The Mission of the Manhattan Institute is
to develop and disseminate new ideas that
foster greater economic choice and
individual responsibility.

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.

 


Center for Civic Innovation.

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

 


Home | About MI | Scholars | Publications | Books | Links | Contact MI
City Journal | CAU | CCI | CEPE | CLP | CMP | CRD | ECNY
Thank you for visiting us.
To receive a General Information Packet, please email support@manhattan-institute.org
and include your name and address in your e-mail message.
Copyright © 2009 Manhattan Institute for Policy Research, Inc. All rights reserved.
52 Vanderbilt Avenue, New York, N.Y. 10017
phone (212) 599-7000 / fax (212) 599-3494