Report: privatization on a roll

From the Defense Department to the Federal Aviation Administration, federal agencies are turning to privatization not just to save money, but to improve the management of government operations, a new report says.

But in its 13th annual report on privatization, the Los Angeles-based Reason Public Policy Institute said despite steady outsourcing, privatization at the federal level lags behind state and local government efforts.

"Privatization at the federal level experienced few major breakthroughs in 1998," the report said.

In the report, which encourages government agencies to outsource functions available in the private sector, the institute highlighted privatization efforts at the National Security Agency, the U.S. Enrichment Corporation and the Federal Aviation Administration.

The National Security Agency is contracting out its computer systems operations to Computer Sciences Corporation through its "Breakthrough Program." NSA workers who agree to become Computer Sciences employees will be guaranteed 100 percent of their current salary and benefits and will receive a $25,000 signing bonus, an extra five days of vacation and ten days of sick leave.

"A number of other agencies will be following the progress of the NSA Breakthrough Program and may follow suit if the program proves successful," the report said.

Meanwhile, the government is in the process of fully privatizing the U.S. Enrichment Corporation. Last year, federal officials decided against a bid from Lockheed Martin, instead relying on a $1.4 billion public offering. The Lockheed Martin bid would have garnered the government more money, but the long-term operations of the corporation were deemed to be better served by a public offering.

The report also noted that the Federal Aviation Administration has proposed outsourcing its trans-Pacific air traffic control operations. And two airports, New York's Stewart Airport and San Diego's Brown Field, applied to the FAA for an airport privatization pilot program.

Information technology is one of the most active areas in privatization, the report said. For example, the state of Connecticut is outsourcing all its IT services to a private consortium led by EDS in a seven-year contract worth up to $1 billion.

Agencies should review other privatization efforts to avoid common pitfalls, the report said. Privatizers face three major challenges frequently:

• Political opposition. The Energy Department, for example, has been trying for years to privatize its power marketing administrations with little success, the report noted.
• Poor contract administration. The state of Hawaii failed to make sure its library book purchasing contractor shared the same goal as the state. The state wanted the contractor to give the public "a high-quality, diverse array of materials," but the contractor thought its primary goal was "to meet the popular reading habits of the public."
• Misleading performance measures. An audit of the Prince William County, Va., police department found that the department's rate for clearing cases was much lower than other departments' rates around the country. But it turned out that the county only considered a case cleared when an individual had been convicted, while other departments counted a case as cleared even before conviction, if they were confident they nabbed the right perpetrator.