Government Competes with Private Sector on Level Playing Field
Back in the days of the American wild, wild west, “hired guns” who were quick on the draw administered “private” justice for whoever was willing to pay their price. Even though the local sheriff was supposed to enforce the law and serve the citizenry, the job sometimes just didn’t get done. Too much territory and too few lawmen. So folks seeking redress for crimes committed against them turned to professional gunmen, to get the justice they craved. This outside competition made the law realize it had to do a better job of protecting the citizens, or the citizens would take the law into their own hands. Or put it into the hands of someone else.
Today, as local and state governments struggle to provide services to an ever-growing, ever-demanding public despite inadequate financial resources, outsourcing and privatization of government functions is becoming more and more of an issue.† Taxpayers expect their governments to deliver products and services commensurate — at least in their own minds — with what they pay in taxes.
In the Commonwealth of Virginia, a unique organization works to ensure its citizens get the most for their tax dollars. The 15-person Commonwealth Competition Council, created by the Virginia Legislature as part of the Virginia Competition Act of 1995, is proving that there is a better and less costly way to serve its citizens. The Competition Council, whose members hail from government, academia and the private sector, was mandated to research and recommend ways in which state government can reduce the size and scope of its activity, as well as investigate how private sector organizations can best perform certain government functions.
Competition Brings Value
According to Phil Bomersheim, executive director of the Commonwealth Competition Council, providing value to the customer — the taxpaying citizens of Virginia — was the driving force behind the creation of the Council. “Value is made up of three components,” Bomersheim explains. “The price of the cost of the function; the quality and the quantity of the function; and the customer satisfaction that you want to obtain.” Bomersheim says that because customer satisfaction is so key in Virginia, there have been times when outsourcing was done to better serve the citizens, even though it was actually more expensive than keeping a government function in-house.
He is quick, however, to make it clear that the Competition Council has no executive powers. It provides expert analyses of various state or local functions, compares them with how well a private company could perform the same functions, and makes a recommendation. It leaves the decisions up to the government agency managers.
Another unique aspect of the Competition Council is that it allows government entities to take a proactive and systematic approach to outsourcing. Instead of trying to privatize services during a fiscal crisis when there is little or no time to make a truly informed choice on which outsourcing supplier to use, Virginia’s state and local governments can rely on the Council as a resource center and consultant. A significant side benefit of this systematic approach to outsourcing is that the various government units affected, realizing that outsourcing is a constant possibility, are motivated to be more innovative and resourceful.
The Name of the Game is COMPETE
One of the biggest obstacles in conducting a reliable, fair, and effective analysis of government outsourcing has been developing a reliable, user-friendly methodology for an apples-to-apples comparison on government and private industry. “Every time you have a privatization issue there’s always been a discussion about ‘Did you save money? Did it cost you more?'” says Bomersheim. “And many times they’ve measured these numbers using different accounting systems. Government does a cost base, private sector uses accrual, and when you don’t make adjustments, you’ve got a different set of numbers.”
To combat this discrepancy, Bomersheim and his deputy, Al Roth hired a CPA firm to help them develop a cost comparison computer program, which they named COMPETE. It computes the full cost of an activity — the unit cost; what it costs the state or local agency to write a check; and how data is generated to evaluate privatization proposals.
The Competition Council does license other governments to use COMPETE. One such licensee is Robin Johnson, an expert on government privatization based in Monmouth, Illinois. The McDonough County Sheriff’s Office was looking to increase fees for certain services. State law permitted such an increase only if they conducted a study showing the actual cost of those services. The Sheriff’s Office hired Johnson to come up with the numbers. Johnson, who admits to possessing no accounting skills above the average Joe, ran the COMPETE program and came out with a fully allocated cost for McDonough County’s bond processing and civil process functions.
This is one of the biggest benefits of COMPETE: it is extremely user friendly. You just plug in the numbers; it’s as simple as that.
What About Government Employees?
At the very heart of any discussion about privatization of government functions is the effect it has on government employees.† What happens to them? Phil Bomersheim gives us a glimpse of how Virginia answers these questions. “When we outsource, our employees do not lose employment. They may lose their jobs, but not employment, because we take it on as a management issue. We retrain, relocate, and re-deploy the employees.”
Bomersheim further illustrates by recounting what happened in the Tidewater and Norfolk/Virginia Beach area. When the state decided to outsource the operation of its movable bridges (drawbridges) rather than the government submitting a competing proposal, part of the agreement was that the private company hire existing government employees at their existing wages. The private company then came in, automated some functions that eliminated a lot of previous overtime, used the savings to buy all the employees laptops, trained them how to use them, and increased their benefits package. After three years, all of the former government employees are still with the private firm.
The Commonwealth of Virginia is a shining example of how government can partner with the private sector to achieve its ultimate goal of serving its citizens in the most cost efficient manner.
Lesson from the Outsourcing Primer:
- It is extremely important to use consistent accounting methods when competing government with the private sector.
