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

Roth thinks managed competition is a good option because cities are broke, and they must do something. San Diego has had to “brown out” fire stations and cut other services to adjust to the financial climate.

“We just do not have money anymore, so we’re looking for any and all ways to cut costs, and managed competition is high on the mayor’s list of sensible ways to go about that,” Roth said. “If we don’t save money this way, we’re going to cut services in some other way, and whether that means laying off cops and firefighters or cutting back on our 911 services, or closing libraries and rec centers — we have to find the money somewhere.”

He estimated that $300 million has been cut from the city’s budget since 2007, and more cuts are coming. In his December appeal to the City Council, Sanders said bidding out San Diego’s $37 million IT operations could save $10 million. He said a small portion of the operations were on bid earlier in 2010, which resulted in $1.2 million in savings.

But cost savings could be mitigated by how much the city must spend to oversee contractors, said Erik Bruvold, president of the National University Systems Institute for Policy Research. He examined the managed competition impact in various jurisdictions in a 2007 study, Streamlining San Diego.

“People have argued that any savings will be washed out by monitoring costs that are required of the government to observe whether the contractor is performing,” Bruvold said.

Managing the Benefits

San Diego’s mayor intends for public-private competition to spark innovation.

“You’re inevitably going to get good ideas on many ways things can be done differently and better,” Roth said. “I think whenever you get outside agencies looking at a department and the way things are run, you’re going to wind up getting insights into ways things can be improved.”

Phoenix uses a point system to measure the performance of city refuse collection. The contracted firms and government agencies are judged by collection misses, unacceptable material loads, mixed loads, and vehicle leaks and spills.

“We assess points and then re-rate the performance of the contracted firm and their particular bidder, and the contractor firm could be a private firm or it could be us, so we’re measured right alongside the private sector as well,” Trujillo said.

The standards ensure that providers are doing their best and aim to stave off complaint calls from unhappy citizens. They also help government providers better compete against private-sector rivals when a new contract bid opens up.

“Anytime you bring in competition, a couple of things are going to happen: You’re going to get lower prices for the service, generally speaking, and potentially higher quality,” said Steve Francis, who founded the San Diego Institute for Policy Research in 2006.

In 2007, soon after the city approved managed competition, the institute partnered with the Reason Foundation, a libertarian public policy think tank, to produce the Streamlining San Diego report.

Francis, who ran for San Diego mayor in 2005 and 2008, thinks the injection of business into government is good, but managed competition should be practiced intelligently.

“It doesn’t mean it can replace everything, but you should at least start picking up the low-hanging fruit first,” he said. “Then go from there and get the system going of evaluating the various government departments and putting together specs.”

Both he and Bruvold agree that managed competition would be ill-suited for police and fire operations.

“You have to be careful because you’re dealing with very sensitive information, and you’re dealing with public safety and people’s lives,” Francis said. “So I think in that case, those things have to be somewhat run by the government.”

Hilton Collins

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

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