Reform 6.2: Competitive Bidding

Complete Competitive Bidding (Using Managed Competition or Direct Outsourcing) on 11 Functions in FY 2012.

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With the passage of the Managed Competition Guide, the City took a step toward implementing Proposition C from November of 2006, which called for the competitive bidding for providing City services between the private sector and City employees. Unfortunately, our office does not believe that the adopted version of the Managed Competition Guide represents fair and open competition as called for by voters. This opposition is attributable to the exclusion of retirement costs on top of a 10% bid advantage for City employees built-in to cost comparisons and the opportunity for delays due to excessive “meet and confer” requirements. The Guide also excludes the cost of under-funded retiree health care benefits and pension liabilities – and excludes the potential savings from outsourcing on these two costly budget line-items. Given the risk of reduced private sector bid interest created by the adopted version of the Managed Competition Guide, the ability of the City to pursue competitive bidding outside of the current Guide is important. As the City Attorney has opined2: “The City may outsource work performed by City employees in complance with the City Charter and state collective bargaining laws… Charter section 117(c) provides broad authority to contract out the work of classified, civil service employees when the Mayor determined, subject to City Council approval, City services can be provided more economically and efficiently by independent contractors.” The Managed Competition Guide also states that the City3: “…reserves its rights regarding any alternate process permitted under Charter section 117(c) to determine when city services can be provided more economically and efficiently by an independent contractor than by persons employed in the Classified Service while maintaining service quality and protecting the public interest.” If the Managed Competition Guide fails to produce adequate savings from fair and open competition, the City may have to utilize a Direct Outsourcing Process outside of the Guide, as described above. Provided that competitions are conducted on a fair and level playing field, when the City put the Help Desk function from the Data Processing Corporation out for competitive bidding it achieved a commendable 47% cost savings on the function. Our savings estimates assume an average of 15% cost savings from current budgeted levels – discounted from national cost savings models due to the use of pre-existing contract services and payments in some of the functions examined. Our cost savings methodology is derived from data in the City’s adopted budget, reports published by the Office of the Independent Budget Analyst and savings estimates provided by the Mayor’s office in relation to estimates for the Proposition D (2010) fiscal impact analysis. The savings are also within the savings ranges estimated for the City of San Diego by independent research4. Furthermore, we have discounted our cost saving estimates for FY 12 to assume an implementation timeline of approximately 12-14 months -- meaning that savings begin to accrue half-way through FY 12. Finally, the benefits to the City of implementing competitive bidding for services is not limited to direct cost savings (including reduction-in-force pension impacts). It also has the potential to serve as a key component of further pension reform efforts by providing active employees with the incentive to lower their cost structure in order to remain competitive. In fact, our budgetary savings estimates outlined below do not take into account any savings to the City’s pension payment resulting from a potential reduction in force due to competitive bidding. (To this point, our actuarial analysis projects savings of $1.2 million for the first year of a general membership 10% reduction-in-force, phased-in over 3 years. Further detail is provided in the Pension Commitment of this Roadmap.) Time is of the essence in making competitive bidding work for taxpayers in the FY 2012 budget. As such, by no later than December 15, the City Council should authorize the Mayor to proceed forward with competitive bidding on all of the functions outlined in this Roadmap – and delegate the development of Statements of Work to the Mayor. To comply with the current Managed Competition Guide, the City Council should receive an informational report on the SOW’s and provide feedback if necessary for the Mayor to incorporate as he sees fit. Between May 1 and September 1, 2011 the results of the competitions should be presented to the City Council for approval. Transition of the functions that are outsourced should occur no later than January 1, 2012. In addition to the functions above, the City may also want to consider initiating competitions on the following functions in FY 12 should time permit: * Swimming pool maintenance * Book binding and technical services (library) * Traffic operations support * Parking meter maintenance

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