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silence—it simply had never occurred to any of them that there might be another way to manage the groceries. Ultimately, Boraas and others at the Virginia DOC decided that the practice went back to the days of mule trains, when all the state’s prisons were in remote locations and resupply could be delayed for weeks.95

Technology had changed, but practices did not until competition brought motivations for innovation. The private correctional firms saw in the state’s prison warehouses an opportunity to cut costs and improve their bids. State prison wardens and facility designers had no incentive to buck “the way it’s always been done.” Now, thanks to the private firms’ innovation and the pressure of competition, all state prisons are eliminating their food storage warehouses, reducing overall prison costs.

The power of the contract is often a power overlooked by public officials, who thus ignore the opportunity to build quality assurances and/or quality controls into project delivery as a means to manage risk.

G. Outsourcing to Better Manage Risks

Outsourcing allows governments to shift risks to contractors, which both helps achieve the most efficient risk allocations and allows risk to be used as a management tool, rather than just something to fear. The power of the contract is often a power overlooked by public officials, who thus ignore the opportunity to build quality assurances and/or quality controls into project delivery as a means to manage risk.96 Public agencies and contractors can share risks and assign to consultants the risks that the consultant has the best control over, such as design functions. This arrangement also can help avoid “buck passing” and finger pointing, since each role of the process should be clearly defined.

In the United Kingdom, outsourcing infrastructure has reduced the project risks retained by government by a value of from 3 to 18 percent of the total capital investment of projects.97 Indeed, an evaluation of completed projects shows that the more risk was transferred to the private sector, the greater were cost savings for the government.98 In the United States, the growth of performance-based contracting as the best practice has led to deal structures and incentive schemes that shift risk for success to the contractor.99 That risk motivates contractors to “discover ways to improve quality of the final product or to reduce the costs of producing it.” 100

Hence the growing popularity of contracts like that of the Virginia DOT with VMS to maintain a portion of the state’s highway system, which assigns to VMS all risk for necessary maintenance over the course of the

95

Russell, L. Boraas, Structuring Successful Privatization Projects (Richmond, VA: Virginia Department of Corrections, 1997).

96

97

98

Boock, interview with author. Arthur Andersen, et al., pp.52-58, and “Auditors Like UK’s PFI,” Public Works Financing (April 2000), p. 18. Ibid.

99

Roger D. Behn and Peter A. Kant, “Strategies for Avoiding the Pitfalls of Performance Contracting,” Public Productivity and Management Review, vol. 22, no. 4 (1999), pp. 470–89.

100

Bowden and Klay, “Contracting for 21st Century Infrastructure,” p. 392.

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