Public Affairs Research

Council of Alabama
Joe Adams, Ph.D.
Research Coordinator

Riding in Cars with Boys:

The Benefits and Risks of
Privatization
Transparency & Accountability
• Access to quality information
– Clarity of information
– Validity and Reliability of Information
• Accountability
– Responsiveness to questions
– Follow-up/Follow-through
– Defining acceptable behavior
– Defining consequences
 What are the benefits of
Privatization?
• Potential for better service
• Potential for lower costs
• Potential for more responsiveness
“Faster, better, cheaper”

These are questions of fact, not fancy.

 What are the risks of
privatization?
• Potential to get less service
• Potential for higher costs (profits)
• Potential for less responsiveness
“Slower, worse, expensive”

These are questions of fact, not fancy.

 “Adult Supervision”
• You know what the plan is, what is
supposed to happen and what is not.
• Someone is watching what is happening.
• It’s possible to intervene before something
bad happens.
• Everyone knows the rules and what the
consequences are.
Key Questions on Privatization
• Cost of services
– Cost per unit
– Cost of managing performance
• Quality of services
– Performance standards
– Terms of agreement
• Consequences of Failure
– Risk management
– Legal liabilities
 Facts need to be verified.
• What is the cost per unit?
– How many units were produced?
– How much did it cost to produce them?
– Divide costs by units
• Many states audit performance data
• The Examiner of Public Accounts for the
State of Alabama audits performance
data.
 Common Candidates for
Privatization
• Non-core activities sometimes referred to
as “enterprises,” “auxiliary units,” or
“support services.”
– Food Services
– Office Space
– Maintenance
– Temp Pool
– Travel Services
 Controversial Candidates
• Some services receive some degree of
subsidy and may not be expected to
support themselves in consideration of
equity:
– Public hospitals & nursing homes (indigent
care)
– Public education (all levels)
– Public works projects (toll roads?)
How Good is the Private
Sector?
Is it always great?
 Good to Great by Jim Collins

With more than 3 million copies sold, it’s #103 in Books 4.5/5 Stars with 942
Reviews
Good to Great – Key Concepts
• Defining “Great”
– What success means (very important)
• Level 5 Leadership
– You never heard of these people
• First Who – Getting the Right People
– A culture of excellence
• The Hedgehog Concept
– Willingness to confront hard facts
• Turning the Flywheel
– Persistence and discipline
 Jim Collin’s Good-to-Great
Companies (2001)
• Abbott Labs
• Circuit City
• Fannie Mae
• Kimberly-Clark
• Kroger
• Nucor
• Philip Morris
• Pitney Bowes
• Walgreens
• Wells Fargo
Good to Great and the Social
Sectors

#967 in Amazon books, with about 4.25/5 stars, but only 98 reviews. Just
over 10% of the number for Good to Great.
Why Business Thinking is Not
the Answer…
 Jim’s latest work

#7,279 in Amazon books, 4/5 stars, with 120 reviews, a little better than The
Social Sectors.
 Off-Load Functions
or
Substitute Services?
Giveaways or exchanges?
 Contracting for Services
• How much contracting are we doing?
• Who is doing it?
– Who is managing contracts?
– Are they qualified?
• Where does the money go?
• What do we get for our money?
Source: Office
of Personnel
Management
 Federal Contracts
(in Billions)
$900
$853 $840
$828
$800
$750 $756
$700
$672

$600 $607

$529
$500 $497

$400 $410
$348
$325
$300

$200

$100

$0
1998 2000 2002 2004 2006 2008 2010 2012
Percentage of Contract 2001-12 Total Contracts
Types

50% Firm Fixed Price

13% Cost Plus Award

Fee (for performance)

10% Cost Plus Fixed

Fee

6% Fixed Price with

Economic Adjustment
Where did federal contract
money go?
(This is not formula funding)
http://www.usaspending.gov
What’s so fascinating about
Florida?
What’s so fascinating about
Virginia?
Austin American Statesman, Sunday, January 15, 2011
(ONLINE)
FAVORITE QUOTE FROM THE STORY:

“…it may be too late in the game to change contractors,…

“I don’t look for people, I look for opportunities.”
Robert Cerasoli
The former, first-ever inspector general for
The City of New Orleans
 Functions to Keep Apart
• Agency – Who selects the vendor?

• Treasury – Who pays the bills, checks

receipts, invoices?

• Authority – Who decides what to buy and

how much?
 Competence & Training
Victoria Anne Cunningham, CFCM, MPA, MSLS Contract Specialist National
Institute of Environmental Health Sciences Office of Acquisitions
“An Analysis of Contract Management Coursework in NASPAA Accredited
Master of Public Administration Programs,” University of North Carolina
(2009).
The National Association of Schools of Public Affairs and Administration
requires course material in the following areas:
• Human Resources
• Information Management, Policy and Applications
• Policy and program formulation, implementation, and evaluation
• Decision-making & problem solving
• Budgeting and Financial Processes
• Organization and Management Concepts
• Political and Legal Institutions and Processes
• Economic and Social Institutions and Processes
 Contract Training in Public
Administration Programs
Using root search terms "contract", "privatiz*", and "outsourc*”
(asterisks wildcard symbols allow truncation to search word stems)
 Learning What Not to Do…
“I've met a number of individuals in the federal government with MPA degrees (private
industry tends to have more individuals with JDs and MBAs). I think in many ways I was
well prepared for a career in the federal government. That is not to say that I was well
prepared to work in government contracting nor would I say that the MPA program would
have provided me with a solid understanding of contracting/grant programs/privatization
had I not specifically adjusted the curriculum to meet my needs.

While I was in my MPA program, I spent a good deal of time devoting myself to the field of
contract management through organizations like NCMA (the National Contract Management
Association). I also took a number of my MPA electives at UNC School of Law (taking
Contract Law, Business Law, Negotiations, etc.). Much of what I learned about contracting
was due to my own initiative and not because the MPA program provided it. I only
remember two courses that I found helpful: Grant Writing (which was a half-semester
course) and Alternative Dispute Resolution. I found the ADR course helpful because the last
half of the course was independent study with the professor. My focus was federal contract
disputes and ADR procedures as used in the federal government. As such, I was exposed to
the results of poor contract administration and was able to explore cases in a detailed
enough way that I learned "what not to do".”
 Maginot Mentality
(Comments found on Google search)

• “The Maginot Mentality was a French belief that

that France was safe behind its ultra-modern
and advanced protection system.”
• “Maginot Mentality”. Why Regulators Often Fail
to Protect the Interests of the Public.
• “Commentators claim that this 'Maginot
mentality' spread across the French nation as a
whole, encouraging defensive, non-progressive
thinking in government ...”
How do you manage this contract?
“A member of the Civil Service Board of the City of
Gadsden is not prohibited by the Constitution of
Alabama or ALA. CODE § 11-43-12 (1975) from serving
as a consultant on a fee-for-service basis for the city’s
public works department. Such consultant services may
be subject to the State Competitive Bid Law. Hon.
William R. Willard, Attorney for Civil Service Board for
the City of Gadsden, 4-12-02, AG
2002-209.”
Source: Page 168, ALABAMA COMPETITIVE BID AND PUBLIC WORKS LAWS SEPTEMBER 2008 (UPDATED
THROUGH FEBRUARY 23, 2010)
 Things We Cannot Afford
• Naïveté: We have no right to act
surprised when someone takes the money
that we left on the front porch. Proper
oversight, contract management, and
enforcement is required.
• Ignorance: The state checkbook is online
and so is the federal checkbook.
• Not Demanding Performance: Data on
contract performance should be published,
audited, and publicly debated.
 What Citizens Can Do
• Ask Questions – listen for answers.
• Support Performance – Celebrate
success.
• Understand complexity – Simple
answers are usually wrong or
misinformed.
• Stay engaged for the long term.
 Information Resources
• Federal Spending
– www.usaspending.gov
• Alabama Checkbook & Contracts
– http://open.alabama.gov
• Federal Contracts
– https://www.acquisition.gov
– https://www.fpds.gov/fpdsng_cms/ (Map)
 Questions?

PARCA Website:
http://www.parca.samford.edu