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to make these foundations truly independent of government. Inde pendence from government was required in order that the unique fi nancial arrangements for the foundations could be undertaken. In es sence, the financing strategy is one in which significant one time, year end surpluses of federal expenditures ($3.15 billion in the case of the Foundation on Innovation and $2.5 billion in the case of Scholarship Foundation) are provided to the foundations. This has the decided ad vantage to the federal government of making use of one time expendi ture surpluses at year end rather that relying upon annual, ongoing commitments of expenditure that compete with other expenditure pri orities. It seems that there is a hard trade off involved. If governments are to design independent foundations, using easier and more feasible funding strategies, then accountability for public expenditure will greatly suffer.

Purchase of Service Many governments are increasingly entering into purchase of ser vice agreement through a service contract with an organization external to government. For example, in Ontario, the Office of the Public Guard ian and Trustee has outsourced management of real estate sales for its clients to one company to enhance efficiency and consistency of prac tices and to reduce administrative costs.

At the municipal level, the City of Toronto is currently examining sev eral ASD options relating to the purchase of services60. These services include the purchase of cleaning services for government buildings from private sector operators as a means of increasing efficiency and reducing costs for the city.

Purchase of service arrangements that are potentially more efficient than direct delivery by government departments at the municipal level can sometimes be encouraged through legislative changes at a more senior, provincial level. For example, the City of Toronto is exploring a new service arrangement for Building Code reviews and inspections of plans. A change in provincial legislation will permit municipalities to use agencies (called Registered Code Agencies) to conduct building code plan review and inspections. This would enable the City of Toronto to See for example, http://www.city.toronto.on.ca/asd/index.htm contract out all or part of these functions, or allow applicants to use registered agencies to do some of this work61.

While there may be improved efficiency through purchase of ser vices, there is also likely to be significant opposition by labour unions.

Unions often view such arrangements as another form of privatization and as way to reduce public sector employment and curtail public sec tor wages. The key to the effective and efficient use of purchase of ser vice is an underlying government procurement system that is credi ble, reliable and efficient.

The basic objective of an effective procurement policy is to make sure the state receives the best value for money it possibly can. This laudable concept includes not just the lowest price for goods complying with specifications but more complex notions such as lowest lifecycle cost. It entails as a fundamental process the idea of open and fair com petition, through which intending vendors may offer their solutions to the buyers specification according to rules that place all bidders on the same footing. It must be operationalized by officials who are dedicated to the scrupulous observance of the rules and therefore the public good. There needs to be systems to deter and expose corruption. For a more thorough discussion of procurement see Annex 5.

Partnerships The Canadian federal and some provincial governments have part nered to create 13 Canada Business Service Centres (CBSCs) to pro vide a gateway to government information for business. The CBSCs provide a wide range of information on government services, programs and regulations for business people who are starting a new business or improving an existing one. The CBSCs reduce the complexity of dealing with various levels of government by serving as a central resource for Canadian business information. The initiative is a partnership arrange ment among 37 federal departments and 13 provincial and territorial governments and, in some cases, the private sector, associations, aca demic and research communities. Sometimes partnerships are strictly within a level of government and are developed in order to ensure strong collaboration and more integrated policy development and pro gram delivery. One such example is the Canadian Rural Partnership, an See http://www.city.toronto.on.ca/asd/building.htm innovative approach to coordinate 29 diverse federal departments and agencies in the development and delivery of a rural strategy to strengthen rural communities62.

One particular form of collaboration that is becoming more popular is the public private partnership (P3). P3s can be considered as a type of partial privatization which allows governments to move away from the traditional hierarchical model of governance to a network or collabora tive model combining the resources of public and private (or third sec tor) organizations to the mutual benefit of all the partners. Partnerships with private sector organizations present some of the most interesting opportunities and challenges for governments.

The City of Toronto is actively considering the use of a public private sector partnership (or simply contracting with the private sector) for the citys $6.7 million purchasing and acquisition program for goods and services. A partnerships arrangement with the private sector can lead to increased efficiency while still maintaining a public purchasing system that is open, fair, equitable and accessible to businesses63.

The use of P3s obviously has the potential for taking the fiscal weight off of cash strapped governments by bringing the resources of private organizations to the table. In addition, partnerships are used to legiti mize the application of user fees, thereby shifting the cost of a service more directly on to the consumers of that service. But the "value added" by partnerships can be much more than a source of scarce capital or operating funds. P3s feed the imagination of a public de manding that public, private and voluntary sector organizations work together to solve problems and deliver services more effectively. P3s also allow governments to connect to advanced technologies controlled by private sector organizations and spread the risk associated with the adoption of innovative strategies or programs.

Entering into multi year partnership arrangements that serve public and private goals and involve the sharing of vision, risk, information, decision making power and accountability obligations is a significant step for governments that are accustomed to hierarchical control of decision making, information flow, and resources. These arrangements challenge traditional governance, managerial and public service prac See http://www.rural.gc.ca/crpfacts_e.phtml See http://www.city.toronto.on.ca/asd/purchasing.htm tices. For any public private partnership the following questions are worth considering:

- Do public servants have the skills and resources to identify and ne gotiate partnerships which are in the public interest - Can elected public officials tolerate and manage the increase in risk that partnerships inevitably create - Will private sector partners seek and receive an inside track on pol icy change in areas that affect the future profitability of their part nership - Can government procurement systems be made flexible enough to adapt to the constant negotiation, which characterizes private sec tor partnership arrangements At what cost - Will private sector service delivery personnel adopt public or private sector values and practices when dealing with citizen/customers - Can private sector partners accommodate to the accountability re quirements of their public sector counterparts - In the end, as these questions suggest, the key challenge for gov ernments is to deliver the "value added" promise of this partnership approach.

Franchising and Licensing The Province of Ontario has transferred the operational and cost of forest management on crown lands for government to private forest companies that harvest and produce wood products. Under license the companies are required to carry out renewal and maintenance activi ties, prepare forest inventories, develop compliance plans and forest management plans. The companies undergo an independent audit every five years to assess their compliance with the legislation.

Privatization Among the most prominent privatizations in the highway field has been the sale of Highway 407, across the north of Toronto. The sale of the electronic toll highway for $3.1 billion to a Spanish Quebec consor tium was announced in 1999. The buyers paid $1.6 billion more for the highway than what it cost the Province to build it and the new owners have rights to charge tolls for 99 years.

The success of ASD options is highly dependent on the nature and strength of the public and private sector environments within which these arrangement are adopted and implemented. For example, a ma jor multinational study on alternative service delivery arrangements for the delivery of municipal water systems found that many options led to perverse incentives64. For example, an in depth study of the municipal water systems in England indicated how the use of private companies, with the objective to increase efficiency, actually resulted in reducing efficiency. The study found that there was increased leakage from wa ter supply pipes because private company managers were not pre pared to go below an economic level of leakage since this would re duce profits. To protect the infrastructure the government had to im pose leakage limits. Overall, it has been concluded that in the area of water supply the ASD model has difficulty in structuring appropriate in centives65.

A Cautionary Note While there has been considerable experience with various forms of ASD arrangements in developed democracies, there are also some im portant cautionary notes that need to be considered. For example, a summary of concerns raised by the World Bank66 about the use of sepa rate agencies include:

Policy Lock In. Are autonomous agencies undermining policy objec tives by creating constituencies that will compel governments to main tain existing policies Agencies are created but rarely closed or merged. Policy can become what the agencies do, not what the gov ernment proposes. This can also create unhealthy institutional rivalry between the agency and the parent ministry which is legally responsible for a given policy domain. In dysfunctional bureaucracies where agen cies are created to circumvent the ineffectiveness of the traditional min istries, it is often the case that agencies dominate de facto policy making to the detriment of the parent ministry. Since agencies com See http//www.powi.ca/goodgovernance.pdf Joe, J., OBrien, J., McIntry, E., Fortin, M. and Loudon, M. (2002). Governance and Methods of Service Delivery for Water and Sewage Systems. Commissioned Paper 17, The Walkerton Inquiry. Toronto: Queens Printer for Ontario.

The World Bank Group. Difficulties with Autonomous Agencies http://www1.worldbank.org/publicsector/civilservice/autonomous.htm monly lack formal mandate and authority for inter agency policy coor dination, the dominance of an agency in a particular policy domain could cause a serious problem of intra government policy coordination.

The result is often a bureaucracy that responds poorly to changing pri orities.

Policy Creep. Are autonomous agencies adopting quasi fiscal activi ties that stretch beyond the original policy intention of government Autonomous status can encourage agencies to engage in quasi fiscal activities (e.g., fee based services, special concessions to certain groups) that serve the same role as taxes and subsidies, and exceed the original policy intention of government.

Budget Balkanization. Are autonomous agencies undermining the coherence of the budget Unchecked agency creation can destabilize the budget in three ways. First, it can create an argument for earmarked funding, which undermines the strategic ability of government to shift funds to emerging priorities, thereby leading to budgetary rigidities and over stretched funding. Second, it can create scenarios (a.k.a. "bleed ing stump" arguments) in which government must provide additional resources or face the unthinkable e.g., teachers on strike, nurses without jobs, etc. The arms length nature of agencies makes "bleeding stump" arguments more likely since the imminent problem is less easily identified by the central agencies. Third, unchecked agency creation can create contingent liabilities for government by borrowing against assets or making other commitments.

Patronage Den. Are autonomous agencies facilitating patronage Unchecked agency creation can institutionalize patronage in appoint ments if the agency becomes the implicit bailiwick or property of a coa lition party. This undermines the credibility of merit protection regula tions for all agencies by offering a haven for patronage appointments.

Particularly in governments backed by unstable coalitions, autonomous agencies with the implicit promise of a distinct sphere of influence and public profile can provide an easy route for appeasing fractious coalition members.

Special privileges. Are autonomous agencies distorting public sec tor incentives In order to attract qualified staff, autonomous agencies are often given exceptions from the government personnel regime to offer higher salary scales as well as other attractive benefits. The un even incentive structures within the public sector make it difficult to lure competent individuals to traditional ministries, while those who remain in the non autonomous parts of the government become unmotivated or even resentful of those receiving better incentives and benefits in autonomous agencies.

Lessons Learned from Experience There are many lessons from experience of various countries that significantly determine the success of alternative service arrangements.

Some of these are underlying conditions for success and others relate to the successful design and implementation of specific alternative ser vice delivery arrangements. A comprehensive set of key success fac tors is set out in Annex 6.

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