Perils of Privatizing

eremy Slater wondered whether his team would ever be willing to try a bold reinvention initiative again. He and his colleagues seemed to have gone about their experiment for the right reasons and in the right way--at least at first. But Slater, the Technical Development Administration's logistics chief, had to admit that he had begun to get bad vibes many months before. What was it about the project that made the team members keep wishing problems away until disastrous bottom-line data and inspector general inquiries had jerked them back to reality?

His spirit stirred by the evangelical National Partnership for Reinventing Government, and his mind focused on a tightened budget, Slater had challenged the annual conclave of senior logistics managers to identify a process or program likely to yield sizeable savings through reengineering or privatization. A rapid consensus had developed around contracting out property disposal, which contributed nothing to basic agency missions. The function had become labor intensive over the years as a thicket of federal regulations grew up in reaction to several well-publicized sweetheart deals. Moreover, the invariably meager financial returns from disposal passed right through the agency to the Treasury.

Slater and his colleagues had been further encouraged by the agency's recent success with the contracting out of travel services. That contract contained high service standards and a provision for rebates to the government for failing to meet those standards. So far, everyone seemed satisfied. With that in mind, two field installations had promptly volunteered to draft a request for proposals (RFP) covering property disposal.

Both efforts failed because of the workload pressure on downsized staffs. So Slater turned to the Maxwell Development Center, home to TDA's largest and most seasoned logistics group, to take a crack at it. Maxwell came up with an unassailable RFP incorporating all relevant Federal Property Management Regulations, while exposing the agency to no financial risk with fixed prices or up-front payments. Slater's team had briefed the agency IG and encountered no objection. But the RFP had drawn no bids.

"That's when I should have reconsidered the whole concept," the logistics chief said to his field supervisor, Karen Simmons. "But we figured you can't get something for nothing and we'd have to break the old cautious, tight-fisted mold and risk a little money."

The Maxwell staff redrafted the RFP. At the cost of a reasonable fixed price for services and modest, but declining, up-front money, three valid bids had been elicited. The best had come from a long-established auction company with a successful track record at a larger federal agency. Slater had heard that lower-level Maxwell specialists had ridiculed the projected savings, saying it counted too much on removing government employees from the process. But when he had asked any critics to speak up, no one spoke.

The contract had been awarded and the first two auctions had raked in an unprecedented half-million dollars--apparently vindicating the initiative. Shortly thereafter, however, a Maxwell property disposal specialist returned from a General Services Administration training course with concerns about conflicts between federal property management regulations and the way the auctions were being conducted. He told Simmons on her next visit to the installation that the contractors were fully authorizing and executing sales, apparently encroaching on a federal function. The Maxwell employee confided that he and others at the facility believed logistics managers had exaggerated savings projections in order to be assigned the initiative.

Simmons had barely returned to Washington and reported to Slater when the results of the third auction came in. No longer drawing on a backlog of big-ticket equipment, it had been a complete dud. And to complete the debacle, Slater received an inquiry from the IG based on a losing bidder's complaints about irregular practices. One complaint was accurate: The auctioneer, in line with commercial practice, had at times mixed open and closed bidding, while regulations required consistent treatment of all bids.

"How big a deal is it to let contract employees conduct the sales, Karen? It doesn't seem to get at the integrity of the process in any way, does it?" Slater asked.

"Not in my opinion," Simmons said. "Forwarding it to a government person adds a step and cuts into the savings from farming it out. We could probably have had it waived by GSA; our case would certainly have been better if we had asked in advance. I guess we should have prodded those Maxwell people some more when they raised that point."

"That leaves us with the inconsistency on open and sealed bids," Slater worried. "It could be just misunderstanding or carelessness, but it will definitely draw fire from the people who don't like privatization initiatives."

Slater wondered how much of his little team's resources and his own political capital he could expend rescuing the privatization initiative. With diminishing returns from auction sales, was it worth fighting for? Would a waiver stimulate further initiatives or innovative thinking? How good had his staff's work been on this project, and how could he avoid future problems of this kind?

David Hornestay, a Washington-area consultant, served in government for more than 30 years, primarily in human resources and institutional management.