Civic Report No. 41 December 2003 Private Competition for Public Services: Unfinished Agenda in New York State Appendix: Setting Competition Priorities Once a government’s “commercial activities” have been identified, how can a public agency decide which activities are the best candidates for competitive contracting? Both the federal government and Virginia have developed analytical models for answering this question. The federal approach To implement the Federal Activities Inventory Reform (FAIR) Act, federal agencies attach a “Reason Code” for each commercial activity to classify whether or not that activity is appropriate for competition. As shown in the table (below), six such codes are now in use. REASON CODES FOR FEDERAL COMMERCIAL ACTIVITIES INVENTORY Reason Code Definition A The Commercial Activity is not appropriate for private sector performance pursuant to a written determination. B The Commercial Activity is suitable for a Cost Comparison or a Direct Conversion. C The Commercial Activity is the subject of an in-progress Cost Comparison or Direct Conversion. D The Commercial Activity is performed by a Most Efficient Organization (MEO) resulting from a Cost Comparison decision made within the past five years. E The Commercial Activity is pending an agency approved restructuring decision (e.g., closure, realignment). F Performance of the commercial activity by government personnel is required due to a statutory prohibition against private sector performance. The Office of Management and Budget (OMB) is largely responsible for managing this process. OMB sets the competition policy and reviews each agency’s commercial activities inventory. Upon completion of an inventory there is a limited administrative challenge and appeals process under which an interested party may challenge the omission or the inclusion of a particular activity on the inventory as a commercial activity. Identifying opportunities in Virginia Virginia’s Commonwealth Competitiveness Council has a five-step process to determine what government services can be competitively contracted. The initial step is largely an information gathering exercise. The council solicits information from citizens, business interests, and government employees. This information was used to develop the inventory of competition opportunities. The second step requires agencies to conduct a performance analysis of public and private entities to determine whether services should be opened to competition. The analysis consists of five parts: Determine the potential for competition and the state’s ability to measure performance. Establish fully allocated cost of operating current activity vs. estimated cost of contract or savings, using the COMPETE software program to make cost comparisons easier and more fair. Identify any issues related to public safety and welfare. Plan for all aspects of the competition itself—i.e., assignment of personnel, transition considerations, and contract administration. Consider implementation issues—i.e., procurement requirements, and quality assurance and evaluation procedures. The third step is the request for proposal (RFP) phase. Both private sector firms and in most cases, state agencies are asked to tender proposals. Independent reviews of the in-house costs are also completed at this time to ensure that costs were complete, accurate, and reasonable. Next, the agency receives sealed proposals. After review, a tentative decision to continue in-house operations or to award a contract to a bidder is announced. Contracts are awarded for a period not to exceed 5 years. The last phase, which is essentially the monitoring phase, requires agencies to establish ongoing quality assurance programs to ensure that quality and cost standards established in the contract are met. In addition, agencies are required to conduct a post-performance review at the end of the contract period.

EMAIL THIS | PRINTER FRIENDLY CR 41 PDF (77 kb) SUMMARY: The benefits of opening public services to private competition are potentially enormous, as George Pataki recognized when he first took office as Governor nearly a decade ago. Despite the Governor's early advocacy, however, competitive contracting has not taken root in New York.  Given the scope of the state's ongoing fiscal crisis, the Governor should pursue his original agenda by allowing private providers to challenge New York's entrenched public-sector monopolies.  Efficiency gains through competitive sourcing could provide state and local governments with annual savings totaling hundreds of millions or even billions of dollars.  By establishing an effective, permanent framework for competitive sourcing, government can benefit from the same efficiencies that fuel private sector success. TABLE OF CONTENTS: Executive Summary About the Authors INTRODUCTION Figure 1. New York's Unfinished Competition Agenda THE VALUES OF COMPETITION, TRANSPARENCY AND PERFORMANCE The growth of competitive sourcing Principles of an effective process Doing it the right way Taking stock: The all-important “inventory” The federal model The Virginia model COUNTING, MEASURING AND MONITORING The value equation Performance-based contracting Splitting purchasers from providers Trends in New York State Figure 2. Impact of Increased Outsourcing Disputed results CREATING A COMPETITIVE PROCESS FOR NEW YORK Running the competitions Keep pruning the undergrowth Contracting opportunities How much can be saved? CONCLUSION APPENDIX ENDNOTES