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INFRASTRUCTURE OUTSOURCING

upgrades to less than 30 percent. The city’s annual cost was $49.5 million. The winning bid was only $21.4 million per year; however, the city will also pay roughly $6.1 million per year to cover the costs of electricity, natural gas, and insurance for the facilities, as well as contract monitoring costs.111

Buildings. The U.S. General Accounting Office (GAO) examined outsourcing and partnerships between federal agencies and private developers in building projects.112 The GAO highlighted the case of the Department of Veterans Affairs (VA). Congress passed special legislation in 1991 allowing the VA to use Enhanced Use Leases (EULs) to outsource elements of projects. EULs let the VA manage underutilized property through leasing arrangements with state or local governments or private-sector organizations in ways that generate income.

The GAO report explains that by 1998, the VA had implemented 10 EULs for buildings worth a total of over $50 million, and the EULs saved the VA an estimated $25 million through lower construction, operation, and maintenance costs. Public-private partnerships through EULs reduced the time needed to design and develop new buildings. One project alone saved $6 million in design and construction costs and will save another $10 million in operation and maintenance costs over the 35-year term of the EUL. The project won one of Vice President Gore’s National Performance Review “Hammer Awards” in 1995 for its contributions to the VA’s efforts to improve business practices and provide better services to veterans.

Prisons. The per-bed cost of prison space is influenced by many factors, including the security level, location, and jurisdiction of the facility. Coming up with useful average costs for government construction is difficult. However, the Criminal Justice Institute has calculated that the average cost of government construction is $70,909 for a maximum-security cell, $49,853 for a medium-security cell, and $29,311 for a minimum- security cell.113

Private companies can build prisons and jails for considerably less than these figures and in less time. Firms in the industry often contend that they can cut between 10 percent and 40 percent off construction costs, with 30 percent being the most common savings estimate.114 Independent estimates of the cost savings show a

similar range of 15 to 25 percent.115

In addition, private construction can shift a number of risks, including

those of cost overruns, to the private sector.

Allowing private operating firms to design facilities can lead to considerable long-term operating-cost savings as well. Operating costs are 75 to 85 percent of the overall cost of a prison, and about 60 percent of the

operating costs are for personnel.116

This means that designing a facility to require less staff, while providing

the necessary security, can dramatically reduce operating costs.

111

Adrian Moore, Annual Privatization Report, 1999 (Los Angeles: Reason Public Policy Institute, 1999), p. 36.

112

U.S. General Accounting Office, Public-Private Partnerships: Key Elements of Federal Building and Facility Partnerships, GAO/GGD-99-23 (Washington, D.C., February 3, 1999).

113

Camille Camp and George Camp, Corrections Yearbook 1998 (Middletown, Conn.: Criminal Justice Institute, 1998), p. 79.

114

Industry annual reports; Singal and Reed, An Overview of the Private Corrections Industry, p. 16.

115

Charles W. Thomas, Private Adult Correctional Facility Census, 1994 (Gainesville: University of Florida, 1994), p. 2; and Charles H. Logan and Bill W. McGriff, “Comparing Costs of Public and Private Prisons: A Case Study,” NIJ Reports, September/October 1989, p. 7.

116

Charles Mahtesian, “Dungeons for Dollars,” Florida Trend (October 1996), p. 80, highlighting the differences between the personnel and maintenance costs of a private medium-security prison and state prisons.

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