In house beats contracting hands down

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It’s not fashionable for large city councils to take a lead from smaller councils but Auckland City would do well to follow the initiative of the Tasman District Council and bring core council services back in house with considerable savings for ratepayers.

This small council at the top of the South Island has found it is cheaper and more efficient to employ staff directly to collect rubbish, manage recycling, fix roads, provide water and wastewater services and maintain rivers than use private contractors.

As well as saving money the TDC says it will mean a better service for ratepayers as problems can be dealt with more quickly as they arise. It also cites greater control, improved planning and stronger staff commitment as some of the other advantages of the change.

The council says the build-up of savings to ratepayers will reach around $3.6m by year five.

All this makes sense because the council will be directly managing services rather than managing a consultant to run the contracts.

Translating this to Auckland means the potential to save hundreds of millions each year for ratepayers – alongside improving services.

On the face of it’s astonishing that Auckland Council has never done an independent cost-benefit analysis comparing private contractors to directly employing staff. This should be a serious concern because as well as examples like the TDC overseas studies point to serious financial rorts on taxpayers and ratepayers through contracting.

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In the US the Project on Governmental Oversight (POGO) has found that private contractors cost states almost twice the amount they would pay from employing people directly. At Federal level the US government pays as much as six times more for private contractors.

Auckland Council runs approximately 5000 separate contracts for provision of services at a cost of close to a billion dollars a year. It’s certain that huge savings, potentially hundreds of millions a year, can be made by employing staff directly.

However the senior levels of the council bureaucracy have been filled with private sector appointees most of whom have only a dim awareness of the concept of public service. Senior salaries for example have gone through the roof.

This morning’s New Zealand Herald reports that no less than 1500 council staff now earn more than $100,000 each with 113 on over $200,000 each. If that’s not bad enough the total salary bill of the new council ($702 million) has easily eclipsed the combined salary bill of the old councils ($615 million) despite the full time staff number decreasing.

With such abuse of ratepayer funds at senior management levels one can easily see how the private contracting model for services can suffer the same cost explosion.

Contracting out became popular over the last 30 years as the private sector was promoted as more efficient and able to delivery much better value for ratepayers.

As a result councils and central government went to work divesting themselves of employees.

The reality however is that private contractors are not more efficient nor provide better services but save money simply by paying their employees less and reducing their conditions of employment. Pay rates, penal rates, holiday and sick pay entitlements etc have often been driven to the legal minimum or lower through contracting.

Contracting across the city is one reason half Auckland wage and salary earners are paid less than $24,000 a year.

Another more insidious effect begins to take over once the capacity of a council to provide services itself is depleted. Contractors then assume a much more influential position and can effectively hold a council to ransom. Supposed competitive tendering more often resembles private cartels and the financial rorts exposed in studies overseas become a reality. It’s a system open to abuse and the recent allegation of corruption at Auckland Transport is likely to be the thin end of a think wedge.

Our bus services are a good example of the problems with contracting. There are nine separate private bus contracts which means the service is fragmented, incoherent and change is very difficult to manage. The bus service is therefore unreliable, the drivers are poorly paid but the fares are increasing. Small wonder people are going back to cars.

The council needs to take public transport back in house.
Auckland Council should review and reject the contracting culture. It’s a blight we don’t need in government, the city council or anywhere else.

Tasman Council has seen the benefits of direct employment – Auckland Council should open its eyes and do the same.

5 COMMENTS

  1. Of course, your observations are addressing a specific example of the ideological war of private sector vs public provision of services. They apply equally across many other sectors: health, ACC, education, utilities etc.
    Chris Trotter recently wrote a similar piece with an explanation of how the contracting culture is embedded down, who benefits from its continuance and how it resists reform.
    http://bowalleyroad.blogspot.co.nz/2013/09/moving-centre.html

  2. The procurement policy designed by an Auckland Council committee, did the exact opposite of what you propose.

    We lost the decades long service of our local parks maintenance man, and the quality of the care has suffered. The policy fails to consider the value of local connections to local areas and both the improvement in quality and community ties that is encouraged by local small-scale employment.

    In this age of digital records and computer processing, it seems ridiculous to cite administrative savings as a major benefit of bulk purchasing.

    • I wonder who sat on the committee that designed the procurement policy that allowed all these contractors instead of directly employing the staff to mow the berms!

  3. Great article, you nailed it. I can’t believe more people aren’t enraged by this pig’s trough behaviour in government. Too many people have had enough of Len Brown’s duplicitous nonsense so, it’s going to be between you and John Palino. I vote Labour but I think Labour’s lost any semblance of legitimacy (no thanks to Len Brown) as guardian of the left–at council level. So, really that leaves you.

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