Governing Magazine

The Pros and Cons of Privatizing Government Functions

Outsourcing may seem like a perfect solution for deficit-plagued governments, but the morning after can bring some unpleasant surprises.

BY: RUSSELL NICHOLS | DECEMBER 2010

This brief article is a good overview of some of the pitfalls associated with contracting for public services - whether to the private sector or another public body. Some of the points made in the article:

  • Governments at all levels are relying far more on a network of public, private and non-profit service providers to deliver public services.
  • The process starts with a good cost-benefit analysis, but you need to have good metrics in place for what you are currently doing to know whether contracting will save you money.
  • Successful contracting requires dilegence and strong contract management skills. Many problems arise because the governmental body does not have the capacity to either conceive a good contract or effectively manage contracts - some of which can be quite complex. Failure of due dilegence, contract conception or management are likely to result in the contracted services costing taxpayers more money than when they were initially performed by the public body.
  • Some contracting is undertaken as a remedy for problems that are inherent within the public body itself. Another entity delivering services is not going to make those internal issues go away. The only way for service delivery partnerships to work is to drive transformation from within the public body. In some cases, the public body may be able to achieve similar or greater savings by undertaking a good quality management and process improvement initiative. With good management and continous improvement, the most efficient way to deliver public services may end up being through the public body.

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