There are many potential pitfalls to privatization: choosing the wrong firm, cronyism, and poorly written and monitored contracts, to name just a few. One rarely recognized pitfall is that of relying on public employees to do privatization feasibility studies of their own agency. Such conflicts of interest should be avoided. Is it wise to ask workers to determine if someone else should be doing their jobs?
Is it wise to ask workers to determine if someone else should be doing their jobs?
Last year, State Senator John Cisky’s appropriations subcommittee on State Police and Military Affairs began discussing alternatives to the state fire marshal’s near monopoly on fire plan review (that is, an analysis of fire protection plans such as sprinkler systems) and inspection of "critical care" facilities to ensure they meet code compliance (which is a set of rules promulgated by various fire safety boards) in Michigan.
After some tense discussions, the subcommittee came to a compromise with the state fire marshal. In exchange for a fee increase for certain facilities and continued state subsidy of the state fire marshal, the marshal’s office agreed to conduct a privatization feasibility study of itself. The goal of the study was to gauge whether or not plan review and inspection could be done by private providers.
The result was not surprising. The state fire marshal’s study determined that private fire plan review and inspections would not be a feasible alternative to services of the state fire marshal.
A skeptical state legislator forwarded a copy of the study to the Mackinac Center for Public Policy. The following is a brief analysis of the study’s findings.
General Analysis of the Fire Marshal's Study
The state fire marshal study is not a reliable assessment of privatization of plan review and inspections. It cites little concrete evidence, makes sweeping generalizations, and places enormous emphasis on the opinions of those who would be most adversely impacted by privatization. No institutions that specialize in privatization were listed as contributing sources.
Reviewing this study was a challenge because of the methodology it employed. For instance, there is little direct attribution of remarks. Had there been, it would have been easier to clarify arguments made by contributing members and survey participants, and thus provide a more thorough review. Pages 57 and 58, for example, contain the following remark:
Estimated salary for a full-time person with the expertise needed would be in the range of $40,000-55,000 per year, times the firm’s multiplier of 2.75 percent. This equates to an expense to the state of between $110,000 and $151,000 per year, per individual. Is this cost effective?
Did the author mean "times" or "percent"? Two and three-quarters percent of $40,000-$55,000 per year does not raise the employment cost to $110,000 and $151,000, as quoted in the study. Secondly, if the figures are in error, does the downward revision change the evaluation of its cost-effectiveness? Lastly, how was the multiplier derived and what does it represent?
Plan Review & Inspection
According to the study, subcommittee one "considered the results of a state of Maryland study" from October 1992 that "failed to locate any jurisdiction in the United States which has or is utilizing the private sector for fire safety inspections."
In fact, the private sector is used for fire safety inspections in many jurisdictions. The Mackinac Center for Public Policy maintains a list of major, private fire service operators that includes national and multinational players such as Wackenhut Services, Inc., Rural/Metro, Fire Safety Consultants, Inc., American Emergency Services Corporation, Benonl Fire & Emergency Services, Ltd., Falck Redningskorps A/S, Southside Fire Department, and PRO-TECH Fire Services, Limited.
The study also noted that "[R]esearch did not reveal any other state which has privatized the fire safety plan review function." The study may be referring to the privatization of plan review for state regulated facilities. In fact, such states do exist. The state of Illinois has contracted with Fire Safety Consultants, Inc. (FSCI) for a variety of services, including the design, review and inspection of a fire detection and sprinkler system in such "critical care" facilities as a state-run mental health facility. FSCI has also done work for state agencies such as the Ann Kiley Developmental Center in Illinois and a host of public schools, housing, and administration buildings.
Even if it was true that safety and plan review functions have never been privatized at the state level, that would not mean it could not be done.
Even if it was true that safety and plan review functions have never been privatized at the state level, that would not mean it could not be done. Scottsdale, Arizona, has an entirely private fire department that is responsible for plan review, fire suppression, fire code inspection, and code enforcement. All of these functions are ones that the state fire marshal’s study suggested could not or should not be performed by private entities. In fact, Rural/Metro handles these duties in several cities. Rural/Metro is not the only major firm to do so.
The study stated that "no local unit of government was located which was prepared to perform all plan review and construction inspection activities currently performed by the Fire Marshal Division." According to state Fire Marshal Tom Endelmann, "almost every major community in Michigan operates in a reasonably independent fashion" from the state fire marshal. Outside of "critical care" facilities (schools, mental health facilities, jails, etc.) the state fire marshal’s "code efforts are very limited." According to Endelmann, the state fire marshal believes that "critical care facilities deserve a special look."
The fact is that the city of Detroit takes its own special look. According to Carlton Smith, the assistant chief fire marshal for the city of Detroit, critical care inspections are done separately from the state fire marshal. The fact that Detroit does this successfully suggests that other municipalities could perform the same duties themselves, or contract with private agencies to do the work on their behalves.
Jim Schifiliti of FSCI has performed "critical care" facility inspections in Illinois and counts over 60 municipal clients, including 15 in Michigan, for whom he performs plan review and/or inspection. Michigan clients include Auburn Hills, Berkley, Birmingham, Commerce, Farmington Hills, Harrison Township, Hazel Park, Madison Heights, Monroe, Northville, Orion Township, Oxford, Rochester Hills, Royal Oak, Utica, White Lake, and Wixom.
Schifiliti has over 30 years of experience in fire protection and consulting and has been hired by the Michigan Fire Inspectors Society, Macomb County Fire Prevention Association, and Macomb and Oakland Community Colleges, respectively, for lectures and training of their members and students in plan review and inspection. The specific classes Schifiliti has taught are as follows:
Plan Review of Halon,
Hood Extinguishing Systems,
Automatic Sprinkler Plan Review,
Warehouse and Storage Occupancies,
Review of Limited Area,
13D and 13R Sprinkler Systems, and
Building Code Plan Review Concepts.
The Michigan Fire Inspectors Society and Macomb Community College are listed in the "acknowledgments" section of the state fire marshal study. The contributions made to the study by those organizations are not clear, however. If they did make major contributions and did not acknowledge FSCI, it may call into question the ability of the Michigan Fire Inspectors Society and Macomb Community College to accurately assess the private sector’s role in fire safety inspection and plan review.
If the state fire marshal insists that plan review and inspection cannot be done by private sector agents, state leaders should challenge them to prove the assertion by issuing a nonbinding "request for proposal" (RFP) or "invitation to bid." An RFP may result in a bid whereby a contract award may be determined by negotiation and flexibility on the part of each party (see page 13 to obtain the privatization manual, Designing an Effective Bidding and Monitoring System to Minimize Problems in Competitive Contracting). An invitation to bid is a more formal document that lists very specific duties and standards that a private contractor must adhere to.
In 1994, Flint Mayor Woodrow Stanley made it known that he was prepared to outsource city-run rubbish collection. After requesting and receiving competitive bids from private contractors, Stanley determined that the city could shave $2 million from its $6 million rubbish budget by outsourcing. The city’s public employee union responded with an offer to reduce unnecessary staff, increase the number of stops, retrieve odd-sized items during the regular route (rather than on overtime), and work a full, eight-hour day. Mayor Stanley took the union offer. The result was $1.2 million in annual savings. The public employees’ union probably would have avoided such concessions had the mayor not made known his willingness to explore privatization. Michigan should do the same with the state fire marshal division by conducting an independent analysis of division operations.
Indianapolis Mayor Steve Goldsmith once said regarding privatization: "sometimes, sacred cows make the best burgers." Any plan to privatize functions of the state fire marshal may be controversial and met with opposition from those who benefit from the status quo, but that does not mean that it cannot be done, and done in a positive way.
The first step toward successful privatization is to invite an independent reviewer to examine the plan review and inspection apparatus of the state fire marshal. Otherwise, those individuals with the least incentive to privatize will be most likely to douse the hottest opportunities.