The Governance of Surface Transportation in the 21st Century: Understanding the Challenges of Implementing New Technologies and New Procurement Methods George Washington University Washington, DC July 9, 2015 Jonathan L. Gifford Lisardo Bolaños Nobuhiko Daito Jeong Yun Kweun George Mason University 1

Presentation Outline Research question and methodology Why transportation and why Virginia Dept of Transportation? Challenges confronting surface transportation system VDOT´s adaptation efforts The barriers to adaptation Conclusions 2

Research Question and Methodology 3 Derthick (1990): ambiguous mandates and loss of control Fountain (2001): activities persist despite innovations Stigler (1971), Williamson (1979), Spiller (2013), Moszoro and Spiller (2015): external opposition due to cost avoidance or opportunism Wilson (1989): costly monitoring of outputs and outcomes What technological and procurement developments have taken place in surface transportation and how have transportation institutions adapted to them? Research question The challenges of adaptation

Research Question and Methodology 4 11 questions: minute Questions oriented to identify the changes in the last 20 years in VDOT, driving forces and implications In-depth interviews between March and May 2015 Industry leaders and professionals with extensive experience in Virginia’s highway sector 15 interviews out of 22 invited 7 in the public sector, 8 in the private sector Interviews Questionnaire

Why transportation? Transportation in the US provides a rich context to test hypotheses on institutional theory 5 Different transactions Design Construct Finance Operate and maintain Retire Changing governance mechanisms Private tolls and turnpikes County and city provision State provision Federal financial support Private involvement via P3s

Why is VDOT context i useful to others? Responsibilities in urban and rural areas is useful for different types of states 6 Highways (miles) 1,118 interstate 8,111 primary highways 333 frontage roads 48,305 secondary roads Some issues Low proportion of locally owned roads State ownership favors adopting innovations -In methods and materials -In procurement methods

Why is VDOT context useful to others? Experiences with political environment may help other states 7 Considerable political contestability Shifts in Governor party: 1993, 2002, 2009 Shifts in the House majority: 1997 Shifts in the Senate majority: 1995, 2008, 2011 High ethnic fractionalization

Why is VDOT context useful to others? Experiences developing a competitive market may help other states 8 P3 market as an example Multimodal P3 office outside the DOT Manual and Guidelines to provide process certainty Operators Ferrovial Agroman, Fluor, Macquarie, Skanska, Transurban Active interest from the private sector 19 teams responded to the I-66 RFI

Challenges confronting surface transportation system Challenges and opportunities Growing complexityCost increases New materials, methods, and technologies Budget constraints 9

Challenges confronting surface transportation system Growing complexity 10 Deteriorating infrastructure Growing congestion Growing urbanization Aging facilities Insufficient maintenance Increased urbanization Physical constraints in dense areas Other modes of transportation Transit-Oriented Development

Challenges confronting surface transportation system Cost increases 11 Customers expectations Low tolerance for inconvenience High demand for information Additional modes of transportation Regulatory requirements Complicates buying innovations Complicates implementing innovations Impedes providing new services Other drivers New technologies allow new/demand new services Increased input prices Slow growth in construction productivity

Challenges confronting surface transportation system New materials, methods, and technologies 12 Innovations IT development to improve designs for lower costs New construction technologies Higher specification safety features on roads Intelligent Transportation Systems (ITS)

Challenges confronting surface transportation system Budget constraints 13 Funding concerns Pressure to ‘reign in’ government since 1980s Virginia self-limitation on debt ceilings Gas tax reform in 2014 was positive but “insufficient” to satisfy demands

VDOT´s adaptation efforts VDOT´s adaptationNew focusRelationship - private sectorRelationship - public sectorRelationship - citizensNew organization & new skillsNew management style 14

VDOT´s adaptation efforts A new focus 15 Services Technology to increase efficiency Multimodal approaches Transit-Oriented Development (TOD) Operations and maintenance Life-cycle costs Concern with infrastructure deterioration Trade-off: cost and asset-life Decisions on materials and procurement

VDOT´s adaptation efforts Relationship with the private sector 16 DBBDBDBFOM Focus on process control Risk on public sector Focus on cost and delivery date Shared risks with private partner More private involvement in definition and objectives Risk-sharing requires a specialized skill Incentives allocated to achieve on-time and on-budget completion Changes in the relationship

VDOT´s adaptation efforts Relationship with other public agencies 17 Image: Shared facilities Shared technologies Shared operational information Individuals and institutions interact 24x7 Changes in the relationship

VDOT´s adaptation efforts Relationship with citizens 18 New modes of communication Increased interaction through informal information meetings Changes in the relationship

VDOT´s adaptation efforts Changing the organization and the mix of skills 19 Organizational changes “Ossified” organization Downsizing ( ): 15K (1994) down to 7.5K workers Shift to private contractors New skills needed Contract management Financial engineering Public relationships

VDOT´s adaptation efforts Changing the management style 20 Performance management Previous focus on procedures Performance management to improve results Dashboard for publicly procured projects -Clarity on what is being managed -Clarity on goal achievement -Efforts to break-down silos

VDOT´s adaptation efforts 21 Image:

VDOT´s adaptation efforts Changing the management style 22 Managing P3s Dashboard not appropriate Not monitoring ´every ton of asphalt´ Focus is on the concept and the delivery A new agency had to be established -Concentrate responsibilities -Specialized skills -Multimodal approach Image:

The conflicts from VDOT´s adaptation Conflicts from VDOT´s adaptation External oppositionInternal resistance 23

The conflicts from VDOT´s adaptation The conflicts 24 Internal resistance Resistance to citizen priorities Engineering mentality Higher budget obviates need for P3s External resistance High-cost projects attract attention Urban projects may affect more people Tolls are unpopular Some benefits are hard to appreciate

The conflicts from VDOT´s adaptation What is causing the conflicts? 25 VDOT transactions are more sophisticated Increased uncertainty, complexity, and new risks Efforts to assure quality Efforts to gather citizen support Efforts to gather political support (budget, project, program) Losing the ability to control and measure performance Public outreach may not win community support P3 project may go bankrupt due to a national recession

The conflicts from VDOT´s adaptation Explaining the conflicts Wilson (1989): how to avoid shirking in the absence of residual profits 26 Types of organization Outcomes Expected results Easy to measureHard to measure Outputs Day-to- day actions Easy to measure Production organizations E.g., IRS Focus on measurable outcomes Procedural organizations E.g., Army at peace Focus on standard operating procedures Hard to measure Craft organizations E.g., Army at war Generate a sense of duty Coping organizations E.g., Schools Balance situational imperatives and constraints

The conflicts from VDOT´s adaptation Explaining the conflict 27 Production organization Coping organization Observable outputs & outcomes Unobservable outputs & outcomes Operators: situation imperatives Managers: budgetary and political constraints In bad times: external pressure to add more constraints Shift is expected to generate conflict

Conclusions Through in-depth interviews our goal was to understand What technological and procurement developments have taken place in surface transportation and how transportation institutions have adapted to them? Findings VDOT faces rapid urban growth, public funds shortages, and higher expectations The adoption of transportation innovations implies higher uncertainty and complexity This is caused by a loss of control and a lower ability to measure performance VDOT faces external and internal conflict that pressures the agency to focus again on tasks that are easier to control and measure NIE provides a useful framework for understanding VDOT changes 28

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