Outsoucing government services and managed competition (in which government agencies are invited to submit their own bids to compete with private-sector providers for government contracts) have proven, over decades of experience by governments at all levels, to be an effective strategy to provide needed services without busting budgets. Federal, state, and local governments across the nation, led by administrations on both sides of the political aisle, have recognized that outsourcing and managed competition are effective ways of introducing greater incentives to minimize costs and maximize service quality.
My Reason colleague, Len Gilroy, and I recently had an article on the topic published in the San Diego Union-Tribune. Here is an excerpt of that column:
In November 2006, San Diegans overwhelmingly voted to implement managed competition. This was supposed to allow city agencies and private sector providers alike to compete for contracts to provide various services. But more than three years later, city labor unions and the administration have yet to agree upon the process and reform efforts remain stalled. The city has suffered the last three years because of the delay.
Examples of successful outsourcing and managed competition are abundant:
• Former Florida Gov. Jeb Bush applied competition to 130-plus services in state government, saving taxpayers more than $500 million and avoiding billions in future costs.
• Phoenix and Charlotte contracted with private-sector firms for trash collection in some areas while maintaining collection by city workers in other areas where it was more cost-effective to do so.
• Charlotte’s program has been in place for more than 15 years, and the city has saved tens of millions on building maintenance, road and drainage maintenance, groundskeeping and wastewater treatment operations, among others. Public employees have won more than 70 percent of the bids, primarily by driving down costs and streamlining operations in the face of competition.
• Indianapolis reduced its vehicle maintenance costs by 21 percent, saving approximately $4.2 million over a three-year period, and significantly reduced labor grievances and workers’ compensation claims after city employees won a managed competition contract for the services.
• Federal government workers won 83 percent of public/private competitions from 2003 to 2007, finding new ways to lower their costs and generating $7.2 billion in savings because of competition.
• Recent Reason Foundation research estimates that San Diego could expect to save $1.5 million to $3.7 million per year from outsourcing its fleet maintenance services and $5.1 million to $12.8 million annually on facilities maintenance.
[. . .]
Outsourcing and managed competition are proven common-sense, nonpartisan strategies for reducing costs and improving services. Given the depth of its fiscal crisis, if the city could save money and/or improve services by requiring government employees to compete with the private sector, why wouldn’t it?
Outsourcing is not a panacea. To be sure, there are good ways of doing contracts and bad ways of doing them, and occasionally they don't work out. But with a system that encourages competition, you can always fire a bad contractor and hire a better one. That simply isn't possible when services are provided by a governmental monopoly, which has little incentive to continually cut costs or improve services.
Related Research and Commentary: