The Oregon Transportation Investment Act (OTIA) and the Jobs and Transportation Act (JTA) brought much needed improvements to our state’s highway system. Now with the programs largely in the past, engineering firms face a much more competitive market for their services.
In 1953, Sir Edmund Hillary and Nepalese Sherpa mountaineer Tenzig Norgay became the first people to set foot on the summit of Mt. Everest. Upon their descent the two were met by fellow expedition member George Lowe, who brought them a hot bowl of soup and to whom Hillary proudly proclaimed, “Well, George, we knocked the bastard off.”
Here in 2014, the State of Oregon finds itself having reached the base of a much different mountain, this one the result of reaching the end of a nearly 15 year series of funding measures that brought the state’s highway system a period of unprecedented improvements. Unlike Hillary, the joy of victory is behind us, though our infrastructure will serve for decades to come. Like Hillary, we might all find some comfort in a warm bowl of soup.
Much has been written about this decline and the lack of transportation funding in Oregon and the nation. The Oregon Department of Transportation (ODOT) has pointed to six trends that spell trouble for transportation funding here. No matter the exact combination of problems, the crux of the issue is that ODOT finds itself in a position where it must limit its scope to three areas: 1) Servicing debt incurred over the past 15 years; 2) Continuing to run the agency; and 3) Performing regular highway maintenance. As a result, ODOT’s ability to perform necessary capital improvements is now almost entirely dependent on federal funding, which is in short supply as it has its own very serious issues. Should the situation continue unchanged, ODOT anticipates that projects currently planned for the coming years could be delayed or cut entirely.
While debate continues on how to solve our nation’s transportation funding issues, I would like to focus on an often overlooked result of this surge. Because of the massive volume of state highway projects created under the OTIA program, there is now an unprecedented level of competition among engineering firms for highway transportation work. Competition is driven by supply and demand, and with OTIA in the past there is now an extensive supply of qualified engineers with directly applicable experience and dwindling demand for their services.
First, supply. Engineering firms typically compete for large public agency contracts under a qualifications based selection (QBS) process. The central idea of QBS is that construction work is expensive and construction claims and changes orders can ruin an otherwise successful project. Therefore, it is in the public’s best interest for agencies to select design firms by determining who is most qualified and will develop the best deisgn and not who offers the lowest price. Spending an extra $10,000 during design could result in a solution that saves more than ten times that during construction. In using QBS, agencies openly acknowledge this fact.
In a typical QBS process, the agency issues a request for proposals (RFP), establishing their priorities for the project and how proposers’ qualifications will be measured and scored. Each RFP is unique and requires a unique response, but most typically ask some version of three basic questions.
- How has your firm’s previous work prepared you for this project?
- Who on your staff will perform the work and how has their experience prepared them for the assignment?
- Based on your experience, how will you approach this specific project?
Now take a minute to scroll back to Mount OTIA at the top of this post. Notice that from 2001 to 2007, Oregon’s transportation funding more than doubled. As a result, and without exact numbers, it would be safe to assume from this that there were something like twice as many projects under development in 2007 than there were in 2001. Put another way: There were significantly fewer opportunities for an engineering firm to build its resume in 2001 than there were in 2007, and there were likely significantly more firms with strong resumes with ODOT in 2007 than there were in 2001.
Adding a final piece to this supply puzzle, for a variety of reasons agencies typically place a time window on relevant project experience. Most ODOT RFP’s request information on something like three similar projects completed within the last 5 years. Completed in this case means that construction was completed. Since the design and construction processes can each take a few years on even a mid sized project, this means that a sample project for a proposal in 2014 may have begun as early as 2004 or 2005.
Look again at Mount OTIA. The span from 2004 to 2014 captures the very summit of the funding mountain. Oregon has seen a lot of infrastructure development since 2004 and 2005. It is not hard to believe that this work served to bolster the resumes of many engineering firms. Ten years ago, there was so much work being performed that if a firm could prove that they were capable of taking on these projects, they were often simply awarded a bundle of bridge replacements. Such was the supply and such was the demand.
Demand today is much different. Having studied the OTIA funding graph, you may have noted that this particular version projects 2015 funding to be similar to pre OTIA levels. The difference, as we just explored, it that there is now a much longer list of firms with relevant experience. As compared to 10 years ago, there is a much larger supply of qualified engineers and a much smaller demand for their services. Everyone has “arrived”, but the party ended awhile ago.
So demand is down and supply is up. Economics aside, we can absolutely see the affects of this situation in the current state of public agency contracting. Consider ODOT’s own on call list. In the mid 2000’s, a place on the list might provide a firm with the opportunity to be handed a project or even an entire bundle of projects. This could be enough work to bolster the firm’s resume and occupy their staff for years. Today, earning a place on this list offers the same – but now more qualified – firm the opportunity to compete for the same project by responding to another RFP, making it more expensive and more difficult to pursue new work.
The current state of competition makes it much more difficult for firms of all sizes and abilities to bring in new work, but that is the reality of where we are and where we have been. Just as these companies thrived under the opportunity of the OTIA programs, they now struggle under the pressure of more qualified competitors and a lower project count.
Just as QBS protects agencies from having to select an unqualified firm because they offer a low price, it also more or less eliminates the price reduction that should accompany a high supply, low demand scenario. Still, in a backwards, off hand way, this particular piece of the situation is to ODOT’s advantage, as they now have a deeper, hungrier pool of consultants ready to respond to their needs.
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