THE MISSISSIPPI LEGISLATURE

Overview

In 1983, the Mississippi Department of Transportation (MDOT) established a business logo sign program in response to the federal Highway Beautification Act. Nine years later, MDOT began to consider privatizing the department's logo sign program in order to expand the logo capacity per sign; overlay the existing inventory of signs with reflective blue sheeting; and to respond to complaints from business advertisers.

In 1993 the department issued a request for proposals which included only qualitative components. Two contractors responded, and MDOT evaluated their proposals without consideration of how inexpensively the contractors could perform the services. On October 1, 1993, MDOT awarded a ten-year contract with two additional five-year options to Mississippi Logos, Inc., (MLI) for administration and control of the business sign logo program.

During its development of the request for proposals, MDOT included a provision that the private contractor receiving the bid increase the annual fee for a mainline logo sign from $200 to $500. This $300 increase was an arbitrary decision by MDOT which was not based on complete cost data and was $177 more than necessary to make the program self-supporting and responsive to business.

MDOT's contract with MLI does not place the logo sign program in a position to be operated either (a) in the best interest of the business community while maintaining the lowest possible cost to the state, as stated above; or, (b) to generate maximum possible revenues. If MDOT had bid out its program in a similar fashion to Kentucky, Mississippi could be receiving higher annual revenues. Assuming MDOT's current level of sales of business logo signs and Kentucky's income formula, MDOT could be receiving revenues of approximately $522,000 annually. MDOT's ten-year revenues could total $5,220,000, in comparison to the $1,500,000 which MDOT will actually receive under the current contract.

Finally, instead of obtaining the lowest possible buyout provision through private sector competition during contract selection, MDOT established an arrangement which will require the department to make a cash outlay of nearly $2 million should it terminate the contract prior to expiration.

Recommendations

1. The Transportation Commission should formally adopt a process for department personnel to use in making decisions relative to the privatization of department programs and/or services. The process should require MDOT personnel to:
   • identify programs and services which are good privatization candidates through a systematic and documented evaluation process;
   • determine whether a competitive private sector market with sufficient service providers exists for privatizing such programs and services;
   • accomplish and document a comprehensive management study to define the most efficient organization (MEO) for the programs and services;
   • conduct a cost/benefit analysis to develop and document a total state cost estimate for performing the MEO;
   • solicit bids from the private sector through the use of a contract bid or proposal process whose basic specifications for the Request for Proposal (RFP) are the MEO operation and organization; and,
   • allow the department to compete with the private sector in the competitive bid process for the right to provide the program or service.
   See PEER's November 30, 1992, report The Privatization Potential of Mississippi's State Programs and Services for further details regarding the privatization process.
2. MDOT management should perform a long-term financial and operational analysis of its business sign logo contract with Mississippi Logos, Inc., to determine whether it is in the department's best interest to:
   • continue the contract as written; or,
   • terminate the current contract, improve contract requirements as discussed in this report, and rebid the contract.
3. When contracting out programs or services, MDOT personnel should comply fully with the department's Standard Operating Procedure (SOP) No. ADM-24-01-00-000. In complying with the SOP, department personnel should consider both the cost competition and qualitative components of contracting.
4. For the business logo sign contract and all other privatization contracts, department personnel should adhere to the policy memorandum the Executive Director issued on April 6, 1994, to require legal counsel to review all RFPs and contracts before execution. MDOT should also amend its standard operating procedures to include the policy outlined in the memorandum.
5. When contracting out non-routine services, MDOT should require a review by financial personnel to determine economic impact and feasibility of the RFP and contract document. The department should use principles of financial analysis, capital budgeting, and net present value to determine the most financially feasible course of action.

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