Chapter 2: Competitive Government
Implementing “Yellow Pages Test” for Texas Government
The Comptroller uses an approach called the “Yellow Pages Test” that any agency can employ to determine whether savings can be realized by reengineering services in-house or outsourcing services. This issue paper describes the Comptroller’s pro-cess so agencies may voluntarily adopt it if deemed appropriate.
In today’s marketplace, private sector businesses must constantly evaluate their own operations, understand the costs of their activities, differentiate between activities that do and do not add value to their operations, benchmark activities, and reengineer their business processes. This continual reassessment and improvement of an organization’s operations results in reduced cycle times, improved service delivery, and reduced costs. Companies that do not perform this continual assessment will find that their services are not competitively priced.
By contrast, most government services are monopolies, which may lead to inflated prices and poor service quality due to lack of competitive pressure. The federal Office of Management and Budget’s Circular number A-76 best describes why competition should be fundamental in providing government services:
The competitive enterprise system, characterized by individual freedom and initiative, is the primary source of national economic strength. In recognition of this principle, it has been and continues to be the general policy of the Government to rely on commercial sources to supply the products and services the Government needs.
The A-76 Circular supports the idea that government should focus on performing its core functions and rely on the private sector to perform services that are outside of those core functions if they can do so with improved quality and lower cost. The wholesale privatization of services provided by the government may not always serve the taxpayer; the key is to subject government services to the same competitive pressures in which private markets operate. By engaging government employees in the process of competing with the private sector, taxpayers can be assured that, one way or another, the goods or services they receive are delivered as efficiently and effectively as possible.
Government is under increasing pressure to reduce costs. At the same time, citizens expect the services provided by government to improve. On the surface, it seems impossible to reconcile reduced funding and improved services; however, introducing competition into government can help resolve this seeming contradiction.
Competition between the public and private sector for services is not new; it has been occurring for at least two decades. As a result, generally-accepted best practices have emerged through trial and error. The e-Texas staff has evaluated existing methodologies and identified effective practices that exist in various approaches to enable the Comptroller to develop a managed competition process suitable for use in other Texas agencies and local subdivisions of the state.). (Internet document.); and
What is managed competition?
“Managed competition” refers to the process by which government employees compete with private vendors to determine the most economic and efficient service provider for a government service. Managed competitions should be designed to facilitate an accurate and fair comparison between public and private providers of similar functions and services to determine the best course of action to maintain or enhance mission capability and effectiveness at reduced cost.
The keys to a successful managed competition are:
Identifying promising competition projects. Any function that is commercially available by multiple vendors is a potential candidate for competition.
Ensuring a fair process is in place for both the public employees and the private sector. This process must include a system that provides a transition plan for state employees who may lose their jobs to the private sector due to competition.
Carefully designing a project to ensure that it achieves maximum benefits and that all involved parties understand what function or activity is to be analyzed.
Ensure that requests for proposals (RFPs) clearly reflect an agency’s needs so internal staff and private vendors can propose specific solutions. RFPs should have enough information to form the basis of a contract if a private vendor wins the managed competition. In addition, RFPs should offer enough information for employees to use them as a source in reengineering internal processes.
Other governmental entities employ methodologies that explain how to administer a managed competition process effectively.; and Seattle Office of the City Auditor, Making Effective Use of Managed Competition (Seattle, Washington, January 11, 1995) ( Using the best features of existing approaches, the Comptroller’s methodology requires the performance of two concurrent processes that depend on the issuance of an RFP to solicit private sector offers.
In the first process, agency employees analyze and reengineer an internal business task that has been selected for a managed competition, and they develop a proposal that will be compared to the best private offer. Agency employees will need to refer to the RFP to properly reengineer their process. The second concurrent process involves selecting the best private proposal and comparing it to the in-house employee reengineering proposal. If the private sector bid is more cost-effective and provides the best service delivery, then the contract is awarded to the vendor. If the employee proposal is more cost-effective, the RFP is withdrawn, internal processes are reengineered according to the employee proposal, and the agency continues to provide the services.
Since Texas is an “at will” employer, (that is, its employees may be dismissed at any time, for any reason) it is not appropriate for the employees to “win the bid,” as this would imply a contractual relationship between the agency and the employees. This makes it necessary to withdraw the RFP if in-house employees win the managed competition and proceed with the employee reengineering proposal.
Employees involved in a managed competition project can receive cash awards through the State Employee Incentive Program (SEIP). The SEIP awards state employees 10 percent, up to $5,000 per person, of the savings realized from any idea they have to improve services. Likewise, employees who participate in a managed competition, whether it results in outsourcing or improved internal processes, are eligible for an SEIP award if savings are achieved.
Once functions or services are identified as candidates for competition and approved by agency management, the agency must prioritize them. This will ensure that resources are used for competition projects that have the most impact. The state of Colorado developed a chart that rates the value of competition projects based on their difficulty and importance:
Executive support is critical to the success of a managed competition project. Once executive management approves an agency-managed competition project, they should meet with the directors of the area selected for competition. It is important to work openly and honestly with the management and the employees of the selected area. Agencies should explain the reasons the project was selected, the steps of a managed competition, the support available to assist employees, and ways management can foster the employees’ efforts. This will help ensure the service provider selected, whether it is the public sector or a private company, is the most effective and efficient.
If the affected employees decide to develop a proposal to retain the services in-house, agencies should make trained staff available to support the employees through the reengineering and proposal development process. The affected employees may not have experience reengineering activities or writing proposals. This lack of knowledge should not prevent the employees from developing and submitting a proposal. Since the agency is reviewing its own work process, its employees are the best people to make process improvement suggestions.
To have a fair competition, it is important to create a “firewall” between the group of employees designated to provide support to the affected employees and the group charged with developing the RFPs and evaluating private offers. In other words, state employees that develop an RFP for a managed competition project need to regard the incumbent employees and their support staff in the same manner as they would the private vendors who will respond to the RFP. If vendors think the developers of the RFPs are the same group of people assisting the employees with their bid, they will perceive the employees as having an unfair advantage.
A significant number of managed competitions have occurred around the world, most notably by the cities of Phoenix and Indianapolis and the national governments of the United Kingdom, New Zealand, and Australia. A recurring theme in all these competitions is the critical need for a fair process between the public and private sectors. Perceptions that a competition process is unfair—whether from the public or private sector—will endanger the success of the entire process. Public sector agencies must give their incumbent employees the latitude to reengineer their processes in order to make them as efficient as possible, as well as the resources to create a realistic bid in an attempt to keep a service in-house. Private companies need the assurance that their bid for a service against incumbent government employees will be considered in an unbiased atmosphere.
Government entities and private companies operate under a number of built–in advantages and disadvantages when competing with each other. Some are listed below:
Public Sector Advantages
The public sector enjoys lower cost of capital.
The public sector pays few or no taxes.
The public sector does not have to earn a profit.
The public sector has first hand knowledge of operations.
The public sector enjoys sovereign immunity/indemnification.
The public sector is self-insured.
The public sector employees offering bids may have close working relationships with the public sector staff evaluating bids.
Private Company Advantages
The public sector employees in an affected area are not generally familiar with the bid process and usually require outside help—often from consultants—to submit quality proposals.
The public sector is subject to rigid procurement and personnel rules.
The public sector may have higher employee benefit levels (not necessarily the case in Austin).
The public sector lacks direct access to capital markets.
The public sector may face constitutional and statutory constraints.
The public sector may have fewer economies of scale (e.g., an agency with a small information technology division may have to compete against a large computer manufacturer that provides a wide range of services).
The public sector cannot move quickly on capital spending.
Texas public sector entities receive appropriations on a two-year cycle.
There will always be those involved in the process who feel they are at a disadvantage, whether real or imagined. Agencies can take steps to alleviate these concerns and still use competition as a tool for government managers to use to reduce costs.
Agencies participating in internal competition processes should inform employees how or if they will be involved in the competition process. Employees need training and advice so they can adequately compete against the private sector. These efforts will give state employees the tools they need to produce a well-written, competitive bid to retain services in-house; however, if state employees are not successful in retaining their jobs after a managed competition process, they need a system to provide assistance in this transition. The Comptroller’s Human Resources (HR) Division has developed a process to provide assistance to Comptroller employees who lose their positions as a result of reengineering or competition initiatives.
The following services are available to Comptroller employees who are affected by a managed competition:
Job Lead Development: An effective career transition program should dedicate specific resources to helping employees pursue job leads within the agency. HR will help employees apply for vacancies within the agency based on their specific skill sets and job performance. Comptroller HR Division staff will coordinate this activity.
CPA Contingent Labor Pool: The 1999 Legislature codified a Temporary Assistance Provision allowing the temporary assignment of employees to facilitate the work of state agencies. It states that “any classified employee may, during emergencies or any other special circumstances, be temporarily assigned to other duties.” A Comptroller employee whose job is lost to outsourcing will be able to temporarily assist other divisions within the Comptroller’s office or other state agencies as provided by the Legislature if the opportunity exists. These temporary assignments would allow additional time for employees to apply for other employment. The Comptroller’s HR Division staff will coordinate this activity and make affected employees aware that these opportunities exist and are temporary in nature.
Referrals to Employee Assistance Program Counseling: Since career transition is often stressful, HR staff will refer displaced employees to the agency’s Employee Assistance Program (EAP). The EAP can provide employees with counseling of a personal nature as well as career guidance. The Comptroller’s current EAP contract provides this service, under the coordination of the HR Division staff.
Seminars for Résumé Writing and Career Assessment: Career assessment workshops include: benefits counseling, retirement planning, information on starting a business, résumé preparation, effective career search techniques, networking, interviewing strategies, working with job search firms and placement agencies, and others as needed. These types of employee assistance workshops will help displaced employees transition to other employment more quickly and successfully.
The Texas Workforce Commission (TWC) currently provides the following programs for both public and private employees who lose their jobs as a result of layoffs:
The Dislocated Workers Program provides employment and training programs for eligible workers who have been laid off due to no fault of their own.
The Rapid Response Program provides short-term, early intervention and immediate assistance with layoffs affecting 50 or more employees. These services include seminars on job searches, change and stress management, debt reduction, financial management, career opportunities, and labor market information.
Workforce Development Boards throughout the state have several programs similar to those offered by TWC, but they address the needs of groups of less than 50 employees.). (Internet document.)
The recommendations that follow are intended to be non-statutory and implemented at agency discretion.
A. Agencies should engage in managed competition projects to decrease the costs associated with service delivery.
B. Employee proposals selected in a competition project should be implemented within six months of the date the request for proposals (RFP) is withdrawn.
B. Agencies should develop an internal program for managed competition projects to ensure a fair and equitable process for both state employees and the private sector.
C. Agencies should use a consistent methodology to select projects for managed competition.
D. A firewall should be established between those developing the RFP and the affected employees and their consultants.
F. Agencies should develop a transition program for employees who lose their jobs due to a managed competition.
Agencies can achieve considerable savings and improve efficiency by conducting managed competition projects; however, the fiscal impact of such projects depends upon future events and cannot be estimated. Each agency has an ongoing responsibility to ensure that its processes are carried out as effectively and efficiently as possible, and managed competition is a tool to achieve this goal. As with the Comptroller’s office, existing resources should be used to carry out these activities.
1 Office of Management and Budget, “Circular No. A-76 (Revised 1999).” Section 4 (http://www.fo.hq.dla.mil/A76/OMBCircularA-76.html). (Internet document.)
 Stephen Goldsmith, The Twenty-First American City: Resurrecting Urban America (Washington, DC: Regnery Publishing Inc., 1997), pp. 29-44.
 County of San Diego, Competition and Reengineering Group, Managed Competition Guide (San Diego, California, August 1, 1998) (http://www.co.san-diego.ca.us/cnty/cntydepts/CAR/policies/index.htmlCouncil on Competitive Government, Overview of the Practices and Procedures of the Texas Council on Competitive Government, by Competitive Government Strategies, LLC (Austin, Texas, September 1999). (Consultant’s report.)
[4 ] Reason Public Policy Institute, “Competitive Neutrality: Ensuring a Level Playing Field in Managed Competition,” Reason Public Policy Institute How-To Guide No. 18, by William D. Eggers (Los Angeles, California, March 1998), p. 7.
 County of San Diego, Competition and Reengineering Group, Managed Competition Guidehttp://www.ci.seattle.wa.us/audit/9501-rpt.htm). (Internet document.)
 E-mail from Janet Bartleson, public information officer, Colorado Department of Agriculture, formerly on the New Century Colorado Communications Team, April 20, 2000.
[7 ] Reason Public Policy Institute, “Competitive Neutrality: Ensuring a Level Playing Field in Managed Competition,” Reason Public Policy Institute How-To Guide No. 18, by William D. Eggers (March 1998), pp. 4-5.
[8 ]William D. Eggers, “Competitive Neutrality: Ensuring a Level Playing Field in Managed Competition,” p. 2.
 Texas Workforce Commission, “Local Workforce Development Boards,” August 8, 2000 (http://www.twc.state.tx.us/dirs/wdbs/wdbmap.html