San Mateo adopted a competitiveness strategy several years ago. Said San Mateo City Manager Arne Croce, "We want to test ourselves against the market. If we find out we can’t be competitive, we will use contracts and privatization." While the city’s in-house street sweeping unit passed the competitiveness test, its fleet maintenance operation failed. So the city solicited proposals from a number of potential providers and eventually selected Managed Logistics Systems (MLS) in 1993.

Says Croce, "It’s been very successful. The customer satisfaction reports we get back are showing high levels of satisfaction. MLS is meeting our expectations on a performance standpoint and from a cost standpoint." Privatization led to a 20 percent reduction in fleet maintenance costs, bringing the annual budget down to $900,000 in 1994.

Although that may seem like a relatively small share of San Mateo’s total budget of $80 million, Croce says every little bit helps. "A 20 percent reduction in fleet maintenance is four police officers in terms of the value of services to the city."

In 1993, employees of Coral Springs, Florida entered into a head-to-head competition with the private sector for fleet maintenance and won the bid. Taxpayers won as well, as the employees attained their competitive edge by cutting 25 percent from their operating expenses.

Coral Springs took steps to ensure fair competition between the city employees and private-sector proposers, including training their employees to be competitive in the marketplace. After evaluating the bids in July 1993, city employees were awarded the contract.

"Because they are our employees we have to treat them with respect, and they wanted to bid," said Mike Levenson, one of the assistant city managers and chairman of the Fleet Maintenance Selection Committee. "We just didn’t say, ‘you have to bid,’ we offered all the support the city employees needed to come up with their business plan and structure their bid, which is something most city employees don’t know how to do."

A team of city municipal staff who were not on the selection committee gave technical advice to the city employees. They instructed the employees in "developing unit costs and unit revenues so they could better understand the economics of the service they have historically provided," said Levenson.

These lessons in competitive bidding helped the employees cut operating costs significantly and reduce their own staff by three. In total, the staff was able to lower costs by $222,000.

Indianapolis’s fleet maintenance department had done 10 years of total quality management. It was widely acclaimed to be the most efficient central garage in Indiana. The mayor decided to bid it out anyway. Three of the biggest players in the country bid on the contract. That’s when the department got really serious; they eliminated $2.5 million dollars out of their overhead, in-creased their productivity per mechanic by 22 percent, reduced the cost to other city agencies, and won the bid (see Table 1) for a total cost savings of $4.6 million.

The fleet maintenance employees discovered that government’s scheduling of days off — where each worker is entitled to the same, and frequent, holidays — affects their competitiveness, so they asked for more flexibility in this area. To increase their productivity—and minimize down time of vehicles — they asked to be able to keep some workers on the job during scheduled holidays.

The union employees also agreed to forego some automatic cost-of-living increases and take a portion of their compensation in performance bonuses. Offset against this are contractual, financial penalties if the department misses certain pegs on the contract. "They live and die by the performance measures," says Deputy Mayor Charles "Skip" Stitt. "Real dollars come out of each employee’s pocket if they fail to perform to contract specifications."

In the first year the department surpassed its cost-containment goals, entitling the employees to over $75,000 in incentive payments (but only after deducting penalties for failing to fully comply with certain other performance goals). Due to the financial incentives to save money, fleet maintenance employees have begun to propose outsourcing when it will save money. In auto body work, for example, the in-house unit was not competitive with private shops. So it began outsourcing that work and moving the displaced employees into more competitive areas.