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Louisiana Streamlining Commission Should Reject Proposal for Legislative Approval of State Contracts

In an attempt to increase oversight over state contracting, some members of Louisiana's Commission on Streamlining Government are proposing a well-intentioned—but ultimately counterproductive—recommendation that would thwart competition and undermine the sensible procurement reforms already underway in the Louisiana Division of Administration. On Monday, the Streamlining Commission will consider adopting a recommendation (see agenda item AGEB #34A here) that would require all state contracts above $50,000 to be approved by the legislative Joint Committee on the Budget.

This is bad policy and bad for business. Any state requirement for legislative approval of individual contracts will automatically increase the political risks faced by the private sector. This makes sense, of course—private vendors spend thousands, sometime millions, developing proposals and engaging in state procurements, with lengthy, time consuming processes that require vendors to take on significant legal, financial and other costs. If you, as a business owner, knew that you could jump through all of the existing procurement hoops (and pay the necessary costs) to win a competitive bid and then still face a 50-50 shot that the contract wouldn't proceed to close, would you be more or less likely to bid? Ideally, the risk of project approval would decline as the competition nears completion, not peak at the very end. And fewer bidders on the margin = less competition = higher costs = less value for taxpayer money.

[side note: see a harsh lesson learned by Pennsylvania on legislative approval of contracts, where the legislature left $8.9 billion on the table not too long ago that I'd bet they wish they had right now.]

From a public administration standpoint, legislative approval of contracts works at cross purposes to the day-to-day management and administration work performed by agency directors and staff. It becomes hard for them to make decisions and accomplish their goals when the political process sits waiting in the corner to potentially undermine them anywhere along their path to the goal line. The proposed recommendation would allow procurement decisions to be easily hijacked by political aims, rather than guided by smart policy.

In addition to the legislative approval provision, the proposed recommendation would require agencies to explain to the legislature: (1) why they department or agency needs to hire an outside consultant, (2) how the service provided by the outside consultant conforms to the department or agency's mission, (3) why the service cannot be performed by a regular employee or employees of the department or agency, (4) how the outside consultant was selected, and (5) how the department/agency would provide the service if the Joint Budget Committee does not approve the contract.

There's a better way to get to the heart of these very same policy considerations in a way that doesn't undermine smart contracting by politicizing it. In fact, I presented a better option in my testimony before the Streamlining Commission in September, and I suggest that the Commission revisit it.

I recommended as a state best practice putting in place a mechanism similar to Florida's Council on Efficient Government (CEG). The CEG was former Florida Gov. Jeb Bush's response to a related contracting challenge there, in which media scrutiny of the implementation challenges associated with a large state IT procurement began to undermine his administration's broader, enterprise-wide outsourcing initiatives. Gov Bush's response was not to put in place political barriers to state contracting—rather, he put in place a mechanism to make better decisions on state contracting.

Over the last decade, Florida has been a national leader in privatization, undertaking some 130+ privatization initiatives saving hundreds of millions in direct dollars and avoiding billions in future costs. The CEG essentially serves as a privatization "center of excellence" that has helped agencies improve their procurement practices and disemminate best practices and lessons learned throughout state government. The CEG is a major reason that Florida has developed perhaps the most robust and transparent privatization process out there among the states.

A key lesson learned from global experience in privatization is that it works best when governments develop a centralized, independent decision-making body to manage privatization and government efficiency initiatives. Gov. Bush applied that model in creating the CEG to serve as the enterprise-wide gateway for best business practices in competitive contracting and standardize how the state identifies and conducts competition initiatives. The CEG was a key component of a strategy that ultimately helped his administration realize over $550 million in cost savings through over 130 privatization and competition initiatives. Last year alone, the Council evaluated 28 new business cases for potential agency outsourcing projects with a cumulative value of over $244 million, identifying over $53 million in projected savings to the state.

I describe it in much more detail here and here, but the CEG's main function is to oversee a pre-budgetary analysis of proposed outsourcing initiatives that involves a multi-stage review and development of a business case, for starters. Private companies prepare business cases routinely on proposed outsourcing projects—shouldn't government? A business case analysis gets to the heart of the very same issues Louisiana policymakers are concerned with—what can we do through contracting that we can't do today, what does the in-house option look like, could we achieve better performance and value for money, etc.

But it gets to the same goal without injecting tremendous political risk, reducing competition and ultimately making Louisiana a less desirable place to do business next to Texas, Virginia and some of its peers.

The question should not be, "are we doing too much contracting or too little contracting?" Instead, Louisiana policymakers should be asking, "can we do better contracting?" See excellent, recent articles along these lines by Harvard Kennedy School professor and former Indianapolis mayor Stephen Goldsmith in Governing and Professional Services Council president Stan Soloway in Washington Technology. Both critique the Obama administration's anti-competitive, anti-privatization procurement policies that are virtually assuring a massive expansion of the federal workforce at a time of record deficits and debt.

The policy the Streamlining Commission will consider Monday would have very similar effect in Louisiana as Obama's are at the federal level—more government, rather than less. More state employees, rather than less (something I know is very near and dear to Treasurer and Commission member John Kennedy, for one).

The Streamlining Commission should reject the recommendation on its Monday agenda and instead support the steps that the administration is doing to embrace the Florida model. The process is designed to have agencies look before they leap into contracts, do a side-by-side analysis of the private and public options, and expand the use of performance-based contracting statewide. In fact, Arizona came close to replicating the Florida model earlier this year, and the American Legislative Exchange Council adapted Arizona's bill into model legislation it recommends for state legislators seeking to improve their procurement policies.

The focus should be on doing everything possible to streamline bureaucracy and stimulate economic growth. If the Streamlining Commission wants Louisiana to be a place to do good business, it should reject policies that increase political risks of contracting and undermine competition. Otherwise, instead of more streamlined government, taxpayers might just get more government in the end.

» Reason Foundation's Annual Privatization Report 2009
» Reason Foundation's Privatization Research and Commentary

UPDATE: It's also worth mentioning Governor Jindal's recent contract transparency initiative that incorporated information on state government services contracts into LaTrac, the Louisiana Transparency and Accountability Portal so that any citizen can review it. This move, described in more detail here, is designed to shine light on state contracting, which implicitly helps guide better decisionmaking.

Leonard Gilroy is Director of Government Reform


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