Because of increasingly tighter budgets, the marriage of public and private sector outsourcing initiatives has been receiving greater attention in state houses throughout the US. But like any growth industry, detractors can point to an equal number of failures, while proponents cite many reasons why some state outsourcing initiatives have been fruitful.
It’s an interesting debate as the formula for successful state government outsourcing migrates from the oblique to tangible programs that will have a greater chance of success.
Republican Texas State Senator Florence Shapiro is in her 12th year representing a constituency of largely middle class voters in Collin and northern Dallas Counties. A former teacher and current business owner, she serves as President Pro-Tempore of the Texas State Senate, serves on the Senate Finance, Administration, Transportation & Homeland Security Committees, and chairs the Senate Education Committee.
As a business owner, she has practical experience with outsourcing in the private sector, some of it good, some of it less-than. This places her in a unique position to speak on the evolution of government outsourcing on the state level, where it is today, and its prospects for the future.
“I haven’t seen very many resounding successes in government outsourcing on the state level yet,” she confesses, “although I am aware of some. But I have enough of an appreciation of outsourcing’s benefits to know that it can work in a government environment if it’s applied judiciously and managed carefully.
“Smaller government is better government. So it’s easy to review outsourcing’s possibilities and make certain that it works as intended if the State of Texas utilizes it further.”
Several of the state’s agencies are outsourcing: most prominently in areas involving human resources, healthcare, and the construction of state roads and bridges.
Like the Private Sector, Successful Outsourcing is a Nexus of Service and Price
The State of Texas hasn’t done a lot of outsourcing in education, yet. But as chair of that Senate committee, Shapiro is aware the time for that may be fast approaching: possibly as early as the end of the current legislative session.
She says a school finance bill (the largest in Texas history) is working its way through the legislature. It could include provisions for outsourcing in some cases. “Personally, I feel when you have a low-performing school for two or more years, the students are trapped in an environment of low performance and less-capable administration,” she observes. “We have to find a way to relieve that problem. Outsourcing might be an opportunity.”
A perfect example can be found in the Wilmer-Hutchins Independent School District in southern Dallas County. The past year, allegations of superintendent corruption, mismanagement by administrative staff, and systemic cheating on standardized tests have forced the Texas Education Agency (TEA) to take over management of the district. Citizens have filed several civil and criminal lawsuits.
“It’s a mess, and it’s sad for the children,” notes Shapiro. “What we’re proposing in current legislation could have a direct impact on such a situation.
“We could bring in an external management team for the first year to return underperforming districts to a more even keel,” she says. “The second year, the TEA could outsource the needed services in weak areas we’ve identified.”
While the monetary savings are certainly important, Shapiro says the district is “always thinking of the students first.” She believes outsourcing will allow the state “to give our students the best education we can give them.”
The legislator says the sad events at Wilmer-Hutchins are “why we need innovative tools to turn around underperforming school systems. I am 100 percent interested in seeing how outsourcing might help that district.” She says Wilmer-Hutchins is a perfect opportunity for education outsourcers “to earn their spurs with me.”
Private Sector Experience Leads To Valuable Outsourcing Lessons
As a business owner, Shapiro has enough experience with outsourcing to know a good relationship from a bad one. And as an interested observer of state outsourcing, she’s applying those lessons from the private sector to her views of what will and won’t work in the public. She has two primary thoughts.
“State outsourcing must be a service that can be rendered fairly and in a cost-effective, efficient manner,” she begins. But like all outsourcing deals, Shapiro knows the devil’s in the details.
“We can never overlook the need to have as much oversight over these contracts as reasonable,” she adds. “Failing to do that is very poor public policy, and we’ve seen how the lack of oversight in state outsourcing contracts, both in Texas and other states, has led to cost overruns, poor administration, or failure to fulfill service levels.
“State government outsourcing is in its infancy stage,” she continues. “The rules that lead to successful outsourcing where the supplier gets a fair deal and the state gets the services it needs at a fair price are still being written. As an elected official, it’s my responsibility to parse every outsourcing initiative within my purview. I answer to the taxpayers to monitor the dollars and programs and make sure we are getting our money’s worth.”
So where does Shapiro look for good (and not so good) examples of state outsourcing?
“Florida’s child welfare system is a success in some areas and less than one in others,” notes the state senator. “Adoptions are up, and the process that produces them has been dramatically streamlined. On the other hand, that state’s outsourced foster care management program appears, from my distant view, to be lacking.”
Both programs were legislated in 1998. It’spossible the state may not have accurately projected the anticipated case load, since the number of child abuse and neglect cases rose 43 percent from 1998 to 2002. This resulted in dramatic cost overruns likely due to a combination of inaccurate projections, legislative redefinition of what constitutes abuse and neglect, and the outsourcer doing a better-than-anticipated job in identifying these cases.
“But this situation has drawn the attention of Texas Child Protective Services (CPS),” observes Shapiro. CPS is embroiled in its own controversy of questionable practices in light of several well-publicized mistakes and controversies. “The state is seriously investigating the idea of outsourcing some CPS services. But this has to be done very carefully because of the poor track record in Florida.”
She adds the debate within CPS is very emotional. “There is a lot of angst,” she says.
She also points to an outsourcing program in Texas that hasn’t worked as envisioned: the Children’s Health Initiative in rural areas. “We’re very upset with the administrative cost overruns.” The state cancelled the contract.
Applying Lessons Learned
So, what does Shapiro suggest that would better guarantee outsourcing success in Texas?
“There are some things you just can’t legislate. Outsourcing requires creativity between the two partners. If we begin classifying and legislating what can and cannot be done, it probably means there has been too much failure. I would rather the private sector do its work well than pass a law telling them how to do their job. It’s too much government,” she says.
Then the obvious question is how do states develop good outsourcing relationships without becoming slaves to the process? The senator has a ready answer.
“You have to have state management employees who know what they’re doing. Governance is important. Failure can lead to success if we learn from it. I certainly hope we don’t get to a point where direct legislation that governs outsourcing relationships becomes a necessity because everyone–the private sector, government employees, and the voters–have lost.
“The free-enterprise system does a lot of great things,” she continues. “If we can incorporate some of those basic benefits into how we run state governments, I think that’s a good thing. But we can’t give businesses license to gorge themselves at the public trough and not provide the level of service the voters and the people who use these services that are outsourced deserve.
“Elected officials and state managers just need to do a better job of evaluating and determining what will and won’t work,” says the Senator. “Due diligence before the contract is signed should give us the necessary information if we pay attention to what we find about a supplier: whether or not this is a company we can trust to do its job for the negotiated price.”
Rewarding Suppliers for Successes
Shapiro believes one way to assure quality relationships is to reward those who produce greater success than the contract calls for. She quickly points to one obvious outsourcing success near her district.
“The Texas Highway Department has outsourced road construction since the state began building concrete roads. Over that long history, there have been many instances of success and failure. Those lessons inspired a different kind of relationship not long ago.”
A major interstate highway interchange project currently nearing completion in densely populated North Dallas has two characteristics that move it from a contractor relationship into outsourcing. The first is a proviso that rewards the construction partner for finishing this five-plus year project ahead of schedule and under budget. It also penalizes the contractor for coming in late and/or over budget. The second is the evaluation and management formula which features shared responsibility for both tasks.
Previously the state handled those responsibilities; this project is more of a partnership. It is not the first such relationship in Texas. A similar cooperative construction outsourcing relationship revitalized large stretches of freeway in El Paso
“Guess what?” notes Shapiro. “Construction began in 2001 and as of today, it’s running several months ahead of schedule. It should be finished around the end of this year. Projected completion was late summer of ’06 I believe. I don’t know offhand if they’re running under budget, but I believe they’re at least keeping to it. This is a perfect example of how government outsourcing, if negotiated properly and managed effectively by state employees and the construction partner, can benefit the community.
“I’m sure our highway department would be happy to share what they’ve learned generally about outsourcing to anyone else in the state who asks. And granted, there’s a big difference in services offered to CPS than to a contractor who is building a state highway. But there are general rules about cost versus performance and defining outsourcing success that are universal.”
Making Outsourcing Work in State Government
Government is always slow to absorb change. Nothing moves quickly, and that’s why Shapiro thinks the outsourcing suppliers need to do their best to make things work in order to avoid pernicious failure. Shapiro says failure will likely lead to legislation which may limit suppliers’ interest.
“We always want to know that money is being spent wisely,” Shapiro concludes. “When we give work to the private sector, we elected officials and state managers have a greater responsibility to make sure it’s being handled correctly. The trick, since we do things slowly in government, is to find the right services for the right prices with the objective of developing public/private partnerships that will last over the long haul.”