Governments Save Money Using Managed Competition

Governments reduce costs by letting the public and private sectors compete for the same contracts.

by / January 17, 2011
Illustration by Tom McKeith

In many instances, the public and private sectors collaborate to provide a function or service — data centers, Web portals or internal systems. But in a few places, they compete in an effort to boost efficiency and improve service.

Through a process called managed competition, some jurisdictions allow companies to compete with government departments for bids to provide things like facilities, administrative or street maintenance services. The competition is “managed” by a government that sets parameters for internal departments and agencies to meet if they want to win a contract.

“One benefit that we have noted [is] reduced customer cost,” said John Trujillo, assistant director of solid waste for the Phoenix Public Works Department, which has used managed competition for three decades.

“There’s increased efficiency and effectiveness,” he said. “It creates a competitive environment with our staff and the private sector. It’s increased public confidence because they know they’re going to get the best benefit at the lowest cost.”

The solid waste division serves 1.5 million Phoenix residents. According to Trujillo, the city started the competitive bid process in 1979 during tough economic times. Private firms approached the City Council, promising that Phoenix could save money by awarding contracts to them, but the council created a managed competition process instead of privatizing services. Ever since, companies have had to compete with government to see which group could provide the most appropriate solid waste services for the lowest cost.

“Our areas are broken into 10 areas throughout the city, and every two years we bid out one area, and the contract term is six years,” Trujillo said. “Depending on the area, it’s anywhere from 30,000 to 60,000 homes that are competed against for the different service areas.”

This means it’s possible for the city to serve one area, while another is served by a private company — although the city government currently handles 100 percent of the trash collection services. The city is exploring managed competition in other areas, Trujillo added.

“Within the period we’ve been doing this, we’ve saved our residents about $38 million with this process,” he said, speaking of savings within the solid waste division.

Hilton Collins

Hilton Collins is a former staff writer for Government Technology and Emergency Management magazines.

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