Chapter 41.72
CITY PRIVATIZATION AND COMPETITIVE POLICY
Sections:
41.72.050 City’s cost comparison methodology.
41.72.060 Public/private competitive process.
41.72.070 Computing the cost of in-house service delivery.
41.72.080 Computing the costs of contract service delivery.
41.72.010 Purpose.
The purpose of this chapter is to set forth and establish policy and general guidelines for a privatization and competitive City procurement policy.
(Res. 04-12 (§ 18.1), 1-16-12)
41.72.020 Background.
The following privatization and competitive procurement policy has been established as a management tool for the City to use in achieving its goal of being a model of effective, efficient and responsive municipal government, working in partnership with the private sector. Effective use of this management tool shall enhance the City’s ability to ensure the most cost-effective and beneficial expenditure of taxpayer dollars by utilizing the best talents, ideas and resources from both the public and private sector.
(Res. 04-12 (§ 18.2), 1-16-12)
41.72.030 Policy.
The City of Grand Junction’s policy is to utilize the most beneficial methods from the public and private sectors to provide quality services and products to its citizens. When practicable, the City shall utilize a comparative cost and benefit analysis process with the private sector. Privatization of a “core competency” service or operation (i.e., policy-making position/operation or functions required by statute to be performed by a government employee, etc.) shall not be considered.
(Res. 04-12 (§ 18.3), 1-16-12)
41.72.040 Guidelines.
When directed by the City Manager, the Department Director and/or Purchasing Manager shall prepare a written feasibility study for the privatization of a service or operation performed by City employees. The study shall be returned to the City Manager for final feasibility determination. If the City Manager determines that it is feasible, the process shall continue with the preparation of a competitive solicitation.
(Res. 04-12 (§ 18.4), 1-16-12)
41.72.050 City’s cost comparison methodology.
The City’s cost comparison methodology is based on the avoidable costs approach and shall include in the computations only those costs that the City shall no longer incur (i.e., avoid) by contracting out.
(Res. 04-12 (§ 18.5), 1-16-12)
41.72.060 Public/private competitive process.
The steps and responsibilities during the public/private competitive process are similar to the traditional purchasing process except for the fact that a bid/proposal from a City department is included. Because a City operating department is participating in the competition, two additional steps must be taken by the City to establish the credibility of the City proposal. Those steps are (a) certification of the City proposal, and (b) a post-implementation audit of the service provider.
Steps in competitive process are:
(a) Identify privatization target areas, such as:
(1) New services that have never been provided before that shall require an increase in capital investment and/or full-time employee increases;
(2) Services or operations that are commonly provided in the private sector marketplace;
(3) Areas experiencing high personnel attrition/turnover;
(4) Areas of documented poor service or a high volume of customer complaints;
(5) Areas that have the greatest potential for cost benefits;
(6) Pilot program(s) to measure comparative cost benefits of internal to external (privatized) performance; and
(7) Extraneous/fringe tasks not directly related to primary mission.
(b) Identifying Service and Associated Costs.
(1) When the decision to use the competitive process is made, the operating department shall specify the service to be evaluated. That department is then responsible for notifying the parties that shall be affected by the process, including the City Council, City Manager, Financial Operations Manager, City Auditor and City Attorney. All of these City officials shall need to prepare for their roles in the process.
(2) Operating department personnel shall identify costs by determining the resources required and the method to be used for delivery of the service. The Financial Operations Manager then assists the operating department in identifying the costs of resources that shall be needed to deliver the service.
(c) Preparing Solicitation Specifications for Privatization of City Provided Service. The Purchasing Division prepares the solicitation specifications utilizing the final scope of work (services) for service delivery prepared by the Department Director and his staff.
(d) Certify City Cost Proposal. The City’s Financial Operations Division receives and tests the City proposal for reasonableness of proposed costs prior to competitive submission.
(e) Solicitation Opening. At the opening date and time, the Purchasing Manager opens and announces the proposals, including the City proposal. The City Manager appoints an evaluation committee that reviews all proposals. The evaluation committee assesses the cost, service level and management control issues after studying all responses and the City proposal and prepares a written recommendation that is forwarded to the City Manager and Purchasing Manager. A final recommendation is prepared by the Purchasing Division for presentation to City Council.
(f) Award Contract. The City Manager and City Council make the final selection after reviewing the responses submitted, the City cost proposal and the recommendations of the evaluation committee. If the service shall be provided by the private sector, contracts are signed. If the service shall be provided by City staff, the City proposal and bid specifications shall serve as a performance contract.
(g) Monitoring or Supervision. The operating department is responsible for monitoring the contract if a private entity is selected or for supervising the service delivery if City staff is selected to provide the service. Contract monitoring shall involve an inspection function, a system for providing feedback to the contractor on service levels, coordination of payments to contractor and recordkeeping on contract requirements, such as insurance. In all cases, the operating department retains responsibility for providing the service to the citizen.
(Res. 04-12 (§ 18.6), 1-16-12)
41.72.070 Computing the cost of in-house service delivery.
The following four cost categories together compose the total cost of in-house service delivery (see following model, subsection (e) of this section):
(a) Personnel Costs. Personnel costs are the annualized salaries, wages and fringe benefits of all full-time and part-time staff involved with the in-house delivery of the target service or activity.
(b) Nonpersonnel Costs. Nonpersonnel costs include travel, utilities, printing and reproduction, contractual services, maintenance and repair, materials and supplies and other costs associated with in-house delivery of the target service or activity.
(c) Overhead (Indirect) Costs. This category includes the support and shared costs that are not 100 percent chargeable directly to the in-house delivery of the target service or activity. The City shall use two classes of overhead costs: (1) operations overhead, and (2) general and administrative overhead.
(1) Operations overhead refers to those indirect costs incurred by the first supervisory level above and in support of the target service or activity.
(2) General and administrative overhead refers to all other indirect costs, exclusive of operations overhead, incurred in support of the in-house delivery of the target service or activity. Examples of general and administrative overhead cost include those costs incurred in support of the target service or activity by such City departments as Finance, Personnel, Purchasing, City Attorney, Risk Management, etc.
Note: Only overhead costs and general and administrative overhead costs that will be avoided if the target service or activity is contracted out are considered.
(d) Depreciation Costs. The depreciation of capital assets (facilities and equipment) used in significant amounts for the in-house provision of a target service or activity.
(e) Total In-House Costs. The total avoidable personnel, nonpersonnel, indirect and depreciation costs; this sum constitutes the “total in-house performance costs” and is compared to “contract performance costs.”
(Res. 04-12 (§ 18.7), 1-16-12)
41.72.080 Computing the costs of contract service delivery.
(a) The City shall use the following six cost categories that together shall constitute the total cost of contract service delivery:
(1) Contract Price. This is the price or cost that a prospective contractor proposes to charge to provide the target service or activity.
(2) Contract Administration Costs. These are the costs incurred in letting bids and proposals and in managing the resulting contract(s) until the service or activity is completed and final payment is made.
(3) One-Time Conversion Costs. These costs are incurred when City service or activity is converted to contract service delivery. One-time conversion costs include:
(i) Personnel-related costs, such as unemployment compensation, accrued PTO benefits owed City employees and any other severance-type costs;
(ii) Material-related costs associated with the preparation and transfer to the contractor of any City-furnished facilities and equipment; and
(iii) Other costs, such as penalty fees for terminating leases or rental agreements and the costs of holding unused or underused facilities or equipment until other uses can be found or until they are sold or leased.
(4) Revenue. This includes any new revenue stream or increased revenue stream (e.g., rents, lease payments or parking facility revenues) that results from contracting out. Revenue is treated as a deduction from the cost of contracting out.
(5) Disposal of Assets. The net disposal value is computed by subtracting from the estimated salvage value the cost of disposal of any assets made redundant by contracting out. If the net disposal is positive, the amount is treated as a deduction from the cost of contracting out. But if this value is negative, the amount is treated as a cost of contract service delivery.
(6) Local Income Tax. The new revenues to be generated by transferring a service or activity to the private sector are entered as a deduction from the cost of contracting out.
(b) Total Contract Performance Costs. The total costs are the contract price, plus contract administration and a one-time conversion cost minus revenue and City income taxes, plus or minus disposal of assets costs. These cost data are transferred to the cost comparison form.
(Res. 04-12 (§ 18.8), 1-16-12)
41.72.090 Cost comparison.
The major cost categories, for both in-house and contract service deliveries, employed by the City in its cost comparison methodology should include at a minimum: performance periods and cost comparison ratio.
(a) Performance Periods. Carry out the cost analysis for up to three performance periods. A performance period is one fiscal year or contract year. Several reasons exist for extending the cost comparison beyond one performance period. First, the full cost savings may not be realized in a single performance period. Secondly, one-year comparisons cannot account for changes in public and private wage increases preprogrammed for several years into the future.
(b) Cost Comparison Ratio. The cost comparison ratio is designed to establish a threshold below which a change in service delivery from in-house delivery to contract may simply not be warranted. While the change in service delivery mode is theoretically justifiable on the basis of any cost savings, as a practical matter the cost savings should be sufficient to justify the organizational upheaval that also occurs. The City of Grand Junction, by this reference, establishes a cost savings threshold of 10 percent: contracting out must generate at least a 10 percent cost savings for the City to deem the change worthwhile.
(Res. 04-12 (§ 18.9), 1-16-12)