Design of Public Projects: Outsource or In-House?

Abstract

This study analyzes the relative cost in New York state of having the public sector perform design work in-house or to contract out the work to private engineering consulting companies. It is important to note that the percentage of work performed in-house versus that which is contracted out varies among New York state agencies and authorities. Many agencies target a design work load of 25% in-house and 75% contracted out to accomplish their programs and in-house training goals. New York State Department of Transportation (NYSDOT) has reported that it performs 50% or more of its work with in-house forces, although in some regions the in-house design percentage is as high as approximately 80%. Because the authors believe this to be a very high percentage of in-house work when compared with other New York state agencies and authorities, the authors have chosen to focus this cost-effectiveness comparison on transportation projects and the NYSDOT. While a few studies have been conducted in this area, they were based primarily on subjective analysis using extremely limited data, if any. While one may anticipate that the cost of a design engineer would generally be comparable whether he or she is in the public or private sector, this study found that because of the generous benefits package provided by the state of New York, the large amount of paid time off, and, most likely, a lower utilization factor for an in-house design engineer, his or her actual expected cost to the taxpayer exceeds the cost of a private design engineer by approximately 15%. These calculations are based on what the authors consider conservative assumptions; the actual difference considerably exceeds this value in all probability. The total cost to the taxpayer of a career NYSDOT employee is in excess of $6.4 million over his or her lifetime. With the consideration of forecasting pension costs, the career employee cost amounts to approximately $6.5 million.