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Report: Government privatization no panacea

Ask someone to name a recent case of shoddy government management, and chances are good that the website will come up.

Many critics have used the fiasco to beat the drum for privatizing the site. Let for-profit companies like Amazon (AMZN) or Google (GOOG) have at it, they claim, and we would not only have had a working site at a fraction of the expected cost, but a handy search engine for holiday gift ideas.

There's only one problem: Privatization is no panacea either, according to a new study by In the Public Interest, a watchdog for government outsourcing to private entities. Whether it's elevated costs, decisions that hurt public welfare and safety, failure to meet contractual requirements or a lack of transparency, private companies don't necessarily do any better than government workers in getting things done, the group concludes.

In the Public Interest cites a number of recent examples of the private sector screwing up the public sector:

  • In South Carolina, the Jacksonville Water Company "failed to pay state employee payroll taxes, lost millions of gallons of water, and could not account for tens of thousands of dollars." The company refused to provide records, even after the state's attorney general said the company was required to under South Carolina's open records law.
  • In the northern part of San Diego County, mass transit is contracted out to for-profit companies. "Auditors found that private security guards did not have critical required training, private bus drivers did not complete drug and alcohol testing, bus performance was not tracked, and contractors did not pick up disabled passengers in a timely manner."
  • In Florida, private prisons are supposed to operate more cheaply than what publicly run facilities would cost. Using data from the Florida Department of Corrections, the Palm Beach Post determined that savings are only calculated every three years at contract renewal and use a "formula that significantly favors the private facility." Even then, four of the state's six private prisons did not meet the savings bar, and three actually cost as much, if not more, than public prisons.
  • A contractor, Wings of Refuge, in Los Angeles County that oversaw foster care was in charge during charges of children placed in abusive homes. What did it take to have the company lose the contract? An accumulated $458,000 in unpaid payroll taxes, $2 million in debt and a failure to file necessary financial forms for three years running.
  • In Indiana, thousands of people, including a nun suffering from cancer, were denied food stamp and Medicaid eligibility, allegedly because of problems with having the program run by IBM, which was supposed to be paid $1.6 billion over ten years.
An example not included in the report is the long dispute between the city of Chicago and the company Chicago Parking Meters, was finally resolved this year. Drivers have to pay sharply increased rates and for more hours during the day.

Meanwhile, New York hired a company called Science Applications International to automate time keeping records of employees. The project never worked after 12 years and had cost $700 million, 10 times higher that it was supposed to. Ultimately, the company paid back $500 million to avoid criminal prosecution.

The lesson? Complex projects aren't any easier for the private sector to complete than for the government. Look at the "big dig" project in Boston, a massive undertaking to replace elevated highways with a series of tunnels and increase the number of routes to East Boston. Now it has become the most expensive highway project in U.S. history. The bill ballooned from $2.6 billion $14.8 billion, with interest raising that to $21 billion by the time bonds are paid off in 2038. There were huge amounts of remedial work after a driver was killed in a collapse. This is a government project built by private contractors.

Even the problems that have faced the Obamacare site shouldn't have surprised information technology experts that much. Some upwards of 68 percent of all IT projects are doomed even before they start.

So the next time you think privatization is necessarily the answer to government inefficiency, be careful. You might get your wish.
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