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Contracting Government Services Can Work

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Editor’s Note: Virginia has been a leader in public private partnerships (P3’s) and in contracting out government services. The recent problems with P3’s on the proposed new highway 460 should not stop this process, but should be a caution that all such programs, large and small, need to be carefully thought through.)

Despite decades of proven successes, privatization (along with its cousins, public-private partnerships and outsourcing) is often a contentious subject, as evidenced by a recent article on a report from In the Public Interest (ITPI). The report suggests privatization prompts a race to the bottom in terms of service quality and employee impacts. Yet, while there are certainly cases where privatization fails to meet expectations, there are also many success stories that do not generate headlines.

Government isn’t perfect; see the recent Veterans Affairs waiting times scandal as just one tragic example. Yet privatization’s opponents demand perfection from privatization.
For example, they say Chicago’s controversial parking meter privatization should scare others away from similar transactions. The Chicago privatization effort saw policymakers agree to significantly raise rates in order to generate a $1.1 billion upfront payment. The private partner in the project, however, invested in a massive technological upgrade of the entire downtown parking meter system. The Chicago parking contract requires that similar system upgrades be performed periodically over the remaining seven decades of the contract.

However, both Indianapolis and Ohio State University learned key lessons from Chicago’s experience. The institutions improved the process and contracts, and implemented successful parking privatization deals.

Privatization is not some monolithic cookie cutter; rather, it is a tool, and like any tool it can be designed and used well or poorly. The keys to success involve defining specific goals for the private sector, and designing the procurement and performance-based contracts with proper due diligence in order to achieve those goals. As part of the process, contract administrators need to rigorously monitor and enforce the terms of the contract. This will ensure that taxpayers’ interests are protected in the deal.

Policymakers should be wary of the ITPI report. It attempts to tie administrators’ hands through mandating pay and benefit requirements. The report calls for requiring onerous review processes that will likely scare away potential private bidders, which means officials won’t maximize value for taxpayers, or improve the quality of service. After all, the purpose of government is to serve citizens. With continuing fiscal challenges looming in the coming decades, municipal leaders will need every tool at their disposal to balance budgets and ensure the continued delivery of vital public services. Privatization can play an important role in that process.

This column was originally published by Government Product News on on July 2, 2014.
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