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Cross-Sector Partnerships: A Novel Approach to Public Service Delivery

March 14, 2018

Cross-sector partnerships – collaborations between the public and private or non-profit sectors – can enable governments to access external financing and expertise to help fund projects and improve service quality. In an era where state governments are still recovering from the Great Recession of 2008, novel collaborations between sectors can help to unlock improvements to services without spending increases, and potentially yield substantial savings.

The State of Tennessee pursued just such a partnership when it chose to find a private sector partner to deliver a substantial proportion of its facilities management portfolio. In 2012, the State found itself with a facilities management operation consisting of 430 individual contracts with private firms, a backlog of maintenance requests, code violations, and life safety issues, and a budget deficit. Rather than simply cutting back its services, Tennessee chose to issue a Request for Proposals (RFP) for a single private sector firm to bid to take over a portion of its facilities management portfolio. Since adopting its new model, Tennessee’s cumulative 4-year cost avoidance stands at $40.3 million.

Cross-sector partnerships (CSPs) range from one-off collaborations, such as putting on an event, to deep and embedded partnerships that last for decades, in which the private sector plays a key role in designing, building, operating or managing a public service. CSPs span a range of service areas. Most typically, they have been deployed to fund infrastructure, where private sector funding and expertise is often essential for a project to get the go-ahead. Take for example Pennsylvania’s Rapid Bridge Replacement Project, in which the State of Pennsylvania has handed responsibility for the construction, operation, and maintenance of the state’s bridges to a consortium of investment banks and construction companies. The consortium takes the risk and receives payments from the State based on results such as bridge repair and traffic disruptions.

However, CSPs can also involve a less capital-intensive model, entailing a transfer of responsibility for service design and delivery away from the public sector.  Tennessee opted for such a model. Moving beyond a conventional subcontracting arrangement, in which the State of Tennessee retains complete control over facilities management service specification, the State instead invited private partners to help design the specification at the RFP stage.

Indeed, it is the flexibility of CSPs that makes them an attractive option to state policymakers. Rather than adopting a prescribed model for service delivery, facility design or management, states can identify a bespoke arrangement that suits their purposes, and find a private partner willing to work with them to deliver it. At their best, CSPs should enable a fluid transfer of knowledge and resources between public and private partner, rather than impose a hierarchical structure in which expertise remains silhoed. This collaborative approach can enable both partners to learn from each other, and improve the quality of their services, rather than remain bound by pre-existing expertise.

Tennessee began moving its facilities management portfolio to a private partner through a 2013 pilot project. Piloting of a CSP model prior to full implementation is a savvy strategy that helps to resolve unforeseen problems, and reduces the risk to both parties of engaging in a full partnership that fails to achieve its objectives. The pilot produced impressive results from the management of 10 million square feet of real estate. Therefore, by 2016 Tennessee was ready to engage a vendor in a more comprehensive relationship for the balance of its 90 million square feet portfolio. 

In the 2016 procurement, instead of following a traditional contracting model, as it had in the past, Tennessee invited private firms to participate in its ‘collaborative value development approach’ approach, in which firms were invited to specify appropriate KPIs, and how they would meet them, prior to issuance of the RFP. Furthermore, having selected a contractor, Jones Lang LaSalle (JLL), the State continues to maintain a hands-on role in its facilities management portfolio, working closely with JLL’s leadership to continually improve services, drive cost savings and better performance.

Central to the success of Tennessee’s approach has been the strong relationship built between Tennessee’s Department of General Services (DGS), which oversees facilities management provision, and JLL. There is no record of another state contracting with a private provider to manage so much of its facilities management portfolio before. Tennessee was a pioneer, and a strong relationship between the parties was essential to navigating uncharted waters.

Herman Bulls, a Vice Chairman (Americas) of JLL built a working relationship with the commissioner of DGS early in the development of the CSP. Subsequently, they were able to discuss their challenges and fears directly with each other. Would the State support JLL if some state employees did not successfully transition to employment within the company? If the State required JLL to employ all the former state employees, would the State accept lower savings? The close relationship meant that when problems or opportunities arose, they could easily determine how to proceed.

Since adopting its new model, Tennessee’s savings have improved annually: $5.6 million (2014), $7.7 million (2015), and $12.9 million (2016) and $14.1 million (2017). At the same time, customer satisfaction with Tennessee’s facilities management services has improved from 62% to above 90%.

Although CSPs can deliver positive results such as Tennessee’s experience, there are potential pitfalls that states must consider. These can include the permanent loss of public assets to the private sector where an asset transfer model is favored, high premiums that private firms may charge for working with the public sector in an uncertain political environment, a reduction in the workforce as a result of private sector efficiencies, and the need to communicate carefully the role of the private sector in managing public assets. The latter is an area in which the State of Tennessee struggled, with public sector unions able to embed a narrative describing public sector job losses as a result of private sector involvement in facilities management delivery.

In spite of their risks, CSPs offer an exciting means for government to pursue novel and cost-effective approaches to delivering improved services and facilities at lower cost. The Tennessee facilities management example is one which we expect other states to follow in future years.

Contact Information

Fels Institute of Government
University of Pennsylvania
3814 Walnut Street
Philadelphia, PA 19104

Phone: (215) 898-2600
Fax: (215) 746-2829

felsinstitute@sas.upenn.edu