September 11, 2013
Managed competition is a form of alternative service delivery or public-private partnership (P3) that requires in-house service units of a government to compete with external providers under a controlled or managed process. It involves comparing the costs and benefits of contracting out public services versus the costs and benefits of those same services being provided by public employees. This approach was pioneered by the city of Phoenix, Arizona in the 1970s and has since been utilized by a number of jurisdictions, including Indianapolis, Indiana; Charlotte, North Carolina; San Diego, California and Chicago, Illinois.
The Civic Federation released a new issue brief today on managed competition that provides an overview of managed competition in U.S. municipalities. The issue brief describes managed competition, provides a short history of its use and results, identifies managed competition best practices and reviews the different types of managed competition being used in selected jurisdictions including San Diego, California; Charlotte, North Carolina; Cook County, Illinois and Chicago, Illinois.
The Benefits and Disadvantages of Managed Competition
The benefits and disadvantages of managed competition as identified in a recent ICMA paper are summarized in the table below.
The benefits of using managed competition include:
• Improving efficiency: Governments can reduce the cost of services by reducing delivery schedules.
• Empowering front-line employees: Involving employees in the decision-making process can help soften transition processes when moving to new methods of service delivery.
• Promoting innovation: Managed competition can foster creativity and encourage employees to explore new ways to deliver services, deal with service demands and staff programs.
• Providing opportunities for management and labor to work together: Management and labor can partner to more efficiently deliver services.
• Rewarding competitive thinking: If managed competition programs include gainsharing, governments can share savings with employees.
The disadvantages of managed competition include:
• The difficulty and expense of accurately identifying the total cost of service delivery: It is an essential step to first accurately identify all direct and indirect costs to help determine if savings can be achieved through a managed competition process. That requires the government to have a cost accounting system in place to link costs to service outcomes. Developing such a system can be costly.
• Getting public acceptance or buy-in for service delivery changes.
• Staff reductions: There may be a need for layoffs if the government unit is to remain competitive with private vendors in a managed competition bid.
• Negative impacts on employee morale: If employees lose a managed competition bid, it can have a demoralizing impact.
Managed Competition Highlights from Charlotte, San Diego and Chicago
Some of the highlights of managed competition efforts in three of the four jurisdictions reviewed in the issue brief are presented below. Cook County, Illinois, which was also reviewed, is in the process of developing a managed competition for janitorial services and does not yet have results.
Charlotte, North Carolina
• Between February 1994 and July 2010, Charlotte municipal departments conducted approximately 60 competitions. The services subject to competition included transportation, neighborhood development, garbage collection and water treatment.
• Of those competitions, 46 were awarded to City departments while 14 were initially awarded to private contractors.
• As a result of using managed competition, the city reports that municipal departments have changed their business culture and now systematically incorporate benchmarking and continuous process improvements into their operations.
• It is estimated that more than $10 million in administrative and program costs over time have been saved since the inception of Charlotte’s managed competition program.
San Diego, California
• There have been seven competitions since 2010 for the following city services: publishing services; fleet maintenance; street sweeping; public utilities department customer support; street and sidewalk maintenance; landfill operations; and capital improvement program delivery.
• City workers have won five of these competitions for combined annual projected savings of $12.2 million. Of these competitions:
• Fleet Maintenance projects $4.2 million in savings. This will require laying off 26 staff members and eliminating 50 vacancies.
• Street Sweeping estimates $559,000 in savings, including the elimination of two positions.
• Landfill Operations estimates $5.6 million in savings and the elimination of 11 positions.
• Street and Sidewalk Maintenance estimates it will achieve $875,000 in savings.
Chicago, Illinois
• Since 2011 Chicago has conducted competitions for five services: the Blue Cart recycling program; tree trimming; water call center; custodial services at O’Hare Airport; and city health clinics.
• The City projects that it saved $4.7 million in recycling costs for its Blue Cart program in the one year period after implementation. These savings will be used to expand the program to 340,000 additional households in 2013.
• The City estimates that annual investments for the Blue Cart program under managed competition have fallen from $31.1 million to $19.2 million.
The Civic Federation on Managed Competition
The Civic Federation supports alternative service delivery arrangements such as managed competition only if there is a marketplace of competitive, qualified vendors or service providers and strong, sustained management oversight by the governments. Governments must also establish a mechanism to monitor and evaluate cost saving and efficiency benefits produced by any alternative service or privatization efforts. These efforts should include the public reporting of efficiencies and/or savings achieved. Full privatization efforts, i.e., the complete transfer of service delivery responsibilities to the private sector, should be focused on non-core services or programs that provides an overview of managed competition in U.S. municipalities. The issue brief describes managed competition, provides a short history of its use and results, identifies managed competition best practices and reviews the different types of managed competition being used in selected jurisdictions including San Diego, California; Charlotte, North Carolina; Cook County, Illinois and Chicago, Illinois.
[1] Christine Smith, “Managed Competition,” International City County Management Association.