Utilizing Managed Competition to Reduce Costs

Utilizing Managed Competition to Reduce Costs

Increasingly, public sector entities are looking to private and non-profit service providers to replace or augment the delivery of traditional public sector services. Cities such as Indianapolis and Philadelphia have received considerable attention for their efforts in this area. During the course of the DPW project team’s and subcommittees’ work, the experiences of these cities were reviewed for insight into the possible beneficial application of a similar approach in Baltimore.

Managed competition (and other catch phrases such as ‘competitive reengineering’, ‘privatization’, and ‘outsourcing’) is admittedly a tremendously controversial issue due to concerns regarding the potential for job loss. When the topic is broached, most attention turns to targeting the largest of municipal functions.

While the project team and its subcommittees explored the concept of applying managed competition to wholesale operations such as the City’s water and wastewater utility, the determination was made that such initiatives required considerably more investigation before an informed decision could be made. The project team did conclude, however, that there exists a number of smaller, discrete functions currently being performed by DPW where an abundance of private and non-profit sector providers might be able to provide similar or enhanced service at a reduced cost. These areas included custodial services, security-related functions, tree trimming and turf maintenance, and laboratory functions performed by the City’s water and wastewater operations.

By focusing the application of managed competition principles on discrete services, DPW can still achieve operational cost savings and the potential displacement of municipal workers can be minimized. In Philadelphia, where between FY92 and FY99 nearly 50 municipal functions were eventually contracted out to third party providers, only four instances resulted in the elimination of more than 100 employees. Given the relatively modest scope of the initiatives undertaken, not one of its displaced workers was involuntarily separated from City employment without being offered employment with the new service provider. Additionally, some employees were shifted to other opportunities in the municipal government’the majority at equal or increased pay levels. This approach to managed competition seems a reasonable method of balancing the City’s fiduciary responsibility to ensure that its taxpayers receive the most effective and efficient services at the lowest possible costs while managing the associated impacts on existing workforces.

 

Introduction: Department of Public Works
Focusing on Core Public Works Functions by Creating New and More Effective Management Structures
Aligning Complementary Functions
Improving Asset Management
Utilizing Managed Competition to Reduce Costs
Measuring to Manage