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Who're You Rootin' for - Team Public or Team Private?

Monday, 23 December 2013 09:50 By Ellen Dannin, Truthout | Opinion
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An NPR reporter based in Iraq during the war described a group avidly watching a Tom and Jerry cartoon on TV. One of them turned to the reporter and asked her, "Who are you rooting for - Tom or Jerry?"

Privatization can look like that. You pick your side - privatization good or privatization bad - and root for it.

Probe a bit deeper, though, and some privatization proponents take their position in support of free-market competition as efficient, while governments are monopolies and inherently inefficient. Few people in the United States hold an equally strong opposite view - that all infrastructure and services should be socialized. However, many people do support public employees and their work as in the public interest. Meanwhile, a third group may not give the issue much thought but may be reflexively pro or con.

What all these groupings are likely to have in common is not knowing the basics of how privatizing government services actually works.

Some may think there is a careful process for deciding public or private that works like the Massachusetts Pacheco law. Under the Pacheco law, a decision to privatize public services is made only after carefully identifying and comparing costs and quality of public versus private work. This process saves the citizens of Massachusetts from bad decisions, including paying more than they should for public services.

At the federal level, privatization takes a number of forms that are regulated by the Office of Management and Budget's Circular A-76. Its basic principle is:

In the process of governing, the Government should not compete with its citizens. The competitive enterprise system, characterized by individual freedom and initiative, is the primary source of national economic strength. In recognition of this principle, it has been and continues to be the general policy of the Government to rely on commercial sources to supply the products and services the Government needs.

What this means is that each federal agency or department must devote time and money to A-76 competitions, the process that determines whether work will stay in-house or be privatized. The U.S. Department of Agriculture's process, which is typical, is used here to illustrate the process and philosophy of federal privatization.

The key concept of A-76 is that competition enhances quality, economy and productivity. OMB Circular A-76 provides procedures to conduct managed competitions between public and private sectors. Such competitions will determine whether it's more efficient for a function to be performed by the private sector, by an in-house government workforce, or through an inter-service support agreement with another government activity. In A-76 competitions, agencies and contractors are equal and viable competitors.

According to the USDA, A-76 competitions are not win-or-lose situations. Rather, they are good for all.

The A-76 process provides a level playing field between public and private providers of goods/services, encourages competition and choice in the performance of commercial activities, and helps ensure that sound and justifiable business decisions are made. Competition is important to ensuring financial flexibility and reducing costs. An A-76 study will examine and improve the processes and make them more cost-effective. An A-76 study is not "contracting out" of a function - rather, it is a competition between the Government and private sector offerors. An A-76 study can help us develop a more efficient government operation and demonstrate its effectiveness through competition.

However, Circular A-76 actually allows some jobs to be directly converted from the public to the private sector with no determination as to which is more efficient.

Other Circular A-76 process are more akin to the Pacheco law process of comparing private versus public performance of the work. Those requirements include (1) the obligation to hold a competitive cost comparison that ensures all costs are considered to determine who will do the work, (2) retain in-house functions that are inherently governmental, and (3) rely on commercially available sources to provide commercial products and services.

The High Cost of Saving The Peoples' Money

The privatization process in the federal government requires federal agencies to devote time and money to privatization. Among other things, agencies must review their functions to determine whether they are commercial (which means they can be privatized or subjected to a privatization determination through a competition) or inherently governmental (which means the functions cannot be privatized).

Agencies' commercial activities can be assessed for privatization, either through a streamlined competition or a standard competition.

Streamlined Competition:

A "Streamlined Competition" is conducted for activities with 65 or fewer FTE. This process is completed in 90 days with an extension to 135 days possible. This process has a streamlined approach to conducting a study. The agency could compare the cost of the current organization with market research, or may solicit proposals.

Standard Competition:

A "Standard Competition" is conducted for activities with greater than 65 FTE. This may also be performed on agencies with fewer than 65 at the agencies' discretion. This process is completed in 12 months with an extension to 18 months possible.

Part of the process required for a standard competition is to form a Most Efficient Organization (MEO). Streamlined competitions may form an MEO. Each of these processes takes months and is likely to include hiring independent contractors who are experts in tweaking the "inventory," also known as people's jobs.

It doesn't take much imagination to picture the effects on employees undergoing a two- to 18-month process whose results may mean losing a job, having the job degraded or keeping the job but seeing fellow employees transformed into contractors or fired. The GAO's study of the privatization of parts of the Department of Labor included an observation that the privatization process had imposed costs on employees, including negative effects even on employees whose jobs were not on the auction block. The GAO observed:

Nevertheless, in our interviews with DOL employees who assisted with competition activities or whose positions were affected by the competitions - though not a representative sample - we found that employees who were satisfied, as well as those who were dissatisfied, with the competitive sourcing process reported negative impacts on morale for themselves and others.

Better Cost Assessments and Departmentwide Performance Tracking Are Needed to Effectively Manage Competitive Sourcing Program, GAO-09-14, Nov 21, 2008.

The one conclusion that best describes the federal government's privatization infrastructure is that it is so expensive in so many ways that it is difficult to believe that the process leads to cost savings. Creating and implementing the components of the Circular A-76 process requires constructing the regulations and offices within each agency that govern the process. For example, the FAIR Act requires agencies to submit jobs that are classified as commercial or inherently governmental to OMB for review. The jobs that fall into those categories are listed as "inventory" that is up for bid. The Most Efficient Organization operation requires analyzing jobs and transforming them into an "agency's most efficient and cost-effective organization."

Agencies have no experience with assembling the "inventory" and must hire experts to assist in these processes.

To meet the goals of the Circular A-76 process - ensuring that all costs are considered in deciding who will be awarded the work - requires, first, defining what is a cost, second, identifying what is a cost, and, third, pricing the cost. For each of these ideal requirements, there is a cost and, to be accurate, those costs must include the entire OMB staff and privatization infrastructure.

Section 9 of Circular A-76 requires that each agency and department have a privatization infrastructure in place to ensure the A-76 provisions are followed. This means each agency must designate an assistant secretary or equivalent to be responsible for implementing the A-76 process; set up offices to carry out privatization, including responding "in a timely manner to all requests concerning inventories, schedules, reviews, results of cost comparisons and cost comparison data."

One way the Office of Management and Budget has, in effect, dealt with the challenge of identifying costs and making meaningful cost comparisons in relation to the privatization of services has been to do neither. Instead, it has directly converted federal employee jobs to private sector jobs. In fact, there are a number of ways in which federal employee jobs can be directly converted from public sector jobs to private sector jobs. As a result, when there has been no effort to identify costs or to price costs that have been identified, privatization may well be more expensive than public provision.

Surely, it is not in the interest of the public - or of private businesses - to create a huge and expensive edifice to transfer work from the public to the private sector. Instead, the result is to make the public sector less efficient.

At What Cost?

The goals of increased efficiency and cost savings are not unreasonable. But if the OMB were to identify and consider all costs relevant to deciding who will perform the work, the price of the analysis regularly would exceed any costs saved through privatization.

The Circular A-76 process does a disservice to the nation by taking such a narrow, adversarial view of the relationships among government, the private sector, public servants and the public itself. By promoting the liberty concept of freedom from government only, Circular A-76 ignores the government's many roles in promoting unity, justice, domestic peace and the public's welfare, not just for ourselves but also for those who come after us.

Also see: Private Federal Contractors Cost Taxpayers Twice as Much as Civil Servants

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