off equipment costs and the contractor has the incentive to invest in best value equipment and methods
  • Extensive contractor freedom to manage the work should encourage innovation which may reduce costs or improve service levels

These arguments are often used for any contracted service regardless of level of outsourcing and it is generally believed that competitive market forces will result in highest value for lowest cost. So lets see what happened.
So What Happened?
Some of the observations from the audit for the contracts based on performance were:

  • Contractors used less equipment which resulted in a reduction in service
  • Contractors used less treatment material to service highways
  • Contractors patrolled less often resulting in service failures
  • Contractors were unable to meet contract requirements
  • The procurement process did not adequately factor in contractors ability to deliver required services
  • Procuring the lowest bid can cost more in the long run
  • Performance targets were not focused on consistent risk outcomes such as traffic volumes resulting in inadequate oversight
  • Over reliance on contractor self reporting failed
  • Poor monitoring tools
  • Inconsistent application of penalties
  • Proper decision making information lacking
  • Potential increase in legal costs not considered

Overall conclusion was that service levels deteriorated under performance based contracts. I would add however, that this is not a result of the use of the performance based contract but more related to the poor execution of procuring and managing performance based contracted services.
And What Did The Auditor Recommend?
The report stated the following recommendations:

  1. Verify contractors have enough equipment, in good working order to fulfill the contract and have mechanism to respond to increased maintenance needs.
  2. Encourage use of adequate amounts of materials through cost sharing or other incentives.
  3. Be explicit in contractor responsibilities for patrolling and information monitoring to meet minimum standards
  4. Be more effective at reporting road conditions to the public
  5. When tendering  follow the practices of 1) requesting detailed and relevant submission information, 2) develop an evaluation process to weigh all important factors, 3) select based on best value and not just price.
  6. Develop better systems of audit and manage contracts
  7. Review bare pavement requirements and be transparent about contractor performance
  8. Continue to monitor remedial measure or add new measures as needed to restore services to level before introduction of performance based contracts

Nothing new here. Every agency that delivers services through contract must live by these rules. However, an often overlooked fact of contracted services is that it takes a significant amount of effort to make sure the contract is performed as required.
My Two Cents
How many times have we heard this sequence of events for almost any service delivered through contract? Write down this formula and assess where you are on any of your services:

  1. Costs are deemed to be too high.
  2. Must reduce costs but maintain service levels (doing more for less)
  3. Changes in delivery model are made and short term benefits accrue (doing more for less is working!)
  4. Over time erosion of service levels becomes evident (doing less for less???)
  5. Tipping point is reached where inconvenience, public safety, perceived value is triggered.
  6. Mandate is created to restore service levels (doing more with more)
  7. Funding is restored and resourcing is restored
  8. Go to step 1

Now I am not suggesting this is a bad formula but it is reality. The challenge for many public works services is that they have been delivered in similar ways for generations and innovation, although active, does not often result in game changing reductions in costs.

As administrators a big aspect of that responsibility is to find ways to deliver services as efficiently and cost effectively as possible. We all want to do this and work hard to make it happen. In fact many agencies have continuous improvement staff and our whole industry has multiple associations and groups set up to find the best way to do more with less. But an interesting part of this cycle and an interesting part of recommendation 8 of the report, is that we often are permitted to look at only half of the equation.
The Question of Service Levels and Sustainability
Human nature is to resist change. We all know it and we all see it. Of course, change that is subtle or makes your life easier is probably less concerning but is still change, and there are those that resist even the good changes (air flight, cell phones, chlorinated water).

I find it interesting that the Audit Report finds extensive reasons why the historic service levels where not maintained but has very little on the question of the sustainability of those service levels. In fact the recommendation is to restore previous service levels! 

How is it that they are not asking the service level question first? Rather than the ministry falling into the trap of pretending to be able to deliver same service levels for less money, why not review the sustainability of the current service levels.

These are obviously big questions and nobody wants to put a price on public safety. What is the right answer? If accident rates go up 5% from 1997 because of reduced service levels, is that unacceptable even if costs go up 50%? If the service level is justified then the public would have no concerns about paying higher fees. Of course we know that these are not easy questions and there is never unanimous support for any position taken.

How do other factors build into the equation such as car design, tire design and pavement design? It is not an easy discussion...but that doesn't mean that we should avoid it.
Questions to Ask
For those of us in snow prone locations, I'm sure this report will be of interest. But the principles should be of interest to everyone. I will leave you with these questions to ponder and offer your opinion:

1. If cost of business is increasing for all sectors, why would we not expect public services to increase as well?

2. Are service level expectations sustainable? Why not look at doing "less with less" instead of always expecting "more with less"? There is always a point of diminishing return.

3. Efficiency, effectiveness and service levels are all related. How can a service provider expect to significantly reduce costs without somehow impacting service levels?

4. Contracted services are a tool not the answer. What do you expect from contractors? Is it reasonable to expect self regulation of a body that is solely profit driven?
Related articles