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Ousting the Outsourcing Misconception


by SAFEbuilt, Inc.

When Life Hands You Lemons 

Reach back into your childhood memories and imagine that you are a kid again. A kid selling lemonade in your neighborhood. During the summer months, you find yourself understaffed because of the high demand and your staff of recruited neighborhood kids are overworked trying to produce enough lemonade. Because of this, the quality of your lemonade is suffering. What’s worse, is several of the neighbors have filed complaints about the customer service at your stand. During the down time in the colder months, your stand is overstaffed, but you don’t want to deal with letting anyone go. Given this fluctuation, you find it difficult to budget and find yourself running at a deficit while you wait for the warmer months to return.  

Now imagine that there was an opportunity to bring in a group of neighborhood kids that you could partner with to increase customer service, bolster the quality of your lemonade, handle staffing and activity fluctuations and save money. 

These kids are from your local area. They are not looking to monopolize the lemonade stand game-it is still your stand. You no longer have to worry about staffing changes because this group can bring in additional resources during peak periods and when things slow down, they can be distributed to other stands in different neighborhoods as needed. With years of experience they understand that each neighborhood is different- so they customize their approach to make sure that your unique needs and customer service expectations are met. 

As a kid, you likely would not think twice about making this switch- it just makes sense. Because of the local benefits driving this decision, you would not view this process as “outsourcing,” but rather as an alternative to delivering better services and operating more efficiently. 

While providing community development solutions is undoubtedly a different world- more complex and more critical than selling lemonade- the ideology and concept behind this analogy is not that far off from how we feel and operate here at SAFEbuilt. 

We Prefer Privatization 

Anytime local governments contract with outside companies to perform services without their own employees doing the work, they are using an alternative service delivery.i There are many ways to define alternative service delivery. Many officials and communities casually interchange these terms.ii Definitions are often blurred together and at times this contributes to the confusion and negativity towards the concept because people don’t have a solid understanding of what is really taking place. Instead of outsourcing, privatization is more accurate and indicative. 

Privatization is an umbrella term for referring to a range of policy choices involving some shift in responsibility from the government to the private sector, or some form of partnership to provide certain services.iii

Privatization is not partisan. Politicians from both major parties have had success privatizing public services and have been able to get re-elected after doing so. Many communities have relied on contracted providers for services such as solid waste collection and disposal, street repairs, and utilities for years, and with the “new normal” in local government, communities are evaluating other services as well.

Goals/Benefits of Privatization 

Cost Savings: Financial savings are often realized through economies of scale, better technologies, innovations, or simply a different way of completing the job. Reduced labor costs- including legacy costs, which strap local governments with increasing healthcare and benefit fees for current employees and retired pensioners- also contribute to overcoming financial burdens. As a conservative rule of thumb, cost savings through privatization typically range between 5 and 20 percent, on average.iv 

Service Improvements: Privatization ensures that all the necessary staff and expertise is on hand- with the right number and the right type of people at your disposal, the best possible service is delivered. Clear performance metrics should be outlined in the contract giving governments the ability to guarantee that quality thresholds and expectations are met, including outstanding customer service.v

Accommodating Fluctuating Peak Demands: Changes in season and economic conditions may cause staffing needs to fluctuate. Privatization allows governments to obtain additional help when it is most needed so that services are uninterrupted for residents without permanently increasing the labor force.vi  

Access to Outside Expertise: Contracting allows governments to obtain staff expertise and resources that they simply do not have in-house on an as-needed basis.vii

Innovation: The need for lower cost, higher quality services encourages providers to create new, cutting edge technologies and solutions to remain effective and relevant.viii 

What Really Goes on Behind the Scenes: The Myths of Privatization 

Privatization is a complex subject and one that is commonly misunderstood- often times by those with an interest in maintaining the status quo. It’s important to look beyond these misrepresentations and understand what really goes on behind the scenes.

One of the most common misconceptions or beliefs about privatization is that it threatens and displaces local jobs. However, comprehensive examinations of private initiatives have found that they tend to result in few, if any, layoffs- those not retained by the new contractor usually either retire early or shift to other public sector jobs.ix Furthermore, private companies often present greater opportunities for upward career advancement, training and continuing education and performance compensation increases.x  

A second myth is that privatization involves a loss of local control or that it leads to the contractor taking over. Yet taking over is simply not always an accurate way to describe what is taking place. When a public-private partnership is executed correctly, the government and taxpayers actually gain accountability as a result of having a carefully spelled out contract that highlights all of the responsibilities and expectations.xi Failure to follow through on these performance metrics can result in the contractor facing financial penalties or termination. Under this model, governments never lose control- in fact, they may gain control.

Yet another stigma, is that people associate privatization with an attempt to monopolize a certain niche. However, many government systems today act as more of a monopoly  than they would under a private model.  The reason privatization works is because it creates competition in an otherwise monopolistic system of public service  delivery.xii  Governments operate free from competitive forces and without a bottom line. Thus, program structures often stagnate, progress is not measured, and success is hard to replicate.xiii When competition is absent, governments will often be monopoly providers of government services which tends to create higher costs, less choice, and less innovation in service delivery. xiv 

Despite not having to make a profit, the public sector does not always necessarily deliver cheaper services.xv The growing public sector reliance on defined-benefit pension systems and generous retiree health care benefits for retired employees, also known as legacy costs, carry an indirect cost that is rarely considered in discussion of whether governments should look to alternative service delivery options. 

How’s Your Stand Operating? 

While the neighborhood kids’ lemonade stands may not actually be turning to privatization and public-private partnerships, the reality is that policy makers across the country are finding that one of the most effective and efficient ways to deal with the “new normal’ in governance is through privatization. For years there seemed to be a cloud of uncertainty lingering over the concept of privatization. To this day, some remain unsure of its effects on local control and quality. However, as the experience of thousands of other local governments around the country have demonstrated, there are numerous pragmatic and beneficial reasons for turning to privatization. Privatization is certainly not for everyone, but it is worthwhile for everyone to at least honestly and openly look at their “lemonade stand” and ask themselves if there is a better way to operate. When done correctly- with a solid understanding of the due diligence and implementation process and when in the hands of experienced professionals- privatization is a powerful tool for improving service levels, realizing cost savings, and dealing with fluctuating activity levels and demands. 

About SAFEbuilt 

SAFEbuilt partners with nearly 200 communities of all shapes and sizes throughout the country for the efficient delivery of privatized community development solutions including building department services, community & transportation planning and code enforcement in short-and long- term engagements to public agencies. Our team of dedicated experts has worked closely with local governments for over 20 years to meet their communities’ unique needs by offering a customized approach that provides proven best practices, expert personnel and improved service levels.

 

 Sources

i  “A Handbook of Alternative Service Delivery for Local Government.” HR Green. Jerry Gabris et al.  http://www.hrgreen.com/Documents/Brochures/HRG-NIU-ASD_Handbook_Executive_Summary.pdf (accessed March 3, 2014)

ii  “A Handbook of Alternative Service Delivery for Local Government.” HR Green. Jerry Gabris et al.  http://www.hrgreen.com/Documents/Brochures/HRG-NIU-ASD_Handbook_Executive_Summary.pdf (accessed March 3, 2014)

iii  Definition from Reason’s Foundation Savings for Fresno Report by Leonard Gilroy and Adrian, Moore, Ph.D. Policy Brief 104. May 2013. http://reason.org/files/fresnoprivatization.pdf

iv  Over 100 studies of cost savings from privatization are reviewed in John Hilke, Cost Savings from Privatization: A Compilation of Study Findings, Reason Foundation How-to Guide No.6, (Los Angeles: Reason Foundation, 1993), http://reason.org/news/show/cost-savings-from-privatization (accessed February 19, 2014).

v  Reason’s Foundation How privatization can streamline government, improve services, and reduce costs for Kansas taxpayers by Leonard Gilroy, Harris Kenny and Todd Davidson. January 2013. http://reason.org/files/kpi_reason_privatization_study_2013.pdf

vi  Reason’s Foundation Savings for Fresno Report by Leonard Gilroy and Adrian, Moore, Ph.D. Policy Brief 104. May 2013. http://reason.org/files/fresnoprivatization.pdf

vii  Reason’s Foundation Savings for Fresno Report by Leonard Gilroy and Adrian, Moore, Ph.D. Policy Brief 104. May 2013. http://reason.org/files/fresnoprivatization.pdf

viii  Reason’s Foundation Savings for Fresno Report by Leonard Gilroy and Adrian, Moore, Ph.D. Policy Brief 104. May 2013. http://reason.org/files/fresnoprivatization.pdf

ix  Reason’s Foundation Savings for Fresno Report by Leonard Gilroy and Adrian, Moore, Ph.D. Policy Brief 104. May 2013. http://reason.org/files/fresnoprivatization.pdf

x  Reason’s Foundation Savings for Fresno Report by Leonard Gilroy and Adrian, Moore, Ph.D. Policy Brief 104. May 2013. http://reason.org/files/fresnoprivatization.pdf

xi  Reason’s Foundation Savings for Fresno Report by Leonard Gilroy and Adrian, Moore, Ph.D. Policy Brief 104. May 2013. http://reason.org/files/fresnoprivatization.pdf

xii  Reason’s Foundation Savings for Fresno Report by Leonard Gilroy and Adrian, Moore, Ph.D. Policy Brief 104. May 2013. http://reason.org/files/fresnoprivatization.pdf

xiii  Reason’s Foundation Savings for Fresno Report by Leonard Gilroy and Adrian, Moore, Ph.D. Policy Brief 104. May 2013. http://reason.org/files/fresnoprivatization.pdf

xiv  Reason’s Foundation Savings for Fresno Report by Leonard Gilroy and Adrian, Moore, Ph.D. Policy Brief 104. May 2013. http://reason.org/files/fresnoprivatization.pdf

xv  Reason’s Foundation Savings for Fresno Report by Leonard Gilroy and Adrian, Moore, Ph.D. Policy Brief 104. May 2013. http://reason.org/files/fresnoprivatization.pdf

 

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Jurisdictions

SAFEbuilt, Inc.; Loveland, CO

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