Partnerships
Public-Private Partnerships: Working Together for Better Performance, Efficiency and Service
Given the capabilities, strengths and expertise on both sides, the opportunity exists for the public and private sector to partner and create a system in which everyone benefits.
Will Flower, John Trujillo, and Aaron Lawhead
Privatization of public services occurs at all levels of government within the U.S. Over the past three decades there has been an ongoing trend that has seen more and more governmental services being delivered through public-private partnerships. Some examples of services that have been privatized include airport operation, mass transit systems, data processing, vehicle maintenance, water and wastewater utilities, and the operation of prisons.
Waste collection, recycling and disposal services are others that are commonly privatized. Today, well over half of the cities in the U.S. contract all or part of their refuse collection and disposal services with companies. This number has nearly doubled from about 30 percent in 1991. Since the economic downturn began in 2007, more municipalities have been reviewing privatization as a way to deliver quality recycling and solid waste collection services to customers while controlling costs.
Common Concerns
The rationale behind privatization varies greatly. Some municipal managers point to the cost savings and the desire to reduce risks associated with providing waste management services. Others may opt for privatization as a way to avoid capital expenditures associated with landfill expansions and the development of new, high-tech recycling centers. Still others see privatization as a way to create new revenue through franchise fees.
The extent of privatization programs also varies dramatically from municipality to municipality. While some cities opt for complete privatization of all waste collection, recycling and disposal services, others select specific aspects such as only the collection of residential waste. Still other cities and towns, only privatize support functions such as fleet maintenance or billing. Not everyone is a fan of privatization. Some of the more common concerns with public-private partnerships include the impact to public employees, transparency after privatization, concern over the control of public assets and the ability of government to effectively maintain control of services through a contract or agreement.
Managed Competition
For those municipalities not in favor of privatization, but who want to ensure that their costs are lower and the quality of services are improved, we have seen the growth of a competitive process referred to as “managed competition.” The theory behind the process is to compare public sector costs with private sector costs to determine who can best provide services to customers at the lowest cost without compromising service quality. The concept of managed competition was pioneered by the City of Phoenix, Arizona in 1979 in response to severe economic conditions.
The growth of managed competition is attributable to the advantages not provided by a pure privatization effort. Whereas profit drives business, the goal of managed competition is to encourage competition and offer an open and flexible process that attracts the greatest quantity and quality of bidders. Additionally, managed competition allows the process to focus directly upon the quality of customer service.
Managed competition is complex and if not properly managed, issues with customer service could occur. Also, because different companies may be providing service to customers, the potential exists for a lack of consistency across the different service areas within a given municipality.
Making Public/Private Partnerships a Success
Regardless of the services that are privatized, it is critical to know that every successful public-private partnership requires a clear understanding of the roles and responsibilities of the partnering organizations. It is also critical to note that government’s responsibilities and involvement do not go away with privatization. Indeed, government has the ultimate responsibility for protecting the public health and the environment. Experience has proven that privatization requires increased contractual oversight, management and regulatory responsibility by government. Additionally, government remains responsible for the planning activities associated with successful, long-term management of solid waste.
The job of the private sector is to fulfill the terms of the contract and deliver quality-assured, cost-effective services. The investment of capital to purchase collection vehicles, hiring of staff and construction of facilities is the risk the private sector accepts while working to ensure environmentally sound collection and disposal of society’s waste.
The private sector also plays a vital role in the planning process by providing advice, expertise and insight to professional planners. However, ultimately, the single most important responsibility of waste collection service providers is to respect the “customer.” The goal should always be to fulfill the terms of the contract and provide customers with quality services.
Clear Expectations
In addition to each partner understanding its particular responsibilities, successful public-private relationships require a clear understanding of the roles and expectations of the other partner. This “setting of expectations” should occur long before a vendor is selected.
Solid waste collection can involve an array of different services. Therefore, municipal officials must first conduct a thorough evaluation and review of the options available for solid waste services. Next, the municipality must develop well-designed scope of work that defines the expectations, roles and responsibilities in a “Request for Proposal (RFP) or Request for Bid (RFB) document. Additionally, the RFP or RFB should:
Explain the qualifications required for submitting a proposal or a bid
Define the services that are required
Identify the evaluation criteria that will be used to review the responses
Identify who from the municipality will be involved in the review and evaluation process
Provide a schedule or calendar for the RFP or RFB process
By following a well-defined and formal process, the municipality can retain ownership and control of it. Unfortunately, poorly defined scopes of work and ambiguity within an RFP or RFB can result in significant problems down the road. As a matter of fact, there appears to be more problems in this phase than anywhere else in the public/private process.
To ensure proper transparency and allow the municipality to effectively measure and monitor the performance of the selected partner, it is important to address requirements for sharing data in the RFP or RFB. Municipalities must spell out the schedule for implementing contractual requirements and be able to impose financial penalties when operational and/or reporting requirements are not met.
Once the scope of service is defined, public officials need to clearly define minimum service-level requirements. This includes such matters as frequency of collection, permitted hours of operation, insurance and bonding requirements, health and safety restrictions, permissible service complaint levels, daily reports and other basic service parameters. The municipality may also wish to include provisions for service continuity following natural disasters such as large storms (hurricanes, tornadoes, floods, snow storms, etc.). Leaving room for interpretation only leads to confusion and frustration later in the relationship.
The municipality also must be fair and practical during negotiations. It should be noted that price cannot be the only factor that government considers when evaluating a vendor’s proposal. Factors such as the vendor’s past experience, including customer service, financial condition and the ability to fulfill the terms of the contract also must be evaluated and taken into consideration during the procurement process.
Finally, once a contract is signed, both sides need to work diligently to be fair throughout the life of the contract. Make no mistake—the hard work for both the contractor and the municipal officials commences following vendor selection.
Structuring a Public-Private Partnership
There is no single best way to structure the contracting of solid waste and recycling collection services. However, in any contracting decision, the twin goals of service quality and competitive cost should guide the design of the bidding process and the delineation of contract details. Ultimately, long-term success of contracting depends on de-politicizing the contracting decision as much as possible, using clear quantitative and qualitative performance standards and clearly spelling out the responsibilities of the public and private sectors.
Win-Win Relationships
Successful public-private partnerships are often referred to as “win-win” relationships. Examining the “wins,” we see that the public sector benefits when it is able to provide quality services at lower costs, increase efficiency/effectiveness, create a cost-conscious environment and increase public confidence.
The private sectors’ “wins” are often measured by profitability—that is, the return that a company realizes on invested capital. Routing density, purchasing power, the length of contract and specific requirements for insurance, equipment, staffing, billing and reporting are other factors that can affect profitability. Good general managers of waste collection companies diligently work to ensure that quality services required by the contract are being delivered with the utmost care and efficiency to ensure a well-deserved profit. Carelessness or a lack of attention to the delivery of quality service can result in financial hardship and a damaged reputation.
Throughout the U.S. there are many examples of “win-win” relationships. The public and private sector has proven their ability to provide cost-effective solid waste services. Subsequently, municipalities have saved millions of taxpayer dollars without adversely impacting the quality of service to residents.
In the end, environmentally sound solid waste management is a service for which local government is responsible. Providing service that exceeds the highest expectations of the customer in a cost-effective manner is the responsibility that lies with the service provider. Government is there to protect public health, which means ensuring that the job gets done right.
Given the capabilities, strengths and expertise on both sides, the opportunity exists for the public and private sector to partner and create a system in which everyone benefits—a true win-win relationship.
As General George S. Patton once said, “Never tell people how to do things. Tell them what you want to achieve, and they will surprise you with their ingenuity.” That is the way of the 21st century—to achieve great things not through regulatory command and control, but rather through government planning and setting innovative and realistic goals and objectives for quality public service and then working in cooperation with the private sector to develop ingenious ways to achieve, and hopefully exceed, those goals.
Will Flower has more than 28 years of experience working in the field of environmental protection. He has worked for the Illinois Environmental Protection Agency, Waste Management, Inc. and Republic Services, Inc. Will has a Masters of Public Administration degree from the University of Illinois at Springfield. He can be reached through his Web site at www.willflower.com.
John Trujillo is the Acting Director of Public Works for the City of Phoenix, AZ. He has 20 years of public administration experience. He has a Bachelors of Science degree in Civil Engineering from Northern Arizona University. John can be reached at [email protected].
Aaron Lawhead has worked on both sides of the public-private divide. Currently, the Public Works Operations Manager for the City of Phoenix, AZ, Aaron is the former general manager of a private solid waste collection and hauling business. He has a Bachelors of Science degree from Arizona State University and can be reached via e-mail at [email protected].