San Diego Managed Competition Guide is Unfair and Unworkable

In the November 2006 election, San Diego voters approved a measure that allowed the city to attempt to achieve cost savings and service improvements through managed competition, in which private firms would be invited to compete with city employees for government services contracts. Unfortunately, the city employees’ labor unions have resisted the threat of competition to their protected monopolies, and have effectively stonewalled the process ever since.

The city finally released a Managed Competition Guide, which it had to negotiate with the labor unions, that outlines the competitive bid and award process for government service contracts. The process is so bureaucratic, full of red tape, and slanted in favor of city employees, however, that it is unlikely to represent any meaningful reform. It is as though the process was designed to fail (and, indeed, that seems to be just what the unions have in mind). In fact, even if a private bidder were to have the best proposal and was willing to suffer the costly and time-consuming competition process, it would still be unlikely to ever be awarded a contract with the city, given the strength of the public labor unions and the inclinations of the City Council, which depends on that labor support.

One Council member who has worked hard for years to implement managed competition held a press conference at City Hall today to illustrate how unfair and unworkable the Managed Competition Guide truly is. As an expert who has researched managed competition and outsourcing efforts and opportunities in San Diego and in state and local governments across the nation, I was invited to participate in the press conference. My remarks are included below.

Nearly four years ago, voters overwhelmingly saw the wisdom in introducing the competitive pressures of the market to minimize costs while maximizing service quality for customers to the provision of government services when they passed Proposition C.

With over 30 years of work in advising presidential administrations and state and local governments on competition and government reform issues, Reason Foundation has extensive experience in analyzing numerous competitive sourcing proposals and working with governments at all levels on their efforts to use competitive bidding to achieve significant savings for taxpayers.

Three years ago, in our Streamlining San Diego report, we assessed the savings opportunities available for the City of San Diego. We conservatively estimated, based on case studies from numerous state and local competitive sourcing efforts for a variety of services, that San Diego could save an average of 10% to 25%, resulting in savings of between $80 million and $200 million a year. We also provided follow-up research last year on a number of these services and estimated that the City could save between $6.5 million and $16.5 million per year just by outsourcing its building maintenance and vehicle fleet maintenance services.

Unfortunately, I believe taxpayers will find that the Managed Competition Guide that has been negotiated after these long years of lost savings opportunities falls well short of the hopes and expectations they had when they passed Proposition C. The Guide outlines numerous bureaucratic hurdles and red tape that are sure to dissuade private firms from bidding. This will only reduce the value of the competition, and the cost savings that would otherwise result. The bureaucratic process calls for a plethora of boards, committees, reports, assessments, plans, multiple approvals by the mayor and City Council, and multiple rounds of negotiations with the same labor unions that have successfully stonewalled managed competition reforms for years. This flawed Guide virtually assures significant delays, if any private bids are allowed to make it through this labyrinthine process at all.

Any private bids that do survive the procedural obstacles then have to contend with the fact that even after backing out some city pension costs, private bids will not be considered unless they are at least 10% cheaper than the city agency’s bid. But if a private firm can save the city 8% or 9% while providing the same or better services, why wouldn’t the city want to take advantage of that—especially during such a fiscal crisis?

The goal should be to encourage competition and offer as open and flexible a process as possible in order to attract the greatest quantity and quality of bids, not to protect government labor union monopolies. Unfortunately, the Managed Competition Guide, as currently written, represents a huge missed opportunity to achieve significant—and much-needed—cost savings for the city. Numerous state and local governments across the nation have successfully engaged in managed competition and outsourcing efforts without incurring years of delays or slanting the playing field so strongly in favor of government agencies, so why can’t San Diego? It is time political leaders in San Diego act responsibly to address the city’s considerable budget issues and finally honor the will of taxpayers by implementing a truly open and fair managed competition program.

Related Materials:

” City of San Diego Managed Competition Guide (be sure to check out the Rube Goldberg-esque managed competition process flow chart on page 4 and the five pages worth of government bodies and stakeholders included in the plan on pages 27-31).

” Study: Streamlining San Diego: Achieving Taxpayer Savings and Government Reforms Through Managed Competition

” Policy briefs: Savings for San Diego (outsourcing opportunities for building facilities maintenance and vehicle fleet maintenance services)

” Commentary: “San Diego Can Benefit from Private Trash Collection”