NEWS ANALYSIS : Privatizing Viewed as Doubtful O.C. Panacea : Recovery: Critics say all-out contracting for services can't solve money problems unless officials change ways.

By LEE ROMNEY

April 3, 1995 12 AM PT

TIMES STAFF WRITER

SANTA ANA — Proponents of a leaner county government are chanting the mantra of privatization, contending that the competitive forces of the marketplace can drive down costs of county services and ensure efficiency.

Ever since the county’s plunge into bankruptcy, much of the buzz on long-term recovery has focused on shrinking government by turning over a variety of county services to private industry.

The county already contracts out $954 million in jobs a year. Now proponents are talking about privatizing such services as the storage of county records, repair of county vehicles, even the operation of John Wayne Airport and the county landfills.

But critics warn that a headlong rush to privatize won’t save the county money or provide efficient service unless the Board of Supervisors reforms the way it conducts business with private industry. Although county officials say the current contracting system has ample checks and balances, a closer look reveals that:

* Some contracts have run for a decade or more without being rebid, and others have ballooned with costly changes that are often approved by the supervisors with little or no discussion.

* Even when county employees have shown they can deliver a service for less, some jobs have remained in the hands of private contractors.

* The system is fraught with the potential for political favoritism, with some critics contending that big campaign contributors receive lucrative contracts, and some firms complaining that they cannot secure county jobs without first hiring a lobbyist.

Critics also say the long-honored tradition of “district prerogative”--in which supervisors select the contractor for public works projects in their districts--is open to abuse.

“Privatization under the current system would be a disaster, in my opinion,” said Victor E. Opincar, regional vice president of Boyle Engineering Corp. and chairman of a privatization task force convened by Board of Supervisors Chairman Gaddi H. Vasquez.

Others warn that in order for privatization to work, adequate safeguards need to be in place. Among them: rebidding most contracts every three years, analyzing county costs thoroughly to determine who can do the job more efficiently and establishing strict oversight of contracts so the county can pull the plug quickly if costs skyrocket.

“Contracting doesn’t operate on autopilot,” said John O’Leary, deputy director of the libertarian Reason Foundation Privatization Center in Santa Monica, which prints a “how to” guide for government privatization. “Government still has a very important role to do two things: to know exactly what they want and to make sure they get what they pay for.”

Gerald Seals, the county administrator of Greenville County, S.C., who was invited by Orange County officials earlier this year to present his ideas on “right-sizing” government, agreed.

“You have to be vigilant,” he said. “There has to be leadership. In this day and age, when technology is moving so quickly, it is just not in your best interest to take an eye off the marketplace. If someone comes along and builds a better mousetrap, you may shut yourself down from access to that better mousetrap.”

County officials defend the current system, saying that contracts are closely scrutinized and that it is often more cost-effective to extend or amend contracts than to put them out to bid.

“We do the same as any company, private or public,” said General Services Agency Director R.A. (Burt) Scott, whose agency oversees many of the county’s contracts. “We cut a contract that gives us some assurance as to what we are getting. There’s a constant monitoring of the product and the contract.”

However, according to county records, a contract with Martin Marietta Technical Services Inc. that has averaged $12 million a year to operate the county’s Data Service Center has not been rebid since it was awarded in 1985, despite the fact that the contractor received negative performance reviews from some county departments for years.

A 1992 county analysis showed that county workers could do the job at a savings of about $1 million a year, yet the county renegotiated the contract with Martin Marietta, fearing a switch would be disruptive to day-to-day computer operations, county documents show. The company is regularly awarded additional data systems work without going to bid, according to contract amendments.

Scott, who is about to retire, said Martin Marietta’s performance has improved markedly under the renegotiated contract and that the company has even managed to reduce costs below the initial contract amount.

The county’s reluctance to rebid the data processing contract stems in part from a traumatic transition from the previous contractor in 1985, Scott said.

“I would get lynched by my fellow department heads if I put that out to bid,” he said. “It’s not like buying pencils, where if somebody can give you the same thing for less money, you take it.”

Martin Marietta officials say that customer satisfaction has increased since 1992 and that the company has managed to save the county money. Putting new work that has been awarded to Martin Marietta out to bid probably would have cost the county more, added company spokesman Neal Linkon.

But that reasoning doesn’t sit well with potential competitors.

Santa Ana-based Software Maintenance Specialists has submitted a bid they say would save the county $3.5 million a year. Scott reviewed the numbers but told the company that switching contractors now would be too traumatic.

“I find it kind of unique that you can say that, yet it’s no big deal to lay off 1,000 people,” said SMS President Mike Winder.

County records show that E.L. Nobles Equipment Construction Inc. and Robert E. Fulton Co. Inc. hold a $5-million, joint-venture contract to rent, maintain and repair heavy equipment at the Frank R. Bowerman landfill. But a 1992 county cost comparison indicated that the General Services Agency does the job for less at two other landfills. Plans to expand the Nobles/Fulton contract were placed on hold as a result of the cost comparison, but the company’s existing contract was renewed.

Officials at the two companies could not be reached for comment. They have, however, challenged the county’s cost estimates as “dramatically understated.”

Allegations of favoritism have plagued the county’s $82-million contract with Motorola Communications and Electronics Inc.--awarded by supervisors last week--to design an emergency communications system for the county’s law enforcement agencies.

Florida-based Harris Corp., which lost the contract, complained that the consultant hired by the county to evaluate the competing proposals had $60,000 in undisclosed business ties to Motorola. The company also accused county officials of leaking confidential information about Harris’ contract proposal to Motorola.

Motorola and the county deny any wrongdoing, although county officials conceded that some Harris information was mistakenly faxed to Motorola.

County purchasing agent Michael Kolodisner, who oversaw the bidding process, said: “It was a big contract. It was a long process, and it’s not unusual for the losing firm to complain.”

Critics of the county’s contracting system also point to other areas that they say need to be overhauled, contending that the process is tainted by politicking. Companies with big contracts often contribute generously to the supervisors’ reelection campaigns, according to campaign finance records.

Nobles and Fulton, both independently and as a joint venture, have contributed more than $13,000 to county supervisors’ campaigns in the past 15 years, records show.

Two other companies, Sukut Construction Inc. and Fluor Daniel Inc., which have multimillion-dollar contracts to close the Coyote Canyon Landfill, have also contributed to supervisors for years. Sukut Construction has given more than $23,000 over the last 15 years, and Fluor Daniel has given more than $50,000 in the same period, according to campaign finance records.

Although none of the companies are accused of wrongdoing, critics say the appearance of political favoritism should be eliminated.

“They should not allow contractors who have made any political contributions to bid on the work,” said Nick Berardino, director of employee relations for the Orange County Employees Assn. and a member of the county’s privatization task force. “It invites cronyism and corruption. That’s been a large part of the relationship between government and private contracts.”

Critics are also taking aim at lobbyists who offer their close relationship with county insiders to architects and engineers vying for work.

The Orange County branch of the American Society of Civil Engineers, joined by half a dozen other statewide professional associations, has tried unsuccessfully for several years to keep lobbyists from being involved in the bidding process here.

In the urge to privatize, some worry that lobbyists’ influence will only grow.

“I don’t know how they’re planning on awarding contracts, but if it’s left up to the current system where supervisors have a hand in it, it would be the greatest lobbyist employment act ever,” said political reform watchdog Shirley L. Grindle.

Grindle wrote to county Chief Executive Officer William J. Popejoy and was called before the Orange County Grand Jury last month to air her concerns. She said the grand jury questioned her about the county’s contracting system.

Another target for critics is the tradition of awarding public works contracts by “district prerogative.”

Under that practice, the county staff reviews the qualifications of architectural or engineering firms bidding on a project and ranks them. While in most other counties and cities the final choice is based on that ranking, the Orange County staff removes the ranking and sends the top three contenders to county supervisors for a final decision.

The decision almost always comes from the supervisor whose district contains the project. The supervisors say the practice ensures that they are accountable to the constituents who elected them.

Critics disagree.

District prerogative “bothers me significantly,” said Todd Nicholson, a member of the privatization task force and president of the influential Orange County Business Council. “I think the process needs to be a very open process. These are county contracts and they need to be looked at on a countywide basis, not on the prerogative of a single district.”

While a host of safeguards can protect county government from inefficient contracts, the Reason Foundation’s O’Leary said the key to success is competition.

“The Reason Foundation generally recommends frequent competitive rebidding,” he said. “Everyone should be required to test their performance on the marketplace. The key difference in performance is not public vs. private, it’s monopoly vs. competition.”

But some fear that the urgency of Orange County’s fiscal crisis, combined with an anti-government mood among voters, will force county officials to rush ahead with privatization without measured analysis.

“We’re not real thrilled about doing a lot of things in-house right now because we really want to downsize government,” said Supervisor William G. Steiner. “There is a powerful mood as a result of this bankruptcy to downsize county government, to reduce the size of the bureaucracy, even if there’s not significant savings. . . . It’s an interesting dynamic.”

It is also a dynamic that privatization experts warn against.

Werner Hirsch, a UCLA professor of economics, helped Los Angeles establish an oversight system for privatizing more than a decade ago. The key to the system was a centralized panel that monitored all contracts and assessed the county’s costs before a job was bid.

Services shouldn’t be contracted out simply for the sake of privatizing, Hirsch said.

Supervisor Marian Bergeson, who has spearheaded an independent audit of county government, agreed.

“We need to build a process that allows for openness and competitiveness,” she said. “You also have to guarantee that you’re going to get the quality and the level of service. You have got to determine where contracting out makes sense and you need to provide a system that allows it to be fair.”

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Farming Out Work

Orange County paid private companies nearly $1 billion to do county work from January to June, 1994. A look at the types of services that were contracted out and how much the county paid:

Service Contracts Amount Public works/construction 538 $412,229,788 Architect-engineer design services 404 223,044,171 Financial services 144 104,168,673 Human services 1,223 76,189,669 Health-related services 196 56,596,555 Insurance, all types 17 35,653,091 Professional services 384 12,517,445 Miscellaneous services 1,926 9,241,978 Educational services 112 7,914,369 Equipment maintenance, repairs 748 3,852,547 Building maintenance, repair services 752 2,934,739 Data processing and software 335 2,468,411 Real property 17 2,338,102 Rental or lease services of equipment 494 1,601,835 Roadside, grounds, park area services 182 1,229,682 Security, fire, safety, emergency services 87 957,751 Personnel, employment agency 211 731,025 Communications and media-related services 55 218,471 Printing, related services 114 140,225 Laundry and dry cleaning 5 39,886 Library services (bookbinding, etc.) 23 25,518 Aircraft-Operations service 8 7,825 Total 7,975 $954,101,756

Source: Orange County Administrative Office/Management Consulting