Agenda - Council - 03/24/1987 - Laserfiche WebLink

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Issues in Contracting i S~.c~ the Contracto~ and Make the A~ynrvi. Thc next steps include openin~ of the bids or RF~'s (uormally a~ a public session), evnluatin~ them ~g the criteri~ developed in step 2, negotiatin~ with ~.he contractors (especiany RFP's), o: inS thc winflcr(s) , r n ncndin8 thc winner(s) to thc governin.~ body, ~ h~rin$ appeals if any. Administer the Contracl. This step inct~des gettin~ the contractor staffed, ir~specting and monitoring thc con- tractor's work to ensure that perfonnnnc~ is satisfactory, modifying the contr~:t ts needed, and terminating the contract in the event of noncompliance. Prior to the completion of thc contract thc process will need to be started over with step 1. These arc the basic steps. The preci,~e steps will de- penfl on a number of diverse factors inc~mding the avnil- ability of prodders, the position of p~blic employee~ and thdr unions, thc type of service, its ~mpact on other services, and legal considerations. CRITERIA FOR EVALUATING CONTRACTING There are'five basic '~reas of criteria theft local officials need to weigh when considering the possibility of con- tracting for servi~ delivery. They are: · cost (efficiency issues) · Service leveE, quafity and effectiveness · Responsiveness to citizens · Impact on other services · Pos.~'ble servi~ imerruptions~ Cost (Efficiency Issues). cost, or imp~ oved efficiency, is thc primary, and some would argue only valid reason for contracting with a private firm to dt~ive~ government service. If it cannot be demonstrated ~hat government funds can be saved by contracting, the-a some feel that there is normally no reason for further addressing con- tracting. (Some local government offici~ds use a percent- age _bendunark; if contracting won't sav¢ that percentage of present cost, then they won't contr~cto) There are two basic reasons why a contract with a private firm may reduce service costs: 1) Private firms have h~enfives to minimize costs; many 'would argue that government incentives work in the op~site direction; and 2) Private firms are not restricted by geographic boundaries as are local governments, s~ they are able to capture size economies. A list of reasons why private contract services may be less expen~iv,'~ j~ presented in Table 1. There is a growing body of literatt~re that suggests that, on the average, contracting is les; expensive than local government provision. Stu&es of ~efuse collection, fire protection, debt collection, health ca~e, tnd hospitals have scncrally come to that conclusion. Not evuyone agrees that contracting is always less costly? While contract operations may be more efficient the contractor has eertaln obligations not imposed on · government, such as ~orporate and ~asoline taxes, occu- pational and motor vehicle licenses, and in most cases · Cos , or improved efficiency, Is' the primary, and some would argue only valid reason for contracting with a private firm to deliver government seFvices, bonding fee. The contractor will also attempt to capture a profit. All these costs will be included in the contract price. In addition, the local government will also hav~ the co~s of contract preparation and contract monitoring_ For the smaller jurisdictions this can be · headache. The consensus of local government officials seems to be that, in many cases, contracting will reduce cost but this is not universally the caseJ Efficiency varies by local government and by service with each government, but the only way to identify whether contracting is more efficient before undertaking it, is to make a thorough comparison of the situation? Mating an objective cost comparison is most difficult. lrtrst, many costs are "hidden" in government budgets. Second, allocating overhead costs among services can be complex. And third, even if economic costs a~e adequatdy compared, it is difficult to hold service quality constant. TABLE 1. REASONS WHY PRIVATE SECTOR CONTRACT SERVICE DELIVERY MAY BE LESS EXPENSIVE THAN LOCAL GOVERNMENT PROVISION Employ onl~ l~-rsons needed. Employ p~t-time and temporary help to cover Pay market rate wages. Hire skills a~ needed. May have better management skills. May have better management information. Arc less encumbered by social objectives. Are vn'lling tO take risks. Trade off use of labor and equipment. Spread equipment costs over many jobs. Rent specialized pieces of equipment. May have less overhead. Are not restricted by government boundaries. Focus on efficiency.