Franchising With a Twist

f you were a historian, you'd know that the famous French tapestry center, Arras, was once called Franchise. Admittedly, that was some 500 years ago--dated information by even government standards. But what a product and a territory that would be. Having the franchise to sell Arras tapestries throughout the world, you could be le grand fromage, the big cheese of that erstwhile enterprise to Europe's once great royalty.

That prospect may be slim today, but you don't have to look much further than the federal government for other types of sales opportunities. It seems a bit strange to major in marketing and then set your sights on a government career. However, in this era of entrepreneurial government, you never know what you're going to find.

What is a franchise? Simply put, it's one part of an agency selling its services to another or to multiple agencies. While the label may be new, the practice is neither new nor revolutionary. Government agencies have been providing administrative support to other agencies for years under interservice support agreements or cross-servicing arrangements. Why duplicate a function if another agency has the staff and the capability to meet your needs? In this vein, the Agriculture Department's National Finance Center in New Orleans provides payroll services to much of the federal government.

Even within agencies, business-like models allow one part of an agency to reimburse another for operations such as repairing Navy aircraft and ships. The approach is meant to tie resources directly to workload and to provide a better picture of costs of performing the work.

If these types of operations are so commonplace, what's new? The 1994 Government Management Reform Act (GMRA) offers the potential for transforming this once common-sense way to economize into a template for aggressively remaking government.

The law gave six agencies the license to hunt--to sell their services across the government. Most are even allowed to make money, up to 4 percent of revenues, to cover capital, modernization and management needs. The agencies--Commerce, Health and Human Services, Interior, Treasury, Veterans Affairs and the Environmental Protection Agency--are authorized to operate their pilot project activities through fiscal 2001. They market administrative support services in such areas as information technology, financial management and occupational health. The Chief Financial Officers Council's entrepreneurial government committee oversees these efforts. The franchises' competitors are public sector entities providing similar services if the function is inherently governmental, government activities or private-sector firms for commercial work.

Franchising clearly fits in with today's notion of government as results-focused and efficient. Moreover, the driving element of the franchise concept is the same as that energizing the private sector: competition. In this case it's competition to provide the best value to the government. However, franchising appears to run directly counter to another long-standing philosophy of government that is central to recent legislative proposals, such as the 1997 Freedom From Government Competition Act. That view is that the government should not be in the business of competing with the private sector to provide commercial-type services.

Bert Concklin, president of the Professional Services Council, says government entrepreneurship "is distracting government from its main mission." He sees no value to the agency, for example, in teaching government employees how to market their services.

But the issue, many say, isn't who does the work, but who does it most efficiently and effectively. "Federal government employees should be allowed to compete for their jobs," says Sally Thompson, the Agriculture Department's chief financial officer and head of the CFO Council's entrepreneurial government committee.

Ernest Hardaway, vice president for national marketing and reinvention of government at HHS' Office of Federal Occupational Health, agrees. He says franchising offers "opportunities for the government to reduce duplication and the cost of government services to agencies and, at the same time, improve quality and reduce costs to taxpayers." In fact, he says, government employees should win these public-private competitions given their detailed knowledge of what needs to be done. "Gray matter is not limited to the private sector," he says.

Hardaway's concern is making the playing field fair and allowing franchises to live or die on their ability to compete for the work. The same problem has plagued outsourcing projects throughout the years. How do you come up with an accounting system that lets the private sector truly compete?

Franchising is by no means a "government vs. private sector" contest, however. Hardaway's operation turned almost 90 percent of its $81 million in revenues in fiscal 1997 over to private firms. Governmentwide, nearly 80 percent of the revenues generated by franchises go to private companies who support their activities. In this way, franchising is doing what years of outsourcing proposals have failed to accomplish--making much greater use of the private sector to provide government administrative services.

Allan V. Burman, a former Office of Federal Procurement Policy administrator, is president of Jefferson Solutions in Washington.