Public/Private Partnerships for Local Governments

“At a time when the resources available at all levels of government are becoming increasingly difficult to come by, communities are faced with a stark choice: to continue business as usual by cutting services and raising taxes, or look to the efficiencies of the private sector as a viable option to provide essential services to our communities. All one needs to do is visit Sandy Springs to see that the vision that the City’s founders established for an accountable and responsive government, is alive and doing extremely well.” — Oliver W. Porter

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In this book, Oliver Porter, the founder of Sandy Springs, writes about his Competitive Contracting Model (CCM) for Public Private Partnerships. While his other book focused on the process of founding the city, this one examines the model in more detail.

The first thing to note is that the model is not about privatization, but outsourcing: The city doesn’t sell its assets, but instead chooses to deliver most of its services through partnerships with private industry. The range of services delivered is extensive and includes public works, police, fire response, and “city hall services”, such as Human Resources, ICT and accounting.

The chain of command in the CCM is structured in three layers: On top, the Elected Officials, who handle the city’s policies, the City Manager, who deals with the administration and supervises the company, and the Private Company, who performs the work as instructed by the city manager. Choosing a competent city manager is seen as crucial, as he is the contact point between the public representatives and the private operator.

To sign a contract, a prospective city has two options: Enter into a competitive bidding process and issue a Request for Proposals (RFP) or initiate negotiations with a sole company, issuing a Request for Qualifications (RFQ) and a Request for Information (RFI) to assess the firm’s readiness to serve the city.

Regarding payment, there are three possibilities for the city: Cost Plus Fixed Fee, with low risk for the contractor and high risk for the city, Time and Materials, which usually uses an open-book accounting methodology and incurs high administrative costs due to reporting, and lastly Lump Sum or Fixed Price, which is Porter’s preferred method, as it bears low risks for the city and provides the company with an incentive to increase profit margins through higher productivity.

Four different cities implemented the model by contracting with the same company, CH2MHill. The benefits observed include lower costs, more innovation and better service, which were made possible by many factors, including but not limited to cost-sharing functions, new interdepartmental synergies, better aligned incentives and the possibility of subcontracting.

One important aspect is that the city remains in full control of the finances and has many protections against abuse, such as the right to withhold payments if there are continued unfulfilled contractual obligations, and the right to cancel the contract if the service level is insufficient. However, that is seen as a last resort by the author, who considers that the city management and the company must be real partners, who communicate honestly and transparently.

Also, the book advises against overspecification in the contract, which he sees as a way of trying to eliminate trust from the relationship. Since the contract is a central part of the model, it will require a good level of trust between the parties in any case. Furthermore, not employing a rigid contract gives the company room to be responsive, open and flexible.

Speaking of flexibility, that aspect of the system is also impressive. If the city desires additional services, it can easily execute a change order and pay the difference accordingly. Also, because the government must not buy the equipment and hire and fire employees for individual projects, assets and human capital can be allocated much more seamlessly, according to demand.

Lastly, the book points out that municipalities adopting the model will have new opportunities due to increased governmental efficiency. These include decreasing taxes, retiring debts, increasing reserves or improving services. Whatever is chosen, the city benefits.

The book is split into 8 chapters and 3 appendixes, in which Oliver explains the recent history and structure of his Public/Private Partnership model and provides meaningful documents for interested parties.

Creators of zones and societies will find in chapters 6, 7 and Appendix C the future perspectives, recommendations for international implementation and a sample city contract.

Policymakers and analysts can take a look at chapters 3 to 5 and Appendix B for the explanation of the municipal structure, the contract and possible obstacles and a sample RFP.

Scholars and experts may read chapters 1, 2, 8 and Appendix A for the recent history, benefits derived from, conclusions about and a sample academic study of the model.

The book can be found here.

Written by: Francisco Litvay