A simulation approach to in-house versus contracted out cost comparisons

The purpose of this project was to compare the cost of transportation engineering design services provided by private contractors versus services provided by state transportation agency staff for the Louisiana Department of Transportation and Development (LaDOTD). Due to shrinking budgets, staff cuts, and a trend toward privatization, state transportation agencies now outsource the majority of the services they provide. The merits of doing so, however, have been difficult to discern for lack of “apples-to-apples” comparisons. For engineering design services, this problem is particularly acute due to the uniqueness of many projects (e.g., a bridge over the Mississippi river). A simulation approach was used in this study to make “apples-to-apples” comparisons for 39 design projects, 22 in-house projects and 17 consultant projects. For each in-house design project, the cost was estimated had the work been done by a consulting firm. Similarly, for each consultant design project, the cost was estimated had the work been done by in-house staff. The result of the study was that in-house design costs were cheaper by an average of 17 to 19 percent.