Privatization:

Lessons Learned by State and Local Governments

GGD-97-48: Published: Mar 14, 1997. Publicly Released: Mar 14, 1997.

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Pursuant to a congressional request, GAO provided information on lessons learned by, and the related experiences of, state and city governments in implementing privatization efforts. GAO did not evaluate privatization results or independently verify the accuracy of the information provided by the governments.

GAO noted that: (1) the six governments GAO visited tailored their approaches to privatization to their particular political, economic, and labor environments; (2) on the basis of GAO's literature review, the views of a panel of privatization experts, and GAO work in the six governments, GAO identified six lessons learned that were generally common to all six governments in implementing privatization initiatives; (3) privatization can be best introduced and sustained when there is a committed political leader to champion it; (4) in the six governments, a political leader (the governor or mayor) or in one case several leaders working in concert (state legislators and the governor) played a crucial role in introducing privatization; 5) governments need to establish an organizational and analytical structure to implement the privatization effort; (6) this structure can include commissions, staff offices, and analytical frameworks for privatization decisionmaking; (7) governments may need to enact legislative changes and/or reduce resources available to government agencies in order to encourage greater use of privatization; (8) reliable and complete cost data on government activities are needed to assess the overall performance of activities targeted for privatization, to support informed privatization decisions, and to make these decisions easier to implement and justify to potential critics; (9) most of the governments GAO surveyed used estimated cost data because obtaining complete cost and performance data by activity from their accounting systems was difficult; (10) while the use of estimated cost data can save a government the time and cost associated with preparing more accurate data, the resulting imprecision can have negative consequences; (11) governments need to develop strategies to help their workforces make the transition to a private sector environment; (12) among the six government GAO visited, four permitted at least some employee groups to submit bids along with private sector bidders to provide public services; (13) when a government's direct role in the delivery of services is reduced through privatization, a need is created for enhanced monitoring and oversight that evaluates compliance with the terms of the privatization agreement and evaluates performance in delivering services to ensure that the government's interests are fully protected; and (14) however, officials from most governments said that monitoring contractors' performance was the weakest link in their privatization processes.

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