Time to break out the brass knuckles on public executives

A rash of preventable deaths has put the Department of Veteran Affairs under intense scrutiny. The tragedy highlights the need to do better by veterans by revamping outdated federal personnel policies.

The VA has an annual budget of about $154 billion and more than 340,000 employees, including roughly 360 senior executives. It serves some 8.3 million veterans enrolled in the largest integrated health care system in North America, with 1,700 hospitals, nearly 1,400 community-based outpatient clinics, community living centers, nursing homes, and other facilities. In recent years, the VA has seen its customer base grow at an unprecedented pace, with a new wave of injured and disabled veterans returning from wars in Iraq and Afghanistan.

The VA is engulfed by a growing controversy over allegations that perhaps more than 40 veterans allegedly died while awaiting medical care in a Phoenix, AZ facility arid that government employees falsified data and created secret waiting lists to hide the long delays. Equally serious is the charge that the VA was aware of the delays but did little to address the problem.

Government agency heads operate under handicaps largely unknown in the private sector. For example, onerous rules governing procurement, budgeting and personnel that were originally adopted to prevent public sector wrongdoing have created workplaces that are often inflexible.

Recent scandals have further undermined Americans’ confidence in government. When these institutions fail, the breach of trust is devastating, especially when government staggers from one disaster and mistake to another.

When Hurricane Katrina struck New Orleans in 2005, it overwhelmed the levees protecting the city and left nearly 1,000 people dead.. Eighty percent of the city flooded, whole neighborhoods were devastated, producing a repair bill at least 1,000 times larger than it would have cost to provide the kind of levees that would have prevented such a disaster.

The 911 Commission found that a year before the terrorist attacks, poor communications, poor coordination, and competition between multiple agencies contributed to the government’s inability to anticipate and respond to attacks.

More recently, Americans witnessed the botched rollout of healthcare.gov and the Benghazi attack in which four Americans died in an assault on the American consulate, which took place on the anniversary of 9/11 despite prior warnings.

Then there was the IRS targeting of conservative organizations. These are stark examples of the price of government’s failure to perform as it should and then not being held accountable for its failures. Antiquated civil service rules mean there is little threat of anyone being fired. Many public servants perform heroically, but these ghastly events dramatize the need for better performance from government agencies that deal with life-and-death situations.

It’s no secret that many public-sector employees feel a sense of entitlement when it comes to their jobs. Why shouldn’t they? They have virtually guaranteed lifetime employment followed by generous pension benefits from agencies that almost never go out of existence.

There is little incentive to focus on the taxpayer as a customer and mediocrity becomes institutionalized, creating a culture of complacency. Transforming a civil service mind-set to focus on the customer is profoundly difficult.

Now the uproar over VA treatment delays is triggering heated debate in Congress about whether it is too difficult to fire senior federal executives. Current law allows those who report directly to presidential appointees to be disciplined and fired, but the process can drag on for years.

The House of Representatives has passed legislation giving the secretary of the Department of Veterans Affairs authority to remove senior executives whose performance warrants firing. Given the recent history of government mismanagement, it is time to break out the brass knuckles.

The average American does not have guaranteed lifetime employment and has witnessed massive private-sector layoffs, pay cuts and benefit reductions.

Meanwhile, all the usual suspects made the obligatory Memorial Day visits to Arlington National Cemetery. They expressed outrage at the treatment of veterans and pontificated about honoring the families of those who made the ultimate sacrifice to protect our freedoms.

originally published: May 30, 2014

Privatization is as American as guns

It’s surprising that privatization makes some people feel uneasy. It just makes me feel long in the tooth, since privatization is as American as handguns.

Privatization is an arrangement under which private firms become involved in the financing, designing, building, owning or operating of public facilities or services. Another name for such arrangements is public-private partnerships. The underlying concept is that the public and private sectors both benefit by cooperating to provide services.

Public-private partnerships are more common than most people realize. For example, governments have always used private firms to prepare the engineering and architectural designs for public buildings. Essential public services such as electricity, gas, and telephone communications have traditionally been provided by private firms functioning as regulated monopolies.

More recently, private firms operate prisons, sanitation services, toll roads and other functions normally associated with public agencies.

If public officials had to list 10 reasons for their rising interest in public-private partnerships, the first nine would be saving money. This is driven by tight fiscal conditions and taxpayer demand for more services than governments have the resources to provide.

Since private firms must pay taxes and earn profits- two costs that public agencies don’t have- it is reasonable to wonder how profit-generating firms can deliver services at lower costs than public agencies can.

The usual answer involves vague references to “private sector efficiency.” But such vapid cliches undermine privatization’s credibility. An important factor that enables private firms to deliver services less expensively is that few of them are subject to the regulations that hamstring public agencies. As a result, their procurement procedures are simpler, faster and more strategic.

Private firms are always on the lookout for new technologies and other tools that promise to make  service delivery more effective. They understand we did not get out of the Stone Age because we ran out of stones. Most public agencies are risk averse. so the only practical way for government enterprises to get things done in new and better ways is to let private firms assume the risk of failure.

Public agency managers rarely have the option of choosing a supplier based on timely delivery, quality, and lower life cycle costs. They’re usually restricted to a small group of suppliers who have mastered  the intricacies of government contracts, are willing to dot every “i”, cross every “t” (often several times) and wait months to be paid.

Avoiding “waste, fraud and abuse” guide public agency procurement. The standard assumption seems to be that the public would rather waste countless extra dollars to avoid any possibility of losing a single dollar to fraud or abuse. And few public agency managers can be expected to lay his or her career on the line to exploit more efficient trade-offs.

The bottom-line focus of most private firms forces them to live in the real world, where practical results, not procedures, are what count, That’s why private managers can exploit the benefits of just-in-time inventory management, economies of scale in purchase orders, and meaningful supplier performance measures to make their operations more efficient.    ยท

Greater efficiency also means being able to aggressively exploit new technology to improve customer service, streamline production, and reduce costs. But there’s always some risk in being among the first to embrace new technology.

Private managers are paid to accept and manage risk; public sector managers are paid to avoid risk. This, coupled with elaborate procurement rules, is why public agencies usually end up with trailing  technology. They prefer not to “risk the public’s money” until a better technology has been so totally proven that it’s often obsolete.

Persuading government officials to outsource the risk of developing, financing, operating, and maintaining new innovative technology is a full time job, one with plenty of opportunity for overtime.

originally published: March 29, 2014

The charms of group purchasing

One thing almost all industries share today is pressure to cut costs in an economic environment where demand is stagnant. Many companies have responded by substituting capital for labor and outsourcing jobs offshore. But collaborative purchasing has also emerged as an effective cost-saving strategy, and not only for the private sector.

Over the past two decades, procurement and supply chain management have risen to the top of the management agenda for private-sector managers seeking to rationalize their cost structures. Among the advantages the private sector has over government are much more flexible procurement regulations. Aggregating purchases is relatively simple in the private sector and presents such an obvious savings that few operating managers resent its imposition.

By contrast, government procurement regulations reflect the American cultural bias that it is better to spend $100 on gold-plated oversight procedures than to risk letting a single dollar slip away to a supplier who may not truly deserve it. This commitment to a squeaky-clean procurement environment tends to relegate public agencies to the end of the line when it comes to implementing new tools and technology.

The inevitable result is that operating costs are higher and service is poorer than it could be. Also, government procurement is often a powerful tool for advancing political interests like supporting the local economy, often at the cost of capturing major savings.

Experienced managers know that flexibility is necessary in negotiating and administering contracts with suppliers if the results are to pay meaningful dividends. This can often mean a heavy emphasis on interpersonal relationships and the use of negotiated contracts rather than arms-length competitive bidding.

Traditional critics of the public sector like to call this “honest graft,” which just plain smells bad to much of the American public regardless of its real-world benefits. They fail to realize that what really counts are results, not civics class myths about what constitutes “good government.”

Sure, chicanery has a long tradition in the rough-and-tumble world of American capitalism and appears to be unavoidable. After all, you don’t survive long in business by acting like a Sunday school teacher.

No area of government is more interested in reducing costs than the transportation sector, where demand for new assets is high, federal funding has stagnated and revenue from sources like the fuel tax has been eaten by inflation. As a result, states’ Departments of Transportation (DOTs) have had to scale back on capital replacement and focus a larger portion of their funding on preserving existing assets.

Many state DOTs need to be grabbed by the lapels and given a good shake by a new generation of leaders who understand that working in an era of constrained resources requires them to create customer value without relying on the federal government.

Fortunately, a number of DOTs realize that joining their counterparts to do collaborative procurement represents an opportunity to reduce costs without jeopardizing service delivery. Under collaborative procurement, several entities combine their purchasing efforts to secure a selected group of products and services with commonly accepted specifications. The goal is to leverage the aggregated purchasing  power to save money and obtain favorable terms and conditions from suppliers. The initial focus is on demonstrating success in a few discrete spending categories that illustrate the practice’s larger potential.

Collaborative procurement certainly faces potential impediments, such as antiquated state laws and regulations. The time has come to rethink existing rules that constrain a tool that can result in better quality at a lower cost. If allowed to be judged on its merits, collaborative procurement will become the new status quo in the public sector.

originally published: August 24, 2013