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Law & Order,Opinion,State Government

Wielding the Tool Wisely

Mar. 19th, 2012
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RALEIGH – The John Locke Foundation has long advocated privatization, outsourcing and competition as useful tools for building effective public policies. But not every tool is appropriate for every job – and even the best tools can do more harm than good if used incorrectly.

The North Carolina General Assembly has directed state correction officials to explore opportunities for contracting out medical care, prison maintenance, and other services to private firms. Back in September, the state issued a request for proposal (RFP) to manage the system’s health services for seven years. Currently, inmate health care costs taxpayers nearly $250 million a year.

As Triangle Business Journal reported earlier this month, North Carolina’s solicitation didn’t result in any bids. Potential private contractors appear to be put off by several provisions of the RFP, such as a required $100 million performance bond and a costly electronic-records requirement. Corizon, a Tennessee-based company that has won similar contracts in other states, also objected to the idea of being allowed only a single tour of Central Prison’s hospital before submitting a bid.

So for now, the state has abandoned the idea. There doesn’t appear to be any private interest in pursuing the contract under those terms, and the state doesn’t appear to be willing to change the terms.

It is important to understand that, despite all the political controversy that surrounds privatization, both public and private managers engage in these kinds of discussions and negotiations all the time – and they should. They are faced with many “make or buy” decisions. Sometimes they make or do things internally. Sometimes they hire outside vendors to make or do things, for reasons that may include cost, speed, quality, or accountability.

North Carolina state and local governments already contract out or partner with private entities to perform many tasks. In fact, they couldn’t function without private vendors. Public officials should always be open to the possibility of other contracts or partnerships in the future. That doesn’t mean they should accept every offer, and conservatives who advocate privatization as a useful tool are not obligated to support every offer.

Furthermore, privatization initiatives are likely to succeed only to the extent that they are wisely structured and carefully managed. Getting the details right ahead of time – what is expected, when and how it should be delivered, and who is accountable when things go wrong – is essential to producing good outcomes for taxpayers.

Also keep in mind that there are several types of privatization. Governments can contract out or outsource services, as was proposed with inmate medical care and is already commonplace in such areas as food service, maintenance, and data management. They can sell government assets to the private sector. They can create public-private partnerships in which government and private firms or nonprofits work together to deliver services. They can use consumer choice to transfer decisions about providers from government officials to the clients themselves, as has long been the case for patients in tax-funded health plans and ought to be the case for parents in tax-funded education. Finally, in cases where the government shouldn’t have gotten involved in the first place, they can simply shed the load entirely to private households, firms, or charities without any long-term contractual relationship at all.

Rather than seeing the issue as all-or-nothing, policymakers should keep an open mind while making sure that any privatization initiative they undertake has a solid design and clear, measurable goals. When it comes to outsourcing, asset sales, or PPPs, not every potential deal will benefit taxpayers or improve services. But many will.

Hood is president of the John Locke Foundation.