Privitaization Is Not A Panacea

Privatization is not a magic bullet -- each case must be carefully evaluated
By Frank T. Ishizaki
The Pacific Daily News
March 25, 2007

Privatization is such a popular buzzword that can be both vogue and scary. We need to carefully approach any privatization effort by asking basic questions, weighing risk and benefits, and considering how to deal with current employees. While I believe that certain governmental functions can be partially or fully privatized, we must proceed carefully.

Possible areas for consideration might include: food services; solid waste collection, recycling, and landfill operations; billing and collection of accounts receivable and inventory control; medical services; equipment maintenance and repair; certain human resource functions.

I note that the Pacific Daily News in its editorials over the past few years has been strongly advocating that we privatize the operations of the prison. Four years ago, when I was director of corrections, the governor instructed me to proceed with the privatization of prison operations. As a result, I did extensive research on the subject by contacting key officials from the National Institute of Corrections and consulted with several of my correctional colleagues. One director told me that he oversees several prisons in his state and that there was no significant cost differential between state-operated facilities versus contractor-operated facilities. He further told me that contract management and operational monitoring were his challenges to ensure that privately operated prisons minimize the state's liabilities from failure to maintain health, safety and environmental standards.

After much review, I concluded that privatization of DOC operations was not going to be cost-effective and recommended against the proposal to privatize. In summary, responsibility for the care of inmates and the liabilities associated with any failures in the operation of the prison, to include security, health care, treatment and rehabilitation, cannot be outsourced. The government continues to own those responsibilities in spite of outsourcing operations.
A key component to my rejection of privatization of the prison was that prison management companies (which are, after all, businesses and have a profit motive and are constantly looking at the bottom line) are known to get in the door by submitting low-ball bids in order to win contracts and move, in subsequent years after the bid is awarded, to renegotiate the contract to increase fees by reporting operational losses. In the meantime, the basic prison infrastructure will have been destroyed and any future attempt by the government to reoccupy and operate the prison will be significantly more costly.

In 2003, a visiting official from the NIC told me that he had been on island several years prior to my tenure as director of corrections. At that time, the topic of privatization had been thoroughly discussed and feelers had actually been put out to see if there were any interested bidders. There were no interested "investors/bidders." He informed me that one huge but basic difficulty in privatizing DOC is the infrastructure of the facility. The layout of the structures, which are spread out in "cottage" fashion all over the "campus," does not lend itself to efficient operations. The recommendation would be that new, multi-story facilities be built to replace the existing typhoon-damaged buildings, which currently house, at any given time, up to 600 inmates.

Key components to successful privatization of services are good contract management and operational oversight. We generally have low marks in these areas and risk greater problems if we privatize prison operations. If we cannot find cost savings in a privatization move, why proceed?

As a model, DOC privatized the meal services and was able to immediately reduce the cost of feeding inmates. As this endeavor has been in operation for three years, we now need to evaluate the program to determine if it has met our expectations. To answer some of my questions concerning this particular privatization effort, I recently requested the assistance of Professor Ron McNinch. I wanted him to conduct a privatization assessment of the GTA, GPSS food services, and the DOC food-service contracts. He has volunteered and will be conducting an analysis, with the assistance of his students, as a class project -- at no cost to our government. I eagerly await the results and trust that his report will help us determine if privatization has been successfully carried out in these situations.

In summary, privatization has great potential to improve our effectiveness and efficiency, but we must proceed carefully and intelligently. We must not take a shotgun approach but rather should focus on each entity in question on a case-by-case basis.


Senator Frank T. Ishizaki is a senator in the 29th Guam Legislature, a former chief of police and former director of corrections.