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)
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)
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)
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)
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)
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)
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.
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(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)
(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)
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)