Washington’s HB 1521 Risks Reducing Competition and the Quality of Services Provided to Taxpayers
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Commentary

Washington’s HB 1521 Risks Reducing Competition and the Quality of Services Provided to Taxpayers

The bill contains provisions that would undo the progress Washington’s competitive sourcing program has made.

Washington is experiencing the legislative and government contracting version of Groundhog Day. The state’s House of Representatives is expected to consider a new version (of an old, failed piece of legislation from years gone by that purports to improve accountability and transparency in government contracting, but would actually undermine it and potentially drive up the costs of public service delivery.

Similar to proposals that the legislature smartly rejected multiple times in the past, the new bill (House Bill 1521) would place additional requirements—ranging from innocuous to highly problematic—on the state’s competitive contracting program, mostly by the way of a “comprehensive impact assessment” that stacks the deck against the private sector.

Washington, like many state governments, has looked for better ways to assess the merits of competitive contracting, including the passage of legislation in 2012 that encourages agencies to assess potential contract agreements on considerations of overall value (e.g., not simply pure cost).

In contrast, HB 1521 specifically requires a separate (and unequal) assessment of costs alone and makes no mention of value considerations, effectively undoing the state’s progress. The bill’s comprehensive impact assessment requires state agencies to list any “adverse” impacts under a potential contracting arrangement, effectively assuming away any positive impacts from contracting. Fewer jobs providing the same service —if the private sector could do the same job with fewer employees, for example—would be treated as a negative impact of contracting and should be noted, according to the legislation. In contrast, the bill says no consideration should be given when contracting would allow the state to collect for additional tax revenues by replacing a public provider with a private entity that is subject to taxes.

Another major problem with this legislation concerns the monitoring of contract performance. While one should expect, as the legislation requires, agencies to account for the costs related to monitoring contractors, it would not hold government-run units to the same standard of monitoring —giving an unfair advantage to government workers. If the monitoring of services delivered by in-house by government staff is going to be handled by a government agency, then the taxpayer resources dedicated to those monitoring tasks should be included— as they are for private contractors— in the cost comparison process

Furthermore, government service providers in Washington state (and all over the U.S.) increasingly operate under performance-based contracts where failing to meet certain measurable standards of success results in lost income to the private service provider. While it’s possible for public sector employees to operate under performance-based agreements where failing to meet standards results in less potential income, few (if any) actually exist.

For the many government services for which established ways of measuring performance do exist, comparisons of performance should at least be as important as costs. But government agencies typically lack the same level of monitoring of their in-house colleagues and thus don’t provide a fair comparison to the performance of the private sector. Performance is typically just assumed to be equal, making costs the overwhelming (if only) consideration.

However, in a scenario where a private company would enter into a contract where it can lose money if it does not provide services as well as the contract requires, is it fair to assume that an alternate service provider—the government, in this case—that is guaranteed to receive its payment regardless of performance would perform it equally as effectively? Without a clear understanding of how the state’s in-house agency units are monitored for their performance, there’s no way to be sure.

One welcome omission from the 2019 version of the impact assessment that was present in the earlier version of the bill is a provision that would require contractors to lower costs by an estimated 10 percent compared to in-house operations before a contract could be entered into. Given the difficulties of accurately isolating costs on the government side due to fundamental differences with private sector accounting and cost allocation methods, that would have been an ill-advised and arbitrary limitation.

Ultimately, while perhaps not as potentially damaging as earlier iterations from previous years, HB 1521 contains provisions that would undo the progress Washington’s competitive sourcing program has made.

While most agencies have moved beyond simply considering contracts purely on costs—shifting to a “value” focus—HB 1521 looks to turn the back the clock by moving attention away from assessing overall value for money and back toward assessing costs exclusively. And its other provisions appear duplicative, at best, when compared to the state’s established program.

Washington lawmakers should avoid moving the state away from value considerations in making competitive sourcing decisions. Just because something is cheap doesn’t mean that it delivers the best value to taxpayers. Given that the legislature established a clear commitment to prioritizing value considerations in competitive sourcing in law seven years ago, supporting legislation to reverse course now would be anti-competitive, fiscally short-sighted, and ultimately regressive.

Austill Stuart is a policy analyst at Reason Foundation, a non-profit think tank advancing free minds and free markets.