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Outsourcing Government: A Strategic Approach to Partnered Privatization (Part 5)

A Strategic Approach to Partnered Privatization

A strategic approach towards privatization involves not only an organization shift, but a mind shift. From a governance standpoint, there is no question that an agency, board and commission must fulfill its mandate. There is little argument that a public sector organization “owns” policy. Beyond that, the rest of the operations are up for grabs.

For example, in the child care or income maintenance worlds, the Department of Human Services is responsible for policy related to who should get what amount of coverage and for how long; and how this service should change as the circumstances of the applicant and its family change over time. The services provided need to be balanced against the funds available for disbursement, less any administrative costs.

However, in terms of delivery channels, some departments mail out checks to recipients. Others offer debit cards which have proven to be very cost effective and socially more acceptable to the recipients. A debit card service is normally provided by a financial services company or a service provider in this business. Much of the operation can be automated. However, the application, eligibility and on-going case management are often done by government staff. They also could be provided by a third party organization as long as the administrative costs are viable and service delivery metrics are in place. As a competitive service, it would provide opportunities for the private sector to develop business lines and specialize in such operations. This type of thinking can effectively reduce the government footprint and turn more of the operational and administrative aspects of the business over to the private sector.

Aspects of this type of an arrangement exist in many government organizations today. However, while work is contracted out, internal departments are maintained well into such contracts and consequently, the savings that should result from such arrangements may not fully materialize. The thinking may be that these are temporary arrangements and the business reengineering and reorganization that should follow such initiatives in parallel does not take place. There is little value in turning an organization into a larger one by adding in external resources with the effect that the external people effectively do the work while the internal people shadow them or look over their shoulders. Is it reasonable to assume that at some point this work will come back in-house? Why? If the internal staff had the expertise and skills, they would have done it in the first place. Having contracted it out, why would one assume that the internal staff can now support it? Why not leave it contracted out?

So what is the model for a strategic approach for partnered privatization?

  1. What is the mandate of the organization?
  2. What skill sets do the individuals possess?
  3. What is the core business of the organization?
  4. What work can be performed internally that represents the core competency of the organization?
  5. Will the staff performing that work stay in the organization? Is there growth for them within the organization or will they opt out because it is a dead-end position?
  6. Does the budget, grant(s), transfer of funds support all of the core functions or some of them in jeopardy of being cut at some point?
  7. Which of the work activities represent policy vs. delivery?
  8. Based on these questions and factors, consider contracting out work that is not the core business of the department, is transitional, in danger of being cut or reduced in scope and budget, leads to jobs without growth potential.
  9. Set a value on the effort for such work, determine criteria for success and create contracting documents that will lead to fair and impartial bids.
  10. Develop the organization structure for managing such projects and work that will be done by contractors including its management, evaluation and revision.
  11. If needed, make it a part of the contract for firms to take on internal staff that can provide the background and expertise and become part of the external delivery organization.



The public and private sectors both have merits. They are geared at performing certain functions well based on their raison d’etre. It would be generally true that the public sector is better for those types of work or activity that requires a public conscience, is qualitative in nature or affects the public. Nonprofit organizations are a good second in this regard as they are run privately but have a public sector oriented mandate. The private sector, then, is better for projects and activities involving economic, investment, risk taking and innovation.

These are broad generalizations and there are exceptions to the rule. However here are some key words or attributes that fit these sectors:

Public Sector:

  • Policy
  • Regulation
  • Equity Enforcement
  • Prevention of discrimination
  • Prevention of exploitation
  • Promotion of social cohesion
  • Development of a community
  • Reduction of favoritism
  • Maintaining stability
Private Sector:
  • Economic
  • Investment
  • Profit
  • Self-sufficiency
  • Rapid Change
  • Innovation
  • Risk Taking
  • Professional Expertise
  • Replication of Success

There are many more such attributes that can be defined but the idea is pretty clear. The more one moves towards creation of jobs and wealth, the greater the emphasis on the private sector. Conversely, government makes policy and develops channels for the general welfare of the public. The “third sector” or nonprofit organizations often are charged with bridging the gap between the two when both sets of ideals need to be combined. We are familiar with organizations such as the United Way, Rotary International, Red Cross, etc. and the fine work they do in helping millions of people across the globe.

With the softening of the economy and the lack of risk taking and investment by the private sector, government is stepping in increasingly to take on responsibilities that traditionally belong in the private sector. Political rhetoric reminds us of this everyday, but there is no concrete solution at hand that the people can believe in.

This is precisely the time for government to take bold action and create opportunities for the private sector to take over traditional functions from the government. This has two direct and beneficial results. The government can promote private sector jobs through these initiatives and new enterprises. Individuals that work for the government can be absorbed in such corporations. Government can shrink and reduce the tax load and leave more money in the hands of the public to pump into the economy.

While this may appear as an inflationary move, it is a necessary uptick in the economy that is sorely needed since we are essentially running a flat economy right now. It feels like a still day, and without any breeze it is stifling. Along with the wind come clouds, rain and lightening but the movement and energy causes it to dissipate, and leave behind a freshness and rebirth that this country needs.

This is the time to be bold; go back to our roots of the new frontier, small government and private action. When people left the mother and father lands, it was scary, unnerving and a fear of the unknown. But it also provided a feeling of adventure, advancement, leadership, innovation – the qualities that have become known as “The American Way.”

Click on the links to view the first, second, third or fourth articles in this series.


Shami Dugal is a member of ASPA and on the SHHSA Board. He has Bachelor’s degree in Operations Research from University of Waterloo (Canada) and an MPA from Drake University (Des Moines, Iowa).He can be reached at [email protected].



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