Think it Through Before You Start

rivatizing can be profitable when effectively implemented. Some positive results include cost savings, reductions in fixed assets, and management focus on core work, acquiring expertise and technology transfer, just to name a few.

On the other hand, privatizing can increase costs and can be harmful if the up-front work and later details required to make and implement a sound privatizing decision are not thought out. In an effort to achieve immediate goals, organizations sometimes neglect to conduct long-term cost-benefit analyses of contracting-out initiatives, which can result in unexpected overhead and procedural nightmares.

The Technical Development Administration's decision was based on a desire to achieve sizeable savings and to relieve downsized staff, allowing them to focus on core functions of the agency's mission. While TDA contracted out the property disposal functions for the right reasons and Maxwell Development Center responded with an unassailable request for proposal, Maxwell may have exaggerated the savings projections to win the assignment. Also, Maxwell's RFP lacked adequate incentives for potential bidders and long-term value to TDA.

Once the initiative was turned over to Maxwell, TDA offered limited support and made little effort to ensure accountability. The lack of involvement resulted in significant future cost concerns for the agency, possible encroachment on a federal function by Maxwell in the way the auctions were being conducted, and inspector general inquiries into complaints about irregular practices.

While the agency's privatizing initiative is flawed, it holds valuable lessons for the public manager. The initiative can be rescued. TDA officials, including procurement staffers, the general counsel and the IG, should meet with Maxwell to review and, if necessary, amend the contract. Next, TDA and Maxwell should develop a comprehensive strategy to accomplish the desired results.

Future TDA decisions on privatizing should incorporate the following recommendations:

Determine if privatizing is appropriate.A gray area remains regarding agency and contractor roles in deciding whether to privatize, but organizations must make the final decisions on a case-by-case basis. Office of Federal Procurement Policy Letter 92-1 states that government functions fall into two categories: the act of governing (i.e., the discretionary exercise of government) and the monetary transactions and entitlements. The gist of the document is that government officials, not contractors, should make the value judgments and use discretion in carrying out governmental activities.

Clarify objectives. Ensure that the decision to privatize is firmly rooted in cost savings. Spend time up front planning and conducting the long-term cost analysis. This stage requires active dialogue between the customer and contractor about expectations and needs. Then specific metrics to measure success can be developed.

Communicate. No one likes unpleasant surprises after a contract has been signed. Organizations need to be forthcoming about problems with the function being privatized. And contractors need to clearly and honestly explain the possible risks and investments involved in contracting out the function. Frequent dialogue allows the customer and contractor to better measure, manage and improve the initiative.

Spell out contractual arrangements. Many organizations fail to understand that they need to provide ongoing support when they contract out. A typical privatizing deal may last five to 10 years, and the contract is an important hedge against misunderstandings and disappointments. A clear agreement on the customer's involvement protects the agency from carrying the costs of a failed project down the road. And both parties must reach an understanding on how to cancel the agreement, should problems arise.

Involve employees.Agencies have paid insufficient attention to the effects privatizing can have on employee morale. Communicate with your employees, request their comments and ideas. They will be more willing to provide honest feedback, learn new skills and help make the initiative a success.

A privatizing initiative can be a wonderful opportunity or it can be a burden. The verdict is still out on whether the privatizing trend will continue to grow or decline. But one thing is for sure: Privatizing is in vogue today and is widely used as a reinvention tool to downsize organizations. The hope is that privatizing decisions can be grounded in sound business analysis.

Alotta Taylor has 25 years of government experience with NASA and is chief of the external liaison office at the Office of Space Flight in Washington. She is a graduate of the Federal Executive Institute in Charlottesville, Va.