7 Examples That Explain Government Outsourcing

How Government Outsourcing Has Succeeded and Failed

Government outsourcing has become a big topic. Recurring budget crises at every level of government make outsourcing a frequently-debated solution. These seven examples will help you to understand why outsourcing is proposed, which services are likely to be outsourced, and some of the mistakes that have been made.

A Small Town Teaches Us a Big Lesson

Storefront buildings in a small town
Benjamin Rondel / Getty Images

We need government, don't we? The town of Maywood isn't so sure. This small town has a very big idea: Not every town needs its own government. Maywood has scaled back to just a mayor, a lawyer, and a controller. They've outsourced everything else. The Maywood experiment started as a cost-control measure, but Maywood has also raised a question about the quality of services. We've all seen the news stories about false arrests, poor schools, and members of city government taking bribes or other forms of corruption. Are we better off trying to find other ways of delivering municipal services, including outsourcing?

Small Cities Outsource To Solve Budget Issues

Across the nation, but especially in California, dozens of small cities have declared bankruptcy. They cannot afford to run their cities the way they used to. They need to downsize, automate, and outsource. The threat of bankruptcy will spread to larger cities as well. Outsourcing is just one tool, but if it is properly applied, it may solve the problem of the high cost of government services while also dealing with poor service levels. 

Outsourcing at the London Olympics Fails to Win a Medal

During the London Olympics, one of the biggest security contracts in the history of outsourcing was won by G4S. This multi-billion-dollar company needed to source, train and manage 14,000 guards. Two weeks before the Olympics, G4S contacted the government and informed them that they would not be able to meet their obligations, falling short by 4,000 to 7,000 guards. In the end, the police and the Army filled in, and the Olympics were safe and successful. In fact, the Olympics were the most secure public even in British history, with the most complex security plan. This proved again that the if you've never done something before, there is no "process map" to train the outsourcer. If the project is mega-sized, this is not a good target for outsourcing. This is doubly so if you plan on using a "Total Outsourcing" process where the new and untrained staff will be completely responsible for this function.

Back to the Future: Privatization is Back in Vogue

Back in the day of Margaret Thatcher, the Prime minister of UK in the 80s, there was a government emphasis on "Privatization." This meant taking public services, and selling them or spinning them off. Today, privatization in the UK and the US has changed a bit and looks more like outsourcing. Instead of selling the service (with the government owning some shares or having seats on the board of directors), the service is provided by a private company, and the government manages the contract. Privatization had some big successes, with the government letting go of state-owned enterprises in industries where private business was well developed: British Petroleum, British Steel, British Telecom, British Gas and British Airways. Outsourcing is now reaching into areas that are the core of government: police services, jails, education, military support. Which services should the government outsource?

Outsourcing Law Enforcement

The most basic service of the small town is law enforcement. In the US, police officers are given a specific "beat" to patrol. Outside of town, the Sheriff is an elected official with deputies who are responsible for enforcing laws in the county or the state. On the boundaries of major cities, New York, for example, you see a complex and overlapping map of town police, state patrols, county sheriffs, and other law enforcement agencies. There is a lot of redundancy between these agencies, and opportunities to consolidate services. Small towns around America that do not "orbit" a major city often share services with other towns in their area. A few towns are considering outsourcing their services to whichever town can do the best job. Small towns are actively pursuing innovative opportunities to improve services and cut costs.

Mega-Contracts, Micro Results

State governments have been aggressively pursuing "Mega-Contracts" to cut costs and improve services. Mega-contracts are very attractive, because they have the ability to have a big impact, and one big contract (theoretically) should have a much lower cost of management that if the contract was assigned to many vendors. However, these contracts tend to fail. The pursuit of the "Big Win" often blinds both the client and the vendor to the dangers of a big, single contract.

Every Government Function Is Outsourced, Even War

There is a very obvious squeeze going on in Washington. Budgets will go down, and cuts will continue to occur, not just for the Federal government, but for state and local governments, too. All sorts of programs will be downsized or eliminated. You may have heard that your town is thinking of outsourcing a jail, or even the police. But did you know that the Army had more outsourced civilians positioned in Iraq than soldiers?