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U.S.
DEPARTMENT OF LABOR
Working Together for Public Service
When Stephen Goldsmith ran for mayor of Indianapolis, he vowed to engage in widescale privatization; in other words, transferring delivery of services to private contractors. Convinced that Indianapolis was in a struggle with its neighbors for both business and residents, raising taxes to pay for improved city services did not seem a viable option. Goldsmith believed that market forces and competition would ultimately serve citizens better than what he and his staff call the government "monopoly."
Once in office, however, he says he quickly came to realize that the real answer to improving service delivery was not privatization because "monopolies, public or private, are inefficient." Instead, Indianapolis launched a comprehensive effort that features labor-management cooperation and, in some areas, fosters competition between city departments and private contractors. In these instances, it treats city departments as businesses and gives workers a voice in ways to cut costs. If the department can put in a winning bid against private competitors, the city workers continue to provide that particular service.
In addition, city workers also bid for new work and work that was previously contracted out--returning those services to the public sector when it can be done there in a competitive fashion. For example, both the sign shop and fleet maintenance services are now performing work purchased by community organizations, by other governments and by local utilities.
Although Indianapolis receives much attention for its competitive initiatives, the Task Force found in its site visit that the structured, cooperative relationship pervading city operations is the unsung hero of the service and cost improvements.
In fact, where the union has bid, city and union officials estimate that public employees have won the bulk of the contracts put up for competition by examining methods, systems and cost structures in conjunction with management.
"I was increasingly impressed with the inherent ability of our own employees to perform better when the system allowed them to; I underestimated what they could do if we unloaded the bureaucracy off the top of their heads," Goldsmith said.[4]
His goal then became providing the best service at the lowest cost for citizens -- a goal embraced by the city's workers, largely represented by the American Federation of State, County and Municipal Employees (AFSCME). AFSCME leadership viewed the competitions as a way to help eliminate the myth that the private sector always is more efficient than the public sector, as well as to take back work that had been contracted out years ago.
"Using the private sector as a yardstick with which to measure ourselves, we're fine with that institutionally," said Steve Fantauzzo, executive director of Indiana's State Council 62, AFSCME. "But to simply say that the private sector is always a better answer, that's simply not true." Fantauzzo points out that under public management, for example, refuse collection routes have been redesigned and worker productivity has doubled, producing annual savings close to $15 million.[5]
In another example, the city's fleet maintenance workers outbid three outside companies. This effort had its roots in a cooperative labor-management program started several years earlier under the leadership of the president of the local AFSCME unit and the department administrator of Indianapolis Fleet Services (see Chapter Four). This cooperative program predated the Mayor's initiatives, and became a helpful vehicle for success by the department's workforce under the new arrangements. As part of the cooperative effort, fleet maintenance workers voted to forgo a raise in the first year of their four year collective bargaining agreement. In exchange the union's service contract to provide fleet maintenance specifies that, in addition to negotiated wage increases for subsequent years, employees will share 25 percent of any savings below the bid price and 30 percent during the following two years. (For more details, see below.)
This gainsharing program has been a major component in changing how line level employees and managers look at their work. It has resulted in participating employees receiving an average of over $2,200 each in bonuses for work in 1994 and 1995.
Since taking office in 1992, Goldsmith has reduced the city's operating budget by $26 million without raising taxes for the eighth straight year while still managing to invest more money in public safety and infrastructure improvements than at any other time in the city's history. The only layoffs came shortly after Goldsmith's election, when he eliminated hundreds of political patronage jobs, in the ranks of middle managers. While this initially prompted fear among workers that "if middle managers could be laid off, they'll do it to anybody," the union eventually viewed the move as a commitment by Goldsmith to eliminate "the bureaucratic stranglehold on employees." No rank-and-file workers have lost their jobs. As functions have improved and changed, workers have been redeployed and retrained under a comprehensive employment "safety net" program.
Indianapolis presents a comprehensive example of how a municipal government accrued tremendous benefits through labor-management cooperation. To effect this cultural change, Goldsmith took several steps that are helping Indianapolis to improve delivery through improved labor-management cooperation, including:
SELTIC. Goldsmith created the Service, Efficiency and Lower Taxes for Indianapolis Commission to identify opportunities for competitive bidding of city services. It is composed of the most entrepreneurial members of the Indianapolis business community. SELTIC has identified many areas with potential savings for taxpayers. Thus far more than 68 city services have been open to competition with the private sector.
Strategic Tools Initiative. It became clear from the first day that if the city was going to be successful in creating a more efficient and responsive government, a whole new set of financial and management tools would be necessary. City employees would need new financial tools in order to analyze costs and make improvements. The administration would need to be able to make "apples to apples" comparison of public versus private sector costs of provision. Thus, both labor and management recognized that without clear measures of comparison, bids by public sector operations might be disadvantaged by such things as assigned overhead costs and other internal requirements of city administrative systems. Decisions on competition require a level playing field and cost analyses fair to both sides. Several strategic initiatives were taken in this regard:
- Activity-based costing. The city needed to know how much every service and activity of government cost in order to measure performance and improvements and to make relevant comparisons when necessary.
- Performance measures. Competitive contracting required very clear standards describing how the contracts would be evaluated. Inputs, outputs and efficiency measures are now used to review services provided to the city.
- Infrastructure balance sheets. City government had never kept systematic track of the value and condition of its roads, bridges, parks and other assets. Proper maintenance and valuation of city services led Indianapolis to create "infrastructure balance sheets" tracking the value of its assets.
Financial training. Another useful initiative instrumental to success was financial training. Employees were trained by both AFSCME and the city in advanced financial issues, including how to make bids. Today, many union officers share managerial and service responsibilities and have computers at their work stations. Line employees and union officers now talk about fund transfers and similar issues previously reserved for upper management. The result is greater accountability and problem-solving.
Partnership with unions. Following a typical adversarial beginning, the union and management committed to a good faith attempt to work together. The collective bargaining process was used to define the parameters of a level playing field; set the rules for contracting out, including timely notice and the opportunity to bid, and plan training to develop employee skills. AFSCME participated in defining core services. This aggressive partnership also helped union leaders become more comfortable with the cooperative route. As elected leaders, the union officials took a risk in attempting to persuade employees to try the new approach. Union leaders received considerable criticism from some members the first year that they participated in the bid process. Many of their members were afraid they would lose their jobs as a result -- the mayor's election upon a campaign to privatize services was quite fresh in their minds. The union leaders "buy-in" essentially put the union's credibility on the line.
Fantauzzo acknowledged that the reinventing process demands a lot more of public employee unions. "If it's not working and we've been invited to the table and have had a part in developing a level playing field, then we can't sit back and say, `You're the problem.' " Nationally, he predicts that the public employee unions will "proactively move to fix what's wrong with government and also re-examine the way we do business. Some of the restrictions may actually be contractual, not just purchasing, bureaucracy and all the other things."[5]
Employee safety net. Because natural attrition creates vacant positions, Goldsmith pledged from the beginning that "no earnest, hard working employee whose position has been eliminated but wants to continue working for the city" would be denied the opportunity to do so. If employees do not win a particular bid, they are shifted to other jobs. This involves constant training to ensure a skilled, flexible work force. When management of the waste water treatment plant was privatized, some layoffs were expected. However, this was avoided by a combination of efforts developed with the new contractor and in a "safety net" provision negotiated into the city's collective bargaining contract with AFSCME. These provisions effectively ensured that any city worker displaced by competition would have employment if they want it. A combination of redeployment, retraining, and placement assistance is used. These programs and the commitment of the parties to them contribute to employment security in a way that provides cooperation towards service efficiency.
Involvement of front-line workers. Front-line workers have an opportunity to determine how to perform services more efficiently. Says Goldsmith, who joins a crew of city employees on a job once a week, "Nobody knows better than the worker how the job can be done more efficiently. You spend an hour with a guy filling potholes, and he can give you a dozen good ideas about ways to make the service more efficient."[6]
Managers are on the line, too. Interestingly, even when there is private competition for a service, the managers and the union members work together: They succeed or fail together in the bid and performance. More frequently, however, cooperative partnerships determine this mutual success.
The combination of strategic tools, improved measures and comparisons, and a cooperative union-management effort to eliminate barriers to effectiveness have provided strong motivation for workers to find ways to perform their jobs more efficiently.
Before Goldsmith was elected, "We didn't give a hoot what anything cost," recalled Isaac Sanders, a city crew leader responsible for street repair.[7] Previously with a monopoly on street repairs, Sanders continued an age-old practice of using five trucks and 12 city workers to perform the same work he now does with two vehicles and eight workers. Once equipped with the necessary skills and information and offered an opportunity and incentive to find a better way to perform the service -- and guaranteed a level playing field -- workers and their managers consolidated equipment and duties and modified work rules.
The Competition and Costing program jointly implemented by the City and AFSCME Council 62 won a 1995 Innovations in American Government Award by the Ford Foundation and the John F. Kennedy School of Government at Harvard University. The parties say they will use the $100,000 award to provide further training to enable employees to participate effectively in competitive bidding, to develop a video and other informational materials and to host delegations from other localities seeking to learn from the Indianapolis model.
The Indianaplis program was the only winner with a union (AFSCME Council 62) as a co-applicant. In a press release announcing the award, Steve Quick, representative for AFSCME Council 62 and president of Local 725, said, "Indianapolis has empowered its AFSCME members as partners in the process of redesigning government. Tomorrow [at an October 26, 1995 award ceremony] that partnership will win a national award, but our community has already been awarded better services and more efficient government.
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MUNICIPAL FLEET SAVES JOBS WITH INSOURCING VICTORY[8]
Member [of NAFA] John McCorkhill, Administrator of Indianapolis Fleet Services, and his staff won a bid in February over three national private competitors to manage, maintain, and repair 2,771 vehicles owned by the city of Indianapolis. Indianapolis Mayor Stephen Goldsmith's challenge when taking office in 1992 to "either make this place competitive, make the customers happy, or this operation is going to be gone," further inspired McCorkhill to propose efficiencies which will save city taxpayers $8 million. The adrenaline rush of competing for their own jobs, plus the vision and support of municipal leaders, cooperation with and from local union management and workers willing to make sacrifices, helped put IFS over the top, according to McCorkhill. "We knew we would have to get competitive if we wanted to stay in business," he said. McCorkhill actually began preparing for the competition in 1992 by reorganizing the department, trimming middle management and empowering employees to work in self-directed teams. "The game plan at the end of two years of reorganizing was to take this operation to the street to get the price (of services) that had never been established." he said. "At least seven consulting reports had been done on the agency and each spoke highly of the level of service but none addressed the issue of price." A selection team including individuals from legal, purchasing and the Mayor's office plus McCorkhill and an individual from the fleet department's customer base wrote the bid specifications in conjunction with consultant Chip Taggart with David M. Griffith & Associates. The specifications were mailed November 2, 1994 with proposals due on Friday, January 13, 1995.
Sacrifices and Incentives Essential to Bidding Success
McCorkhill and his staff made personal sacrifices to meet and beat the competition but also had built-in incentives to save costs in the bid proposal. IFS employees agreed to forego raises in the third year of the three-year agreement and adopted a plan that gives them an incentive to generate additional savings beyond those in the proposal itself. Fleet services employees will share 25 percent of any savings below the bid price during the first year of the contract and 30 percent during the following two years, which effectively ties raises to strict performance. Based on the proposals received, McCorkhill knew the specs were literally on the money. "Not one of the bidders questioned the performance standards stated in the specs as being too rigid or unrealistic nor questioned whether the city employees were doing the job. I think many of them sensed that this is not a traditional municipal operation, that some good things are in place here. "In addition, we didn't want to create a situation where someone could come in and piecemeal the operation. The bid covered the whole gamut of repairs and service. We could have broken it down without going to a bid. That was not the intent. We wanted to make sure that when we received prices from the private sector people that the comparison was apples to apples. Each of the bidding contractors said they would comply fully with the specification which is a boiler-plate of everything we do. "I figured one of our private competitors would possibly undercut it to get their foot in the door but it didn't happen. But we had honed our price to the point that it didn't matter. Often, government will keep the in-house provider unless the vendors offer services for a savings of at least one percent or more. This did not happen to us. We actually beat their price by almost 1 percent." The IFS will still outsource selectively. "We have always looked for what is best for us to do. We have two body shops at two facilities but we still farm out probably 15-20 percent of the work if we can't do it with the time and people available. We are constantly looking at the economies and time periods of doing it in-house and make decisions from there."
Union Cooperation, Support from Leaders Sewed Up Bid
McCorkhill credits Indiana Local 3131 of AFSCME, and Dominic Mangine its president, with a significant role in the bid victory. "You've got to get your union working with you as a team rather than fighting and bickering with each other. By working with the union, we started empowering them and making some of the employees working group leaders. And now they actually help manage the process. Rather than a lot of foremen looking over their shoulders, we made these people responsible for getting the work done. They not only turn the wrenches but they lead and guide. "Another neat thing about our bid is that I didn't play a part in getting the numbers together. As a matter of fact, I took a driving vacation and was not within reach by phone. Mr. Mangine and my deputy, Steve James, were responsible for the IFS bid and handled it without my overview." What put IFS over the top started at the top, according to McCorkhill. "It starts with a leader with a vision to see what needs to be done, then be willing to take on the challenge. Our Mayor, Stephen Goldsmith, has taken a lot of heat within the City because of his agenda for competition and his willingness to accept challenges and not walk away. He in turn gave me a challenge. Knowing the competition was there staring you in the face. . . we made absolutely sure we were competitive going in." |
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FLEET PREPARED YEARS PRIOR TO OUTSOURCING THREAT
Member John McCorkhill, Administrator of Indianapolis Fleet Services, and his staff found it essential to get the operation down to fighting weight before competing to retain control of fleet services for the City of Indianapolis. With the support of city management and cooperation from unions he made the following remarkable changes after taking charge in 1991:
"Another neat thing about our bid is that I didn't play a part in getting the numbers together. As a matter of fact, I took a driving vacation and was not within reach by phone. Mr. Mangine and my deputy, Steve James, were responsible for the IFS bid and handled it without my overview." What put IFS over the top started at the top, according to McCorkhill. "It starts with a leader with a vision to see what needs to be done, then be willing to take on the challenge. Our Mayor, Stephen Goldsmith, has taken a lot of heat within the City because of his agenda for competition and his willingness to accept challenges and not walk away. He in turn gave me a challenge. Knowing the competition was there staring you in the face. . . we made absolutely sure we were competitive going in."
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