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COMMONS MAGAZINE

Its Been a Very Bad Month For the Private Sector

Mounting evidence that privatizing public services costs us more money

The private sector has had a very bad month. Its most widely publicized failure occurred when UPS and FedEx fumbled their Christmas deliveries while the U.S. Postal Service scored a touchdown.   

“An unlikely Star of the Holiday Shipping Season:  The U.S. Postal Service” is how Business Week described the clear victory of the public over the private. “The government-run competitor was swamped with parcels just like UPS and FedEx were, with holiday package volume 19 percent higher than the same period late year. But there were no widespread complaints about tardy deliveries by USPS. The postal service attributes its success to meticulous planning.”

Less publicized but even more damning has been the spate of articles regarding the epidemic of snafus and high costs of private contractors . A recent Op Ed in the New York Times by David A. Super, Professor of Law at Georgetown University offered a litany of private contractor failings, including a flawed Colorado Benefits Management System that took four years to fix.  When first implemented it reportedly refused food stamps to anyone who did not have a driver’s license from Guam! In mid October a contractor’s glitch made food stamps inaccessible to recipients in 17 states.

Then there was what the Times deemed a “disastrous rollout” of a privately created and managed system to oversee unemployment benefits in Florida by Deloitte Consulting.  In December Florida penalized the contractor $6 million and begin fining it $15,000 a day until the problems are fixed. Privately managed systems from Massachusetts to California have experienced dramatic delays and enormous cost overruns.

In mid December an Mark Dayton, Governor of Minnesota fired off a 5 page letter to the CEO of IBM listing 21 specific defects in IBM’s software for managing the state’s health exchange site MNsure and demanded the company “immediately deploy whatever people or resources are needed to correct the defects in your product that are preventing Minnesotans from obtaining health insurance through MNsure.”  Dayton noted that when IBM had responded to the state’s request for bids it had promised the software was “90 percent complete and ready out-of-the-box.”  “We now know that the product is still not 90 percent complete in December of 2013”, Dayton wrote, “and that your product has significant defects, which have seriously harmed Minnesota consumers.”

IBM is a subcontractor on the $46 million Minnesota contract.  The primary contractor, Maximus, has its own record of shoddy service.   In 2012 Illinois awarded Maximus a $77 million contract to review Medicaid eligibility. A 2013 investigation concluded that its recommendation to change benefit levels were found in error 50 percent of the time.

In December Illinois terminated the $77 million contract after an arbitrator found it guilty of violating a collective bargaining agreement.  One analysis found that allowing state employees to do the job would save the state more than $18 million annually while replacing unqualified call center hires with trained caseworkers.  

Washington now spends about $500 billion on private contractors, more than double what it spent in 2000 even though the evidence is overwhelming that hiring contractors is more costly and less accountable than keeping the work in-house. 

A thorough investigation by the Project on Government Oversight (POGO) found that Washington pays private contractors almost twice as much as federal employees.  In 33 of 35 occupational classifications, federal employees were less expensive.

Last year, contractors were allowed to charge the government as much as $693,000 per worker.  Last March Senator Claire McCaskill, D-Missouri told a Senate hearing that federal contractors charged overhead of 50 percent or more, even when federal space was provided free.

The inability of the private to compete with the public seems to matter little to politicians of both parties who’ve drunk the private-sector-is-always-better Kool-Aid.  We might recall it was Bill Clinton who first aggressively pursued the privatization of the federal workforce.  It allowed him to brag about the reduction of federal employees during his tenure while conveniently ignoring the commensurate rise in the number of private employees, meticulously documented by Paul Light, Professor of Public Service at NYU in his book The True Size of Government and the multi hundred billion dollar cost to taxpayers.

For the rest of us it may be time to take a page from the Ronald Reagan playbook and adapt one of his most famous lines to the new reality.  “The 10 [now 11] most terrifying words in the English language are, “I’m from the private sector and I’m here to help you.”

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