The concept of public private partnership is nothing new and you will often see a strong presence of private companies in local, state and federal government operations – including IT, public finance consulting, wealth management, HR and many other areas where public finance relies heavily on the industry experts from the private sector.
These partnerships are often formed either because there isn’t enough in-house knowledge/expertise to take on the project or simply because the private sector has already completed similar projects for other jurisdictions and has the experience to complete the work. For example, let’s assume that a local government is looking to raise capital to build a public library. Many of the local and state government will hire the right private sector partners to see the project to fruition, from the municipal advisor to the bond counsel to the fixed income underwriters.
It’s quite evident that, given the business potential, there are many private companies that are rapidly changing their business models to include and go after local government business pretty aggressively. However, you may also hear the term ”red tape” often used when describing the local government operations, or government operations in general, which simply means “excessive bureaucracy or adherence to rule and formalities”.
In this article, we will take a closer look both at private sector involvement in local government operations and learnings for local governments from the private sector.
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Understanding Local Government Red Tape
To serve the public’s interest, local government rulemaking, policies and governing authorities are absolutely needed; especially, as we all understand, local government revenues, funding its operations, come from its tax base – which also ensures that tax dollars are being used in the most effective way possible. This underlines the need for carefully vetting the process that’s being put forward for implementation and having it double or triple reviewed before it goes forward for any governing party’s approval.
Let’s take a look at a local government procurement process: when a local government is looking to procure any product or services from an outside vendor, it must follow stringent guidelines to ensure that the procurement process is fair, competitive, transparent and conducted under the set local government procurement processes. This process can take months before a vendor is selected under a fair Request for Proposals (RFP) process to the executed contract by the governing board. Now, if the private sector completes their vendor selection effectively in less than a week then you may easily question the cumbersomeness in local government operations.
Local governments have the burden to show a greater transparency and adherence to all applicable laws in its rulemaking.
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Areas of Improvement for Local Governments
If we look beyond the heightened regulations, local government operations are very similar to a private enterprise. Just like a private enterprise has a board of directors and a CEO, a city government body will have a city manager and a city council. There are three main areas of improvement for local governments.
Building the right teams
As often seen in the private sector, especially the Fortune 500 companies, they often take their time hiring the right people to groom them for longevity with the company. This lacks in the public sector.
You often hear the phrase called “Development Programs” in private sector hiring, which are often 2-years development programs that a fresh college graduate will be hired into and rotate work responsibilities within a company’s entire finance department (or any other department), learning and developing skills to take on a leadership role.
If a local government employs this same strategy, they can not only cut their employee turnover or brain drain, but it can be an innovative way to build local government teams and leaders who can look at work processes beyond monotonous tasks and bring efficiencies.
Looking at private partners as more than just service providers
It’s often seen that once a public private partnership is formed (contract is awarded to a private enterprise), the local government may do a complete handoff of the respective project until it’s completed. For example: given the drastic shift in information technology, many governments are forced to change their financial systems to more robust IT infrastructures that brings them into the 21st century. It’s often seen that after awarding the contract for its Enterprise Resource Management (ERPP), local governments do a complete handoff to an outside private company until the new system is implemented. This means that after system implementation, either you have to keep the private consultants on board for a longer period of time to ensure the system is running smoothly or invest more time and money in training your own IT staff to take on the continuous management of the new system. Both options can be very expensive. However, if the project is completed with a team comprised of outside consultants and internal IT teams, it may take longer, but the collaboration will pay off for the local government.
The same goes for all areas of local government operations – private sector partnerships should be more than just the completion of projects, but also about the sharing of information that can add value to local governments.
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Reviewing the current process and scanning for new opportunities
Local government leaders should not only look to develop their teams to be more autonomous, but also seek out inefficiencies in their current processes.
As more and more private companies are tapping into local governments for business, their main objective is to seek out inefficiencies and present solutions with the hope to win local government contracts. However, local government leaders understand their processes better than outside consultants, and if they are able to seek out the inefficiencies in their process, they can deploy the right resources and seek out the appropriate solutions.
This gives local governments to leverage negotiations toward better pricing and to foster a collaborative work environment with their private sector counterparts.
The Bottom Line
As the need for public private partnership is growing in the local government operations, the need for collaboration and exchange of information is paramount. It’s also important to note that it’s not the rigid regulations or “red tape” that hinder the progress for local governments, but the inability to seek and capitalize on current inefficiencies.
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Disclaimer: The opinions and statements expressed in this article are for informational purposes only and are not intended to provide investment advice or guidance in any way and do not represent a solicitation to buy, sell or hold any of the securities mentioned. Opinions and statements expressed reflect only the view or judgement of the author(s) at the time of publication and are subject to change without notice. Information has been derived from sources deemed to be reliable, the reliability of which is not guaranteed. Readers are encouraged to obtain official statements and other disclosure documents on their own and/or to consult with their own investment professionals and advisers prior to making any investment decisions.