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Procurement Perspectives: Successful outsourcing requires detailed information

Stephen Bauld
Procurement Perspectives: Successful outsourcing requires detailed information

Successful outsourcing requires the satisfaction of a number of conditions.

First, the service to be contracted must be carefully specified. Only if the service expectation is clearly defined is it possible to obtain an accurate price for a contract for the performance of the work concerned.

“Big picture” specifications, which provide a general description only and avoid requiring the private sector to commit to detail, have a tendency to underplay the scope of the service that is needed to accomplish, and which has historically been associated with, a particular public service program.

In public sector work, indirect benefits are often as important as direct. Many seemingly straightforward services are in fact more subtly complex in terms of their desired outcomes.

Generating specifications that adequately address these features of public programs is easier to state as a goal than to accomplish as an end.

If the preparation of a suitable facilities management specification for PFI-type construction provides any kind of a guide, and it probably does, because in that setting the government must give the project company a specific description of the services that it needs, even the cost of preparing the specification can significantly affect the underlying economic merit of the outsourcing initiative.

Second, the service level and other aspects of overall quality of service historically provided needs both to be understood and factored into any outsourcing decision.

It does not take a financial genius to realize the cost of service delivery can be reduced by employing a smaller staff of less qualified people at fewer locations to deliver a program of services. However, the impact of doing so is to reduce the availability and quality (and very often also the range) of services that are provided to the taxpayer.

In the private sector, the discipline of the market arises from the fact that consumers to whom products and services must be sold are a distinct group from the shareholders who provide the funding to deliver those services.

This is not necessarily true in the case of municipal residents. Cutting taxes by reducing services has little real benefit when the financing of service is provided by the same customer.

In addition, private sector discipline arises from the fact that competition from other suppliers imposes a quality control burden on suppliers. Since so many public services are in effect monopolies, the same cannot be assumed when municipal services and programs are outsourced.

Very few private sector businesses are monopolies. A large number of public sector operations are, such as waste disposal, water supply, municipal bus service, etc.

When a public sector business is sold off to the private sector adequate mechanisms must be put in place to prevent monopoly abuse.

Third, outsourcing a number of different aspects of municipal operations requires special attention to co-ordination of activity.

It is necessary to consider both how outsourcing will fit within overall municipal operations and the impact that it will have on those operations.

In one municipality, scheduling problems arose when work formerly carried out by the Public Works Department was subcontracted to three different contractors.

The municipality discovered that if sewer catch basins were cleared under one contract before grass was cut under another contract and trees were trimmed under a third, then improper sequencing resulted in significantly downgraded service even if the contractor could claim to be properly performing its individual contracted commitment.

One of the hidden costs of outsourcing is the loss of the ability to control and manage distinct lines of activity so as to generate a more satisfactory total level of service.

Private sector entities are concerned about the efficiency of their operations. They have no particular concern with the overall efficiency or effectiveness of the municipal operations in aggregate.

Stephen Bauld is a government procurement expert and can be reached at swbauld@purchasingci.com. Some of his columns may contain excerpts from The Municipal Procurement Handbook published by Butterworths.

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