Privatization in Virginia Hampered by Government-to-Government Contracting

In a new Bacon’s Rebellion column, John Palatiello points out an important loophole in the Commonwealth’s procurement law giving exempting “inter-agency transactions” (basically, state contracts with other government entities such as universities) from the competition and transparency required of state contracts with private sector businesses. As John points out:

Exempt from competition and transparency are inter-agency transactions, permitting one Virginia agency to provide a service to another Virginia agency on a sole-source, non-competitive, monopoly basis. No competent or otherwise qualified private firms even know about these procurements, let alone have an opportunity to offer a bid or proposal. In fact, the private sector does not have access to public business. Offerors are indeed arbitrarily and capriciously excluded from competition, in clear violation of Virginia’s longstanding policy. […]

At a time of rising unemployment, a Virginia state deficit and Federal action on a $780 billion plus stimulus bill to jump start the economy; it is counter-productive for the government to compete with and duplicate the private sector, or to bypass competition when a competitive, commercial market exists.

Read the whole thing, as John offers several examples of this public-public contracting in the geospatial services (mapping and GIS) field—one in which there is most certainly a robust private sector market of service providers. He also offers some potential reform solutions as well.

As John points out, getting government out of the business of business—as more and more legislators are trying to do across the country (see Utah and Arizona, most recently)—is certainly easier said than done. That’s especially the case when a government agency can sign sole source, non-competitive sweetheart contracts with other government agencies without the same scrutiny and diligence in procurement required of public-private contracts.

Fundamentally, a government activity is either “inherently governmental” or “commercial”—it’s either in the Yellow Pages or not. If an activity is deemed commercial, then there needs to be a powerful and compelling justification for exempting it from private sector competition. Preserving a non-competitive “good old boys” club that keeps money and influence flowing to powerful government interests hardly qualifies.

This is no small issue, btw. Virginia’s Commonwealth Competition Council identified over 37,000 employees in Virginia government engaged in hundreds of commercial activities in 1999. To put that into perspective, that means that over a third of the state workforce was engaged in commercial activities, directly competing against private sector businesses that could have likely provided the same services at a higher quality and lower cost. These businesses would also generate net new tax revenues for the state; obviously, keeping activites in government hands does not. Giving the Council more teeth to do such inventories and advance privatization initiatives, along with John’s suggested reforms on inter-agency contracting, would be big steps towards right-sizing Virginia’s government and making it more competitive.

Reason’s Privatization Research and Commentary