By: Methuen Mayor Bill Manzi – March, 2012
“With the City of Methuen in the middle of a battle over outsourcing the Information Technology Department (City Council rejected Mayor Zanni’s proposed privatization) former Mayor William Manzi offers a primer on privatizing municipal services, using the White Paper by Stephen Lisauskas and the Pioneer Institute to show what works, and what doesn’t work, when considering outsourcing.”
It seems like an appropriate time to talk about the effective outsourcing of municipal services, which is not only in the news today, but will likely be something that will be on the front burner for some time to come. A good place to start that discussion comes from the White Paper written by Stephen Lisauskas for the Pioneer Institute. Lisauskas has outstanding credentials, and has written a paper that should be read by all those looking to outsource existing municipal services. Lisauskas focuses in on those pesky details which can make or break the results from a decision to outsource. Those details include cost, but are not limited to cost. Lisauskas points out that effective management, and specifically attention to detail, are critically important when making outsourcing decisions. What exactly does that mean, and what does he see as the benefits and drawbacks of outsourcing?
Lisauskas points out a rather obvious benefit, which is the ability to manage and measure “outcomes”, rather than “inputs”. In this day and age the management of “inputs” has become exceedingly complex and time consuming, as well as expensive. It certainly diverts attention from what any good manager wants, which is to measure and judge “outcomes”.
Outsourcing allows managers to focus on measuring and managing outcomes rather than on dealing with significant input issues. These input issues are typically complicated and time consuming given the many laws, regulations, collective bargaining provisions and financial challenges under which municipalities operate. As a result, a focus on outcomes – and the public reporting and discussion of these outcomes– is often underemphasized or absent when municipalities provide services using internal resources. Outsourcing improves the likelihood that municipalities can focus on what truly matters to many recipients of public services – are school children being fed appropriately, is trash being removed, are schools clean and safe – rather than focusing their time and effort on planning for and managing the inputs used in service provision.
But not all municipal services are created equally, at least as far as the potential for outsourcing goes. Lisauskas points out that those services where “outcomes” are difficult to quantify are less likely to be successfully outsourced.
Services that are difficult to define and whose outcomes are difficult to quantify are generally difficult to outsource. Seeking private competition for these services could potentially be unproductive or result in higher costs if the work is not properly defined or if outcomes are improperly measured.
The author also offers sound and valuable advice about taking the necessary steps in advance of “outsourcing”. Certainly understanding what it is specifically that you are looking to outsource is critical, and drawing up solid procurement documents that utilize that most fundamental understanding is essential to a successful program.
A well drafted procurement document and contract is critical to a successful outsourcing.
This concentrates risk in discrete events that could be handled in error and, with multiyear contracts, could disadvantage a municipality for some time to come.
You need to have a full understanding of what it is you are procuring, and absolutely need to secure contracts that protect the municipality against potential “gray areas” that could lead to the original cost estimate being wrong on the low side. Lisauskas hits a very, very important point here. The effectiveness of a solid contract, and having a manager that knows the intricate details of that contract, cannot be emphasized enough. Having qualified and experienced legal counsel examining prospective contracts is vitally important, and can save municipalities large amounts of money in the event of disagreements with the vendor. For municipal managers I say do not be penny wise and pound foolish. Make sure your contract is reflective of the municipalities’ best interest, and do not be afraid to utilize some resources to ensure that the contract achieves that.
In order to help avoid contract issues, as mentioned above, Lisauskas talks about the importance of drawing a tight and detailed procurement document that outlines specifically what services are being sought. But Lisauskas is also interested in making sure that all parties agree, up front, on how the outsourcing success will be measured! What metrics will be utilized to allow the municipal manager to judge vendor performance? From the perspective of the municipality this is another point that cannot be emphasized enough. If this is not addressed in the procurement or in the contract then avenues of disagreement are opened, and disputes between municipality and vendor may ensue.
Bid specifications should define in detail the services being considered for outsourcing to ensure all parties have a clear understanding of the services involved. This will also help external service providers offer the lowest possible price to the municipality. Uncertainty creates the opportunity for misunderstanding in the future and will cause vendors to offer higher prices to protect them in the event they need to apply more resources to a particular project. Specifications should also include agreed-upon time frames for status updates and performance reviews, a discussion of the performance metrics and the means to be used to measure performance against these standards, and a process to update performance measures and evaluation tools during the contract period.
Lisauskas has written an outstanding “Practitioner’s Guide to Outsourcing”, which is poste on my blog page.
He gives an honest evaluation, including the positives and negatives associated with the practice, as well as some tremendously constructive advice for those in municipal management thinking about outsourcing services. I cherry picked some items that I consider to be important, but there is far more to the White Paper than what I have written about here. Well worth a read for municipal managers.