Expert panel recommends strategies for successful government outsourcing

Indiana University report draws on research and experience

  • Jan. 21, 2014


BLOOMINGTON, Ind. -- Government outsourcing can be effective and benefit taxpayers if certain steps are followed and certain conditions met, according to a new report from a panel of experts convened by Indiana University.

The international panel included former Pennsylvania Gov. Ed Rendell, former Indianapolis Mayor Stephen Goldsmith and several prominent scholars and government officials. John D. Graham, dean of the School of Public and Environmental Affairs at Indiana University Bloomington, brought the group together.

"Government outsourcing or privatization can be a political, ideological and emotional issue," Graham said. "We wanted to determine the latest knowledge and lessons from research and experience. Our goal is to help enhance the value that government outsourcing can generate -- including lower costs, higher performance and greater responsiveness."

The panel defined outsourcing as turning over to private enterprise substantial public functions and services, even infrastructure like bridges and toll roads. It is a growing practice that is taking new and more interesting forms. The report is titled "Government Outsourcing: A Practical Guide for State and Local Governments."

Panelists were not unified in their enthusiasm for outsourcing. The more enthusiastic panelists noted that outsourcing allows government agencies to save money, improve quality or services, and focus on what they do best while encouraging new ideas and innovation. Those who took a more guarded view toward outsourcing noted that anticipated cost savings often fail to materialize, particularly when outsourcing initiatives are not designed and managed effectively.

"Despite these differences of opinion," said SPEA professor Sergio Fernandez, who co-authored the report, "we were able to arrive at a set of recommendations we all agreed were based on strong empirical evidence and that state and local government officials could follow to improve the practice of outsourcing."

The panel offers nine recommendations in the report, including:

  • Determine initial motivations for outsourcing. Governments including the state of Virginia and the cities of San Diego and Indianapolis have successfully outsourced maintenance of their motor vehicle fleets, the panel found. The governments had a clear vision of why they wanted private business to take over fleet maintenance. They got what they wanted: lower costs while maintaining or improving the quality of service.
  • Select the "best" suppliers and partners. The low bidder isn’t always the best bidder, the panel concluded. Reputations, capabilities and past performance are all key factors in addition to price. Weighing those considerations has proven effective for a regional government in Victoria, Australia, which has used a private firm for park, roadside and building maintenance since 1993.
  • Monitor and assess performance during and at the end of the contract. Policies should be in place to keep politics out of the evaluation process. The contract should clearly identify milestones, expectations and output measures. Share performance information with everyone involved in the project. If there’s a dispute, try to resolve it calmly with mediation or arbitration. To head off such problems, the City of Sandy Springs, Ga., has a comprehensive approach to monitoring city staff employed by private companies. Those companies submit detailed quarterly and semi-annual reports to city managers, who also are in continual contact with contract workers. The community also acts as a watchdog, with a call center fielding 2,300 calls a week from residents.

About the panel

The 10-member panel met in person twice and studied the issue from various viewpoints over a two-year period with the assistance of SPEA faculty and staff. Co-chairs were Stephen Goldsmith, a faculty member at Harvard's Kennedy School of Government and a former mayor of Indianapolis; and Ed Rendell, former mayor of Philadelphia and former governor of Pennsylvania. Other panelists were Graeme Hodge, Monash University; Jocelyn Johnston, American University; John McDonough, City of Sandy Springs, Ga.; Florian Schmitz, GORG Rechtsanwalte; David Van Slyke, Syracuse University; Clifford Winston, Brookings Institution; Mildred Warner, Cornell University;, and David Yarkin, Government Sourcing Solutions.

About the School of Public and Environmental Affairs

SPEA was founded in 1972 and is a world leader in public and environmental affairs and is the largest school of public administration and public policy in the United States. In the 2012 "Best Graduate Schools" by U.S. News & World Report, SPEA ranks second and is the nation's highest-ranked professional graduate program in public affairs at a public institution. Four of its specialty programs are ranked in the top-five listings. SPEA's doctoral programs in public affairs and public policy are also ranked by the National Research Council as among the top two in the nation.

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John D. Graham

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Sergio Fernandez

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