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July 4, 2011

Privatization: Some Details

Michael Kurtianyk

In the 27-page report titled “Frederick County, Maryland, Services Assessment Studies”, authored by PPP Associates, there is a section that deals with which services should be considered for “Public Private Partnerships” (a.k.a. “privatization”).


The authors differentiated between “Core Services” and “Additional Services”. The “Core Services” are as follows:

• Human Resources;

• Interagency Information Technology;

• Financial Administration;

• Fleet Services;

• Facility Services;

• Community Development Services;

• Internal Audit;

• Public Works;

• Parks and Recreation; and

• Court


When PPP Associates tallied these Core Services, they came up with 528.64 FTE (full-time equivalent) positions, for a total of $67,415,147 out of the Fiscal Year 2011 Budget. The report states that these Core Services “were analyzed in detail to ascertain if they would be appropriate for a public-private partnership (PPP) in Frederick County. All were found to be both appropriate and desirable for inclusion.” Thus, these services (and employees!) would be excised from the county budget.


And herein lies the rub: from the public’s perspective, the commissioners were voted in to create jobs, not eliminate them. It’s bad enough that the current Board of County Commissioners cut Head Start mid-year; it’s another thing to eliminate more jobs – the jobs of family members, friends, and services the citizens have come to expect, and have paid for.


The citizens remember what Commissioner Blaine Young said during the recent layoffs. In a Frederick News-Post article on February 26, 2011, there is this direct quote:


"I don't want to know who's on the list (of staff to be cut). ... Then it gets too personal," [Commissioner Blaine] Young said.


When the two are put together (the elimination of jobs and an utter lack of compassion), is it any wonder that citizens are upset with the current board?


The PPP Associates report listed 11 recommendations, of which we’ll take a look at two:


“As evidenced in other PPP governments, the concurrent improvement in responsiveness to citizens’ needs leads PPP Associates to recommend that the county adopt the PPP model and initiate an early conversion to the model.”


Well, we’ve seen just last week that, even before the four public meetings on this report, Commissioner Young said that the county should (already!) start seeking bids to outsource the core services. The quote that followed was: "Just because we send out the RFP [Request for Proposal] doesn't mean it's going to be a slam-dunk (and) the decision's made," Young said.


Many in Frederick County were scratching their heads over that one. You don’t say you’re going to seek public input, and then, before you get public input, seek RFPs for those Core Services which were recommended in the report, and which were, supposedly, going to be discussed. It’s one thing to have a deaf ear to what the citizens of Frederick County are saying; it’s another thing to close both eyes also.


“Should the County decide to convert operations to the PPP model, contracts should be for a minimum of five (5) years. To achieve maximum savings and effectiveness, multiple contracts should be awarded in various work package areas with Task Orders awarded on an annual basis. Based on performance, an automatic extension period of an additional five years should be considered. Longer contracts may result in greater savings.”


Really? Anyone out there think that these contracts will be better than what we have now? Poorly conceived contracts can create cost increases that surpass the costs of in-house services. Furthermore, if there is terrible contract oversight, a government is vulnerable to corruption and profiteering. Privatized contracts can be very bad deals with hidden costs and consequences, when core services are turned over from what was once a public service to a for-profit company.


The privatization of public services can reduce accountability and transparency, and drive governments deeper into debt. Anybody out there think that this won’t happen is itching for a surprise.


Let’s focus on one core service: Interagency Information Technology. This is the core service with 65.00 FTE and a FY11 Budget of $8,125,906. I compared that figure to the adopted budget*, and the number was wrong. According to the link below (Page 21), the number is actually $8,185,906. The correct number is in the body of the section on IIT, but not on the Page 5 chart. There are other mistakes (e.g. Financial Administration is $5,277,105 and not $5,227,105), which just points to sloppiness on the part of PPP Associates.


Back to Interagency Information Technology: according to the report, there are three types of outsourcing: total; partial; and staff. They are defined as follows:


Total outsourcing – All systems, infrastructure, communications, licensing, workstation and support staff are turned over to or supplied by the contracting vendor and the County pays a monthly fee for the use and support computing needs.


Partial outsourcing: Most, if not all of the higher cost infrastructure and software is supplied by the contracting vendor for a fee. Support staff and support processes and services like backups, data/communications lines and contracts are all supplied by the vendor.


Staff Outsourcing: The most viable solutions are typically the Sandy Springs model. In this model, the City owns or leases the infrastructure and the software needed to run the City and support its citizens. The investment in hardware and infrastructure is guided by the vendor and by the government’s procurement process. Deployment is focused on the needs of the government.


Virginia gave Northrop Grumman a 10-year, $2.3 billion IT contract in 2005. This was outsourcing – also known as privatization. Northrop Grumman was contracted to run the state’s computers, servers, e-mail systems and help desk services. However, this privatization effort has been plagued by inadequate planning, cost overruns and poor service.


Remember the part about “poorly conceived contracts” mentioned earlier? Try this one on for size: Virginia didn’t require Northrop Grumman to create a network backup system just in case there was a network failure. Oops!


This is a cautionary tale, one which reminds all of us that we must not move headlong into the privatization abyss without due public process, and the ability to make reasoned, judicious decisions. There is no mandate for local leaders to bankrupt the county’s future, just for the sake of short term savings.


Privatization may work for some core services, and not for others. However, we won’t know unless there is public discussion on the issues, and having the right people overseeing the privatization efforts.



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