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This Week’s Outsourcing Scan 11-04-13

Update: Upcoming Outsourcing Issues. November 4, 2013

1) National: Governing magazine takes a close look at the pros and cons of infrastructure “public private partnerships.” While noting that P3s “are clearly on a roll,”Governing points out that little “is said about the downside. (…) There’s a growing cadre of academics, activists, and state and federal auditors who question these public-private deals, but their voices aren’t always heard.” Governing points to a “long list of P3s that turned out to be very bad for governments,” and says “there are big questions to ask before entering into a P3.”

2) National: Republican Sen. Tom Coburn suggests it may be time to rethink the privatization of USIS, the company responsible for national security vetting of millions of people given access to U.S. secrets. “The Senate hearing came a day after the Justice Department asked a federal court to unseal a 2011 lawsuit against US Investigations Services LLC, which shed new light on allegations that the contractor systematically sent the government improperly reviewed background checks in an effort to increase its revenue.” The Justice Department says the allegations “are problematic because they suggest taxpayers were charged for services they did not receive.” [Sub required; Senate hearings]

3) National: Rebekah Wilce of the Center for Media and Democracy investigates Waste Management. “Over the past three decades, an increasing number of Americans have had their household waste collected by private companies like WM, even though waste management services have traditionally been provided by municipalities and public workers, as water and children’s education have been. In the 1980s, these services began to be ‘outsourced’ to for-profit firms, which now provide at least 50 percent of solid waste management services in the United States. WM was founded in 1987 and has been a driving force in the trend toward privatization.”

4) National: Bloomberg Businessweek reports on “why private contractors are lousy at public services.” Warns of the pitfalls of hybrid solutions. “The choice can be ugly: Bureaucrats with limited incentive to deliver and sclerotic ability to reform on the one side; weak regulation of private companies that know more about winning a contract than delivering services on the other.”

5) National: PricewaterhouseCoopers signs merger agreement with Booz & Co. While Booz & Co. split off from the major government contracting firm Booz Allen Hamilton in 2008 (when BAH’s government consulting unit was bought by the Carlyle Group), it retains a significant presence in the government advisory business. E.g., Booz & Co.’s analysis of a proposed deal to fully privatize the Long Island Power Authority earlier this year reportedly led to Gov. Cuomo’s decision to drop the idea. Newsday reportedin August that “in its 21-page report, NYPA said another consulting firm, Booz & Company, found that Lazard had overestimated the projected savings from privatization and failed to account for hundreds of millions of dollars in costs required to achieve those savings.” PwC has a significant public sector consulting business. In August, the research firm IDC looked at the state and local government consulting business and found PwC to be a leader (p. 4), but also reported that “surprisingly, this evaluation discovered that buyers are generally disappointed with the consulting provider’s ability to deliver return on investment (ROI) for the project and maximize the project’s value. While all vendors state a focus on maximizing the value of their projects, buyers believe this area is one of the weakest performance areas for consultants overall.” (p. 1) [Former chair of the SEC Arthur Levitt discusses conflicts of interest between consulting and accounting businesses (audio)]

6) National: Government Technology looks at innovative approaches to procure technology and award government contracts, but does not discuss contract oversight and costing issues. “The traditional government RFP process—with its long timelines, complex rules and tight guidelines around liability—tends to scare off some of the IT industry’s most innovative companies, said Dugan Petty, former Oregon CIO and procurement director.”

7) National: As the debate about transportation funding continues, Sen. Boxer (D-CA)proposes replacing the gas tax “with levies that are collected when gas stations purchase their supplies.”

8) National: PricewaterhouseCoopers to push for more privatized Medicaid. “The Medicaid health insurance market is localized so it is ripe for consolidation,” according to PwC director of payer strategy Ari Gottlieb. PwC plans to publish a paper on the issue soon. [Sub required]

9) National: The GMR Group, an Indian company, looks to invest in privatized airports in the U.S. Last week, the International Air Transport Association issued a report saying that the privatization of Indian airports has driven up costs, hurting airlines and passengers. Among the companies reportedly interested in bidding on six Indian airports is GMR Infrastructure Ltd.

10) National: Writing in the Harvard Crimson, James F. Kelleher, Jr., reminds readers that the dangers of prison privatization were predicted. “In 1985, before any private prisons had been constructed, Crimson writer John Ross ‘87 forewarned of the dangers of privatization and of giving ‘the business community a financial stake in increasing the number of prisoners.’ He was right. We should halt and reverse the movement to outsource prison responsibility to private firms.”

11) National: Municipal finance analyst Cate Long looks at funding options for national infrastructure.

12) Alabama: Critics blast plan for private financing of the Tennessee Valley Authority’s Bellefonte Nuclear Plant. “Stephen Smith, executive director for the Southern Alliance for Clean Energy, said those pushing a $10 billion financing plan to pay for TVA to complete its twin-reactor Bellefonte plant ‘are trying to enrich themselves at the expense of TVA ratepayers.’ Smith said the private financing plan for Bellefonte is based upon faulty assumptions.”

13) California: Los Angeles City Administrative Officer Miguel Santana, who pushed for the partial privatization of the LA Zoo last year, is to keep his job under the new Garcetti administration.

14) Colorado: The Colorado Department of Transportation is preparing to add a 12-mile tolled lane on I-70 west of Denver, one of several planned projects on the corridor. “The long-range costs of the corridor improvements, as currently envisioned, are projected to fall somewhere between $15 billion to $20 billion. CDOT is trying to identify funding sources for the future projects, including the possibility of tolling, public-private partnerships and combinations of state and federal revenues.” [Sub required]

15) Florida: Palm Beach Post continues its investigative reporting on private prisons. New articles document “huge profit and sweet setups for Wall Street darlings; rape, squalor, murder in lockups—and the price for Florida taxpayers”; and how Geo Group and Corrections Corporation of America were “regularly penalized in Florida over vacancies.” Last week the Post reported on how “insider dealing” dominated the early years of prison privatization (“all the while, Thomas was consulting for Florida’s private prison oversight panel, the Correctional Privatization Commission”); and on howlawmakers and big business pushed for stiffer sentences, and Geo and CCA maintained close ties to ALEC. Over a period of months, Post reporter Pat Beall “pored through public documents from 21 states covering 13 years. She scoured audits, criminal cases, lawsuits, Justice Department investigations, hospital records, property records, contracts, payments, corporate reports, campaign contributions, emails, congressional testimony, academic studies and legislative bills.” Next week: “Who’s Watching the Guards?” [Sub required]

16) Florida: The National Council for Public Private Partnerships is to hold a meeting this Wednesday in Orlando on “Public-Private Partnerships: A Solution for Florida Public Construction Projects.” Co-organized by Associated Builders and Contractors of Florida, and co-sponsored by, among others, the James Madison Institute, Aecom, Hunt, K&L Gates, and Husch Blackwell. Speakers from the Plenary Group, Veolia Water North America, and McBains Cooper USA, among others.

17) Georgia: Proponents of a measure to put several public schools under private management are determined to press ahead after receiving backing from the state education department. “The petition is the first in the state that would convert a cluster of traditional public schools to charter status, allowing them to operate independently of the central administration. If it is approved, others may follow.” [Sub required]

18) Illinois: Gov. Quinn rescinds GEO Group contract. Last Monday, the Illinois Department of Corrections announced it had awarded a 10-year, $200 million contract for post-prison services to GEO Reentry Services. Two days later the contract was cancelled.

19) Illinois: In a significant move to increase transparency, state comptroller Judy Baar Topinka has launched a public online database of local government financial information and records. “When users go to a specific government, they will find a snapshot of its finances, annual financial reports, and audits. The user can also easily compare various government data. The office collects financial reports from 5,200 local counties, municipalities, and special taxing districts in the state. ‘This user-friendly database allows taxpayers to scour our office “Warehouse” from wherever they are located,’ Topinka said in a statement. ‘There is no reason that residents should have to file Freedom of Information requests or sort through mountains of paper to see how their money is being spent. That information should be at their fingertips, and that’s what the Warehouse accomplishes.’” [Sub required; Warehouse database]

20) Indiana: “The privatization of education in Indiana led to financial gain for those who championed it,” AFT President Randi Weingarten says. “Weingarten said Wall Street has awoken to the profitability of education. ‘When they see public education, they see 800 billion dollars of assets,’ she said.”

21) Maryland: The state Board of Public Works will decide on Wednesday whether to build a proposed light rail line in Montgomery and Prince George’s counties, the Purple Line, as a “public private partnership.” Greater Greater Washington looks at the possible pitfalls. The draft DOT Consolidated Transportation Program also notes that “a more limited public-private partnership is in the offing for Baltimore’s Red Line, which would provide funds for railcars, track, signals, power, a maintenance facility, and the maintenance of these elements.”

22) Massachusetts: Strong showing by parents at a Weston School Committee meeting helps stall outsourcing of school bus operations to a for-profit company. “We listened to parents at the meeting, who spoke about how important it is to them that our district have our own bus drivers and buses in terms of safety and security, especially post-Newtown, Conn.,” said Superintendent Cheryl Maloney. “The School Committee took note of those comments and understands how important this issue is.”

23) Michigan: Lakeshore TolTest Corporation wins a $21.8 million contract for operations and construction with the Detroit Water and Sewerage Department. “Lakeshore was the lowest among three responsible bidders for DWSD’s recent staffing and maintenance contract—but the decision to receive the bid comes weeks after Lakeshore was terminated for default on two U.S. Army Corps of Engineers construction contracts, governing work sites in Deh Yak, Delaram, Gamberi, Mazar-e Sharif and elsewhere in Afghanistan.” Contract oversight problems in Afghanistan are expected to multiply as U.S. troops draw down.

24) Michigan: As the Detroit Downtown Development Authority prepares to financially back a controversial new $650 million sports and entertainment complex with $450 million in private activity bonds, Fitch downgrades it to junk status. “The new debt for the hockey arena would be secured by the school district capture, according to Fitch. The new bonds would also have a junior lien on tax increment revenues. No debt service is anticipated until 2019, according to Fitch.” [Sub required]

25) Missouri: Veolia Water North America pulls out of a controversial consulting contract to study the revamping of the St. Louis Water system. “City Hall, led by Mayor Francis Slay, had said a $250,000 consulting contract with Veolia Water North America was necessary to help reduce costs and keep water rates down for city residents. But the process was colored by heated protests of the company’s environmental and business practices, with some residents worried the company would try to seize the city’s water and reduce its quality.” A poll found that nearly 70% of respondents said the city shouldn’t sign the contract.

26) New Jersey: Moorestown debates whether to outsource its trash collection. The town put out an RFP in September. “The RFP was issued with very little public debate or discussion,” said Adam Liebtag, president of the Communication Workers of America (CWA) Local 1036 “We want to make sure the process going forward is open, public and transparent.” Bids are due November 14.

27) New York: Chautauqua County legislators vote down a third attempt to privatize the county’s nursing home. “On the table was an offer by VestraCare, an investment group whose majority members are part owners in more than a dozen nursing homes across New York. (…) What happens next will likely depend on the outcome of next week’s election: The two candidates vying for the county executive post have opposing views on whether the home should be sold at all.”

28) Pennsylvania: Gov. Corbett extends his plan to privatize the management of the state lottery. British-based Camelot Global Services’ bid will be extended to December 31 in an effort to salvage the deal, which was blocked by attorney general Kathleen Kane. Last Tuesday, “Auditor General Eugene DePasquale said he had directed his staff to scrutinize the $3.5 million [in consulting and legal fees]. ‘Funds from the Pennsylvania Lottery are supposed to help older Pennsylvanians with prescriptions, transportation, home-delivered meals and property tax and rent rebates, not to fatten the coffers of law firms and private consultants over a lottery privatization contract that may never see the light of day,’ DePasquale, a Democrat, said in a statement.” The Republican Senate Majority leader has said the Senate would not pass legislation to resolve the issues raised by Kane, “because of concern over potential job losses among Pennsylvania Lottery employees.”

29) Pennsylvania: State treasurer Rob McCord announces he’s running for governor.Vows to fight against efforts to privatize the state lottery, saying “our lottery isn’t just not-broken; it’s the best-of-breed.” McCord has been endorsed by AFSCME Council 13. “According to McCord, of the $3.4 million the administration has paid over the last year to seal the deal with Camelot, the lion’s share—$2.36 million—has gone to legal consultant DLA Piper. Another privatization consultant, Greenhill & Co. LLC, previously received $1 million, and the law firm of Blank Rome has received more than $116,000 to defend the governor’s plan against litigation.”

30) Pennsylvania: As plans move forward to finance Harrisburg’s parking lease deal, City Council president Wanda Williams says the council needs more time for due diligence. “I don’t want to be rushed and I think I’m being rushed,” she said. [Sub required]

31) Virginia: Virginia Supreme Court issues a decision in a widely-watched case on the financing of “public private partnerships.” The court ruled that user fees are not unconstitutionally-imposed taxes.

32) Wisconsin: Consulting advice by Maximus could end up costing the state millions. “The Reston, Va.-based firm, Maximus Inc., received the payments through a contract that gave the international consulting company a hefty financial incentive to push the limits of how much money the state could claim from the federal government for a psychiatric program for youth. Maximus has a history going back more than a decade of being cited in audits for its work in Wisconsin—and a history of making political donations to governors of both political parties.”

33) Wisconsin: 80% of students who received vouchers to attend private schools did not go to a Wisconsin public school. “Democratic state Rep. Sondy Pope, of Middleton, said the Legislature should be focused on improving public schools, not subsidizing private schools. ‘Asking public schools to do more with less while increasing the amount of tax dollars unaccountable, low-achieving private voucher schools receive will not address the economic and social woes of our state,’ she said in a statement. ‘It’s time we try a different plan.’”

34) Think Tanks: The Economic Policy Institute releases a report by EPI Research Associate and University of Oregon professor Gordon Lafer on the organized assault on wages and labor standards in state legislatures. Lafer details the agenda and strategies behind attacks on public employees and services, and provides evidence that “these attacks are not a response to fiscal crises, but rather reflect a political agenda unrelated to budget deficits. Further, the effort to undermine public services extends to attacks on even non-unionized government workers. Finally, this broad agenda is likely to have spillover effects that undermine wages, benefits, and labor standards for private-sector as well as public employees.” [Report;  EPI panel discussion on the report]

35) International: Saskatchewan Federation of Labor President Larry Hubich takes aim at “public private partnerships” for building schools. “The P3 privatization model for school construction has already been tested in a number of Canadian jurisdictions. In Alberta, for example, a number of P3 schools have been constructed since 2007. Before the projects even began, early estimates were that P3 privatized schools would cost 51 per cent more than publicly built and operated schools.”

36) Upcoming Meeting: Global Water Intelligence to holds its annual American Water Summit in Washington, DC tomorrow and Wednesday. Sponsors include Grundfos, Veolia Environnement, CH2M Hill, and Koch Membrane Systems.

 

37) Upcoming Meeting: The Association for Public Policy Analysis and Management will hold its 2013 Fall Research Conference in Washington, DC, from November 7-9. Includes a panel on “Transportation and Public-Private Partnerships Policy,” with Joshua Schank of the Eno Center for Transportation as a discussant (p. 117).

 

38) Upcoming Meeting: The National Council for Public Private Partnerships and Association of Defense Communities will hold the Fourth Annual Federal Energy Workshop on December 10-11 in Arlington, VA. Panels on “The Budget Environment,” discussing “the implementation of required agency reporting on P3s”; and “Public Private and Public-Public Partnerships: P3s and P4s” (speakers from Booz Allen Hamilton and NCPPP).

 

 

Legislative Issues:

1) National: Utah Sen. Mike Lee gave a speech last week at the Heritage Foundationproposing giving states an alternative route to college accreditation instead of just federal accreditation, and for giving alternatively accredited schools access to federal financial aid. This could lead to accreditation for corporations and apprenticeships. “Qualified unions, businesses, and trade groups could start to accredit courses and programs tailored to their evolving needs. Churches and charities could enlist qualified volunteers to offer accredited classes and training for next to nothing. States could use innovative systems to attract new opportunities and businesses, investing in their own future by investing in the human capital of their citizens.” Lee says he will introduce his Higher Education Reform and Opportunity Act “in the coming days.”

2) National: The right-wing Club for Growth weighs in to oppose the nomination of Rep. Mel Watt to head the Federal Housing Finance Agency. “The correct course of action, including putting this nomination aside, is to privatize Fannie and Freddie and shut down the FHFA,” says a Club for Growth email.

3) North Dakota: MDU Resources, an energy and transportation infrastructure company, is to hold a beer and wine tasting for lawmakers in Bismarck on Wednesdayto raise funds for the American Legislative Exchange Council. ALEC supports privatization initiatives in state capitals around the country. MDU has funded ALEC and served on its Energy, Environment and Agriculture Task Force.

4) Washington: State Rep. Liz Pike (R-Camas) introduces legislation to privatize all engineering done through the Washington State Department of Transportation. “Business leaders at the meeting seemed on board with the concept, but Russell Brent, owner of Mill Creek Pub in Battle Ground, worried that a private engineering firm might see deep pockets in WSDOT and charge the agency more than it should.”