Based on 70 projects and five years of experience in Indianapolis, selecting the best projects for competition is more an exercise of artful judgment than mechanical application of checklists or analytical calculations. There are, however, some general principles that can be expressed, and some criteria that tend to be associated with more successful competition/privatization projects.
The Political Climate
The political reality is that these efforts will be opposed by constituencies with vested interests in the old order. Competition opponents will quickly receive technical assistance from outside the jurisdiction, and their tactics will reflect this sophistication sooner or later. Opponents will turn a competition project's degree of complexity to their procedural advantage, and they will generalize from any shortfalls in early competition projects, no matter how minor, to attempt to discredit the entire managerial concept.
In Indianapolis, these political/tactical considerations evolved into the principle of "low-hanging fruit," which was that projects that had the following characteristics should receive first priority: not too complex, short time frame, least controversial, and most reliable outcomes.
"Largest savings" was not necessarily the first priority, as it might well be in a similar private-sector project. In the more politically animated public sector, establishing credibility and delivering measurable, reliable results was, in our experience, the necessary way to establish a beachhead for this approach to public management.
The Size of Current Expenditures for the Function
The prospect of significant savings motivates elected and appointed government leaders to endure the pain of changing operational approaches. It is feasible to expect cost savings in the range of 20 to 30 percent (sometimes more) through competition/privatization initiatives. Such savings are usually measured relative to the fully burdened costs of providing the same services as a noncompetitive, internal government function. So an obvious criterion for competition-privatization projects is savings potential.
A secondary, but practical, financial consideration is the degree to which competition savings, if achieved, can be applied to other government priorities. Frequently, incremental revenues and savings in government operations simply accrue to segregated, "earmarked" funds, out of which money can be moved only with the consent of other parties, often in other branches of government.
Visibility and Vulnerability of the Community to Service Disruption
It is obvious that service disruption in the collection of abandoned vehicles, for example, is both less visible and less serious than disruption of fire fighting. The application of the low-hanging-fruit principle would give more weight to competition projects like abandoned vehicles, especially in the fragile early roll-out of the management strategy.
Degree of Integration of the Candidate Function into Other Operations
Functions that stand relatively alone (for example, solid-waste collection, landfill operations, and wastewater treatment) and that usually have already-separated budgets are easier to compete/privatize than functions with extensive integration into other government operations. By this criterion, information technology (IT) service is a less attractive candidate - although Indianapolis did outsource this function. In almost every jurisdiction, the IT function has tendrils that reach throughout the organization, and adding to the complexity, there are often scattered personnel and equipment budgets within the user departments, which must be re-centralized to reach competitive "critical mass."
Strength of the Private-Sector Competitive Alternatives
The basic objective should be: the more competitors, the better. This means going out and marketing the request for proposals (RFP) and recruiting possible vendors. The bigger the pool of potential competitors, the more seriously that function should be considered for competition.
Capability and Willingness of the Government Employees to Participate in the Competition
If a jurisdiction is union-organized, a very careful assessment of the union and its political allies must be done. In practical terms, a stonewalling union reaction will probably put those functional areas later in the competition schedule. In extreme cases, labor relations issues may limit early competition projects to unorganized functional areas.
Rank-and-file workers in the Indianapolis city-county government are organized into several AFSCME (a public employee's union) locals. AFSCME workers and officials have participated in numerous government service competitions, winning approximately a third of all such competitions.
Competency of government workers to participate in the RFP/competitive process is relatively easily solved with the addition of consultants. The need for such external help will diminish over time, particularly as the union's staff becomes more familiar with the process.
What Alternatives Exist for the Displaced Government Workers?
From 1992 through 1996, Indianapolis was able to keep a promise not to lay off any rank-and-file workers, despite almost 70 competition/privatization projects. This operating principle proved to be an indispensable rapport builder with union leadership, but the city did not offer it from the first. The principle arose in the negotiations and compromises in the early large-scale projects, but was ignored. As a result of that experience, Indianapolis learned that a jurisdiction's capability to absorb surplus workers from outsourced areas elsewhere within government is certainly a key for large competition projects. Small projects may not be impeded, since absorption is inherently easier.
Among the variables to analyze in assessing absorption capacity are turnover statistics, feasibility of hiring freezes, rate of growth of workforce, pay scales relative to private-sector employment alternatives, availability of early-retirement incentive programs, professional capability of human resources functions, and quality of facilitating systems (for example, job posting, outplacement agencies, and so forth).
Written for RPPI by Tom Olsen, Principal Consultant of PRAGMATIK LLC (phone (317) 297-1283, fax (317) 297-1278, e-mail TFOlsen@aol.com) and former Director of Enterprise Development for the City of Indianapolis.