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How public-private partnerships advance the shared services marketplace

March 6, 2015 (Photo Credit: Courtesy)

The Obama administration has made shared services a key component of its management agenda. It has set a path forward for core financial system implementation and has taken steps to strengthen the pricing, governance and other underpinnings of a shared services marketplace. Federal agencies are engaging with industry through the Partnership For Public Service Shared Services Roundtable, the Association of Government Accountants, and other organizations on approaches to put shared services policy and experience into action. Public-private partnerships are one of these approaches.

Such partnerships are nothing new to state and local governments. To address decreasing revenues and escalating expenses, the state of Ohio launched Shared Services Center operations in 2009, providing Accounts Payable, Vendor Maintenance, Travel & Expense Reimbursement services to 17,000 employees and three agencies. This followed a Shared Services Center business case that identified $145 million in net present value savings over 20 years. The shared services initiative has been implemented with the support of a commercial provider, and in partnership with the public employees union, including self-directed work teams rewarded by individual and team performance measures. Service level agreements with each participating agency assure continued cost savings and achievement of the business case.

Since 2009, Ohio Shared Services has expanded to 28 agencies for Accounts Payable processing, all agencies for Vendor Maintenance, and all employees for Travel & Expense Reimbursement. Services extended to collections in late 2014, and are available for local governments as well as state entities. Ohio Shared Services and its public-private partnership collected $1.3 million in the first 90 days.

Federally, public-private models can expand the federal shared service provider community's ability to deliver human resource, payroll, certain financial functions, information technology, loan operations, records management, and other services with the help of U.S.- based commercial operations. In one such pilot, a federal host agency could competitively select a commercial service provider which would:

  • Fully operate the service in a manner that meets gold standard federal agency requirements at either a significantly lower cost, higher quality or both. The commercial provider's systems and services would be configured to serve multiple federal agencies as a shared services center, though initially, the host agency may be the first customer.
  • Under the right terms and conditions, put its own capital at risk to fund a large share of implementation and customer migration costs, with its ability to make a reasonable profit contingent upon meeting measurable savings, quality and other performance requirements over time.
  • Agree to terms and conditions that provide reasonable safeguards to the federal government and to the commercial provider, and encourage participation by small and disadvantaged businesses supporting the commercial provider and host federal agency.

Such pilots could modernize shared service system and operating capabilities by providing capitalization not otherwise available. They could provide incentives and expertise to accelerate implementation and lower operating costs. They could reduce risks to the government while shifting more to commercial providers. The pilots could meet customer and providers' desire for choice, expand competition, and promote higher rates of shared services adoption by federal customers by smoothing out over a number of years formidable initial migration costs.

The pilots could provide a clear framework for federal oversight and delineating ownership of software, hardware, and interfaces and other intellectual property. Greater clarity on these terms and conditions through one or more pilots could support greater fluidity and competitiveness in the shared services marketplace, as federal agency customers can more easily "lift and shift" government data and transfer it to another provider if there is consistent under-performance against specified requirements. Critically, the pilots also could apply leading practices in change management and employee engagement.

This approach would acknowledge that the private sector is already involved in supporting federal shared services delivery. Contractors support a portion of operations in many, if not most, existing shared service providers. By having commercial providers fully operate a shared service with clear standards and financial incentives for performance – while concentrating federal resources upon program oversight, performance assurance and other inherently governmental functions – a pilot would represent not a disruptive step toward privatization, but simply shift a greater share of risk and performance expectations to the commercial provider, within a federally established and managed framework.

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