August/September 2014

COMMUNITIES: GOVERNMENT
Local Governments Explore Departmental Outsourcing

State and local governments facing economic difficulties are showing an interest in outsourcing services. But some governments have been going a step beyond—outsourcing entire departments, such as public works.

In some cases, outsourcing has helped new cities launch services quickly. For instance, Sandy Springs, Georgia, needed to provide services overnight in 2005 after it became the first newly created city in the state in almost 50 years.

City manager John McDonough explains that the city has contracted with multiple companies for each function. One company received task orders—for instance, for public works, that company is URS. But the city has options if work doesn’t measure up. “There are no guarantees anyone has a job,” he says. “It’s a great motivator to control costs and provide high quality service.”

According to McDonough, the model ensures cost certainty over the life of the contract and has afforded the city a built-in talent pool of specialized positions. In addition, outsourcing has removed liabilities such as employee pensions and healthcare. “There are failing governments across the country because retiree and health benefits have gotten out of control,” he says.

But the city manager stresses the importance of spending time on the front end to ensure good contracts. One reason outsourcing fails, he explains, is mismatched expectations of work.

Communication is also critical, says McDonough. At Sandy Springs, partners are treated like staff, attending weekly meetings and working in city hall offices. That helps ensure collaboration across departments, he says.

Centennial, Colorado, is another new city that outsourced services—such as public works, planning, and community development—soon after it was founded. Chief Innovation Officer David Zelenok, P.E., the city’s former public works director, outsourced his own job. Centennial prepared its own bid for the work, but found that a contract with CH2M Hill would improve service at the same cost, while keeping that cost predictable.

Wayne Reed, Centennial’s deputy city manager, notes that one lesson learned has been to define outcomes rather than prescriptively tell companies how to accomplish work, which can undermine service delivery.

Sioux City, Iowa, uses a hybrid approach due to difficulty filling senior engineer positions. Public Works Director Jade Dundas explains that the city is relying on outside companies for much of the department’s design work and some project administration. In-house staff are handling smaller projects and responding to emergencies and citizen issues.

Outsourcing also gives the city access to specialized knowledge, such as bridge engineering, as needed. In addition, reducing the workload of overtaxed in-house engineers has improved work quality, Dundas says.

But outsourcing is not without its detractors. One concern has been that private companies are profit-oriented. Craig Faessler, P.E., program director for Centennial with CH2M HILL, agrees that the company needs to make a profit to stay in business. “But our number one goal is to provide A+ service,” he emphasizes. “If not, we’re out of a job.”

Job losses are another fear with outsourcing. According to news reports, earlier this year Bloomfield, New Jersey, voted to solicit requests for proposal for engineering services despite objections from the township engineer, who emphasized the department’s small cost in the overall budget, ability to bring in money with redevelopment projects, and additional work provided off-hours at no cost.

Loss of institutional knowledge can be another concern. Faessler believes this is one reason outsourcing hasn’t taken off as much as his company believed it might. But CH2M Hill tries to hire existing employees, he says, when it signs contracts.

He thinks that outsourcing is a model “on the cusp,” particularly due to some local governments’ financial troubles.

Reed believes that outsourcing is increasing in new communities but not yet in established ones. However, he predicts growth as governments are able to demonstrate benefits and perhaps outperform those that keep services in-house. That could take 10–20 years, he says.

As Centennial’s Zelenok stated in an interview with the Reason Foundation, the city has the benefit of being a newly incorporated city. But, services often thought of as “‘inherently governmental’ are often…just what’s been ‘traditionally’ governmental.”

More: Indiana University’s School of Public and Environmental Affairs released “Government Outsourcing: A Practical Guide for State and Local Government” in January. Search at www.indiana.edu/~spea. Sandy Springs’ John McDonough served on the report panel.

SANDY SPRINGS, GEORGIA (LEFT), AND CENTENNIAL, COLORADO, ARE TWO CITIES THAT HAVE EXPLORED OUTSOURCING ENTIRE DEPARTMENTS, INCLUDING PUBLIC WORKS, PLANNING, AND COMMUNITY DEVELOPMENT.