Wylfo Caétano was fed up.
After nearly a decade working in a highway lighting maintenance unit of Uruguay’s Ministry of Transportation, Caétano knew the job inside and out. He began as a technical consultant, abandoning his electrical engineering studies to gain work experience. Later he won a competition for a permanent civil service job with the unit and was eventually promoted to head a team of 12 workers.
A self-described workaholic who “never leaves a job half-done,” Caétano immersed himself in the arcane technical specifications of highway lighting systems and became a reluctant expert in the government’s procurement procedures. It was his team’s job to monitor some 5,000 highway lights, purchase the necessary replacement bulbs and equipment, and perform the field maintenance work on large hydraulic cranes.
There was just one problem: the law made it nearly impossible for them to do a good job. The main problem, Caétano said during a recent interview in Montevideo, was the government’s procurement system. “The procurement laws are incredibly rigorous—which is how they should be—but they left us tied hand and foot when it came to buying things properly,” he said.
In addition to being so complex that it often took a year to acquire a batch of parts, the procurement rules gave Caétano’s team very little flexibility. “If I was given three prices for a product, and the technical requirements meant that I had to take the most expensive one, it was almost impossible to do so.” As a result, he said, the government was often forced to buy substandard or even unusable supplies to obey the letter of the law. When these parts failed, the government ended up spending much more to fix the problem. On one occasion, Caétano’s team was forced to install 130 new lights with parts they knew to be deficient. “Within two months we had to replace 60 percent of them,” he recalled.
Caétano’s team was also hobbled by rigid work rules. He had been assigned four drivers, for example, who were not allowed to perform any other tasks. “So to change a simple light bulb I would always have to send two men,” Caétano said, “when in reality just one could have done it.” Caétano was frequently ordered to send crews over long distances to work sites in order to create the appearance that a problem was being solved, even though they did not have the proper replacement parts. Despite his best efforts, Caétano’s team only succeeded in having around 75 percent of the lights in their territory working at any given time.
“There was terrible waste, and it’s not like anyone was benefiting from the situation,” said Caétano. “We were all losing. Our suppliers were losing because they couldn’t sell to us because our procurements were so slow. The state was losing because it was paying for fuel and salaries for crews that couldn’t work.” And Caétano was losing patience. His pay was several times lower than what friends in the private sector were getting, and he was being ostracized by more “easy-going” officials in the ministry who resented his constant efforts to improve efficiency.
New opportunity. Then, in 1997, Caétano heard that the ministry was considering outsourcing certain maintenance operations to the private sector to reduce costs. As part of a related program financed by the IDB (see Just don't call it downsizing, at right), the government was offering financial incentives to civil servants who wished to start private companies capable of competing for the outsourced government work. Caétano, who had always dreamed of some day running his own company, jumped at the opportunity.
With encouragement from his boss and technical help from the modernization unit running the IDB program, Caétano prepared a detailed proposal for a contract to provide maintenance over the same territory he was already responsible for. Concurrently the ministry conducted a detailed cost analysis that showed Caétano’s unit (including salaries, fuel, equipment and supplies) was costing the government some $50,000 per month. Caétano calculated he could provide a much better level of service, as a private company, for around 30 percent less than that. And he believed he could do it with 5 men instead of 12.
Ultimately, the ministry signed a two-year contract with Caétano’s new company, Candelas SRL, whereby he was required to keep 97 percent of the lights in his territory on at all times for $37,000 a month. The ministry would conduct periodic spot checks, and Candelas would be penalized financially each time the percentage of working lights dropped below 97. Caétano persuaded four of his best colleagues to join him in the new company; the rest of the men in his division either accepted buyout packages from the government or took jobs in other ministries.
Today, Caétano and his colleagues are making several times what they did as public employees, and Candelas SRL recently won an open competition for a second two-year maintenance contract. Caétano said he is able to keep nearly 100 percent of the lights on at all times with much lower costs because he works only with reliable suppliers and continually bargains for discounts–something he could never do in the public sector. His company has recently won a contract from Uruguay’s public electricity company and has hired five new employees.
Core competency. Candelas SRL is one of dozens of small companies that were formed by former government employees as a result of Uruguay’s state restructuring and modernization program. Another is Gorestin SRL, started by Carlos Fernández, a former data processing employee of Uruguay’s Public Records Administration (known as Dirección de Registros). Like Caétano, Fernández was frustrated by the fact that he and a few other conscientious employees were constantly having to pick up the slack for colleagues who refused to do their share—even though they were paid the same. When he heard about the outsourcing program described above, he and a colleague prepared a proposal for a company that would provide data processing on a flat fee, per document basis, with no more than one error per 1,000 documents processed. The proposal was accepted, and now Fernández and his partner employ 10 part-time college students as data processors and are bidding on new government contracts. “We don’t have any problems with productivity because our employees are paid by the document,” Fernández said. “If one worker doesn’t show up, the others are happy because they get a chance to make more money.”
Neither Caétano nor Fernández sees his experience as an indictment of the state per se, but rather as an example why certain kinds of work are best left to the private sector. “The state has an obligation to be completely transparent in its procurement practices, and that means having certain procedures and ensuring that no one is excluded from a solicitation,” Caétano said. This means the state has to take the time to process each bid for a procurement, regardless of its merits, and must also respond to protests from bidders. “But if I know beforehand that a certain supplier is going to sells us bad stuff, I simply don’t include him. The state can’t do that. So it ends up spending more.”
Caétano believes there are many government services that could benefit from outsourcing, and he thinks the practice will spread as people become more aware of cases like his. “Right now a lot of people are still watching to see how we do,” he said.