Innovators in Action: Public Works Contracting 2.0 in Centennial, Colorado

The latest interview in Reason Foundation’s Innovators in Action 2013 series focuses on the contract city of Centennial, Colorado and its comprehensive public-private partnership to deliver a full-range of public works services.

In recent years, Centennial—a Denver-area suburb of over 100,000 residents that incorporated in 2001—has gained increasing recognition in public administration circles as a leader in innovative government efficiency and privatization initiatives. Since incorporation, the city has pursued a “contract city” policy of contracting with outside providers for all public services, unless there is a demonstrable, quantifiable advantage to providing services in-house.

In 2008, Centennial launched what has become its most recognized signature achievement: a large-scale contract with national engineering firm CH2M HILL to provide all of the city’s public works services. Centennial’s public works contract has gained national attention for its scope and innovation and garnered the city a series of awards, including the 2010 National Council for Public-Private Partnerships Service Award, the 2010 American Public Works Association Innovative Customer Service Call Center Award, and the 2012 Institute of Transportation Engineers Transportation Achievement Award for Operations.

In June 2013, Reason’s Leonard Gilroy interviewed Centennial Mayor Cathy Noon and the City Manager John Danielson on the groundbreaking public works PPP, how the city drives performance and accountability from contractors, citizen satisfaction, lessons learned in contracting and more. Here’s an excerpt:

Gilroy: How flexible is the contract in terms of making adjustments in priorities along the way, for example, in the event that city revenues come in less than expected at the beginning of the fiscal year or if priorities change over time?

Danielson: One of the things we did in the last contract negotiation was actually reduce the amount of money we’re paying on the contract, and we created something called a “flexible spending account,” which gives us a lot of ability to expand or contract as circumstances demand. Plus, all of our service providers understand that this is a partnership, and if we were to get into a fiscal situation where we no longer deemed something affordable or no longer a priority of the city council, then we could pretty easily modify the contract if need be.

Noon: A few years ago before the most recent renegotiation of the contracts with all of our contractors, there were some revenue downturns that we weren’t expecting during the recession. We worked with our private partners and were able to do a reduction in services. For instance, in the public works contract, instead of doing six street sweepings, we would do four for that year. We cut back on the amount of mowing we did. The contract was written so that we are able to expand and contract in order to match the revenues we have. Consequently, we can pay extra for something because we know what the costs would be. For example, if we decide we need another street sweeping, the cost is spelled out in the contract so that we know what it would cost to add another sweep. And we also have an “exchange” written into the contract, so to speak, such that one street sweeping equals two mowings, for example. So if we decide that we don’t see a need for a particular service in a given year—perhaps it’s a dry year and we don’t need as much mowing—we can exchange that for another service. […]

Gilroy: In all forms of privatization, a key concern is that the government will “lose control” of public services. How do you hold the private sector accountable for living up to their end of the contract?

Danielson: I’ve heard that for a lot of years, and one of the things that I find interesting is that we in government tend to not hold ourselves to the same standards as we hold our contractors to. How many government agencies say that we’ll give ourselves X number of hours or days to respond to a particular request and hold ourselves to it or penalize ourselves if we don’t do it? But we do that consistently with all of our contract relationships. So I’m a little bit skeptical about the fear of losing control. If it gets away and there is a downturn in service, and your contract doesn’t provide specific stipulations about what the remedy is for that, then you don’t have a very good contract. We do have that written into our contracts, we do have responsiveness, and we do have penalties. I think that we’re actually more responsive as a contract city than the cities that are completely staffed by in-house personnel.

Noon: That’s very true. I think that because we have to look at the contract, it keeps us more in control. It’s much easier if it’s just your city staff, and everyone is just going on and doing what they’ve always done. But we have to make sure that someone else outside of our city payroll is really providing what we’re supposed to get. I really think that makes us more engaged, because it’s usually easier to hold someone else accountable than it is to hold yourself accountable.

If you hire your brother-in-law to redo your kitchen and things aren’t going right, do you want to complain to your brother-in-law? That can create a lot of problems. But if you hire someone off of a preferred contractor list, and he signs on to do something a certain way, it’s easier to tell him what he’s doing is right or wrong. […]

Danielson: And the contractors are financially incentivized such that they hope that we do ask them to bring somebody else in, because the more employees they have working, the more it benefits their bottom line. So they’re delighted to bring people in. And I should also note that since we pay for work done—and not for someone’s time—then it does the contractor no good to have someone sitting here with no work coming in.

So it’s actually an ideal business relationship. We have shared risk in that sense. The contractors are hoping for a good year when they can bring people in, but it’s a liability for them to have folks sitting around that they can’t pay, so they’ll instead move them around to other locations where they’re needed.

Gilroy: How does that translate to ensuring the performance of contractors?

Danielson: On performance, we get almost instantaneous feedback. I know exactly what project is on time, and I know exactly what the outcome is. Believe me, we get spontaneous feedback on what works and what doesn’t work. I don’t know how many cities do this, but we’ve got a citizen response center where a real human being answers calls 24 hours a day, seven days a week on anything and everything that may be going on, from law enforcement to potholes to street sweeping. We get continuous feedback in terms of our turnaround time on building plans, building inspections and the like, and we respond to many of those the same day.

So we monitor our contractors much more closely—and it’s much easier to monitor them—than I think it would be if we had an entirely in-house staff because the complaints come back more circuitously in that environment.

Noon: I think that’s one of the things that helped lead the council toward implementing key performance measures both in-house and externally. We started performance measures with a lot of the contracted services like code compliance and building services, but now we’re looking at how we put that in place for other areas. […]

So we’re focused on looking at how we can guarantee good customer service not only by our contractors, but also by our in-house staff. We’re setting performance targets for our own internal operations, and we’re looking to do even more of that.

Danielson: That’s a key point. We’re not just monitoring our external contract operations; we monitor our own in-house operations just as closely, even though they’re much smaller. We really are interested in our efficiencies, both inside and out.

Check out the full interview here for details on Centennial’s approach to maintaining a lean government through smart contracting and using public-private partnerships to help drive performance across the entire city government. Centennial’s innovative thinking on when, where and how to tap the private sector in the delivery of public services is impressive and cutting-edge, and they can serve as a model for other municipal governments in how to approach competitive contracting.

For those public administrators elsewhere that assume that they “know contracting” merely because they already manage some contracts, I’d wager that Centennial could give them a master clinic on how to step up their game to get far better results. Just because someone plays with paint doesn’t make them an artist. When it comes to municipal contracting, I think it’s safe to say that Centennial is meticulously brushing oil on canvas to make true art, while many others are merely fingerpainting.

Centennial has such an interesting story that it wouldn’t fit in one interview, so next month’s Innovators interview will feature the city’s chief innovation officer on the role for innovation change agents in government and future directions for public-private partnerships in Centennial.

Other articles featured in the Innovators in Action 2013 series are available here.