As the people of San Diego stare down a $180 million city budget deficit for the next year, some people are again calling for the wholesale privatization of city government in the foolhardy hope that outsourcing public services will save them. Before taking that leap, I urge city leaders to look at the disastrous results of "managed competition" in the federal government.
The federal experiment with "managed competition" reached its nadir of notoriety with the privatization of repairs at the Walter Reed Army Medical Center. From being a crown jewel of military medicine, the facility deteriorated into a roach-infested hellhole where our wounded troops were treated with neglect and decay.
So how did a seemingly innocuous competition between public employees and private contractors translate into one of the worst federal boondoggles, rampant with waste, fraud and abuse?
The problems with "managed competition" and its many federal euphemisms such as "competitive sourcing" and "commercial services management" are not accidental. They are rooted in a political drive to overstate the potential savings and efficiencies of privatizing public services, without effective tools to manage the performance of contracts. The result is actually a lack of competition, in addition to poor cost containment, lax oversight and service fiascos.
Phantom savings
The most fallacious argument by privatization proponents is that public-private competitions generate "savings" -- hypothetically 10 to 30 percent reductions in future budgets. In truth, audits by the independent Government Accountability Office show that these competitions cost more than they save. On average, they cost American taxpayers $225 million, or about $4,800 per job put out to bid.
Last year, the GAO analyzed the savings claims in two federal agencies -- the Department of Labor and the Forest Service -- and found that both had misled Congress and the American public by overestimating the savings and under-estimating the costs of contracting out. For example, the Forest Service touted $35 million in savings through outsourcing its IT infrastructure, without including the estimated $40 million cost of transitioning to a private contractor.
While public employees win 90 percent of the time, the competition process itself turns out to be expensive and risky. There is no accounting of in-house staff time spent on competition planning, review and related activities. There is no tracking of performance that can reasonably assess whether service quality has been protected, and no tally of the costs when the public workforce has to undo the damage done by private contractors.
Limitless studies
Potential savings associated with managed competition often are washed away by the costs and time associated with preliminary planning. The longer the studies drag on, the more taxpayer dollars go to consultants, while the agency's mission gets muddied and employee morale depletes. And all along, public employees are diverted from doing their core job: serving the American public.
The scandalously long privatization study at Walter Reed Medical Center lasted six years, during which time Walter Reed became the flagship medical center for our wounded soldiers returning from wars in Iraq and Afghanistan. The cost comparisons used in the study had no relevance to the rising significance of Walter Reed to the nation. The Army later acknowledged that the costs of conducting the study and then transitioning to a private contractor exceeded the guesstimated savings of contracting out.
Another privatization study for refueling at the Miramar Marine Corps Air Station began in 2005. Even though federal employees won the competition over a private contractor, the study continues to this day. Employees who have repeatedly been proven to offer the most efficient service for taxpayers are working with this sword of Damocles hanging over their heads.
Time for change
The late Sen. Edward Kennedy was concerned that cost savings from public-private competition would be determined by private contractors failing to provide employee health benefits. Thus the presumed savings for taxpayers in contract costs would be completely wiped out by the taxpayer expenses on uninsured healthcare. Under Sen. Kennedy's leadership, federal law now ensures that contractors don't receive an unfair advantage for a bid proposal that would reduce costs by omitting employer-sponsored health insurance.
The failed federal "managed competition" experiment is now on hold. In March, Congress passed legislation that President Obama signed into law placing a moratorium on public-private competitions and any new studies on shifting work from government employees to private vendors. The law also requires federal agencies to establish guidelines for bringing work back in-house that was improperly or imprudently outsourced.
Furthermore, the Obama administration is undergoing a system-wide efficiency evaluation that puts American taxpayers ahead of private contractor lobbyists. Federal agencies are assessing the adequate level of oversight and the risks associated with contracting, and developing guidelines on when privatization of government services is and is not appropriate.
The federal experience should serve as a wake-up call for cities like San Diego that may be exploring costly and risky "managed competition" processes, when there are much better ways to achieve efficiencies for the greater good.
Nov. 20, 2009, 5 p.m. -- San Diego's web video news: Today's breaking major business events, economic, and financial announcements from the Daily Transcript/San Diego Source newsroom.
Print
E-Mail
