Privatizing Town Government Services (2000)

Privatizing Town Government Services

Contracting with private sector firms to deliver municipal government services is nothing new for town governments in Wisconsin. A 1992 survey by the Urban Towns Committee revealed, for example, that over 90% of towns with populations in excess of 3,000 contracted for legal services and nearly 70% turned to private vendors to meet their engineering needs. But in recent years, privatization has attracted more attention as local governments look for ways to do more with less.

In December 1996, the Legislative Audit Bureau issued a report that detailed "best practices" for localities to follow when considering privatizing public services. While the document is geared primarily toward larger units of government, it offers some useful guidelines for town officials interested in expanding their list of contracted services. The Audit Bureau report was prompted by a 1995-97 state budget provision requiring the agency to review local government operations to identify cost-saving strategies. The report, entitled Privatization of Local Government Services, is based on survey data, interviews with selected local officials and a review of the literature.

Surveys were sent to nearly 1,000 counties, cities, villages and towns and 326 responded. Of these, 162 reported that they had contracted with one or more private vendors within the past seven years. Survey results indicate that 62% of cities, 50% of villages and counties, and 40% of towns that responded had completed such a contract. However, the nature of the questions asked in the survey probably understates the degree to which towns are privatized. Specifically, the survey did not inquire about contracts in force for more than seven years and it listed eleven specific services, but did not include such widely-contracted services as property assessment and legal consultation (although an "other" line was included). The survey showed that the most widely contracted services were solid waste collection (73 respondents), recycling (56), building maintenance (32), building inspection (30) and road repair (26).

The report proposes a framework for making a detailed comparison of the anticipated cost of providing a service with and without private sector contracting. It stresses that all costs associated with self-provision of a service -- direct and indirect -- be measured. In addition to such obvious expenses as salaries, fringe benefits, supplies, equipment and facilities, the report points to indirect administrative and support outlays. These include such items as payroll and bookkeeping expenses -- items unlikely to significantly impact town costs. However, other costs not cited in the report, such as legal fees, insurance premiums and maintenance of equipment, are all cost items in town budgets that need to be considered. Yet, service contracts can also impose indirect costs. For example, legal fees and other expenses associated with the development and implementation of a contract need to be tallied. Likewise, ongoing monitoring expenses (see below) need to be factored in.

Even if contracting looks promising from a cost-savings perspective, the report encourages local officials to consider how such a strategy may impact service quality and public accountability. For example, the bureau warns that the potential use of subcontractors by a vendor be carefully scrutinized. If, after due consideration, privatization looks like a promising alternative, the report offers detailed suggestions about how to: (1) select a vendor; (2) develop a contract; and (3) monitor service delivery.

Selecting A Vendor: The best way to select a vendor, the report explains, is to start by drawing up a detailed list of service expectations and performance standards. For example, if solid waste collection duties include the removal of discarded household appliances or tires, potential vendors need to be told so. Selection should be based on both cost considerations and each vendor's ability to meet the town's needs. Some local governments use a weighted scoring system to measure such variables as: (1) qualifications of the vendor's employees; (2) accessibility to citizens and local government officials; and (3) relevant experience to evaluate and rank potential vendors.

Developing A Contract: The scope and nature of services to be provided, the standards that will be used to measure vendor performance, the contract period and renewal terms, administrative procedures (e.g., access to records) and other aspects of the business relationship should be clearly spelled out in a written contract to avoid unanticipated costs or other problems. For example, the town should require the vendor to protect the town's legal interests if damages occur when the service is delivered. Enforcement provisions should also be written into the contract in case services are substandard or are not delivered.

Monitoring Service Delivery: Because residents will (justifiably) continue to hold town officials accountable for services delivered by contracted vendors, the report recommends systematic monitoring of all contracts. This could include: unannounced inspections; review of citizen complaints; customer surveys; contractor reports; and periodic meetings. These steps should be spelled out in a contract prepared by the town's attorney

The Audit Bureau report advises that local officials build flexibility into their contracts to accommodate such future developments as market changes, new technologies, federal and state law changes and shifts in demand for public services. It also urges periodic reconsideration of the decision to privatize. The Audit Bureau is located at 131 W. Wilson Street, Suite 402, Madison, WI 53703, (608) 266-2818.