For decades, citizens have been sold on the mantra that the hungry private sector can do a better and cheaper job of providing services than “inefficient” government. Now it is true that there were some badly run government entities that have done better when privatized (the poster child is British Telecom). But particularly on the state and local level, where voters demand a high level of accountability, this premise was always dubious.
First, as we’ve discussed at some length, outsourcing in the private sector often fails to deliver on its promises. But those dead bodies are seldom discussed. The fleeced buyer has every reason to hide the botched initiative. And they are often prohibited from discussing them: corporate IT projects, for instance, have non-disclosure provisions. As a result, CIO Magazine used a series of failed state outsourcing deals as a forensic exercise relevant to private sector, arguing that the problems were broadly the same.
But a new report by In the Public Interest, Out of Control: The Coast-to-Coast Failures of Outsourcing Public Services to For-Profit Corporations, shows why voters should regard outsourcing proposals with considerable skepticism. Remember, a corporate outsourcer will have to perform the same tasks as a government body would, plus he expected to recoup his selling/contracting costs and earn a profit margin. As we’ve seen with mortgage servicers, and the Out of Control report confirms, one of the approaches used by private companies to meet their profit targets is to cut corners on compliance with the rules and with service levels. And when outsourcing is motivated not by ideology or a belief that savings can be achieved, but by service problems, all too often there’s reason to suspect that the legislation that the supposedly underperforming bureau is executing is cumbersome or poorly thought out. In other words, the problem is being treated as one of government execution, when it’s actually one of bad drafting or overly complicated requirements that won’t go away by fobbing them off to a private company.
The report is targeted to a lay reader and I strongly recommend you read it in full. It categorizes the ways in which contractor behavior is deficient: transparency, accountability, shared prosperity, and competition. For instance, even though government contracts are almost without exception public, outsourcing companies are trying to extend the veil of secrecy, just as they have with private companies, to impede scrutiny and exposure of failure to live up to their agreements:
Corporations can — and do — circumvent open records requirements claiming that documents and records related to government functions are “proprietary information” exempt from disclosure. Even basic information about a government contract and the accompanying procurement process can be difficult to obtain. Corporations may not diligently collect data and information related to public programs and services, leaving the public record incomplete. As a result, the public loses access to information about our own government. The debate about the size of government at the state and local level becomes meaningless because no knows exactly how many people — including contractors — are on the government payroll. By skirting open records laws, private corporations essentially perform public functions behind a veil of secrecy that would not be tolerated by public agencies.
The key sections of one example:
Recently in South Carolina, the Jenkinsville Water Company failed to pay state employee payroll taxes, lost millions of gallons of water, and could not account for tens of thousands of dollars.4 Concerned about mismanagement of funds,residents and journalists submitted open records requests to the company seeking copies of financial records, including audited financial statements and budgets. The company refused to comply.
State Senator Creighton Coleman (D-Fairfield) sought an opinion from South Carolina Attorney General Alan Wilson to determine whether the company was bound by the state’s open records laws.5 The Attorney General’s office stated that the Jenkinsville Water Company had to disclose the records.6 But even after the opinion was issued, the company refused to hand over documents, leading to a lawsuit filed by The Independent Herald newspaper.7
Not paying payroll taxes is a real stunner. I don’t know about South Carolina state payroll taxes, but that sort of violation is one where the IRS treats the “responsible person” as personally liable and is not shy about filing criminal charges.
And here’s another doozy:
In 2011, Deborah Toomey, a concerned citizen of Truth or Consequences, New Mexico, asked her city government to review video recordings of city commission meetings. The city contracts with Sierra Community Council, Inc., a private company, to record the meetings and maintain the video recordings. The city refused to hand over the recordings, stating that the videos were not subject to open records laws because the city did not have these recordings in its possession.9 Even though the recordings were of public meetings of elected city officials and pertained to government business, taxpayers were denied access to them because they were considered the property of a private company.
The blandly titled “Accountability” section is more accurately titled “Companies take money and don’t deliver anything approaching the stipulated level of services.” The report also reveals that one of the ways these contractors meet their targets is by effectively dumping costs back on the state, by paying working low wages that force them to rely on public services. in 2008, 80% of the employees working on Federal service contracts made less than a living wage; the level is likely to be similar for state and local contracts. And of course, this means that local governments, perversely, are sabotaging their economies by driving wages and hence demand and eventually their tax bases down.
The last section debunks the idea that these contracts can even be bid out well. Even when you put aside the not-inconsiderable problem of cronyism (of having requests for proposal tailored so allies of key local pols will win the bid), the report discusses how in many cases, the needs of the local entity are so specific that there aren’t enough candidates to provide for real competition. And as we’ve discussed repeatedly with privatization, the agreements often have provision that vitiate whatever competition might have existed at the outset, such as automatic renewals and pricing provisions that guarantee profits.
The good news is the public seems to be waking up to this scam. For instance, Pennsylvania’s governor had to abandon his plans to privatize the state lottery after multiple groups criticized the deal, which included guaranteed payments to the buyer even if revenues fell short of projections.
I hope you’ll circulate this report to friends and colleagues to educate them about how often outsourcing abuses take place and the sort of reforms that need to be put in place to make sure the contractors live up to their side of the deal.
Popular belief in the efficiency and capability of the private sector permeates our society. Almost the opposite holds for the public sector. The initial devastating state of Health.gov serves as a great contradiction to both views. The company that developed the system happens to be incompetent, misleading and untruthful. Although, ignorant media tried to put the blame on the government many of us have seen failures of the private sector more times than we care to admit.
IT services are widely outsourced by the public sector. What the public gets in return in a typical case are mediocre, expensive and typically way late products.
“Popular belief in the efficiency and capability of the private sector permeates our society. Almost the opposite holds for the public sector. ”
America loves the military. Uncelebrated-ly, the military/Federal Government runs on of the world’s best single-payer health care system–not the VA, but Military Health System and Tricare which covers soldiers, dependents and BO himself.
Let’s get something straight: the customer is responsible for choosing and negotiating contracts with suppliers. If a contract is mutually signed by both parties, it’s binding even if it’s stupidly drafted or negotiated by the customer.
That governments may often be incompetent customers doesn’t mean competent governments (and their taxpayers) don’t benefit by outsourcing. There is also no evidence that incompetent governments provide superior delivery of services by using their own agencies instead.
Perhaps the funniest implication of this article is that cronyism with outside contractors exceeds the level of cronyism typical within government agencies. ALL work internally assigned to government agencies is, by definition, NO BID.
The acceptable standard of service provided by government agencies is not what competitive businesses in private enterprise must meet. The typical standard of service for government is what greets you at the DMV.
Bull, what you call “incompetence” is legalized corruption pure and simple. I look around Chicago with our privatized parking and highways, charter schools, recycling, etc, and the only improvements that are quantifiable involve the efficiency with which citizens are fleeced for inferior services and the use of their own public property. You wanna talk customer service? Try dealing with the (private) Chicago Public Meters. Competitive my a$$. Where is the competitiveness in KBR’s no-bid cost-plus contracts? None of the bull you spout is supported in real life experience, none whatsoever.
If you are living in Chicago, it’s arguable you aren’t having a real life experience. That city government has been notoriously corrupt for many generations. (Not to say it’s the only one.) Cronyism displaces any standard of competency because merit has no bearing on who will be awarded the work and bad performance imposes no penalty. The present administration in DC — exported directly from Chicago — stands as a representative example.
Granted, yet if you think that Citizens United is not enabling the corruption of all levels of government you are either in denial or you are blind. The essence of neoliberalism is the capture of tax revenue and the commons for the benefit of private interests, most often those of multinational corporations, by corrupting our all too willing “representatives”. Another mechanism is the DC revolving door which sees the appointment of industry insiders in key posts in order to shepherd favorable rules and legislation through, after which they return to their corporate parents to receive their “deferred” compensation for the services rendered. Whatever one wants to say about Chicago-style corruption, at the very least back in the day corruption benefited local interests and the money stayed in the community. Now the money of the Chicago taxpayer gets sent to Spain, the middle east, or even Japan. Those of us who lived in Eastern Europe following the fall of the Berlin Wall got to witness how the newly arrived US Chamber of Commerce types propped up the former communist nomenclatura which in return ensured that the choice concessions and industries were sold for a fraction of their true value. The local compradors were handsomely compensated for their services and continue to exert control in these newly minted “democracies.” A fine practice run for what has transpired in Chicago and elsewhere in the US recently. PPPs are a wholesale scam, period. Again, can you provide one example where the outsourcing of government functions resulted in better service at lower cost? Inquiring minds want to know.
A few years ago, after less than a year abroad, I shipped personal belongings back to the US. Upon arrival in the US port, these goods were inspected by a private company instead of by US customs itself. My goods took up less than a quarter of a small 20 ft container. In addition to shipping costs, the US truck company that was to deliver the goods forwarded a bill of approximately $ 1000. This was the bill from the private company that does the job of US customs. Their bill was accessible online after I got a transaction number by phone, but I could not find out whether other people’s possessions also had been shipped in this container, which is likely.
Fact is, I was stuck with the cost of this container’s inspection, which included moving it to the inspection area in the port – this alone was billed at about 500 dollars. Had no idea what the other items on the bill meant. No idea if the cost of all this should have been shared with those whose belongings were also in this container, was told that no one else’s stuff was in there. Which is unlikely.
The European country’s custom’s bill was less than $ 80 eight months earlier, for the same shipment by volume and content.
Importers possibly know more about this particular privatization topic, I am sure.
Cost of customs inspections is often related to the time required to perform inspection. While I have no knowledge of present requirements for the US, the general paranoia about drug imports into the US may impose stringent requirements inspection requirements which are time consuming.
I can say a (large) shipment of household goods into the US some years ago required the presence of — and item by item inspection of the entire shipment by — a US customs official which consumed several days labor and cost the owners far north of $1000.
If customs inspectors accept a bill of lading at face and perform only a superficial inspection of the shipped goods, the cost would be proportionately trivial. Which shipments will be more thoroughly inspected is an arbitrary decision by customs officials, whether for goods shipped across the border or vehicles crossing into the US. A few vehicles at border crossings are literally strip-searched while others pass through with no more than a hand-wave. Go figure.
Time was when Japan set world standards for accountability by corporate executives; but one has only to look at the lies and evasions by TEPCO to see how that has changed.
America was already pretty close to rock bottom in this regard; but it seems we sunk through even the existing substratum.
No corporate manager gives a shit, and the press holds no one to account; this is, after all, the post-Raygun era.
In fact the worst and most damaging recent example which comes to mind was Chicago’s selling off the collection of parking fees. It seems that the company in question has sued the city for 10’s of millions of dollars in lost revenue due to street fairs, during which free parking for all is the rule.
Even without this, ’twas a disaster for the city. Daley’s parting gift to his big-money pals.
There is no free parking during fairs, its the closure of streets for fairs which obviously results in loss of revenues. I should also mention that the contract forces the city to reimburse the company for street closures made necessary for resurfacing and utility work. Its a scam, pure and simple. Another scam are the charter schools which try to argue that they are not subject to FOIA and are thus unaccountable in w they spend taxpayer money, see http://www.chicagoreader.com/chicago/charter-schools-spending-foia-united-neighborhood-organization/Content?oid=11880450 Same thing goes for the new public-private Infrastructure Trust. It seems to me that the whole point of privatization is to diffuse the quaint notion of accountability while enriching private companies and individuals at the taxpayer expense. Whoever said transfer of wealth was a communist idea?
did you know that military-industrial complex companies like general dynamics and lockheed martin now do much of the work of CMS (Center for Medicare and Medicaid Services)? i deal with CMS as a vendor of electronic medical records which requires various certification paperwork.many contacts i have with CMS is from an employee who signs the email like this:
Senior Help Desk Technician, QualityNet Help Desk
General Dynamics Information Technology
i thought these companies were mainly about killing people not extending life. who knew? or maybe it’s a good sign and they’re getting out of the killing game?
Gotta keep people alive long enough to turn them into cannon-fodder, donchaknow…
Let’s don’t forget the basest, most shameful privatization racket of all–corporate, for-profit prisons. Moral turpitude may not be the right expression here, but it is the first one that comes to mind.
And guess who gets the long prison stretches in the end.
Thanks for the reminder about that horrible scandal in Pennsylvania. It certainly is strange that the corrupt judges were sentenced to long prison terms, but the person who bribed them may get away with a short sentence or maybe probation and a fine.
“Robert Mericle, the prominent real estate developer who built the two juvenile detention facilities, pleaded guilty on September 3, 2009, to failing to disclose a felony, for not revealing to a grand jury that he had paid $2.1 million to Ciavarella and Conahan as a finder’s fee. As part of his plea, Mericle agreed to pay $2.15 million to fund local children’s health and welfare programs. Mericle faces up to three years in prison and a maximum $250,000 fine but will likely serve one year or even probation pursuant to his plea agreement.”
“Robert Mericle’s sentencing in connection with his pleading guilty to failing to report a felony has been delayed pending his testimony in the bribery trial of former Pennsylvania State Senator Raphael Musto, which is scheduled for June. Mericle faces up to three years in prison, although he is likely to receive 12 to 18 months under United States Federal Sentencing Guidelines.”
In more than one way outsourcing was catastrophic for the country. It has radically affected the federal government. This includes our special friends in the NSA. (“The ‘S’ in their middle name stands for security!”) When modernization began in 1999 this outsourcing process involved getting rid of many of the professional spooks who grew up in the post-Warren Commission intelligence community and replacing them with independent contractors from the private sector.
The loss of these distinguished individuals has been sorely felt. They were genuinely worried about following the law as it was written. The general mindset and their expectations was that their actions would eventually see the light of day. In response to the influx of new blood who did not commonly share these concerns along with other events that took place, some of them would head into retirement encouraging the next generation to avoid service in the US intelligence community altogether.
I suspect that a partially outsourced workforce played a pivotal role in the hilariously inept response conducted by American counterintelligence in regards to…
In what is called a “Dutch auction,” Kansas outsourced its most vulnerable residents’ care.
Kansas is now paying for-profit insurance companies, whose main concern is profits, to manage KanCare, Kansas’ Medicaid managed care system.
What could possibly go wrong?
“What concerns families and advocates the most is that the three for-profit national insurance companies that run KanCare will be responsible for a statewide program that they’ve never managed in Kansas or elsewhere.
‘This is an unprecedented model. No state has ever taken a developmental disability population and placed it in an arrangement like this, with an out-of-state managed care system, all at once,’ said Rocky Nichols, executive director of the Disability Rights Center of Kansas, a legal advocacy group. ‘It’s almost like throwing everyone into the deep end of the pool.’
‘There is a great deal of fear in the community that these big private health plans don’t know much about this population,’ said Maureen Fitzgerald, disability rights director for The Arc, a national advocacy organization for those with developmentally disabilities.
Last month, the National Council on Disability grilled Kansas state officials about KanCare:
“How can you take out that chunk of money on the backs of the most vulnerable and say with a straight face that you’re going to improve services? It defies common sense,” says Finn Bullers:
As a single parent of a child who had Duchenne’s muscular dystrophy, I can attest to the enormous demands required by both working and caring for a loved one. Had my youngest son lived, he too would be facing the same service cuts described.
As much as the ill person’s experience is denied, the caregiver’s experience is denied more completely. If it is not tempered by compassion and empathy, reason can lead men and women into a moral void.
I recently added a teaching qualification which requires a police clearance. Used to be that you’d simply stop by the DPS office to get it done.
Not anymore. This service has been privatized. Now I have to make an appointment with private company (only one has been awarded this contract it seems – so much for competition) to go to their office at their convenience.
The price of the police clearance has doubled. And, when I get to the office out at some strip mall hinterland, I discover that there’s an additional $10 “administration” fee added on top of the price gouge.
Sucks to be a working person.
And to add to the litany of small, daily insults . . . . .
In most places if you go to pay for a state or local service or tax online–property tax, water bill, license renewals, etc., etc., there is of course a “convenience fee” tacked on by the private financial middleman who runs the website–2, 3, or 4 dollars here and there on top of your bill.
Classically, one of the big difference between private industry and governments is that government services tend to be available to everybody equally, while private companies are free to decide that it is uneconomical to serve a percentage of the population. So a first class letter to Nome Alaska costs the same as one to the other end of town. FedEx can provide better service in part because of the people they DON’T serve. (or at least server more poorly) And in just about any task, the hardest 15% of the job requires 50% of the effort. Companies can operate more efficiently by not serving those markets. Governments are not supposed to.
Playwright Alan Bennett in his diary:
8 April. The morning spent paying bills: British Gas (and electricity), Thames Water, Yorkshire Water, Camden Council, Craven District Council and Mr Redhead the coal merchant in Ingleton. Many of the bills are overdue, about which I am unrepentant. The only one I pay promptly and with no feeling of resentment is Mr Redhead’s.
It wasn’t always so. Before the public utilities were privatised one paid bills more readily, not just because they were considerably cheaper, which of course they were, but because one had little sense of being exploited. Now as I pay my water bills for instance, I think of their overpaid executives and the shareholders to whom the profits go and I know, despite the assurances of all such companies, that they are charging what they know they can get away with. Competition has not meant better service nor has it brought down prices, with some corporate behaviour close to sharp practice. British Gas, for instance, regularly omits to send me a first bill but only a reminder, which has no details about consumption. When challenged they say this may be because bills have been sent online. But how can this be when we have no computer? If one telephones and manages eventually to get through one is dealt with by someone always charming and even-tempered (and often Scots) who promises to look into it. But when in due course the bill comes again it is still with no details and coupled with threats of court action. So whereas once upon a time I paid my bills as Auden said a gentleman should, as soon as they were submitted, these days I put them off, paying sometimes only at the third or fourth time of asking or when I am assured (rhetorically, I know) that the bailiffs are about to call. I am no crusader but I wish there was a consumers’ organisation which could co-ordinate individual resistance to these companies, setting up non or late payment on such a scale that it would put a dent in the dividends of the shareholders and the salaries of the executives concerned.
This was written a few hours before I learned of Lady Thatcher’s death and it’s an appropriate epitaph.
One of Mr Bennett’s bills goes to Macquarie Bank, the investment consortium in Australia that owns the utility. Even if the vaunted private sector was more efficient, how would that help England, if the profit goes away to the other side of the world? Thatcher’s loyalty belonged, not to her nation, but to a global class.
(Apparently Thatcher was a New Zealander for tax purposes, thanks to a distant connection of her husband’s, and her official estate, on her death, was less than the value of the house she died in, said house being owned, on paper, by a Virgin Islands-registered trust)
This is an important post, and the comments citing examples make it more so.
[Disclaimer: this is one of my soapbox topics in daily life, trying to get the right-wing I live among to understand. Now I’ve got some dollars and cents I didn’t dream up to put in front of their faces.]
My original post got lost somewhere–but I will keep this one brief. Relying on government contractors is a big mistake and has been, perhaps, the chief cause of corruption and incompetence within the federal gov’t. The Obamacare’s site snafus were, to me, business as usual in the gov’t contracting game. I’m impressed it was fixed at all. Yes, there are some good contractors and a lot of good people in the government IT community but the system rewards cheaters. This fact is difficult to address because Congress is also very corrupt. This is why I say that the federal gov’t is, essentially, hopeless. Now the infection has spread to local gov’t–very sad.
Interesting because using contractors to launch the web site does seem to be in line with what I think was the original justification for use of contractors– the need for a large workforce with specialized knowledge in a short amount of time.
The justification now used is that the private sector delivers a better product more efficiently. This report puts that claim to rest, and you can also see that we are long past using contractors for temporary needs– placement of foster children?, prisons?, government benefits administrators? I suppose you could call these temporary needs if you imagine that we’ll be living in some utopia in a few years.
There a huge difference between contractors who run operations and what used to be called “body shops” that were basically temp services for government work manged by government workers. The big contractor companies in Washington are often more politically powerful than the agencies they serve.
Another fantastic read. I think this really nails it:
“And of course, this means that local governments, perversely, are sabotaging their economies by driving wages and hence demand and eventually their tax bases down.”
Driving wages down is a key part of contracting out government services. Combined with increased secrecy, that’s basically the wet dream of every authoritarian from the Koch brothers to the Obama Administration.
Oh, and another example:
Tax collection in a small AZ “resort” town was given to a private company a couple of years ago. Somehow this resulted in a big fine for a car sales tax during the transition period. Their mistake but we just paid.
corporate and political welfare disguised as free market capitalism
best example of a government out sourcing a function.
government used to do this because when business did it , it was dont badly, and it was expensive. in my state they have allowed some businesses to destroy paved roads. but because the state doesnt have the money (so they say) they are going to let them be upgraded to gravel roads.
and to top it off, the state has to guarantee their profits. because it seems they wont ‘invest’ in the toll roads, unless they can make a profit. though the whole purpose of toll roads was to let the private sector profit off their roads (and us ) but to take the risk that they wouldnt be able to make a profit.
find it very strange that the government could back in 50’s commit to building the interstates, when the economy and country were much much smaller. but i guess we had leaders who would actually accomplish some thing (as opposed to passing laws they know wont get approved in the upper chambers, or signed into law).
A private contractor will be cheaper and better at performing one off, non-repetitive services. If a government needs a crane and crane operator for a single task, it is obviously more efficient to contract for both. If however, that crane is going to be used every day or so, it is going to be far more efficient to buy one, and hire a competent operator. So too with garbage trucks, snow plows, records clerks, state regulators, etc. Notwithstanding that obvious truth, privatized services are increasingly popular. Obviously, something else is going on.
What contractors also bring to elected officials is actually the reason they are popular – graft. It is very hard to extract significant funds from a public operation. A contractor however, will readily part with 10% of the contract, as long as the contract is inflated to cover the extraction plus a bit more to grease the whole deal. We see evidence of the personal wealth that comes from this everywhere. Dick Cheney may be the national poster child for this sort of thing, but Sheriff Joe Arpaio’s recent investments in real estate deals suggests this is not limited to the national stage.
Graft isn’t just crooked, it is important to getting elected officials to work together. It’s how local officials get state legislators to pay attention to local needs, for example. If the public wants to get rid of it, a laudable goal, that effort has to account for the informal network and motivational force graft provides.
So when it comes to British Telecom what if instead of privatizing it they had put competent management in charge instead.
Yes, it is terrible that they have stolen our money,
but it is intolerable that they have stolen our government!
I admire your ability to approach all this with outrage, but the sad fact is that in these United States government has always been about extracting revenue from the people and providing services to select businesses, except when it has been about simple graft. Just about the only Federal programs which deliver anything to the public are the post office, Social Security and Medicare. Do you really think a country with oceans on two sides and Mexico and Canada on the others is “endangered” by foreign enemies so as to justify even 10% of our ‘Defense’ spending? Like private business, government is run for the profit of those holding the levers of power. If the public gets any significant benefit that is just a temporary accident to be remedied by development of a new strategy covered by market worshipping bullflap, and you can bet money that it will be while well meaning people run around raising a dust storm over the next charismatic Democratic Party crusader, and Republican candidates bamboozle the rubes with flag waving and religious cant.
Stealing from the people is easier than getting monkeys to give up bananas. Who says evolution represents progress?
I was struck by that fact when I read Theodore Drieser’s The Financier.
“The poster child [for privatization] is British Telecom”.
Quite so, but even for BT I doubt that the reputation is justified. It just so happened that the privatization occurred at a time of massive change in telecoms so, with a bit of PR to help the belief along, privatization took much of the credit for innovations that were really down to technology and which would have happened anyway.
It just took my sister 5 months to get a phone connection from BT in a new house with daily broken promises, outright lies etc. so what has really changed?
I wanna take that report and shove it right in the face of every teahadist I ever argued with. Never bought the efficient-free-market myth
I live near Harrisburg, PA. I once questioned the plan to sell off the city’s parking garages and services to a private company. I got a BS response. When I questioned it again asking for more detail, I was ignored. Granted this was all done on an independent(?) website but the initial response was up within a couple days of my initial comment. I can’t help but feel like the parties involved know they have no answers to legitimate questions and so they’re just ignoring those questions outright. And this is from a city service that actually makes the city some money. I can’t imagine the raw deal the city is getting from selling off services/items that are the actual cause of the debt problems in the first place. Of course, PA probably leads the nation in state government’s utter contempt for it’s citizens anyway so I shouldn’t be surprised.