Government

Definition:

Outsourcing government applies to the non-competitive public services and works.  When a government outsources a public work or service, typically the contract will involve the transfer of control and cash flow rights to a private firm in exchange for an investment of some kind in return.  Accordingly, contracts be structured as “build-own-operate-transfer” or “build-own-transfer” financial relationships that are essentially financings.  Or the contracts could be purely for services with little or no capital investment.  All such agreements involve some allocation of risk of loss for capital investments that are either sold or stranded upon termination or expiration.

Governments do not outsource core functions such as military operations, police enforcement, fire safety and tax collection.  For non-core functions, governments often team with private enterprise in “public-private partnerships” (“PPP”) where private service providers deliver services to the public.

In the context of public service, customer care means personal interactions with citizens, taxpayers, users of public works and regulated businesses.  Each interaction involves cost metrics (for efficiency on a per-customer basis), quality metrics (for completeness and customer satisfaction) and “good government” metrics (for accessibility to handicapped and others with special needs, for example).

Examples:

–          Water

–          Electricity

–          Gas and Heat

–          Waste Management

–          Public Transportation

–          Parking Meter Management

–          Toll Road Construction

–          Toll collections using electronic RFID taps

–          Prison Management Services

–          Government pension administration

Technical Requirements:

The scope and technical requirements for effective governmental outsourcing are dictated legal notions of sovereignty and constitutional rights of “the people.”  There are many hurdles a government would need to jump in order to properly outsource a public service.   In order to properly outsource, a government would need to make sure that it does not merely outsource undesirable functions, that they outsource functions that provide the greatest competitive advantage and cover total cost.  They need to have clearly defined goals and objectives before they start out, and make sure they have proper risk analysis and risk assessment planning done.  Because the Freedom of Information Act governs public-private contracts, government outsourcing requires special attention to transparency.

Benefits:

Outsourcing government functions can offer significant cost savings in advanced economies in servicing for high technology products or to cover low-profitability parts of public services.   Additionally, outsourcing is a means for municipal governments to obtain a quick injection of cash, which helps in poor economic times.  In a poor economy, outsourcing becomes beneficial when it leads to the birth of an infrastructure that would not otherwise be able to exist.  Not everyone agrees that government should engage in outsourcing, public unions argue that any transfer of public money to the private sector would imply an increase in taxes, and a decrease in production of public goods.  However service providers argue that the government would be able to eliminate subsidies to money losing projects in order to create a positive fiscal effect.  Outsourcing enables governments to avoid capital investment by having service providers who serve multiple governments units.  Recently governments have explored “shared services” to enable share in costs and benefits of the shared services.