It is certainly no secret that some government functions rest firmly in private hands, either by convention, necessity or on the basis of sound business practices. But, exactly which services are contracted, and why does (or does not) the public sector turn to private operators for help? Maybe even more important to determine is if the contractors' customers and their constituents are satisfied with their services.

Those were among the questions American City & County asked 6,623 of its subscribers in an e-mail questionnaire on contracted services launched and tabulated in May. Most survey respondents (73 percent) are municipal government employees, while 16 percent work for counties and 7 percent for special districts.

The estimated average population of the respondents' jurisdictions is 255,339, but most (55 percent) of the populations are under 100,000. The estimated average 2005 department budget is $22 million, and the majority of respondents (60 percent) have a 2005 department budget of $5 million or more.

The survey received 385 responses, which means the most conservative estimate of error at the 95 percent confidence level is within +/- 4.98 percentage points. The methodology and the data collection and analysis were conducted and created by Primedia Business Magazines & Media's Marketing Research Department. The study's objectives were to determine what services American City & County subscribers outsource and plan to outsource and the reasons why subscribers may or may not contract their services.

Which is the most heavily contracted service? Road and bridge construction, coinciding nicely with the recent passage of the federal highway bill. Why do the respondents contract services or why don't they? There was some difference of opinion here with 51 percent of those who contract services saying that it saves money, and 46 percent of those who don't believing that outsourcing is “too expensive.”

Some unity was found, though, when the vast majority of respondents reported they were either very satisfied or satisfied with their contracted services. And, when a group of government officials agree on anything, then someone must be doing something right.

2006 contracted services

At first blush, it would appear that few respondents are considering expanding on their contracting options. However, with three exceptions — pension fund services, water/wastewater operations/maintenance and wastewater/sludge treatment — a modest number of respondents indicate they will consider employing outside services in every other area, even in the heavily contracted segments of road/bridge construction and solid waste collection/disposal. Respondents note their greatest interest in expanding contracts to GIS and IT/computer services providers.

Currently contracted services

Road/bridge construction and solid waste collection/disposal services are the most heavily contracted among this year's survey respondents (38 percent and 33 percent, respectively), with contracts for pension fund services close behind at 28 percent. Nearly one in four respondents currently contracts grounds maintenance and building maintenance services, but less than one in ten hires outside firms for payroll or fleet management.

Which of the following do you currently contract?

Road/bridge construction services 38%
Solid waste collection/disposal 33%
Pension fund services 28%
Grounds maintenance services 24%
Building maintenance 24%
IT/computer services 20%
Traffic engineering 16%
Wastewater/sludge treatment 14%
GIS services 11%
Street cleaning and maintenance 9%
Water/wastewater operations/maintenance 8%
Fleet management 8%
Payroll services 6%
Other 8%

Why services are contracted

Saving money and securing specific professional skills top the list of reasons why about half the respondents say they have been or will be contracting services. On the other hand, few respondents say that they hire outside providers to improve labor relations, because of public approval or because private contractors are more accountable.

What are the three most important reasons that you have contracted or will contract services?

Saves money 51%
Provides professional expertise and management 49%
Saves management time 29%
Improves operations 29%
Improves service quality 21%
Improves infrastructure 17%
More accountable 14%
Public approval 13%
Provides better equipment 12%
Improves labor relations 3%
Other 9%

Why services will not be contracted

Nearly two-thirds of respondents do not contract services because they believe that service will not be improved, while 59 percent say that operations will not improve, either. In contrast to respondents who contract services, those who do not say outside providers are too expensive (46 percent) or are inefficient (26 percent).

What are the top three reasons why you will not contract services?

Service quality will not improve 64%
Operations will not improve 59%
Too expensive 46%
Displaces government employees 31%
Inefficient 26%
Union reaction 16%
Public opposition 10%
Sets a bad precedent 6%
Other 5%

Satisfaction with contracted services

More than eight out of 10 respondents report they are very satisfied (13 percent) or satisfied (69 percent) with contracted services. In contrast, 12 percent say they are either very dissatisfied (1 percent) or dissatisfied (11 percent). County employees generally are more satisfied than those working for cities (85 percent vs. 73 percent), and the satisfaction level varies across population sizes with communities larger than 1 million being the least satisfied.

Incentives offered by contractors

Performance-based incentives are most offered by providers to help secure contracts. At 42 percent, guaranteed performance is the main incentive offered by private contractors cited by survey respondents followed by performance standards/metrics at 32 percent. Cash or revenue incentives are ranked lower, with a signing bonus mentioned by 2 percent of respondents and revenue or cost sharing by 12 percent. Several incentives other than those listed in the questionnaire are notable, including “golf outings, sports tickets, protection; meeting departmental minority/disadvantaged business goals; and services for municipal operations such as debris removal, trash service or ongoing maintenance.”

What incentives have contractors offered you to win your business?

Guaranteed performance 42%
Performance standards/metrics 32%
Revenue or cost sharing 12%
Guaranteed employment of existing staff 12%
Signing bonus 2%
Construct new community buildings 1%
Other 8%