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March 5, 2012
Outsourcing and privatization in municipal government
Procurement Perspectives | Stephen Bauld
When we look at outsourcing and privatization in the municipal context, outsourcing is the process of employing an outside organization to perform either a service that the municipality is required to supply to its residents, or that is essential to the overall proper operation of the municipality, rather than relying upon its own employees to perform that service or function.
Outsourcing has recently been employed extensively in North America, in both the public and private sector. The approach to this method of organizing overall operations has varied. Where outsourcing is employed in the private sector, it is usually by a movement towards a more collaborative buyer-supplier relationship, to promote an integrated approach to the outsourcing operations, relative to those that remain inside the organization.
The main argument in favour of outsourcing in the municipal sector may be quickly summarized: Since snow only falls in the winter and grass only grows from late spring until late fall, what is the benefit to the municipality of having snow-clearers and grass-cutters on staff all year long? Surely, the argument goes, it would be cheaper to hire an outside contractor. A second argument in favour is more open to debate: often it allows the government to bring in missing expertise.
Garbage collection and other aspects of waste management have been among the most frequent targets of outsourcing at the municipal level, but such efforts often proved controversial. In October 2005, the City of Winnipeg awarded a contract for part of its garbage collection program to a private sector entity, under an arrangement expected to save $2.7 million.
As in the Winnipeg example, outsourcing may take the form of entering into a direct contract with a private sector supplier for the delivery of specific services, or partnership with private, non-government or voluntary partners to deliver program services in some cooperative way. Outsourcing has become popular in recent years, due to the mounting financial pressure that municipalities are facing.
There are an almost infinite number of ways of outsourcing municipal services, and each of them presents its own risks and rewards. Both cost and performance considerations may make outstanding preferable to force account.
However, before any decision is made to outsource, it is critical to carry out the proper evaluation of internal supply to determine that external sourcing is in fact less expensive.
Privatization is a particular form of outsourcing. It involves the transfer of ownership of property or business from a government to a privately owned entity. Thereafter, the private sector very often becomes permanently responsible for the program and services formerly supplied through the public sector. Although the government may remain involved as a regulator of services delivery, it is no longer presented as the service provider. This is in contrast to most forms of outsourcing where, despite the use of private sector contractors, the government remains primarily responsible for the service.
In the 1990s and early years of the 21st century, many municipalities rushed headlong into outsourcing and other forms of privatization. A very large percentage soon regretted it, as they lost control over service delivery and the setting and revision of service levels.
The shift to privatization represents a shift not only to the manner of providing programs and service that have traditionally been provided by government, but also a rethinking of the manner in which those programs and services can best be provided and funded. Not surprisingly, much of this debate tends to be highly charged at the political level, with fairly predictable divisions emerging between those who favor unionization or non-unionization, as well as broad or narrow government. Privatization is usually controversial when the idea is not properly explained in advance.
Stephen Bauld is a member of the Daily Commercial News editorial advisory board. He can be reached at email@example.com.
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