Source: IPMA-HR News, July 2008 issue (subscription req.)
This is the focus of this month's issue of HR News, and as Dr. E.S. Savas pointed out in his article, "Public Employees and Public- Private Partnerships," (page 6), those two words aren't exactly popular among public sector employees. And why should they be? In
the past, outsourcing and privatization has been characterized by, well, handing American jobs oversees, or, in the case of government, handing otherwise public sector jobs to those in the private sector. Case in point: Halliburton and the outsourcing of the American military.
Then of course there's the outsourcing of public education. Regardless of what public service is being outsourced, the pros and cons of outsourcing are similar. The advantages include cost savings, time savings and professional management, to name a few.
The potential drawbacks to outsourcing, though, can be many, including, according to Peter Magnusun's article "Outsourcing is In," published in the National Association of Elementary School Principals' Communicator (October 2003, Vol.27, No. 2, pp. 1-2):
A possible loss of control of day-to-day operations; Higher costs over time if contracts aren't carefully written;
Inability to respond quickly if district or school needs change;
Loss of employee morale should long-time employees lose their jobs to outside companies; and
Exposure to risk. (i.e., What if the contractor goes out of business?)
While many in the public sector aren't too keen on outsourcing though, there are occasions during which it can be beneficial. Magnusun writes, "According to the American School & University's 2001 privatization/contract services survey, 79 percent of
schools contract out at least one service, and [four] percent allow outside companies to handle five or more services."
In Paul H. Jensen's article, "The Efficiency of Public Sector Outsourcing Contracts: A Literature Review," provided by the Melbourne Institute of Applied Economic and Social Research, The University of Melbourne, in its series Melbourne Institute Working
Paper Series, with number wp2004n29, Jensen writes, "Despite its prevalence, there still is no consensus in the academic literature on the magnitude (and determinants) of expected cost savings to the government, nor the sources of those savings."
In his paper, Jensen examines "the existing evidence for the 'redistribution hypothesis' and the 'quality-shading hypothesis,' which critics have used to argue that outsourcing may result in lower government expenditure, but it does so by lowering wages and conditions for employees and lower quality services."
While there is literature available showing a host of drawbacks to outsourcing though, there are plenty of organizations and agencies that enthusiastically use it.
In Weston, Fla., "virtually all public services are contracted out," writes Dr. Jonas Prager and John R. Flint, in their article, "HR Outsourcing in Weston, Florida" (page 8). Prager and Flint maintain that "Serious investigation into outsourcing costs and benefits may well lead to significant budgetary and resource savings by revealing the net gains of contracting."
While Weston has contracted out virtually all public services, most public sector entities use outsourcing and privatization on an as needed basis.