NCHRP 8 36A Part 2 Factors Affecting the Future of State DOT

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					                                                                                      NCHRP 8-36A, Part 2:
                                                   Factors Affecting the Future of State DOTs as Institutions

Final Report


NCHRP 8-36, Task 12B, Part 2
Research for the AASHTO Standing Committee on Planning

Prepared for

National Cooperative Highway Research Program
Transportation Research Board
National Research Council

Prepared by

Steve Lockwood
Parsons Brinckerhoff
Washington, DC

____________Lockwood – Parsons Brinckerhoff
                                                                                                 NCHRP 8-36A, Part 2:
                                                              Factors Affecting the Future of State DOTs as Institutions

                       ACKNOWLEDGE OF SPONSORSHIP
This work was sponsored by the American Association of State Highway and Transportation Officials, in
cooperation with the Federal Highway Administration, and was conducted in the National Cooperative Highway
Research Program, which is administered by the Transportation Research Board of the National Research Council.

This is a final report submitted by the research agency. The opinions and conclusions expressed or implied in the
report are those of the research agency. They are not necessarily those of the Transportation Research Board, the
National Research Council, the Federal Highway Administration, the American Association of State Highway and
Transportation Officials, or the individual states participating in the National Cooperative Highway Research

____________Lockwood – Parsons Brinckerhoff
                                                                                          NCHRP 8-36A, Part 2:
                                                       Factors Affecting the Future of State DOTs as Institutions

Table of Contents
    .    Summary                                                                                       1

   I.    New AASHTO Management Agenda                                                                  4
         Introduction                                                                                  4
         Institutional – as well as Programmatic Focus                                                 4
         The 21st Century State DOT                                                                    5
         Basic Dimensions of Change                                                                    5
         Change Management and the AASHTO Agenda                                                       6

   II.   Driving Forces                                                                               8
         The Range and Variation of Forces                                                            8
         Socio-Economics and Political Drivers                                                        8
         Environmental Drivers                                                                        9
         Technology Drivers                                                                           9
         Programmatic                                                                                10
         Human Resources                                                                             12
         Combined Effect of Driving Forces                                                           12

  III    State DOT Responses to Driving Forces                                                       13
         Adoption of Strategic Approaches                                                            13
         Strategic Priorities and Performance                                                        14
         New Intergovernmental Roles and Relationships                                               16
         Reorganization and Workforce Retooling                                                      17
         Process and Program Delivery Improvements                                                   19
         Innovative Finance                                                                          21

  IV.    The Twenty-first Century State DOT                                                          24
         Precedents in Other Sectors                                                                 24
         Basic Vectors of Change                                                                     24

   V.    Issues for AASHTO’S Strategic Plan                                                          26
         Current Agenda Limitations                                                                  26
         Potential Options for Strategic Plan Consideration                                          27

____________Lockwood – Parsons Brinckerhoff
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                                                           Factors Affecting the Future of State DOTs as Institutions


 State Departments of transportation are evolving as executive management responds to an array of
    driving forces -- transportation, financial, regulatory, policy technological, etc. Over the last decade
    since ISTEA, significant changes have occurred in the type, mix and amount of services and facilities
    delivered. Less well understood but equally dramatic is the ongoing reshaping of State DOTs as
    institutions – through deliberate strategic modifications in organization, workforce, roles and
    relationships, process, and finance, that have been a principal preoccupation of many senior
    managers. This report summarizes the drivers of changes and the principal dimensions of
    institutional change . In each of these areas there have been significant innovations and lessons
    learned that are part of the development of the 21st Century state DOT. These strategic management
    topics deserve a significant place is AASHTO‘s new Strategic Plan

A New AASHTO Management Agenda
 Institutional – as well as Programmatic focus -- AASHTO‘s traditional agenda focuses on technical
   issues and shared program concerns. However there is little time or organization structure devoted to
   consideration of the common challenges faced by state DOTs as ―institutions‖ – including the
   strategic management of change: in organization, workforce, processes, relationships, resources,
   values and traditions employed.
 The 21st Century State DOT – State DOTs are changing, producing dramatically increased output
   with smaller workforces, reorganizing, streamlining, automating, partnering, innovating a many new
   ways. These developments should be part of the AASHTO agenda.
 Basic Dimensions of Change – Change is a new constant of the state DOT environment. Important
   evolutions are taking place in at least five key areas:
    the basic mission mix and priorities,
    on the roles and relationships
    on the workforce and organization
    new processes and project delivery methods
    Innovative Finance
 Change management and the AASHTO Agenda -- State DOTs today are evolving away from single
   purpose entities with a fixed program towards flexible organizations designed to respond to ever-
   changing missions, with ever increasing efficiency through a shifting coalition of partners and
   stakeholders. As these strategic management challenges are a major focus of senior staff, they
   deserve considerable collective focus and dialogue.

Driving Forces
 The Range and Variation of Forces-- Most of the most important driving forces are simply part of the
   socio-economic and governmental setting. Some are national in scale or federal in scope while others
   are regional or state-specific. These forces include:
    Economic and political trends, such as global competition and the push for productivity, new
       forms of partnerships and changing demographics,
    Environmental factors, reflected in congestion and sprawl and increased environmental values,
    Technology innovations, especially the convergence of new information-based technologies

Lockwood -- Parsons Brinckerhoff                                                                                   1
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       Programmatic changes, including enhanced flexibility and new programs in the federal aid
        program, substantial increases in funding, additional congressional earmarking, new asset
        management focus, etc.
     Human resources challenges such as the competitive job market and the difficulty in recruiting
        and retaining staff with the appropriate skills and experience
   Combined Effect of Driving Forces – Together these influences often increased responsibilities
    (program size and complexity) and at the same time increased burdens (reduced staff levels,
    increased regulatory constraints).

State DOT Responses to Driving Forces
 The Adoption of Strategic Approaches - The number and pace of changes led many member
    departments to adopt formal strategic management approaches to responding. Many of these
    approaches have been based on evolving private sector practice, but were adapted to the special
    circumstances of the state.
 Strategic Priorities and Performance Orientation – Shifting goals and increased accountability called
    for a sharpened customer focus and a formalized set of priorities and their use as a guide to align and
    coordinate other strategic activities. Clarification of organizational values, performance measurement
    and customer feedback has helped to set a strategic framework for rationalizing programs and
 New Intergovernmental Roles and Relationships – The need for increased efficiency and customer
    responsiveness have led to closer coordination and cooperation with related jurisdictions and
    agencies -- both vertically and horizontally -- in planning and in program delivery. New cooperative
    entities-- statewide, regional and multistate -- have been forged, both real and virtual.
 Reorganization and Workforce Retooling – Reductions in force and the need for improved service
    deliver have led to substantial decentralization of program delivery while consolidating support
    functions. At the same time, program proliferation and new technology has required the need to focus
    on recruiting, retaining staff and new training for core capabilities.
 Process and Program Delivery Improvements – Starting with quality programs, member departments
    have used ever-more formal methods to streamline internal processes. Some of these approaches
    have introduced quantitative measurement of efficiency and benchmarking. At the same time, there
    has been a shift of more production and service delivery burdens to the private sector through a
    variety of innovative contracting methods.
 Innovative Finance – Despite funding increases, many states have searched for ways to increase the
    rate of program delivery. Leveraging or supplementing existing revenues through with new sources
    such as tolls and impact fees have been evident. Accessing capital markets through debt finance has
    also increased together with new institutional experiments such as state revolving loan funds and

The Twenty-First Century State DOT
 Precedents in Other Sectors – Public service and related infrastructure institutions in other sectors–
   impacted by deregulation, new technology and aggressive customers -- appear to be tending towards
   enterprise-style organization and management – especially for project delivery. Some of these
   features represent current trends visible in state DOTs as well.

   Basic Vectors of Change -- The Twenty First Century State DOT may become a smaller, provision-
    oversight oriented agency with decentralized units organized in fluid task-oriented teams providing
    vertical cradle-to-grave project management for closer customer contact and increased efficiency and

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    supported by enterprise information and quality control systems while maintaining core capabilities
    under performance incentive-driven employment agreements. Enterprise-style management at all
    levels organized around real time service and asset management would utilize improved IT and
    incorporate a greater reliance on market-like mechanisms, new financial mixes as well as streamlined
    project delivery arrangements with other public and private partners.

Issues for AASHTO’S Strategic Plan
 Current Agenda Limitations – In an era when delivering a larger and more complex program with a
    smaller staff and tighter accountability in an ever-change context is often the norm, strategic
    management is central to continued agency effectiveness. Management techniques, organizational
    models, staffing studies, and process analysis, innovative project delivery and finance are now
    significant parts of the normal state DOT senior management agenda. Yet neither the accepted
    methods nor the promising innovations have an organized forum for exposure and discussion within
 Potential Options for Strategic Plan Consideration – Strategic management as a regular focus of
    AASHTO consideration can be introduced both in committee organization and through a series of
    specific activities. These would include documentation, discussion and evaluation of innovative
    approaches and the establishment of strategic management as a key item on AASHTO‘s permanent

Lockwood -- Parsons Brinckerhoff                                                                                 3
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                FACTORS AFFECTING

“There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead
in the introduction of a new order of things. Because the innovator has for enemies all those who have done well under the old
conditions, and lukewarm defenders in those who may do well under the new.”



State Departments of transportation are evolving as executive management responds to an array of
driving forces -- transportation, financial, regulatory, policy technological, etc. Over the last decade
since ISTEA, significant changes have occurred in the type, mix and amount of services and facilities
delivered. Less well understood but equally dramatic is the ongoing reshaping of State DOTs as
institutions – through deliberate strategic modifications in organization, workforce, roles and
relationships, process, and finance, that have been a principal preoccupation of many senior managers.
This memo summaries the drivers of changes and the principal dimensions of institutional change in five
areas: increased formal prioritization and performance measurement, expanded intergovernmental roles
and relationships, reorganization and workforce retooling, process and program delivery Improvements,
and innovative finance. In each of these areas there have been significant innovations and lessons
learned that are part of the development of the 21st Century state DOT. These strategic management
topics deserve a significant place is AASHTO‘s new Strategic Plan

Institutional – as well as Programmatic Focus

State departments of transportation deliver a program of products and services. The changing context for
transportation (social, economic, political, intergovernmental, and technological) is reshaping this
program in terms of how resources are spent and the related mix of program outputs. However, the
challenge of departmental leadership goes beyond the program itself to the deliberate shaping of the
―institution‖ which delivers this program – including the strategic management of organization,
workforce, processes, relationships, resources, values and traditions employed in meeting the evolving
public mission These institutional features are currently undergoing profound changes in many member
departments. Indeed, shaping the institution – as distinct from the program -- is a primary strategic focus
of state DOT senior management.

This memoranda is based in part on a previous AASHTO study The Changing State DOT (1998) based on a survey of member
departments by the author as well as Staffing Plan Survey of State Transportation Agencies (NM H & TD, 1999), and AASTHO
CAO Roundtable Discussions (1999, 2000)

Lockwood -- Parsons Brinckerhoff                                                                                                 4
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There is considerable tracking of, and discussion about, the programs of state DOTs, both within
AASHTO and elsewhere. This memo does not focus on the programmatic changes in state DOTs’
agendas such as planning and engineering problems or program features such as outputs, standards,
requirements, etc. These issues are substantially the agenda of the current AASHTO dialogue. Instead,
it focuses on changes in state DOTs as institutions and the strategic management of these changes in
mission, organization, workforce, processes, relationships, and resources. There appears to be very little
collective peer focus and dialogue on the various strategic efforts and innovations of senior management
of individual states in coping with these institutional matters. Understanding the relationships between
external forces and how state DOT management is responding is essential for collective efforts to
improve the effectiveness and efficiency in delivering transportation services and facilities. The purpose
of this memo is to suggest these topics deserve a significant place in the new AAHSTO agenda.

The 21st Century State DOT

It is perhaps not too much to say that the impact of current driving forces and the responses from today‘s
member departments, as described below -- are having major impacts on state DOTs as institutions.
Many member departments are moving beyond a reactive mode and one-time initiatives to more
fundamental change involving the development of new models of mission, organization, relationships
and processes. By one measure – output – some departments have doubled their outputs with a smaller
workforce!. This dramatic – although largely unnoticed -- improvement in institutional performance
suggests substantial changes in the focus, efficiency and mix of departmental activities have been taking
place. The Twenty-First Century State DOT may look increasingly less like the standard department of
the 1990s.

The challenges being faced in this change process and the way in which member departments are
responding should be a key ingredient in AASHTO‘s Strategic Plan. As discussed below, this agenda
would include such issues as:
 Changing priorities and performance measurement
 Methods for systematic streamlining of production processes
 Critical core staff capabilities needed for downsized organizations
 New types of partnerships
 Innovative financing
 Appropriate workforce retention measures
 Appropriate management and contract structure for outsourcing

The importance of these and others issues is derived from a review of the driving forces impacting state
DOTs and the range of strategic response of DOT leadership as described below.

Basic Dimensions of Change

Until recently state DOTs – as shaped in the 1960s and 70s -- were relatively stable as institutions.
Programs by state DOTs changed slowly. The ―products‖ -- facilities and services provided and
produced – were fairly standard. Leadership and staff came out of common civil engineering
backgrounds with a career public service orientation. Organizations evolved only slowly. Program
support -- financial and political, federal and state -- was assured, even if usually lagging needs.

This stability is now a thing of the past. A wide range of external trends and factors have combined to
challenge the traditional institutional arrangements and practices of many state DOTs. As indicated in the

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figure, external forces – economic, technological, political, impact state DOTs from many directions.
These forces impact state DOTs in five principal dimensions:
 the basic mission mix, based on stakeholder influence, the federal aid program and customer
 on the roles and relationships, through the need for new partnerships to effectively delivery service
 on the workforce and organization in terms of availability of staff and their effective structuring
 on the internal activities and production in terms of the needs to adjust business processes and
    project delivery methods
 on the assembly of financial resources including new revenues, mixes and methods of funding
    programs and projects

During the 1980s and 1990s, there have been important changes in these areas such as increased
responsibilities for non-highway modes, closer involvement with other state, regional and local entities;
substantial increases in production efficiency, changes in workforce mix, applications of new information
technology, etc. The business of state DOTs is being broadened. Planning, permitting and finance are
now just as critical as engineering to program delivery. Many of these responses to external forces were
―institutionalized‖ within the federal aid program via the landmark 1991 ISTEA legislation and
subsequent federal law and regulation.

However, constant change now appears to be a permanent characteristic of the institutional setting. The
context for state DOT has not ―restabilized‖. New issues appear to arise on a rapid and continuous basis,
requiring regular adjustments. Most recently TEA-21 funding increases enlarged the scale of the program
by an average of 40%. Together with the broader agenda, these increased resources have added to state
DOT responsibilities.

Change Management and the AASHTO Agenda

The number and rate of new challenges has led to the recognition that the change itself has to be
managed. In varying degrees, this institutional reorientation to a more ―strategic‖ approach to
management (taking a comprehensive approach that recognizes the continuous nature of change) is
evidenced in a series of ongoing initiatives within state DOTs. These approaches focus on the ―who‖ and
―how‖ -- as well as the ―what‖ --are ―institutional issues―. They are separate from – although closely
related to –― program‖. The best evidence of this fact is the amount and degree of evolutions exhibited by
state DOTs in institutional characteristics including:
 Deliberate reorientation of strategic objectives in response to program proliferation and new
     constituencies, etc.
 Evolution of new forms of cooperation for improved service delivery with other agencies, state, local
     and private
 reorganization and restafffing in response to downsizing , workforce availability and the need for
     new capabilities
 continuous process reengineering and program delivery modifications (outsourcing ) for more
     efficient delivery of larger projects and programs with constrained staffing

In each of these areas there has been a range of substantial innovation. Missions have been refocused,
agencies decentralized, new relationships forged, processes streamlined. In many cases, state DOTs are
delivering a substantially greater program -- including new features and new partners, despite reduced
resources. Moreover, the reduction of federal aid program rigidity and the increased local political

Lockwood -- Parsons Brinckerhoff                                                                                  6
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accountability have led to significant state-specific variations in program and policy. State DOTs today
are evolving away from single purpose entities with a fixed way of producing a limited number of well-
understood products and services towards more flexible organizations designed to respond to ever-
changing missions, with ever increasing efficiency through a shifting coalition of partners and

The rate of change is very uneven. In some states, CEOs may prefer to ―wait out‖ challenges and avoid
the turmoil of adjustment in light of their limited tenure and that of the state administration of which they
may be a part. In other states, strategic innovation in organization, relationships and processes and in the
approach to their management is now a major (the major?) preoccupation of senior management,
according to anecdote and survey.. However, the many positive changes taking place and the innovations
being introduced are not documented or widely understood. There is no ―literature‖ on state DOT change
management – either case studies or ―how to‖ material. While there has been occasional presentation at
AASHTO and Regional meetings on such topics as outsourcing, quality, and recruiting, project delivery,
etc., the general change management topics are not part of AASHTO‘s general agenda. Nor are they
reflected in AASHTO‘s committee structure. Nor has FHWA taken any great interest. Given the turnover
in leadership and the arrival of new sr. management this is especially unfortunate.

Lockwood -- Parsons Brinckerhoff                                                                                    7
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The Range and Variations of Forces

State DOTs are impacted by a wide range of driving forces which effect either the programs directly or
the institution in terms of organization, process, etc. Many of the most important forces have little to do
with transportation but are simply part of the economic and governmental setting for agency business.
Many are also national in scale or federal in scope while others are regional or state-specific. In the
material that follows key driving forces impacting state DOTs programmatically or institutionally are
identified including:
 Economics and politics
 Environmental values
 New Technology
 Programmatic issues
 Human Resources Issue

Socio-Economics and Political Drivers

Global Competitiveness and Freight Transportation – The growth of international trade, success or US
multinationals, international commerce have increased both the importance of, and consciousness about
international competitiveness and the importance of efficient freight transportation. Improved logistics in
the private freight sector on an intermodal basis and the penetration of just–in-time concepts have had a
substantial impact on cost reduction. These improvements in the private sector operations focus
increased attention of the importance on systems reliability and the potential role of public infrastructure
in improved state economic development. State with substantial interstate trucking have supported
commercial vehicle operations regulatory improvement programs such as CVISN and have become
involved in various roadside regulatory improvements. Border and port states have begun to focus on
intermodal and NAFTA-related border crossing improvements, with some federal support.

The Push for Productivity – Increased competition and innovation in the private sector has highlighted
the importance of productive efficiency. Reengineering, quality management, empowerment, down sizing
and outsourcing became major trends in the corporate sector in the 1990s as the private sector attempted
to become more globally competitive. In the pubic sector as well, s wave of conservative state
government administrations in the late 1980‘s and 1990s emphasized productivity and economic growth.
Pubic support for these values was reflected in state tax revolts and reinforced a policy thrust to downsize
reduced services and seek more efficient operations. The importance of increased accountability to the
electorate (in terms of reporting) and to the customer (in terms of improved service) was often
emphasized in these administrations.

Reallocation of Responsibilities – A combination of the pressure for improved productive efficiency and
service delivery, together with conservative politics, agency resource constraints and private sector
management concepts focused attention on the potential of new forms of public-private partnerships.
Some long term trends such as outsourcing production and customer service activities (design,
maintenance, DMV customer service centers, etc) continued while a series of new initiatives were also
introduced – some as a matter of policy – state or federal – and others as a result of specific private
initiatives. Staff shortfalls have required states to consider increases areas of outsourcing. In addition,
the fragmentation of transportation system ownership resulting inefficiencies in services and lack of

Lockwood -- Parsons Brinckerhoff                                                                                   8
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transparency in responsibility to the public also became an issue in several states resulting in the search
for improved state-local cooperation – both vertically and horizontally.

Changing Demographics -- While most of the demographic forces increasing travel have stabilized in the
last decade, the aging population is introducing an increasing concern for highway design features that
are more appropriate to the elderly. In addition the increase in level of immigration back to turn-of-the-
(20th) Century levels has introduced the problem of language and culture on the part of both customers
and workforce.

Environmental Drivers

Congestion and Sprawl – A combination of demographics, lifestyle, urban services, and development
costs have continued to power increasing metropolitan dispersion and location-independent activity
patterns Metropolitan congestion and sprawl via increasing VMT and congestion on existing facilities
are a source of public and political comments and concern. Metropolitan peripheral expansion is closely
associated with improved access and therefore anti growth interests often ―blame‖ highways for such
expansion. Interest group politics typically focus on non-highway solutions and often aim to cast doubt
on the wisdom of any capacity improvements. ―Growth management/smart growth ‖ are increasingly
equated with minimal roadway expansion (more often than with an attempt to balance land-use and
transportation through concurrency) This issue varies widely in importance as state DOT settings vary
widely from mature and relatively stable metro areas to rapidly expanding regions

Institutionalization of Environmental Values – Strong quality of life values continue to play an important
role at both the regulatory level (see discussion of air quality and environmental justice under federal aid
program below) especially in the context of increased affluence. ―Sustainability‖ represents a conceptual
framework within which strong environmental values seek institutionalization on a broad basis. While
the concept is still only vaguely formulated, it is beginning to penetrate state and local planing,
preservation efforts and combines the notions of ecological balance, livable, cohesive communities,
equity (including polluters pay) and ―responsible regionalism‖. The definition of sustainable
transportation is yet to be developed but presumably represents a thrust away from new capacity towards
improved operations, multiple modes, etc.

Streamlining Environmental Regulations – The permitting process – especially for major highway and
transit projects has been increasing in complexity and cost, to the point of often introducing significant
delays in the project delivery process, even when no significant environmental issue appears to be
involved. TEA –21 planning and environmental provision called for streamlining the environmental
review process through interagency cooperation, concurrent review, dispute resolution etc. However,
given the revisions in the planing process and other regulations and the independence among NEPA
permitting agencies, little progress has been made.

Technology Drivers

Multiple Technologies Convergence – A major technology-based trend of the 1980s and 1990s has been
the combination of communication, computation, sensing and controls. State DOTs have been inclined
to introduce updated information technology into all aspects of operations from automating core
functions (financial and administrative systems) and basic production (project tracing and design) to
developing large-scale data base program management systems.

Lockwood -- Parsons Brinckerhoff                                                                                   9
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Intelligent Transportation Systems -- Convergence has also penetrated transportation systems operations
and facilities maintenance via ITS technologies and systems such as freeway and incident management,
traveler information, road weather information systems and many other user services. ITS, beginning as
a professional movement, rapidly generated private sector interest and federal programmatic support. Its
principal impact may have been to focus state DOTs on real time systems operations and performance.
Most recently, the rapid increase in Internet services and e-commerce introduced a range of information
dissemination services over a wide variety of media providing travel conditions data. On the near
horizon is the possibility that the advent of the ―auto PC‖ and other in-vehicle safety, security and
traveler information services may change the relationships between the vehicle user and the road

Construction – After a long period of stability, the impact of focussed funding and increase in research
funding have begun to be felt in terms of new pavement design (Superpave) and bridge design
approaches (LRFD). SHRP work products have come on line and the LTPP continues. Integrated design
and construction procurement approaches together with private initiatives in offering warranteed
products are also introducing new options and issues in production.


Devolution – Within the context of the federal-stare relationships, it is clear that state DOTs, have
become increasingly technically competent and need less direct day-to-day support from FHWA. At the
same time, the state transportation program is becoming broader and more complex and the range of
issues are decreasingly dominated by engineering concerns and more with planning, permitting finance
and other process matters. Both ISTEA and TEA-21 continued the long-term trend towards reduced
federal programmatic direction and in providing states with increased flexibility. Apportionment
differentials were reduced, program categories were consolidated, matches equalized, and funds
flexibility increased. A combination of FHWA initiatives oriented towards ―program administrative
efficiencies‖ and ―stewardship‖ have reduced federal oversight in many program categories (outside
NHS). Self certification and the use of state standards on off-systems projects have further increased
state discretion. The elimination of FHWA Regional offices, delegating more authority to FHWA
Divisions also represented a more state-specific focus on FHWA

Funding Level-- While the federal aid program funds only 31 per cent of the (currently) $73B state
highway program on average, it accounts for over half of the $44B in capital outlay. Furthermore, the
federal component varies from almost 50 percent in a few federal lands states several states to a low of
about 25 percent in states with substantial state and local resources. ISTEA introduced a 40 per cent
increase while TEA-21 increased this by another 44 per cent. The increase in funds was also
accompanied by flexibility in use of funds; leveraging and credit support options. The use of debt
finance increased, supported by the establishment of State Infrastructure banks (SIBs). Federal credit
instruments, such as TIFIA and GARVEEs, further increased the states‘ ability to delivery larger
programs in the short run. In addition to supporting an improvement in the quality of the infrastructure
and a substantial reduction in the preservation backlog, the states came under increased pressure to spend
their increased funds in a timely manner – despite the often reduced staff resources

Program Proliferation The addition and gradual expansion of eligibility of new program elements such as
CMAQ and Enhancements, NHTSA alcohol programs, Corridors and Borders, high speed rail,
sustainable communities, ITS and other programs increased the complexity, introduced new stakeholders
and added to an already burdensome program administration.

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Mandates and Regulatory Delay –The federal aid program has evolved gradually away from mandates
towards ―guidance‖. The failure of FHWA to maintain the mandates on new management systems
following ISTEA is reflected in the more recent guidance-based approaches taken to the CMAQ and
Enhancement programs . At the same time, however, the regulatory landscape has been complicated by
increasing third party use of the courts to enforce federal environmental policy -- especially in the air
quality conformity area – where changing regulations introduced significant program delays add
uncertainties. Some US DOT policy promises of relief, have been more difficult to deliver, including
streamlining of environmental and planning processes, where outside agencies (EPA) are involved.
Strong federal policy positions in safety and technology areas such as NHTSA‘s alcohol earmark and the
potential mandated adoption of ITS related standards and architecture have emerged, somewhat at odds
with the voluntary regulatory tradition in the highway community.

Shifting of Research Funding – Despite the strong support of ISTEA, the budget process surrounding
TEA-21 led to a Congressional reduction in FHWA‘s research funding and extensive earmarking which
threatened key programs such as superpave and the Long-Term Pavement Performance program. A new
federal-state cooperative effort had to be mounted to to maintain critical research and technology
priorities (especially SHRP implementation and LTPP) and organize for the next round of congressional

Increased Legislative and Congressional Earmarking – The trend to Congressional earmarking of specific
federal aid projects has increased over the course of the last three major program reauthorizations. While
some of this is a result of conflict between congressional authorization and appropriations committees, it
may also reflect a difference in priorities between Congress and state programs as well as a
Congressional impatience with the slow pace of project delivery. At the state level some legislatures are
also playing an increased role in either oversight or earmarking capital and maintenance funds.

Increased Focus on Operations – The establishment of a new FHWA strategic business unit devoted to
systems operations signals a significant change in federal priorities to include greater emphasis on real
time systems performance. This program represents a broadening of the focus represented by the
federally funded intelligent transportation systems program beyond technology and facility operations to
incorporate efforts to identify non-DOT stakeholders, target services, measures performance and
intensity the concern with real-time service delivery.

Focus on Asset Management and Accountability – Increasing sophistication in taking a life cycle view
towards asset management has been a key thrust within the federal aid program for two decades. Despite
the state concern about federal mandating of Management Systems, Pavement and Bridge Management
Systems are universal and Safety Management systems are also widespread. The importance of this
perspective was highlighted by AASHTO‘s Transportation Asset Management Task Force program and
most recently jump-starts by the Government Accounting Standards Board announcement that state and
local infrastructures assets are to be incorporated into government balance sheets

Human Resources

Reductions in Force -- Downsizing of state government has led to reductions in FTEs in over half of the
state DOTs. In addition, these initiatives have often involved incentives for early retirement, thus
attracting the most senior personnel, thus eliminating a significant component of departmental expertise

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and experience. In addition, some member departments are having difficulty in retention owing to
perceived dissatisfaction with the advancement opportunities, location and compensation

Reduced Pool of Available Entry Level Talent – A number of forces have combined to reduce the
number of engineering graduates with appropriate skills attracted to the transportation sector. In part this
is due to the relative increased visibility and apparent rewards in other sectors – especially for those with
IT skills; in part it appears that the ―conditions of employment‖ are comparatively less attractive than
other options available – especially for top ranked graduates

Tight Labor Market -- Strong economic growth nationwide has heightened the competition for retention
and recruitment of qualified workforce . It is increasingly difficult to recruit the ―best and the brightest‖
at public agency low entry starting salaries, in competition with the private sector. The more recent
growth of the federal aid program has put public agencies in competition with the private sector for the
same new and/or experienced work force

Combined Effect of Driving Forces

While driving forces can be divided in to general categories as described above , their impacts on state
DOTs often resulted from the way in which they produced combinations of increased responsibilities
(program size and complexity) and increased burdens (reduced staff levels, increased regulatory
constraints). It is apparent that many of the forces acting on state DOTs are synergistic – that they
combine to have increased impact. For example, the downsizing initiatives have encouraged the
retirement of senior staff just at a point where compensation competition with the private sector had
intensified. Together these forces combine to present a difficult recruiting and retention challenge.

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Adoption of Strategic Approaches

The impact of these external trends is felt at two levels: initially agencies having been making the
necessary adjustment in their programs to accommodate critical demands or to capitalize on new
programs. These accommodations have always been taking place as transportation demands and supply
side options available have evolved. These modifications have taken place at a relative slow rate and in
an ad hoc manner until the last decade, allowing state DOT culture, organization and basic activities to
remain substantially unchanged.

During the 1990s, however, the number of changes and pace of change increased. As described above,
economic and political trends, environmental constraints, new technology, and adjustments in programs
established change as a constant. These new dynamics brought with them the need for agencies not just
to accommodate specific changes on an ad hoc basis, but to organize the agency to accommodate
continuing demands for change as a norm. Initial responses were ad hoc and focused on specific problem
areas with quick payoff promises. These were reflected in several organized industry-wide initiatives
such as quality initiatives, performance management, procurement innovation, and management systems.

However, the increased pace of external change – combined with the experience from piece meal
management initiatives -- stimulated recourse to more ―strategic‖ responses: the establishment of more or
less formal processes to review and select appropriate responses and to move from the reactive to the
proactive. Beginning in the late 1980s and throughout the 1990s, industry-wide initiatives emphasized
quality management, especially for construction-related activities, and stimulated wider interest in
program delivery performance. The necessity of simultaneously retaining, improving, and empowering
the workforce, and improving relationships with customers and other stakeholders, broadened the agenda
for organizational development.

In differing degrees from state to state, strategic management approaches – mostly adopted from the
private sector—have evolved . As linkages among various aspects of strategic management became
apparent a broader approach was often adopted. A typical evolution included:
 Quality efforts focused on project delivery leading towards more formal process redesign
 Process reengineering needing more explicit measurements of progress
 Performance measurement requiring clear objectives and missions
 New mission development stimulating broad internal and external stakeholder participation

There is no consistent pattern across all – or even most -- state DOTs. Some are more common than
others. The term ―strategic management initiatives‖ refers to the increasing self-consciousness on the part
of senior management that a significant part of their job (the most important?) is to respond in an
organized fashion to the changes occurring in their environment. This suggests certain conventions of
strategic management are increasingly adopted and applied. But the resulting strategic management
initiatives followed widely varying paths. Changing pressures, varying in importance from year to year,
legislative season, and elected administration.

Five key areas of response and change are evident:
1. Increased Strategic Prioritization and Performance Measurement
2. Expanded Interagency roles and relationships

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3. Reorganization and Workforce Retooling
4. Process and Program Delivery Improvements
5. Innovative Finance

The impact of driving forces in each of these areas is described together with the strategic response of
state DOTs. In some cases these responses were widespread and common to many departments, in other
cases only a few departments appear to have developed a specific management approach. In all cases
there has been variations and useful differences in approach.

Strategic Priorities and Performance

Driving Forces

Strategic priorities were most heavily impacted by facility and service issues: preservation was an
increasing burden for many departments, customer and stakeholder needs increased and changes in the
federal aid program presented new challenges. However the need to prioritize at all was often a response
to resource constraints in the face of increasing and broadening demands for accountability. Several
forces are combining to focus increased attention on asset and performance management. The increased
component of metropolitan delay caused by incidents has indicated the potential leverage of improved
real time systems management. The just-in-time freight operational mode has added to the logic of this
focus. FHWA has formed new business units to direct resources to improved systems and asset
management while outside groups and the media are becoming more aggressive in performance reporting
and benchmarking among regions and states. State asset value reporting requirements and the
Government Accounting Standards Board (GASB) initiative are pressuring states – individually and
collectively – to come up with a more rigorous approach to asset management:

Impact on DOTs

The impact of these external changes in the program and institutional setting for state DOTs has been felt
at two levels. At the program level, the impact of new federal aid initiatives and the unique
transportation–related initiatives of each state generated new program activities. At more general level,
however, there were crosscutting changes in how state DOTs approached programs in general, including:
 An heightened interest in identified customer service including the need for better direct
    communications with customers
 The need to respond to political and stakeholder demand for more explicit information on
    programmatic performance
 Increases in accountability to the administration and the legislature, including the need to develop
    more systematic approaches to asset management
 Focus on specific administration–wide strategic initiatives (such as economic development)

Strategic Response

The impact of these resource constraints and the resulting requirement for more explicit prioritization
forces on state DOTs has been reflected in the need for closer alignment with priorities in a resource-
constrained environment. This, in turn, has stimulated an initial round of strategic planning that has been
completed in 40 member departments. These activities have had as their central components:
 priority setting through the formal development of an agency mission/vision and the interpretation of
    that material in terms or business planning and supportive organization development

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   the expressed intention to focus on customer-driven performance measurement ad accountability
   the felt need to increase customer input and feedback

Strategic Planning -- By private sector convention, strategic planning is the starting point for a systematic
approach to organization performance improvement. The governmental reinvention thrust towards ―doing
more with less‖, etc was accompanied by a wide range of efforts to adopt private sector management
conventions and fashions, adapted in waves of branded approaches from contemporary management
consultants and gurus. However, member departments have introduced strategic planning elements with
a wide range of objectives and in varying sequence. In several cases, state DOT strategic planning has
been a requirement of state administrations‘ reinvention activities.

Customer Focus, Stakeholder Responsiveness, Mission And Priorities -- The impact of strategic planning
appears to relate directly to its use in prioritizing and targeting resources on a limited number of activities
through an action plan and formal measurement of success. Three principal categories of impact were
 A sharpened customer focus through the interaction process to obtain customers/stakeholder
 A refined set of priorities and their use as a guide to align and coordinate other strategic activities
 A clearer and shared understanding of organizational values and priorities on the part of both staff
    and customers.

Formal and participatory planning, involving a wide range of stakeholders, has proven to be a valuable
method of prioritization and programming that can minimize arbitrary political interference in project
resource allocation.

Performance Measurement and Accountability for Outcomes -- Public sector policy emphasis on
efficiency and effectiveness in government has generated efforts to measure and report performance. At
last report, two thirds of the member departments have a performance measurement activity while
thirteen are subject to external reporting requirements as part of state government-wide performance
initiatives. Measures of effectiveness for individual and unit performance vary widely from ―soft‖
metrics, such as agency-wide ―critical success factors,‖ to individual job performance evaluations. While
there is considerable professional discussion about the virtues of measuring ‖outcomes‖, program
assessment is typically oriented to input and outputs and concentrates on physical asset management. At
the most formal level criteria-driven self assessment, such as the Baldrige criteria is now being
implemented in several states. As widely documented in departmental annual reports, a variety of efforts
to improve the internal efficiency of basic construction program delivery have, on an individual program
or unit basis, produced some quantitative efficiency impacts such schedule and cost improvements.
Additional measurable improvements have been made in direct customer contact services such as
licensing, inspections, and other services.

Asset Management and Operational Management Systems – While states have resisted federal mandates
to widen requirements for formal asset management systems, all member departments have some kind of
a system in place for bridges and pavement and many for maintenance and safety as well. ASSHTO has
established a task force to develop a reasonable approach to integrated asset management. This initiative,
responding in part to the GASB requirement for a more rigorous approach to asset management, is
leading to and increased emphasis on performance and return-on-investment considerations as integral
parts of program evaluation and to project selection in a transparent fashion capable of demonstrating
stewardship objectives.

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Other Impacts -- In addition, the downsizing and reinvention initiatives had other indirect impacts as well
(discussed in other sections)
 An increased interest in process efficiency and outsourcing initiatives
 The need to reorganize and retool the existing workforce
 New forms of relationships with other units of government

New Intergovernmental Roles and Relationships

Driving Forces

Missions attributed to state DOTs have broadened in light of state policies in a range of disparate areas
such as regional economic development, air quality conformity and ITS. The impact of devolution – both
federal-to-state and state-to-local has also stimulated changes in the distribution of responsibilities and
altered priorities.

A general trend to increased public accountability for service delivery at the customer/user level has also
increased pressure for improved management where customer services are the most obvious. Regarding
jurisdictionally fragmented services, in particular, the need for increased transparency to customers
combined with the obvious opportunities for efficiencies has led to new relationships among service

The impact of state and federal environmental resource agencies permitting and related regulatory
processes on the project development critical path also increased in the ‗nineties with federal and (some)
state environmental legislation.

Impact on State DOTs

State DOTs have been impacted in several dimensions:
 sometimes conflicting programs goals are concerned
 A recognition of the increased program capability of local government
 The federal (and local) pressure to acknowledgement an increased role for MPOs
 Coalition opportunities presented on a multi-state basis
 Increased dependence on efficient (streamlined) resource agencies (and their capabilities)

Strategic Response

New Regional Devolution and Cooperation -- New missions – still resource constrained – have
stimulated the forging of new types of relationships with related jurisdictions and agencies, both
vertically and horizontally. A combination of the need for increased State DOT focus and the increasing
interest of local government and federal regional planning policy have led to closer policy coordination
with metropolitan planning organizations and rural entities; including increased planning and
programming discretion.

Rationalizing Production Roles -- On the production side, the pressure for more transparent
accountability in operations and management of existing facilities and has led state DOTs to seek closer
relationships with other entities involved in service delivery. Sixteen states also described informal

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production arrangements with local government based principally on trading of responsibilities or
informal cooperative that rationalize construction or maintenance.

Multi-Agency Cooperation -- Other new interagency agreements and coalitions have been formed to
respond to the need for systems operations that cross departmental boundaries such as coordinated
economic development investments, or have formed new multistate arrangement in the areas of
Intelligent Transportation Systems (ITS) and commercial vehicle regulatory programs (CVO). Some of
these new relationships remain informal – based on MOUs while others have required legal formulation
in new institutions such as joint powers agreements.

Environmental Streamlining -- At both the federal level – and in some states -- initiatives have been
undertaken to improve the cooperation between infrastructure agencies like DOTs and both federal and
state resource agencies in order to reduce costs and delays owing to duplicatory or uncertain permitting
cycles. These cooperative ―streamlining‖ initiatives have not yet generated significant payoffs.

Intermodal Cooperation -- In addition, expanded missions have led several departments into closer
multlimodal and intermodal relationships with other service providers such as transit and freight carriers.

Reorganization and Workforce Retooling

Driving Forces

The 1990s saw a continuation in the conservative trend in government signaled by the first of tax revolts
in the late 1980s and embodiment in a persistent policy commitment at the state and local levels to
control – and even cut – costs and staff levels. Two thirds of the state DOTs experienced a reduction in
force as part of an overall state government initiative. Several of these also came with a reduction in state
general funds available for departmental administration. Significant changes in state political leadership
and strong commitments to governmental reform often resulted in new DOT leadership with background
outside DOT careers.

These reduced resources have occurred simultaneously with a TEA-21-driven average increase of almost
50% in state program size. A corresponding increase in private sector activity resulted both sectors
competing for a limited pool of qualified staff.

Impact on State DOTs

This decade of downsizing after a long period of organization stability resulted not only in smaller
organizations but also in the retirement of capability. At the same time departments have been faced with
higher rates of expenditure, new areas of program responsibilities, Key challenges faced include:
 downsizing, experienced in well over half of the state DOTs at the 10-15% level characterized by a
    considerable loss of senior staff
 difficulty in recruitment and retention absent competitive compensation
 the need to reduce the duplication of core functions such as HR and finance
 the need to adjust organizational structure while accommodating civil service and union constraints
 rapid turnover of CAOs

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Strategic Response

Reconciling available resources with new missions and programs has required organization modification,
and changes in the mix of workforce responsibilities. In particular state DOTs have responded in terms of
the size and structure of the organizations and the development of new capabilities

Managed Downsizing -- Reductions in force through policy and retirement have been a common
experience in all but a dozen states. In response to loss of capability, almost every member department
reported significant organizational changes as part of ―managed downsizing.‖ One aspect of this response
has been ―flattening,‖ including:
 Reductions in manager-to-workforce ratios
 Elimination of some middle management functions
 Reallocation of staff by responsibility and location, to improve handling of priority functions.

Decentralization -- The increased importance of customer responsiveness, management accountability,
and general efficiency has led to a clearer separation of line and staff responsibilities and decentralization
of project development and customer contact functions to district offices while centralizing of key
program support functions.

Training Core Competencies -- While increased outsourcing has offset some of staff expertise losses, the
broadened staff responsibilities of reorganization plus the need for new specialists (especially in
environment, finance, ITS, and information systems) have required member departments to define the
core competencies that must be maintained in-house together. A range of staff development activities has
been undertaken, ranging from cross-training to formal training academies.

Recruitment and Retention -- The importance of workforce retention as well as civil service and union
considerations has required measured approaches to reorganization. Turnover in senior management,
including ―outside‖ CAOs has generated the need to institutionalize the agencies mission more clearly
and to consider succession planning. At the staff level, considerable efforts were reported on team
building and incorporation of service values. States are increasingly finding that implementation of
compensation incentives may be necessary for improved retention and recruitment.

Process and Program Delivery Improvements

Driving Forces

During the 1990s, driven by ISTEA and TEA-21 funding increases -- combined with the use of debt
finance -- generated growth in state program sizes (in current dollars) ranging from 10 to 100 percent.
Program options proliferated and eligibilities widened. More complex projects also placed a higher
premium on contractor management. Customer contact functions were also subject to increased demands
for increased service accountability. In addition however, staff constraints and a competitive economy
left many states short of staff and experience. Responding to more complex programmatic requirements
was also hampered by a layered organization and inherited separate process ―islands‖. At the same time,
the increased visibility of private sector companies successfully competing for and performing traditional
public sector work also provided options offering access to additional capabilities – management,
technical or capital.

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Impact On State DOTs

The gap between the scale and complexity of member departments programs and the capability to
delivery often strained conventional approaches and sometimes produced results inconsistent with
departmental objectives:
 The combination of increased program size with resource constraints resulted in some program
 Program complexity led to a higher level of contractor-owner disputes and delays
 Pressures for schedule/budget adherence increased -- especially for major projects related to
    economic development or specific external events
 Downsizing and loss of experienced staff caused significant program bottlenecks and exacerbated
    stovepiped functions

Strategic Responses

Growing state DOT interest in and familiarity with the conventions of other sectors and private sector
strategic management presented a series of useful concepts, models and techniques. These precedents
focused many states to begin a more systematic approach to the improving time, cost and quality
performance – within the given constraints.

Efforts in the late 1980s began with a focus on introducing a culture of quality in to the construction
related activities and soon expanded across an increasing array of production orientated activities. The
focus included both an internal and external dimension and included business process reengineering;
program delivery modifications; and research and technology innovation. Within the last year a few
departments have been able to report schedule, cost and quality improvements.

Quality Programs -- The need to improve performance has led to changes in external program delivery
processes as well. Quality improvement and partnering activities have become a routine convention in
most member agencies. In some agencies formal programs either ad hoc or statewide, such as Baldrige
programs, have been initiated.

Quality Assurance -- QA/QC has for several years been almost universally utilized on certain aspects of
construction. Five states indicated they had ongoing experiments in the development of performance
(rather than prescriptive) specification for some applications
(pavements), typically in a warranty contract. Some concern was expressed about staffing impacts and
the need to utilize a quality control system to reduce client burdens, spurring interest in certification
acceptance testing approaches including ISO 9000.

Process Reengineering -- Internally, introduction of more formal streamlining process was one result with
―process reengineering‖ focusing on key functions and crossing organizational ―stovepipe‖ boundaries
Some level of internal process improvement activities have been carried out by three quarters of the
DOTs A range of responses were evidenced including:
 Formal process reengineering, concentrating on overcoming independent functional           ―stovepipes
    and systems‖ islands, crossing organization boundaries, and requiring executive sponsorship and a
    specialized dedicated staff often on a long-term basis (five states);
 Specific sub-process improvements, to streamline policies and procedures within a unit with a
    limited time scope on several program areas (eighteen states); and

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   Continuous improvement within individual units on a self-directed basis, based on general process
    and quality improvement principles (most states).

The more substantial efforts have targeted core processes (such as project development and design) and
support functions (such as financial management) or areas with high customer contact (such as licensing
and permitting).

Private Sector Support -- Some departments have had the benefits of donated expertise from neighboring
private industry or have used outside consultants to design and facilitate the process. In a few cases,
cooperative relationships were formed with major private industries, supplying experience and expertise
in the form of donated trainers and consultants. Some of the largest private corporations – 3M, FedEx,
Westinghouse, AMP, Ralston – all with significant experience in all phases of process reengineering –
donated staff time and techniques.

Contracting for Technical Services for a Fee -- The trend continues towards contracting out a larger
proportion of an increasing number of services for a fee from in-house to private consultants and
contractors (with a few exceptions where labor issues or specific policy has been otherwise). Nearly half
of reporting states outsourcing over one-half of their design work. In addition, there is a continuing trend
regarding outsourcing routine maintenance, planning
and right of way. ―Contracting in‖ – mixing in contract staff with state workforce is also taking place,
introducing a new set of workplace challenges.

Outsourcing Management - Some states are also using outside consultants for construction and program
management on larger and more complex projects or in one-time programs exceeded constraint in-house
staff capacity. While cost savings have apparently played only a minor role in outsourcing to date,
Virginia DOT reported an initial experiment with a major franchise for total facility maintenance and
operations involving substantial savings over expected public expenditures.

Integrating Production Services Contracts -- Since ISTEA, contracting approaches once considered
experimental have been standardized and results of quality assurance have been integrated into a range of
contracting methods and procedures. Where high certainty in cost and schedule is at a premium (and for
complex projects) there has been increasing experimentation with ―combined services‖ allowing private
engineers and contractors to ―privatize‖ a greater level of responsibility and attendant risk – schedule,
cost control, or financial through design/build performance guarantees and warrantees. The Federal
Experimental Program has supported state experiments with a range of innovative contracting that
adopted selection procedures other than lowest responsible bidder including cost-plus-time. A large
percentage of states have used one or more of the incentive/disincentive-oriented methods for bidding for
payment purposes. While design-build (D/B) is still a matter of concern to segments of the industry and
contrary to state law in some states, an increasing number of states have used design build especially on
large projects

Benchmarking -- Processes suitable for outsourcing require baseline cost knowledge to determine the
relative efficiency of retaining the function in-house vs. outsourcing. In most cases, states cited the
impact of installing new information systems and integrating processes on an enterprise-wide basis,
including transportation data and project tracking systems, management accounting systems, and the use
of technology architectures for CADD, GIS, and GPS. The most aggressive approaches have piloted
―competitive delivery of services models,‖ using true costs and private sector competitive bids to
determine whether an activity should be retained in-house or outsourced to private entities. Managed

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competition has also been employed, which has as its objective, meeting or beating private sector costs in
a structured cost and product comparison.

Increased Research Efforts -- Increased dedicated funding and new technology appears to have
substantially increased the focus on research and experimentation in state DOTs. The SP&R reservation
for research in ISTEA has fueled an increased capability, especially in smaller states that previously had
limited efforts. In larger states, the flow of new products and technology (SHRP and ITS) and the
increased in funds to states has spurred the establishment of research advisory committees and product
evaluation teams and coordinated relationships with outside research and industry entities (such as
NCHRP, TCRP, HITEC NTPEP, and UTRCs). New products such as those flowing out of SHRP.
SUPERPAVE and RWIS produces are frequently mentioned as the focus of implementation. However
there is also an expanded agenda for research interest including planing, environment and AQ, alternative
materials, and intermodal interests as well as the traditional ―hard‖ highway materials and design-
oriented areas. The more recent uncertainty in the federal research program has led to increased pooling

Innovative Finance

Driving Forces

ISTEA and TEA-21 increased the level of federal funds and obligation limitation distributed to states
resources (TEA-21 representing a one-third increase of ISTEA). At the same time, overall investment
requirements grew, as increasing preservation burdens, new non-highway programs and non-capital
requirements (such as operations, administration, law enforcement, and safety) continued to exceed
available conventional motor fuel and vehicle-related sources.

The introduction of federally-required ―constrained‖ budgeting at the state and MPO level generated
additional pressure for increased resources as interest groups more clearly confronted the impacts of the
now more transparent resource constraints. However, budget politics at the state level reduced the rate of
increase in conventional motor fuel taxes. Until TEA-21, it appears that the proportion of expenditures
for highway capacity expansion had declined in nearly half of the states with the mix of the capital
program shifting towards reconstruction, rehabilitation, and maintenance. During this period, pavement
quality improved substantially in most classes. Moreover, within the last two years major capital
expenditures increased more rapidly than maintenance.

At the same time ―pioneer‖ states, international examples and federal policy demonstrated the potential
of new approaches, innovative leveraging of federal aid and a higher level of debt financing, greater
reliance on tolls, tapping the private investment market. The federal aid program provided both new
flexibility in financial management ―public-private co-financing as well as federal backing for certain
kinds of state transportation borrowing.

Impact on State DOTs

Many states have had to increase their fuel taxes to match the federal program increases as the latter
increased faster than state-only resources remaining after matching. Twenty-three states increased their
state gas tax since ISTEA to maintain their match and state-only programs. However, the total increases
over the six years averaged less than 3 cents. At the same time, demands have outrun total conventional

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pay-as-you-go resources especially in states where political pressure for an increased level of expenditure
conflicted with fiscal conservatism. As a result, many state DOTs became more interested in:
     maximizing the leverage of conventional funds through combinations and/or through
        partnerships with private road developers who could tap the private capital markets.
     capturing new sources of revenue, either from users through tolls or from other beneficiaries
        through fees or taxes
     developing innovative financial and institutional methods to tap the private capital markets

Strategic Response

State response to the need to increase revenues has varied: half of the states now use debt financing on at
least part of their programs; twenty-one states have public authority toll roads (including six post-ISTEA)
Seventeen states reported having authorization for public-private partnerships toll roads.

Since ISTEA, subsequent federal legislation has progressively enhanced the flexibility and leverage of
the federal aid program though removing the limits on advanced construction and allowing for a more
flexible match, the establishment of seed funds for state infrastructure banks, and a range of credit
enhancement to support state borrowing for revenue generating projects. This continuing scarcity of
funds led states towards six principal initiatives:
 Efficient use of available federal aid: Most states have capitalized on the full range of innovative
    finance techniques introduced by FHWA in successive legislation and regulation over the last seven
    years, including flexible federal aid matches, advanced construction, and increased cost eligibility.
 Increased use of debt -- Twenty of the states surveyed have, or intend to establish, state infrastructure
    banks (SIBS) with revolving loan funds, including two regional banks. While federal seeding was
    not reauthorized, over twenty loan agreements had been signed or loans disbursed from FHWA to
    seven states.
 Increased local and private sector contributions: Several states, including Florida, Texas,
    Pennsylvania, and California, continue to propose private sector (land developer) contributions as an
    important part of their programs to reduce new capacity costs.
 Cooperation between State DOTs and State Toll authorities: Factors that have led to relationships
    between state DOTs and toll authorities include: (1) the development of new toll roads, sometimes by
    state DOTs; (2) the availability of federal aid to toll roads through state DOTs; and (3) the
    availability of toll revenues, including state facilitation of new financial mixes for toll roads, jointly
    developed projects, and authorities taking on responsibilities for non-toll projects.
 Private toll road development: Privately financed toll roads allow states to develop projects using
    private investment and development resources. Pioneer projects of this model include the Dulles
    Greenway in Virginia and SR 91 HOT lanes in California. There are currently nine survey states with
    public-private partnerships toll projects in various stages of development representing several billion
    dollars in construction value. The availability of TIFIA loans and credit guarantees has generated a
    large response from states for both public and non-profit toll-financed projects

In their search for additional financial resources, state DOTs‘ innovations have been both at the project
and institution-building level (1) the development of new mixes of state, federal, and private funds within
an appropriate project development process, and (2) in establishing state-specific institutional
arrangements able to fully capitalize on the new federal flexibility and emerging financial technology.
The most aggressive states sought specific state-enabling legislation that authorized broad discretion in
the commingling of federal, state, and private funds — such as toll-backed — as well as flexibility in
procurement appropriate to the conventions of exclusive franchise arrangements.. Several partnership

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models are being used representing different approaches to sharing the risks of permitting, construction,
traffic, and revenue and policy shifts. A community non-profit road corporation approach, adapted from
public housing (6320 corporation), is currently being used on several projects to reduce borrowing costs.
In general, progress has been slow, reflecting an unfamiliar procurement process, competition with ―free‖
roads, and lack of public support for tolling. Few states and regions have yet begun to integrate toll and
other private financing concepts into their financial programming.

Lockwood -- Parsons Brinckerhoff                                                                                23
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Precedents in Other Sectors

Outside transportation, the world of public infrastructure services has changed dramatically in the last
quarter century, both here and abroad. Existing systems are confronted with continuing growth and
changes in demand. Meanwhile, advances in information, communication, and control technology have
spawned a host of new service opportunities. At the same time, tax revolts, and calls for downsizing
government agencies reflect erosion in public confidence and pressure for increased public
accountability. Private sector models further heighten expectations for improved efficiency, customer
responsiveness, and the value of market mechanisms. These changes are driving significant ―reinvention‖
in public services and challenging the traditional institutions of public infrastructure services delivery in
surface transportation as in other sectors.

The dramatic developments in other networked public service sectors – telecommunications , power,
water and waste suggest the potential of deregulation, vertical and horizontal reconfiguration,
marketization and privatization and the dramatic service impacts of new technology. The dynamic
developments in those sectors provide an instructive contrast to the management of the surface
transportation. International developments in transportation also point to the possibilities of enterprise-
style organization and management -- especially for project delivery -- in an effort to achieve more
efficient and effective delivery of transportation services.. The recent TRB International Scanning Tour
revealed a wide range of new approaches to providing facilities and services, such as privatization in
New Zealand, major road concessions in Australia, shadow tolls in England, and aggressive safety
enforcement in Sweden.

Within the US transportation sector, the convergence of driving forces for increased efficiency and
effectiveness will continue to challenge member departments‘ missions, structures, and capabilities. The
most aggressive member departments are already moving beyond the simple streamlining of existing
activities. Future evolutions in basic missions and relationships to customers and stakeholders may well
reshape how products and services are delivered for higher performance. Together, these factors suggest
that strategic management -- organizing for continuous, permanent change as distinct from one-time
initiatives -- will become necessary and routine, rather than the exception in the future. The 21st Century
state DOTs may look increasingly less like the standard model of the 1990s.

Basic Vectors of Change

Some of the vectors of change among state DOTs described in this memo suggest the emergence of new
models of organization, process, and relationships that reflect the special technical and institutional
setting of surface transportation. Not withstanding the tremendous variation among AASHTO member
departments, taken together they may suggest the shape of the 21st Century State DOT. Some of the key
features of such a future might include:

 In 1997, a five-country International Transportation Organization and Management Scanning Tour by representatives of AASHTO, FHWA,
TRB and ARTBA investigated the roles of government and the private sector in the delivery of transportation facilities and maintenance;
interagency organizational structure; use of performance measures; and innovative project delivery methods.

Lockwood -- Parsons Brinckerhoff                                                                                                   24
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   Smaller organizations which maintain the responsibility for policy (priorities, funding, quality) with
    many project and service production functions dispersed via devolution to lower levels of
    government and outsourced to private entities as determined by benchmarking and managed
   Decentralized departmental units organized based on fluid task-oriented teams and vertical cradle-to-
    grave project management for closer customer contact and increased efficiency, supported by
    enterprise information and quality control systems
   Outcome-oriented investment priorities developed through close user-customer dialogue focusing on
    interagency delivery of improved passenger and freight service in response to measurable logistics,
    economic development, and quality of life impacts
   Emphasis on real time operations of upper level systems using the best available ITS technology for
    reliability, safety, and security in conjunction with new multi-jurisdictional operating entities,
    authorities or private corporations
   Enterprise-style management at all levels (strategic business plans) accomplished by a cross-trained
    staff maintaining core capabilities under performance incentive-driven employment agreements
   Streamlined project delivery for reduced schedule/cost risk via competitive turnkey contracting
    including public/private partnership franchises
   Increased utilization of market mechanisms responding to customer willingness to pay (partnerships,
    tolls, commercialization) together with contemporary financial technology such as infrastructure
    banking, revolving funds and debt financing accessing nationally securitized capital markets
   Incorporation of the best available technology in process activities (information systems), product
    development (material and process), and real time operation (intelligent systems)
   Asset management orientation including investment trade-off analysis, supported by life cycle design
    and true cost evaluation , based on improved performance monitoring

Many of these features are already becoming visible in several member departments today

Lockwood -- Parsons Brinckerhoff                                                                                25
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                                                           Factors Affecting the Future of State DOTs as Institutions


Current Agenda Limitations

AASHTO is organized to respond to common concerns of its member departments -- issues of principal
interest that are also shared by a majority of its members. The organization of this response is most
clearly represented in the structure and agenda of committees and the agenda of the Board of Directors.
Traditionally, the AASHTO agenda focus has been in four major areas with a strong policy, program and
technical orientation:

         1. National policy and program impacting all state DOTs. The policy, program, funding and
         regulatory concerns flowing from the federal aid program, where consensus positions can impact
         the program has been a major focus of the Board of Directors as represented by a series of
         standing committees reporting to the Board of Directors. There is also a set of administrative and
         HR concerns that intersect with the federal aid program or which represent widespread concern
         among the member department. These have been the preserves of a set of subcommittees of the
         Standing committee on administration and other special committees and task forces

         2. Standardization of design and technology. The focus is on areas where commonality leverages
         the collective technical and resource investment of the states and USDOT. The major traditional
         technical focus area has been on shared and common technical concerns –especially in highways,
         regarding standards in design, traffic engineering, planing, construction operating as part of the
         standing committees on Highways, Planning and Research and their subcommittees.

         4. Research, testing and technology development and transfer. This area covers a series of
         budgeted and often commercialized services including those with a research and product
         development focus such as NCHRP, AMRL, and AASHTOWare, as well as networking
         programs such as MTAP, ETAP

By contrast to the strong policy, program and technical focus there been limited AASHTO program focus
in the areas of strategic management, organizational development and program delivery discussed in this
memo. For example, topics not under the formal purview of existing AASHTO committees include
staffing studies, inter-institutional relationships, customer relations (other than PR), innovative finance,
process engineering, public-private partnerships, workforce recruitment and retention, core capabilities,
etc. As these are topics of considerable importance to an increasing number of member departments,
they deserve a place somewhere within the AASHTO program.

It is true that the topics and focus of strategic management are new to many member departments and that
uptake and involvement has been uneven. Furthermore, while there is substantial literature and
experience in strategic management in the private sector, public agency applications are still in the
pioneer stage. Many of the strategic management areas do not even have widely accepted names (such as
those applied in Baldrige studies). There is almost no generally circulated case study material. Many
important innovations and lessons-learn go unrecognized outside their own state environment. Peer-to
peer discussion of these topics is principally informal, limited in participants, ad hoc and regional.

Yet these issues are crucial to the efficiency and credibility of state DOTs. In an era where delivering a
larger and more complex program with a smaller staff and tighter accountability in an ever-change
context is often the norm, strategic management is central to continued effectiveness. Management

Lockwood -- Parsons Brinckerhoff                                                                                 26
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                                                           Factors Affecting the Future of State DOTs as Institutions

techniques, organizational models, staffing studies, and process analysis, are now significant parts of the
normal state DOT senior management agenda. Yet neither the accepted methods nor the promising
innovations have an organized forum for exposure and discussion within AASHTO.

There are several explanations for this absence. These issues are neither ―policy nor ―technical‖ in a
programmatic sense and do not have a standardized ―home‘ within state DOT organizations. Nor do they
have a natural home within the existing AASHTO committee structure, (although some of these topics
have been treated within the Standing Committee on Quality on an ad hoc basis where the issues were
natural follow on to product quality initiatives). Furthermore, leadership resources are limited. The high
rate of turnover of both CEOs and Chief Engineers has reduced ―institutional memory‖. At the same
time the federal establishment has (perhaps appropriately) taken little interest in state-level strategic
management outside of program administration. This lack of place organizationally and impermanence
in natural constituency has hindered introduction of this topics into the AASHTO agenda.

Potential Options for Strategic Plan Consideration

There is a range of options for consideration for the purpose of introducing strategic management issues
into the AASHTO dialogue. These include both organization modifications and programmatic responses.
Dome examples for consideration during the Strategic Plan discussion might include:

1. Establishment of a regular series of sr. management roundtables for a daylong period twice a year.
   Topic agendas selected though balloting senior management

2. Restructuring of committees to include a task force or subcommittee on strategic management with
   representation from member department staff that are specialists in strategic change such as the new
   performance evaluation and change management or management services units that have been set up
   within some member departments.

3. Introduction of a case study activity designed to document ―cases‖ in individual member
   departments, including the issues faced and approaches utilized. This library of case studies would
   provide a starting point for the more detailed identification of issues to be pursued in other activities
   within the AASHTO agenda and would also provide an important resource to the research and
   management consulting communities.

4. Deliberate organization of ad hoc peer-to-peer workshops on self-identified issues where the
   assistance of experience peers would be helpful (such programs are already offered by FHWA in
   technical areas). These workshops could be either ―national‖ or regional in participation.

5. Development of industry initiatives involving both ASSHTO and other related entities (task force to
   provide guidance, lessons learned, etc) around specific institutional issues of

6. Widespread concern such as recruitment and retention. (This topic, for example, would be of interest
   to other large public sector agencies such as counties)

7. Increased availability (within the TEAM framework?), of formal training in specific strategic
   management areas, targeted especially for top management. A series of annual two or three-day
   programs could be developed, drawing on a combination of private sector and public sector resources

Lockwood -- Parsons Brinckerhoff                                                                                 27
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                                                         Factors Affecting the Future of State DOTs as Institutions

    such as business schools and training institutes, including the development of DOT-relevant
    curricula, such as case studies, peer presentations, etc

8. Broader consideration of the potential of management evaluation concepts such as Baldrige criteria
   (now being employed by several states)

9. Reconsideration of committee membership and voting rules to account for rapid turnover of CAOs

10. Increased joint association activities where strategic management issues are common concerns and
    where concepts and methodologies might be shared

11. Discussion with FHWA regarding their interest in, and support for, some of the items listed above

Lockwood -- Parsons Brinckerhoff                                                                               28

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