Administrative Law Prof Blog

Privatization and the LOO

This editorial arguing in favor of Circular A-76 glibly justifies government outsourcing by comparing it to everyday hiring of contractors by individuals, as when you get bids from painters for your own home. 

Consider the example of painting your home. To accomplish the task, you consider doing it yourself or hiring a local painting business. Your final choice ends up being a trade-off that considers cost and the quality of the job needed. Competitive sourcing poses the same question: Is it more cost-effective for federal employees or the commercial marketplace to perform a task?  Included in the competitive-sourcing process is consideration of trade-offs in cost, efficiencies and effectiveness of performance and the choice on who should perform the services. Beyond the debate about the merits of the competitive-sourcing process, the primary premise behind Circular A-76 is that even if in-house employees win work that is put up for a competition, they should be held accountable to performance standards and cost controls. In terms of Circular A-76, this means administering the in-house employee work team (called the most efficient organization, or MEO) and its formal service agreement (called the letter of obligation, or LOO) as if they were a contractor with a contract.

...Except for the fact that my house painter is not being paid with taxpayer dollars, and the fact that there are no unconstitutional delegation/state-actor issues involved when a private party paints another person's house, and the fact that I don't have an elaborate civil service infrastructure already in place for my personal decorating needs, and the fact that I receive several flyers or junk-mail offers to paint my house every week, while many government contracts go out to lone bidders in unsuccessful RFP's.  Other than those little caveats, I suppose you could draw a tidy analogy between a $3000 house-painting job, usually completed within a few weeks, and a $3,000,000 government contract that will last for several years.  The best part of the analogy to government outsourcing, perhaps, is that my house happens to be brick (we're in Texas), and therefore does not need to be painted in the first place. That aspect does remind me of government contracts.   

-Dru Stevenson

In His Unbiased Opinion...

This journalistically-toned editorial appeared on the Federal Times Commentary site recently (May 29), extolling the virtues of government privatization and outsourcing.  Most of the commentaries there are from agency officials or government insiders, who have a unique perspective that makes a nice contribution to the discussion on a subject.  When the piece started to quote Wikipedia, however, I was reminded of a recent episode of The Office that mocked business-manager types for relying on that website as their Bible for virtually everything. But the quote itself was more like something from a Dilbert comic strip:

Wikipedia states: “Shared services are the convergence and streamlining of an organization’s functions to ensure that they deliver the organization the services required of them as effectively and efficiently as possible.” While concise, that’s a vast understatement, both of the concept and the benefits it holds for governments.

This surprised me a little; in my years as a legal practitioner interacting with agency officials, I can remember only one of them using management/marketing mumbo-jumbo like this (she kept talking about "collocating" the copiers and faxes in the same room; I finally realized she meant "put" the copiers and fax machines in the same room together).

Yet this commentary advocating privatization does not come from an agency insider - it comes from the President of the private, for-profit contractor (SAP) hoping to persuade more of his readers (mostly agency personnel read the Federal Times) to use outside contractors for their clerical work. 

Not mentioned is the ongoing problem with finding multiple competitors for such contracts to ensure that the government is actually saving money from outsourcing - too often, there are single-bid or dual-bid contracts that eliminate any competitive pricing.  Another problem is the one that Bakey's editorial illustrates - the decisions to privatize are not necessarily the result of advocacy by policymakers, democratically-elected officials, or anyone with the taxpayer's interests in mind; instead, the decisions can result from one-sided lobbying by the private contractors themselves.

-Dru Stevenson

More on the Myth of Market Forces & Privatization

This article describes how FEMA is trying to explain 4,000 instances of outsourcing contracts it gave without getting any competitive bids.  How does privatization harness market forces & efficiency incentives without competition for the contracts? 

-Dru Stevenson

Privatization/Outsourcing and the Immigration Issue

This article from Idaho reports on a group of illegal immigrants arrested & detained for deportation there this past Tuesday night; they were working for the federal government via a private contractor under the Forest Service.

-D.S. 

House Committee Inquiry into Privatized Tax Collection

This article describes the House Ways & Means Hearing into the IRS' pilot program to privatize tax-debt collection. 

Here is the bottom line, it seems:

"The IRS use of private companies to collect federal income taxes is an affront to the integrity of our tax system,” Committee Chairman Charles Rangel, D-N.Y., said in a statement announcing the hearing. “The collection of federal taxes is a basic governmental function that should not be assigned to profit-making businesses.”

Begun last fall, the pilot program awards contracts to private companies that let them earn commissions for recovering unpaid taxes from about 12,500 people. Two companies, the CBE Group and Pioneer Credit Recovery, now participate in the program. The contract of a third, Linebarger, Goggan Blair & Sampson, was canceled for reasons the IRS has not explained. The agency can expand the program in March to include additional companies. The IRS and the companies say the agency would not otherwise collect the debts due to inadequate staffing. But the program faces opposition from the National Treasury Employees Union, which represents many IRS employees, and from Democrats in the House and Senate who argue that IRS employees could do the work for less money and that the companies have incentives to harass debtors.

And this article has a more colorful (less pro-government) version, including a description of the controversial recording of phone calls from the private debt collectors to an individual taxpayer.

-D.S.

I Don't Get It...

This announcement from the OMB purports to increase competition for bids on agency outsourcing (privatization) by decree.  I am glad that they are starting to own up to a chronic problem - that there is too little competition for many of these contracts to realize any of the promised "market-force" benefits or efficiencies of replacing govt workers with private contractor employees.  And OMB guidelines may solve a part of the problem  - agencies failing to solicit multiple bids in the first place.  But I don't see how this makes private firms magically appear in the historically underpopulated market for government contracts. (I've argued in this article that purported savings from outsourcing are often illusory because too few companies are large enough to take on the complex, broad-ranging tasks involved in the outsourcing, and those who are have trouble covering their overhead for less than government agencies, which already have brick-and-mortar assets, vehicles, administrative support in place, etc).

I thought this quote from the Federal Times article was funny because of how low-key it is about the problem:

“Occasionally, I learn of one [task order] where they give it to one vendor, and in my mind that is not competition...”

-Dru Stevenson

Recent Posner Case...

Judge Posner wrote an interesting opinion (aren't they all?) recently in U.S. Dept. of Ed. v. National Collegiate Athletic Ass'n, 481 F.3d 936 (7th Cir. 2007).  This case should be interesting for those interested in sports law and in the issue of administrative agencies protecting confidential information obtained by subpoena.  It also discusses (and dismisses) the distinction between judicial and administrative subpoenas.

The NCAA has a type of amnesty program for members who violate the NCAA rules - voluntary disclosure by the violator school can mitigate the otherwise hefty sanctions the NCAA might impose.  The Dept. of Ed., however, took an interest in this case for prosecutorial purposes, and subpoenaed (what a funny word) the records of this recent self-disclosure.  The NCAA, arguing that nobody will be forthcoming about their own violations if the DOE gets (and exposes) the information, asked for injunctive relief - either to be excused from the subpoena, or to have the DOE required to give advance notice to the NCAA before it yields the scandalous info to anyone else. 

Posner & Co. reject the NCAA's claims (after an insightful discussion of the incentives for the parties involved in such cases).  I thought both sides had colorable arguments here, and the case would be useful in the classroom for getting students to discuss/think about what agencies should be able to do with private, embarrassing information. 

Someone recently asked me about this issue - how to get an agency to "seal" a record the way courts sometimes do.  I am not aware of any relevant statutory provision about this - PLEASE write to me or post a comment if there is some applicable statute (sort of an anti-FOIA) that I've missed.  So I speculated that the best shot was going to court to ask for injunctive relief, hoping the court would enjoin the agency from disclosing the documents in the administrative record, as in this case.  It still seems like this is the main remedy (unless the agency has its own procedure for requesting that records be sealed).  DOE v. NCAA does cite some authority indicating that this is possible in some cases, but it also makes it clear that this will be an uphill battle.  In the end, the court says it treats these requests on a case-by-case basis, weighing factors such as the potential burden/harm to the party subpoenaed, the public benefits related to the agency's investigation, etc. 

Posner acknowledges that the NCAA and another voluntary reporter are already defendants in a pending defamation suit, seeking $60 million in damages, where the NCAA turned over the information to a grand jury pursuant to another subpoena.  Ouch!  No wonder the NCAA is skittish about doing the same thing again, and is in court asking for some protection from this seemingly unlimited liability.  I thought Posner made too little of this.  If I were legal counsel for the NCAA, I would have done the same thing, given the circumstances.  In fact, it seems to serve as a cautionary tale to other trade associations an private-sector certification boards about the costs of soliciting confessions from members about violations, or promising amnesty for such self-disclosure.

-Dru Stevenson

For those interested in Posner, or the darker side of education law (often a subset of Administrative Law), the following recent case is simply hilarious/outrageous (actually, worth forwarding for the laugh value): Brandt v. Board of Educ. of City of Chicago, 480 F.3d 460 (2007).  Pity the child whose mommy is a litigator.

Anyway, I thought the case had good pedagogical potential because of its crystal-clear discussion of subjects ranging from administrative subpoenas to FOIA exceptions to equitable remedies against administrative agencies.

New Wave of Agencies' Privatization/Outsourcing Announced

For those interested in privatization of government services, outsourcing, and delegation issues, you might find this new announcement by the OMB (published in the Federal Times) of a huge surge in outsourcing that is being planned (18,000 jobs!). 

Paul Dennet,  procurement policy manager for the Office of Management and Budget (OMB), made this (over)statement:

"Placing limits on competitive sourcing is “bad government” and prevents agencies from saving dollars that could be put toward meeting missions, such as fighting diseases and fighting wars."

I don't agree. I remember reading once that Henry David Thoreau quoted Jefferson's platitude about "The best government is that which govern least," and tried to improve on it by saying, "The best government is that which governs not at all."  Here, Dennet seems to be saying, "The best government is that which hires someone else to do its job." I don't think privatization results in the competitive forces or savings that advocates claim.  Instead, it is often a political game to mask agency personnel costs.  Big government payroll is unpopular with fiscally conservative voters; bureaucrats can shift the agency costs to another place on the budget reports by having private companies employ the same people, doing the same tasks - sometimes for the same money.

                                                                                                                                                                           -Dru Stevenson