June 29, 1995

June 29, 1995 | Commentary on

Privatizing The General Services Administration

Politicians have been "reforming" Washington's General Services Administration (GSA) for more than 15 years, yet waste and inefficiency still plague the government's central housekeeping agency. It's time to try something radically new like privatization.

Breaking GSA up into its major functional parts, then selling them to private companies working with groups of the agency's former employees would clean up the current mess. How big a mess it is can be seen in the fact GSA charges government agencies $2.21 for the same dozen BIC pens a private-sector firm sells for 89 cents!

The need to fix GSA -- often the focus since 1978 of wide-ranging probes by government investigators and media exposes of fraud and abuse -- is so obvious that even the National Performance Review led by Vice President Gore said big changes are needed in the agency.

Doing something about GSA is important because its 18,500 employees manage more than 268 million square feet of space in 8,000 federally-owned or leased office buildings and warehouses.

GSA's basic problem since it was created in 1949 has been its legalized monopoly on providing support services to government offices and office workers. This monopoly is why GSA's annual $200 million annual operating budget is deceptive. Acting as a middleman for other federal agencies, GSA actually controls about $50 billion worth of building leases and purchases, building services, office supplies, telecommunications, and computer equipment.

Gore's performance review said ending GSA's monopoly would make the agency more efficient because it would then have to compete for business from federal agencies just like a private-sector company. If GSA became 25 percent more efficient than it is now, the annual budget savings would be about $12.5 billion.

But why stop there when GSA's own experience proves how much more could be saved by privatization? According to the General Accounting Office, between 1982 and 1992, GSA reviewed 731 commercial activities carried out by its Public Building Service for contracting out to the private sector.

Ultimately, 73 percent of the activities reviewed were privatized. On average, the low contractor bids received by GSA were 39 percent lower than the government's own cost for doing the same activities. For custodial services, the low contractor's bid was 50 percent less than the government's cost estimate.

Similarly significant savings will result from privatizing other parts of GSA. Last year, several private firms reviewed the potential savings from renegotiating federal building leases. They concluded that government could spend as much as 25 percent less on rent each year through such competition.

So great and so certain are these potential savings that private-sector firms have proposed taking over GSA's property-management functions at no direct cost to the government, paying themselves only from the savings they achieve for taxpayers.

It is important that GSA's employees share in the fruits of privatization as the various parts of the agency are taken over by private-sector companies. The Federal Employee Direct Corporate Ownership Opportunity Plan (FED CO-OP), developed by the U.S. Office of Personnel Management during the Reagan administration, provides a model.

FED CO-OP sets up an "Employee Stock Ownership Plan" jointly-owned by a contractor with employees working on a particular activity being contracted out to the private sector. Employees would thus be able to participate in the profits of the firms that win contracts to take over GSA's commercial activities. The program also provides guaranteed employment for a limited time and high-quality out-placement services for employees who leave the new firm within the first year after privatization.

Fortunately, GSA should be the easiest federal agency to privatize because its many services are available from the private sector, whose many successful firms provide a blueprint for how a privatized GSA could not merely survive, but thrive in a competitive environment.

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Note: Dr. Ronald D. Utt, former associate director of the U.S. Office of Management and Budget and Reagan administration "privatization czar," is a visiting fellow at The Heritage Foundation, a Washington-based public policy research institute.

About the Author

Ronald D. Utt, Ph.D. Herbert and Joyce Morgan Senior Research Fellow