My experience within an organization is working with the Illinois Department of Transportation over the summer as an intern. While working as an intern, I was assigned to supervise and audit projects that were contracted out to private contractors and subcontractors for state-funded work on state-owned roads. This was within the Bureau of Construction of IDOT. The structure within the Bureau of Construction was split into separate field offices outside of the headquarters. Each field office consisted of a Resident Engineer, who was in charge, and about 2 or 3 Civil Engineers. Each field office was in a separate area of District 1, which consisted of Cook County, Lake County, DuPage County, and some other smaller ones. Each Resident Engineer was assigned a project which was to be completed in a certain period of time, usually about 60 days and within 10 miles of the field office. Each project was first bid on by private contractors, with the lowest bid usually winning (bid is the amount it would cost them to complete the project). After the private contractors began work on the project, our job was to supervise the contractors by performing several measurements and blueprint reviews each day, making sure that the private contractor was doing exactly as laid out in the blueprint. Periodically throughout the project, we would also audit the time and materials used by the contractor to ensure that IDOT was being billed correctly by the contractor.
To the best of my knowledge, the entire Bureau of Construction is a transaction cost. The production costs are represented by the private contractors. Similar to a proctor of a test representing transaction costs, our job was to ensure that the private contractors remained honest and stuck to the blueprints. In a world without dishonesty, our job would be unnecessary. Therefore, the work we performed was a transaction cost of road construction.
You said lowest bidder "usually" wins. In the unusual case, what happens?
ReplyDeleteIdentifying the projects to be bid is probably not a transaction cost. Also, the way you describe things there sounds like some political aspect to how projects are determined, in that each district gets a project rather than considering overall where there is the most need. Is that a correct interpretation?
In the unusual case that the lowest bidder doesn't win, it would go to a higher quality contractor that may cost a little more but not by that much.
ReplyDeleteI agree that identifying the projects to be bid is not a transaction cost. However, that is an administrative task and not something that our field office is involved with. We simply receive our project designation from headquarters, along with all the necessary information (blueprints, locations, contacts, contractor information) and then proceed with our auditing and supervising.
There is also a political aspect as some Resident Engineers get preferred projects due to political ties. This, however, is just speculation as it is not supposed to be that way but mumbling among workers certainly points towards that.