Thumbs up for competition and pay-for-performance in San José

Wayne K. Tanda, P.E.
Director of Transportation
City of San José, California
Member APWA Leadership and Management Committee

In 1997, the City of San José adopted a Public-Private Competition Policy. The goal of the policy is to deliver the highest quality services in the most cost-effective manner. To implement the policy, a program was developed and two services were selected to participate in a pilot project, to test and refine the implementation program. One of the services was the installation and maintenance of traffic markings provided by the Department of Transportation. Much was learned from the pilot.

To begin with, though, long before the adoption of the Public-Private Competition Policy, San José used the private sector to augment City staff in delivering many of its services, making San José among the leaders of large cities in contracting out services. In fact, for traffic markings, both private contractors and public employees provided the service. City crews installed new pavement and curb markings and maintained the existing inventory. To handle the peak workloads associated with the large street maintenance program, markings contractors were retained.

The City traffic markings staff consisted of 15 full-time maintenance positions. The City provided members of the team extensive training in the competition process and facilitated the team's assessment of their services. The team developed process improvements and looked "outside the box." For example, the team decided that a vacant senior level position should be deleted in order to fund the cost of additional materials. It was one of many self-discoveries that resulted in changes in the ways things were done. For the members of the team, this was a period of mixed feelings that included doubt about their capabilities, skepticism of the program, enlightenment through training, and a level of empowerment not experienced before this.

In the spring of 1998, the City issued a Request for Proposal (RFP). The Markings Team responded, with the assistance of Department mid-managers. To the surprise and disappointment of the team, no one else submitted a proposal. There were two reasons for the lack of responses. The first was the significant amount of work that the contractors had—they were busy. And the second was the requirements in the RFP regarding quality, timeliness, reporting, and penalties for non-compliance. The provisions were there to ensure that the "highest quality services" were provided, but they were new, and were viewed by contractors as extra work. To ensure that the City team's proposal was "cost-effective," their unit costs were compared with unit costs currently being paid to the traffic markings contractors retained by the City. The team's costs were less than or equal to those paid to contractors.

The initial service term began October 1, 1998, at a total cost of $1,172,000. Three one-year renewal options were also approved at the same base cost with annual adjustments, using the Consumer Price Index. The official parties to the agreement were the City Manager's Office and the Markings Team's department, Streets and Traffic (which would become the Department of Transportation). The eyes of the rest of the 500 members of the Department staff focused on the pilot.

The amount of work required in the agreement included much more preventive maintenance than previously provided. The agreement required that the level of service in preventive maintenance increase for pavement markings from 68 percent to 100 percent, and for curb markings from 7 percent to 28 percent. The agreement also required a significant improvement in the timeliness that requests for service were completed. The team met or exceeded the provisions of the agreement for production, timeliness, quality, and customer satisfaction, at unit costs lower than the agreement. The total expenditure by the team was $73,000 less than the amount budgeted.

Under the City's guidelines for Group-Based Pay-for-Performance, the Markings Team was awarded incentive pay. Based on a formula considering savings and efficiency gains, each full-time team member received an award of $3,014. Awards were prorated to individuals who were on the team less than the full term. The members of the team were very positive about their accomplishment, the process, and themselves. They viewed their service like a business, focusing on results. They accepted responsibility and made their own decisions, based on data. The atmosphere was like a football team that had won a championship game. Morale was high.

In the second year of the agreement, the resolve of the team was tested. Following the first term of the agreement, the unit costs were adjusted to reflect the actual results achieved. It meant that some unit costs were decreased and some were increased. By the end of the second year, the team had exceeded some of the adjusted unit costs. The primary reason for the overruns was due to significant downtime for key pieces of equipment. The team worked around these problems by modifying other equipment, which allowed them to complete production levels, but less efficiently, and therefore at higher unit costs. Under the provisions of the service agreement, the Department of Transportation was responsible for the overruns, which it absorbed. The members of the team were disappointed in the results. The euphoria of the first year was gone. The team learned that their partners were critical to their success, and that there were some circumstances that were not within their control. Although morale was down, it was still positive.

In the third year of the agreement, the Markings Team was back on track—they met all of their targets and achieved cost savings of $115,000. The cost savings was a result of several factors, including adjustments to work scheduling methods to achieve greater efficiencies, improved preventive maintenance on key pieces of equipment, and more frequent review of production data to address any problematic trends. Again, the team's unit costs were competitive with the private sector. Using the Group-Based Pay-for-Performance guidelines, the team was awarded $46,000, or $3,170 for each full-time member. The feelings among the team members were similar to those experienced during the first term. From the results of the third year, the team was determined by the City Manager's Office to be fully competitive, and the pilot project was completed.

The Public-Private Competition Policy pilot produced higher quality services in a very cost-effective manner. Key results include the following:

  • The unit cost for services was less than that of contractors.
  • The percentage of pavement markings citywide meeting visibility guidelines increased from 57 percent to 89 percent.
  • The average annual output of services performed by the Markings Team increased 260 percent.
  • Ninety-seven percent of work orders were completed on time.
  • Ninety-three percent of customers rated service as very good or excellent.
  • Team morale was one of highest in the entire Department (based on results of an annual employee survey).
The pilot, however, also identified several key issues:
  • Up-front investments must be made in information systems covering inventory, work management and costs, and in team training.
  • Adequate City resources must be allocated to administer agreements with City teams, just as it would with a private contractor.
  • Department managers must be committed and properly trained to support a team in becoming and remaining a "high-performing team."
Public-Private Competition and Group-Based Pay-for-Performance are being integrated into the City's comprehensive approach to achieve better customer service and sustained improvements in organizational capacity. The framework for that approach is referred to as "Investing in Results."

To reach Wayne Tanda, call (408) 277-5746 or send e-mail to wayne.tanda@ci.sj.ca.us.

Editor's Note: The following publications are excellent resources in the areas of leadership, management and administration: Leveling the Playing Field: An Overview of Managed Competition (1999); Managed Competition in Public Works (2001); Public Works Performance Management (1999); and Performance Measurement in Public Works: A Nuts and Bolts Guide For Public Works Professionals (2000). Each of these publications can be ordered online at www.apwa.net.