Establish a State Council on Competitive Government

The Legislature should establish a state council on competitive government to increase state agency competition in the provision of commercially available goods and services.

Continuing budget pres sures have forced states to examine how best to use their resources. One idea is to require state agencies to compare the services and products offered by government agencies to those from the private sector and other government entities and to contract fo r private services or services from other government entities when they offer savings or improved quality. This comparison will foster competition that will promote improved customer service.

Studies have found that public services in some cases are from 35 to 95 percent more expensive than services from the private sector. 1 When competition breaks through government monopoly, however, public agencies often find they can change and compete with the private sector to produce quality services at similar prices.

The Texas Legislature recognized the importance of competition in 1987 legislation that requires some state agencies to review commercially available services and contract with private vendors if they can provide goods or services of the same quality for less than those produced by government. This requirement, known as competitive cost review, currently applies to the Texas Department of Mental Health and Mental Retardation, the Texas Department of Human Services, the Texas Education Agency, the Gener al Services Commission, the Texas Higher Education Coordinating Board, the Texas Department of Agriculture, the Texas Department of Criminal Justice and the Texas Department of Transportation. If agency costs exceed 10 percent of private-sector rates, the agency either must contract for the service or modify its existing operation to bring costs down to a competitive level.

However, the current system is not working. Current law provides for contracting only when the private sector can provide the service or product for 10 percent less than the agency s current cost, and these costs are calculated by the agency itself, which has an incentive to retain the service. No service has ever been contracted as a result of the competitive cost review law.

In addition, agencies subject to competitive review have found the process cumbersome, with up to 18 months spent in the analysis phase. This is partly because some agencies lack accounting systems that would enable them to identify their costs.

Moreover, oversight of the current system is limited. Both the General Services Commission (GSC) and the State Auditor s Office (SAO) must approve stages of the review. GSC examines bid specifications while the SAO certifies in-house cost estimates, but GSC does not have th e authority to question the appropriateness of bid specifications. SAO examines the accuracy of current costs but not the appropriateness of those figures or the methods used to carry out the service.

Private vendors may have a more efficient means of providing a service, but the bid specifications may preclude its use. Vendors must bid against an agency s current procedures, which may not be the best way to provide the service. Similarly, the state s methods for calculating and comparing costs may not give private vendors a level playing field.

Since no services have ever been contracted out under Texas cost-review program, and the law s conditions favor the agencies that currently provide services.

The private sector has little incentive to bid on services that fall under the process. Some bids advertised under this law even indicated that the bid was for informational purposes only and was not likely to result in a contract.

The state lacks a uniform policy to encourage agencies to seek more cost-effe ctive and efficient ways to provide services. No statewide mechanism exists for instilling competition among agencies or with the private sector. Businesses all face failure if a competitor can provide the same service for less; government agencies do not.

The state has no central, impartial authority for determining the services that would benefit most from competitive pressures, and the manner in which such services could be provided most effectively. There is no mechanism to require state agencies to ex amine similar services and to ask vendors about alternative ways to provide services.

Models for analyzing and obtaining commercially available services already exist. In a recent performance review report, the Georgia Governor s Commission on Effectiveness and Economy in Government outlined an analytical model for deciding how best to provide commercially available services.

This model provides for a preliminary screening of an activity against some basic criteria, such as whether the activity is availab le through more than one private vendor, whether the state would be able to step in quickly if the vendor fails to perform and whether the activity could be subdivided to allow for competition or a pilot project. If the activity survives this initial scree ning, information on vendors costs and abilities could be obtained through a Request for Information (RFI) process. If same-quality services at a better cost are indicated, a formal cost comparison would be conducted.

A. A five-member st ate council on competitive government should be established to encourage public-sector competition and to promote the most effective and efficient way to deliver state agency services.

Administratively, the council could be established within GSC. The Governor, Lieutenant Governor, GSC s Chair and the Comptroller would serve, with the Speaker of the House as an ex-officio member.

The council would seek help from state agencies, vendors and the public in identifying state services offering opportunities for increased competition and would have the authority to bring under study and ultimately open for bids any state service that is commercially available. State law would require agencies providing services identified by the council to participate in publi c hearings and studies if called for by the council, to determine whether better methods exist to provide the services and whether and how the services should be bid. The council would have rule-making authority.

This change would give the council the ab ility to authorize a state agency, upon request, to bid in competition with private sector vendors for any commercially available activities that are put out for bid on council initiative. The council would have full authority to define, after consultation with the affected state agencies, key specifications for any service that is to be bid. The council would further be empowered to recommend appropriate ways for agencies to calculate their current costs to enable accurate and fair cost comparisons. Finall y, the council would make the determination as to whether a service should be contracted to a private vendor, to another state agency or retained with the original agency. The council would be empowered to require the execution of a contract for service or an interagency contract as appropriate and necessary to carry out the contracting decision. State law should specifically exempt this council and its decisions from any state purchasing laws which would inhibit, interfere with or prevent the full decision -making power of the council as set out above. The council should develop rules or procedures to assist state employees who may be affected by contracting. Such procedures could include in bid specifications that existing state employees have the right of first refusal for positions with the contracting company; that state employees are guaranteed a position elsewhere in state government; that certain guarantees with regard to working conditions be provided; that the contractor be required to maintain the a ffected employees at current benefit status and that the employee be provided with outplacement services or other approaches to protect state employees.

B. The current competitive cost review laws affecting eight state agencies should be repealed.

The eight state agencies subject to current competitive cost review requirements would no longer be required to identify a commercially available service within their agency, study the costs of the service and solicit bids for the private provision of the service.

This recommendation should help ensure that services and activities are delivered in the most cost-effective manner possible without sacrificing quality. Moreover, agencies or the private sector could initiate a competitive study of some government service by requesting one through the council. Finally, the state will be able to avoid the costs that these eight agencies incur in conducting studies in compliance with existing laws.

Fiscal Impact
GSC has staff who understand competitive r eview procedures and could support the new council in performing its duties. The council could incur some expenses, but these cannot be estimated. The costs of the council and the staff supporting it should be considerably less than the cost to the state f rom conducting the current competitive cost reviews. The duties of GSC staff would not be significantly different from those already performed in the review of bid specifications.

The actual fiscal implications of this recommendation cannot be estimated b ecause it is impossible to predict how extensively the council would be used. If adopted, the recommendation can be expected significantly to reduce state costs by making sure that state services are performed in the most cost-effective manner possible.

1 David Osborne and Ted Gaebler, Reinventing Government: How the Entrepreneurial Spirit is Transforming the Public Sector (Addison-Wesley Publishing Company, Reading, Massachusetts, 1992).