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tioa of contractor' capital stock, and thc ~oVernment's
<br />wiliin~e~ to tailor l/s needs to the s/tuatioa. Capkal in
<br />this seaion is synonymous with equipment tad f~lities.
<br /> Most government services do not req~fire Inr~e/nvest.
<br />ments of capital, hence it is not likely to be a major issue
<br />in contracting for service. In the servic~ in which it is
<br />important, such ~ public works, it may ~ffect the degree
<br />of competition and price n governmc~t faces in con-
<br />
<br /> Local governments will face one ot t~o situations.
<br />During slack periods contractors will be intermed in
<br />better utilizin~ their capital stock, ~ad will adjust their
<br />prices accordingly. Construction firmi, for example,
<br />will be interested in snow plow contr~.cts so that they
<br />can use equipment (and employees) ai a time that they
<br />are normally not used. The opposite, cf course, occurs
<br />during periods of heavy use and rapid e>onomic growth.
<br />Contractors w~l not be interested in taking on addi-
<br />tional contracts thai require major c~pit~l investment
<br />unless they can see long-term payoffs.
<br /> There are several ways that local t~overnrnents can
<br /> help alleviate the capital investment problem of contrac-
<br /> tors during peak periods, and thus incr t.a.~ competition.
<br /> F'trst, they can establish a firm l. en~th for the contract
<br /> period so that contractors can amortize ~h¢ cost of equip-
<br /> ment purchases. Amortized equipme~t is now depre-
<br /> ciated in three years. Contracts for trash pickup, streeI
<br /> sweeping, and the like should reflect ~tis fact. S~cond,
<br /> the local government can hold the equil)ment and facili-
<br /> ties needed to perform the service and provide it to the
<br /> contrnctor ns part of the contract. Tnk may be particu-
<br /> larly invitin/when switching from public to private pro-
<br /> vision as it also reduces the risk to the l~_Overnment if the
<br /> contractor defaults. And third, agova, nment may be
<br /> able to divide the work into distrias, thereby reducin~
<br /> the capital requirements for each cot~-tractor while in-
<br /> creasing competition. This practice i~ becoming wide-
<br /> spread in solid was~_e collection~
<br />
<br />Risks. Every servi~ contract involves some risk to the
<br />government, its leaders, and the con~ntmity's citizens.
<br />There are a variety of risks including ~x)r lm'formance,
<br />nonperformance, fraud and corrupti<~-n, and increased
<br />government liability. Each has its ow~ set of problems,
<br />but there are remedies for each, many of which were dis-
<br />cussed in the earlie~ parts of this pap~.
<br /> Poor performance or a lack of performance is a com-
<br />mon complaint of service contracts. The trash is not
<br />picked up on time, households are skipped, collections
<br />are rude, floor~ arc not vacuumed thoroughly, and so
<br />forth. There arc a variety of ways to handle poor per-
<br />formance including performance bond~, penalty danses,
<br />incentive bonuses, thorough inspeaion, and careful
<br />checking of biddings to weed out und~bids and buy-in
<br />bids. The best remedy for poor performance is a tightly
<br />written contract, ihoroush checkin~ before contract
<br />award, and detailed inspection, moniWdl~, and enforce-
<br />meat of the contract.
<br />
<br /> Nonperformance or service interruption can be · seri-
<br />'ous pwblem for a local government. Prc-:ed___ures that
<br />w~l reduce this ~k are nonperformance bonds, Inclu-
<br />sion of cancellation penalties, mention of ~ov~nment
<br />equipment, cross tralnins of ~overnment personnel, and
<br />use of competitiv~ Mr~ments whereby several differmt
<br />contraaors provide pan of the service.
<br /> Corruption and fraud h · potential problem in every
<br />contract. It can undermine · government, wreak'havoc
<br />in I oommuflity, destroy ~recn, and result tn high
<br />prices and important services not delivered. Procedures
<br />used to ~uard Mni~-~t corruption are police checks of
<br />contractors, citizen review panels, high performance
<br />bonds, open, competitive biddinL and tightly written
<br />and closely monitored contracts.
<br /> Contractor actions create risks for politicians, man-
<br /> asers, employees, and citizens. Government liability
<br /> and risk analysis is a field unto itself. Questions about
<br /> risk that must be considered are: What is a government's
<br /> responsibility for work performed by its contractors?
<br /> Who is responsible for physical injury to citizem, govern-
<br /> ment employees, and contractor employees? In what cir-
<br /> c~m._,~ances is the contractor an agent for a government?
<br /> What are possible remedies for a contractor's actions?
<br /> To reduce potential risks governments ~ often pur-
<br /> chase insurance, require large performance bonds from
<br /> contractors, and monitor contractor work closely.
<br />
<br />F~erviee Cre~mln.o. A criticism that is often aimed at
<br />contracting of service is that private organizations ~
<br />only be Interested in serving the easy to serve, and the
<br />difficult contracts will be ignored or short changed. Tne
<br />examples that are most often cited are taken from the
<br />health and human resources area, but the problem is
<br />universal. Creaming h s/reply the ~n that some
<br />clientele groups or parts of the commBnity a~re more dif-
<br />ficult to serve than others, and in some instnnces the dif.
<br />ferences are dramatic.
<br /> Creaming is not difficult 'to control once it has been
<br />reco~_ i,~ as a problem. Actually creaming may be
<br />easier to control in a contract than in government deliv-
<br />ery because good contracting requires that the issue be
<br />faced ~uarely. One way to handle the issue is to split ·
<br />service by client group difficulty, and bid each grou~
<br />separately. This approach will produce contract prices
<br />that will reflect the difficulty of performing the service.
<br />The other approach to creaming is to spell out in the
<br />contract the type of clientele group and type of service
<br />expected for each, and then monitor the contract closely.
<br />
<br />Political and Policy Considera~ns (Olin_ate). Politics
<br />and policy are considerations-in most government con-
<br />tracts. A number of factors already discussed in this
<br />FepoFt including le/.al considerations, personnel and civil
<br />service, transitional factors, patronage, and fraud and
<br />corruption piny an important role in the political matrix.
<br />A local jurisdiction should also establish or be aware of
<br />
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