Public Private competition in the city of Phoenix, Arizona.

• Author: Flanagan, Jim

Whether the private or the public sector is selected, the competitive bidding process is a means to improve performance and enhance customer satisfaction.

There are very few beliefs or expectations more widely held than that government, in general, is inefficient. The City of Phoenix belies this expectation: It has created a process that pursues productivity in government-delivered services by involving city departments in competition with private contractors in a public-bid situation to determine who can best provide services to customers. The city invented the public/private competitive process in 1979 and has used it to compare service delivery in 13 service areas as diverse as refuse collection and public defender services. Benefits are numerous, ranging from increased attention to customer satisfaction to documented cost savings of more than $27 million. The benefits, the process, and managerial issues are described in this article.

The competitive process began in response to severe economic conditions. Inflation rates were very high in the late 1970s, revenue and expenditure limitation laws were being imposed on local and state governments, and the City of Phoenix continued to experience a population growth rate much higher than average. Private firms approached the city council and promised cost savings if they were awarded contracts to provide particular services. Rather than make a decision to privatize services, city officials chose to compare city cost of service with private-sector costs - and in a public arena.

The competitive process has been initiated at times by city staff and in other instances by citizens or private businesses. Used in 13 service areas, it has involved 56 service delivery decisions. As shown in Exhibit 1, the private sector was selected 34 times and the public sector 22 times. Services that have been open for bids range from small landscape areas to such large or complex services as landfill operations, public defender services, refuse collection, and emergency medical transportation. The provider has changed in some cases and remained the same in others. In every case, valuable information and insight about the service has surfaced.

Benefits of Competition in Phoenix

The greatest benefit of the competitive process is the ability to positively influence expectations about government and gain public support. The competitive process ignores the prevalent image of government and enables it to pursue a full range of service delivery options, as would any private firm or individual. Efficiency and customer satisfaction are established as important values in a very clear, unambiguous way. Citizen surveys have validated service level improvements in the areas opened up to competition. The historical trends of customer ratings given to refuse collection and ambulance service in the most recent citizen surveys conducted by independent research firms are tracked in Exhibit 2.

More than one process is needed to change individual experiences with government and expectations about government services, but competition moves the government in the right direction. As focusing on the customer increases in the private sector, government reliance on bureaucratic and monopoly power cannot be a long-term survival strategy, even if sanctioned by the law. Looking outside the government organization to provide the best service at least cost is now a luxury - in the future it will be a necessity.

A related and similar benefit of the competitive process is the self-directed attention to cost and customer satisfaction that occurs throughout the organization. Discussions of unit costs, customer complaints, down time, and other production-line events occur with interest and energy. There is no need to build bureaucratic reporting, regulatory, and oversight devices. Internal and external studies, citizen committees, cheerleading, and other public management tools are weak mechanisms when compared to the capability of real competition to sustain self-directed attention. The attention to performance also leads to creative approaches to equipment design, staffing, cross training, and cost containment that otherwise might not occur. For example, the city purchases a high-quality refuse collection vehicle when the competitive process selects the Phoenix Public Works Department. Without the process, it is very unlikely that a city department would be successful in pushing for this level of expenditure.

Exhibit 1

CITY OF PHOENIX COMPETITIVE PROPOSAL PROCESS: 1979-1994 TYPES OF SERVICE

Contracts Awarded to Private Service City Contractor

Ambulance service 1 0 Billing services 0 2 Data entry 1 0 Fuel distribution 1 0 Instrumentation maintenance 1 0 Landfill operation 0 1 Landscape maintenance 7 23 Public defender 0 1 Refuse collection 5 7 Senior housing management 1 0 Street repair 2 0 Street sweeping 2 0 Water meter repair 1 0

Total 22 34 Cost reduction is also a major outcome of the competitive process. The clearest specific example is the comparison of refuse collection data shown in Exhibit 3. While the different districts have elements that generate different unit costs, the overall direction of cost over a 13-year period is very persuasive. Highly efficient vehicles, routing, and staffing have emerged.

Demonstrable improvement in service level has been related to the competitive process in Phoenix. When the city opened the operation of one of the municipal landfills to competition and the...