In recent years, Centennial, Colorado—a Denver-area suburb of over 100,000 residents that incorporated in 2001—has gained increasing recognition in public administration circles as a leader in innovative government efficiency and privatization initiatives. Since incorporation, the city has pursued a "contract city" policy of contracting with outside providers for all public services, unless there is a demonstrable, quantifiable advantage to providing services in-house.
In 2008, Centennial launched what has become its most recognized signature achievement: a large-scale public-private partnership with national engineering firm CH2M HILL to provide all of the city's public works services. Centennial's public works contract has gained national attention for its scope and innovation and garnered the city a series of awards, including the 2010 National Council for Public-Private Partnerships Service Award, the 2010 American Public Works Association Innovative Customer Service Call Center Award, and the 2012 Institute of Transportation Engineers Transportation Achievement Award for Operations.
In December 2012, Centennial's city council opted to extend its public works partnership with CH2M HILL through 2018 in a five-year, $51 million contract extension that lowered the costs of service delivery by nearly $1 million and expanded the scope of services even further.
In June 2013, Reason Foundation Director of Government Reform Leonard Gilroy interviewed Centennial Mayor Cathy Noon and the City Manager John Danielson on the groundbreaking public works PPP, how the city drives performance and accountability from contractors, citizen satisfaction, lessons learned in contracting and more.
Leonard Gilroy, Reason Foundation: Can you give our readers some context on how Centennial was incorporated in 2001? What drove the incorporation, and what set of public services was the new city responsible for providing?
Cathy Noon, Mayor of Centennial, Colorado: The city of Centennial was incorporated from unincorporated land in Arapahoe County, a very established area that was mostly built out. The city was formed so citizens living in this area would have more representation—a "bigger voice." This area didn't have a "traditional" county look and feel; it was much more suburban—even urban in areas—but still receiving "traditional" county services. That being said, surrounding cities were annexing the commercial property in this area but not the residential developments, which was concerning for residents because the tax base that would help support the county services would diminish. So it was a bit of a self-determination to decide that we wanted to come together and create the tax base that would then support a "full service" community.
In the summer of 1998, the city's five founding fathers—people from the chamber of commerce, the county assessor, our county commissioner at the time, and a community leader—led the charge of Centennial becoming a city by forming a volunteer organization known as the Arapahoe Citizens for Self-Determination, and an incorporation steering committee filed a petition in District Court in October 1998 requesting an election to determine whether Centennial should be formed as a city. The District Court conducted hearings and determined the petition invalid. The volunteers corrected the petition and on December 12, 1998, in six hours obtained more than 2,500 signatures on a second petition known as the "Centennial Petition." An election was scheduled for September 2000, in which 77 percent of voters approved the formation of the city. Centennial was officially incorporated on February 7, 2001 with approximately 100,000 residents, the largest single incorporation in U.S. history. We're pretty proud of being able to put that effort together.
In terms of the set of public services, this particular area received a lot of what you might call "city-type" services from special districts. In the state of Colorado, this is a way that we provide services in county areas where cities don't exist and when counties don't feel that they want to get into the provision of things like water, sanitation and fire. Once we became a city we had to provide for law enforcement and public works—the two main services Centennial was responsible for—as well as land development oversight, issuing permits and planning.
The city of Centennial does not provide water and sanitation—those are done by 13 different special districts. Three other special districts provide our fire services, and our schools are provided by two individual school districts. So the city itself does not have to provide for those services.
Gilroy: Centennial has been widely recognized for its large-scale public-private partnership with CH2M HILL to deliver the full scope of public works services, way beyond the scale of outsourcing seen in more traditional, older cities that may use piecemeal contracting for discrete services. Can you describe what led Centennial to tap a PPP for public works to begin with, and discuss the results in terms of cost savings and service quality?
Noon: For one year following the city's incorporation the county continued to provide services to the city, which is typical in Colorado. For the next few years, the city decided the best way to manage these public works and law enforcement services was through a contract model. So we contracted back with our county to provide the same level of service they had always provided. We never contemplated implementing our own police force. The Arapahoe County Sheriff has always provided exceptional law enforcement even before the city was formed.
As far as public works, we spent a few years using the county's services, but then they started looking at a significant cost increase. So the city decided to bid out these services. As it turned out, private companies came in with a lower cost providing the same or higher level of service. So we decided to pursue a partnership with CH2M HILL, and within roughly a six- to eight-month period we undertook one of the largest conversions from a public entity to private.
As far as results go, what we have seen has been a far better response to the needs of our city. If there’s a pothole, it's repaired quickly because we have performance measures built into the contract that say "you will do this" within a certain amount of time. We have innovation in the way things are being done. Working with a partner, we have other people with great ideas that we can just tap into to make things better. We can tap the wealth and depth of the private employees and the innovation that they bring to the table.
John Danielson, City Manager, Centennial, Colorado: We look at all of the relationships with our service providers as an evolving environment. As we learn how we can go further and do things better, we challenge them to figure out new and better ways to do things. In just the past year we went through a re-working of our contract with our public works provider [CH2M HILL], and we found all kinds of ways to save money, to streamline the process, and to financially encourage them to do more innovative things.
For example, they won national awards with our snowplowing services by figuring out a way to more efficiently do the same routes at no additional cost. In fact, they added 93 additional miles of roadway to be plowed for the same cost.
So we think of it as an evolving relationship, and it should continue to get better and better. It helps their bottom line, and it improves our service quality. So I think that next year we'll look for the next snowplowing route or the next better way to build a mousetrap.
Gilroy: How flexible is the contract in terms of making adjustments in priorities along the way, for example, in the event that city revenues come in less than expected at the beginning of the fiscal year or if priorities change over time?
Danielson: One of the things we did in the last contract negotiation was actually reduce the amount of money we're paying on the contract, and we created something called a "flexible spending account," which gives us a lot of ability to expand or contract as circumstances demand. Plus, all of our service providers understand that this is a partnership, and if we were to get into a fiscal situation where we no longer deemed something affordable or no longer a priority of the city council, then we could pretty easily modify the contract if need be.
Noon: A few years ago before the most recent renegotiation of the contracts with all of our contractors, there were some revenue downturns that we weren't expecting during the recession. We worked with our private partners and were able to do a reduction in services. For instance, in the public works contract, instead of doing six street sweepings, we would do four for that year. We cut back on the amount of mowing we did. The contract was written so that we are able to expand and contract in order to match the revenues we have. Consequently, we can pay extra for something because we know what the costs would be. For example, if we decide we need another street sweeping, the cost is spelled out in the contract so that we know what it would cost to add another sweep. And we also have an "exchange" written into the contract, so to speak, such that one street sweeping equals two mowings, for example. So if we decide that we don't see a need for a particular service in a given year—perhaps it's a dry year and we don’t need as much mowing—we can exchange that for another service.
Danielson: That's a really good point. One of the things that we spent an extraordinary amount of time and effort on up front was discussing all of the aspects of the contract, so that when it comes time to add some other feature or service, then we have a pretty good idea of what it's going to cost, and we're not starting from scratch. I think that's a really good part and a significant part of the new contract.
Noon: I think we had a little bit of that in the public works contract the first time around, but when it was time to renegotiate, on both sides we saw a benefit to having that further spelled out in the contract.
Gilroy: Was the enhanced flexibility you built into your public works contract during renegotiation something that you learned from somewhere else, say another city, or did you innovate that yourselves based on experience?
Noon: A great deal of it was innovation from our own staff coming up with these ideas. But of course we wrote a request for proposals that asked for specific things, and when we selected the current provider CH2M HILL, who had municipal experience elsewhere, they recommended some ways that we could build more flexibility into the contract.
Danielson: I've been with quite a few contract cities that have been very similar to Centennial, and I think this is the most advanced contract I've seen. I think it can be credited to a three-part mix of CH2M HILL, some pretty creative city staff, and also Merrick Engineering, who worked with us on an assessment of a lot of the terms and conditions of the contract. This contract is pretty technically advanced.
Noon: We have similar things in our building services contract. We have a company that does all of our permitting and other development functions. When we re-bid that about two years ago and went through the entire process, we felt our current provider did an exceptional job of not only fulfilling the contract, but also exceeding the contract. They even offered to have the contract tightened up further and raise the bar even higher in terms of how they would perform. I think that we've learned from each contract we've done, and have been able to write an even better one the next time. It's beneficial for both sides and good for everyone. It doesn't do you any good to have your partner unhappy, on either side. The reason that this really works is that it's a win-win.
Gilroy: In all forms of privatization, a key concern is that the government will "lose control" of public services. How do you hold the private sector accountable for living up to their end of the contract?
Danielson: I’ve heard that for a lot of years, and one of the things that I find interesting is that we in government tend to not hold ourselves to the same standards as we hold our contractors to. How many government agencies say that we'll give ourselves X number of hours or days to respond to a particular request and hold ourselves to it or penalize ourselves if we don't do it? But we do that consistently with all of our contract relationships. So I'm a little bit skeptical about the fear of losing control. If it gets away and there is a downturn in service, and your contract doesn't provide specific stipulations about what the remedy is for that, then you don't have a very good contract. We do have that written into our contracts, we do have responsiveness, and we do have penalties. I think that we're actually more responsive as a contract city than the cities that are completely staffed by in-house personnel.
Noon: That's very true. I think that because we have to look at the contract, it keeps us more in control. It's much easier if it's just your city staff, and everyone is just going on and doing what they’ve always done. But we have to make sure that someone else outside of our city payroll is really providing what we're supposed to get. I really think that makes us more engaged, because it's usually easier to hold someone else accountable than it is to hold yourself accountable.
If you hire your brother-in-law to redo your kitchen and things aren't going right, do you want to complain to your brother-in-law? That can create a lot of problems. But if you hire someone off of a preferred contractor list, and he signs on to do something a certain way, it's easier to tell him what he's doing is right or wrong.
Danielson: That's absolutely true. And further, you have so much more flexibility in staffing than you would if these were all city employees. If there's a downturn in the number of building permits, well guess what? Those people won't just be sitting around. If we don't need engineering services this month, then we can just let the engineers stay home. I can't do that with in-house staff. I can't suspend their activities because I have no work to give them.
Noon: And the reverse is that if we have a bump in the need for a service, we can just bring those people in through the contract. And when the work for the city is done, the contractor can reallocate them accordingly.
Danielson: And the contractors are financially incentivized such that they hope that we do ask them to bring somebody else in, because the more employees they have working, the more it benefits their bottom line. So they're delighted to bring people in. And I should also note that since we pay for work done—and not for someone's time—then it does the contractor no good to have someone sitting here with no work coming in.
So it's actually an ideal business relationship. We have shared risk in that sense. The contractors are hoping for a good year when they can bring people in, but it's a liability for them to have folks sitting around that they can't pay, so they'll instead move them around to other locations where they're needed.
Gilroy: How does that translate to ensuring the performance of contractors?
Danielson: On performance, we get almost instantaneous feedback. I know exactly what project is on time, and I know exactly what the outcome is. Believe me, we get spontaneous feedback on what works and what doesn't work. I don't know how many cities do this, but we've got a citizen response center where a real human being answers calls 24 hours a day, seven days a week on anything and everything that may be going on, from law enforcement to potholes to street sweeping. We get continuous feedback in terms of our turnaround time on building plans, building inspections and the like, and we respond to many of those the same day.
So we monitor our contractors much more closely—and it's much easier to monitor them—than I think it would be if we had an entirely in-house staff because the complaints come back more circuitously in that environment.
Noon: I think that's one of the things that helped lead the council toward implementing key performance measures both in-house and externally. We started performance measures with a lot of the contracted services like code compliance and building services, but now we're looking at how we put that in place for other areas. We now have it in place for our planning department, which is in-house completely, and even with our municipal court. We literally track the time that it takes from when someone comes in for their arraignment or for a court case and when they leave. So we're using performance measures for things people do not enjoy—no one likes having to come in to court—but what we hear is "you made it efficient and took care of us in a professional manner, and you treated us with respect."
So we're focused on looking at how we can guarantee good customer service not only by our contractors, but also by our in-house staff. We're setting performance targets for our own internal operations, and we're looking to do even more of that.
Danielson: That's a key point. We're not just monitoring our external contract operations; we monitor our own in-house operations just as closely, even though they're much smaller. We really are interested in our efficiencies, both inside and out.
Noon: Also, when we're doing requests for proposals for services, we do an in-house model as well and we ask our own staff to put a proposal in. When we did code compliance a few years ago, we prepared an in-house model that looked at how many people we'd need to hire, how many trucks we'd need to buy, what kind of space we'd need, and the like.
Gilroy: Being located where you are in Colorado, snow removal is a big deal. You were recognized recently for innovations in how you deliver snow removal services on your streets, and you also started a program to promote volunteer snow removal for sidewalks and parking lots. Can you describe both of those initiatives?
Danielson: There are several industries—like solid waste, FedEx and others—that are using computer-aided routing to lower fuel costs and improve efficiency. They're asking, "What is a better way to drive a route?" Here in Centennial, our contractor CH2M HILL took it upon themselves to look at snow removal to figure out if there's a better way to run their routes to save money or do it faster. So they went about doing that scientifically with computer-aided design, looking at better ways to run routes to avoid having to backtrack or double back on. And in the same period of time and for the same cost, they were able to add 93 miles more roads.
Noon: When we took over from the county, we took over their snow routes, which included main thoroughfares as Priority 1's, major arterials as Priority 2's, and neighborhood collector streets as Priority 3's. And we've always plowed Priority 1's, and then we completed the Priority 2's, and occasionally we could get to Priority 3's depending on how much snow there was. But it was not routine to go into the neighborhoods. Because we inherited the routes from the county, we inherited the way the routes were done as well. When CH2M HILL came to us with their idea, the first time we ran the numbers it showed us a 29 percent time savings to do the same amount of routes, and after doing that a second time, they increased that to a 40 percent time savings. CH2M HILL was then able to plow all of the Priority 1's and Priority 2's, and if there wasn't a huge snowfall then we were able to also add Priority 3's as routine.
The additional 93 miles of roadway is directly beneficial to residents because we were now in their neighborhoods. That doesn't mean every street and every cul-de-sac, but now each and every citizen is within an eighth of a mile of a plowed street. Some citizens emailed us and told us they had seen the first snowplow ever in their neighborhoods—or even twice—so people were really happy. That was the direct result of innovative thinking by our contractor—our "certified smart guys," as we like to call them—and a great award-winning product. In fact, I think we may be the only city to use this kind of technology in snowplow routes, and it's really helped us be accountable to our citizens.
Danielson: Going back to your earlier question about ensuring that we're getting the performance from our contractors, this snow plowing example is Exhibit A. I'm not certain that program would have been easy to achieve under an in-house model due to labor issues and other reasons. Because the snowplow routes are GPS-based, we know where the trucks are all of the time. Going back to the question about making sure the city doesn't lose control working with a contractor, I can look at a screen and tell exactly where those trucks are. They log their location and mileage in real-time, but after every snow event we're able to go in and assess the efficiencies and efficacy of the effort by seeing how many miles they drove and how long it took them.
With regard to the volunteer program, the city council really wanted to do something about sidewalk snow and ice removal. We in government tend to want to be punitive and use the stick more than the carrot, but what we wanted to do was encourage people to voluntarily remove snow and ice from sidewalks and recognize them for a job well done, as opposed to hiring more code enforcement officers to cite people for being bad neighbors.
So we started the Snow Hero program, which is not focused on being prescriptive or writing tickets. It focuses on thanking and recognizing people publicly for taking care of snow removal. People have the opportunity to nominate neighbors and local individuals that were taking care of way more sidewalk frontage than they really needed to do. So we recognized them on the Internet, and Mayor Noon handed out a certificate and yard sign to them.
We weren't sure if this was going to work, and we're doing an after-action assessment now. We think the total number of neighbor vs. neighbor complaints was significantly down this year compared to previous years, and in terms of the nominations, we literally received hundreds of nominations. So we're pretty happy with the first year. Preliminarily it looks like it was quite successful, which means that instead of being prescriptive, maybe there's a better way—by thanking people for being good neighbors—to get a better response. It will probably be a two-year program, and then we'll go back and assess it to see how effective we've been.
Gilroy: Can you describe the citizens' satisfaction with the public works contract in general? Have they been pleased with the services they're getting?
Noon: A few years ago we did a scientific survey specific to public works, mailed to 3,000 households. Interestingly enough, more than 1,000 surveys were completed—a response rate of about 34 percent, which is high. The results showed that 94 percent ranked the overall quality of life as a good or excellent place to live. Sixty-seven percent felt that our public works were good, and another 12 percent felt that our public works were excellent—so roughly 80 percent were very satisfied with their public works.
This survey was completed before the snowplow innovations, and when you read the survey results, you see residents wanted improved snowplowing. I think if we did a survey next winter or the winter after that—once they see the payoff of the innovations full force—we would get those numbers even higher. The city wants to be accountable and responsive to our citizens, so we took survey results and found out what's important to people, and we took steps to address where people felt we could do better.
As far as our citizen response center, when people call in to report a pothole, they will get a response back that says, "this pothole was fixed today." People are not only happy that the work gets done, but they're also happy that we got back to them. The citizen response call center had an 11 percent increase in usage in 2012 over 2011, so people are understanding that by calling things in, they get taken care of, so then they're more likely to call back again.
Danielson: I think the interesting paradox of being a contract city is that we're held to a much higher standard. The reason for that is that we teach people that we actually respond. Compared to other cities that I've worked in, our complaints are actually higher. But it's not that people are unhappy with us. It's that if a citizen calls and speaks to a human being, and then things get done, we teach people to be a little more demanding. You put yourself out there more as a contract-style city, as a responsive government, and you're automatically set to a higher standard.
Gilroy: How many employees does Centennial have today, and how would that compare to the workforce of a similarly sized "traditional" city of 100,000 people elsewhere?
Danielson: We're running at approximately 51 full-time equivalent employees. It's a little bit skewed because we contract for law enforcement and have districts providing things like water and fire, but I would guess that a full-service city of our size would typically be about 1,000 to 1,100 employees. Indianapolis, for example, is running at about one employee for every 85 residents, and we're running at one employee for every 2,000 residents.
Noon: If you just took the contractors that are providing services that the city would otherwise do, like law enforcement and public works, then we'd probably have between 400 and 600 employees.
Gilroy: Does Centennial have looming, unfunded pension and retiree healthcare obligations like so many other municipal governments?
Noon: We have no pensions for our employees here in Centennial. We have a defined contribution, 401-style system for the employees, so we have to consider vesting, but that's not a long-term issue like defined-benefit pensions. People know exactly what that amount is at any given time. Each contractor is responsible for handling their own pension or 401-k plans. We do not have unfunded retiree healthcare obligations either.
Gilroy: What lessons have you learned along the way in terms of running a lean, entrepreneurial city that you could share with others who may be contemplating similar moves elsewhere? What can other traditional cities learn from Centennial?
Danielson: I think being a contract city is not necessarily easier; in fact, it's often harder to operate because you have fewer resources, everyone has to wear a lot of hats, and that might scare some folks off from trying things in the first place, especially if they're in an organized labor environment. The other thing that you have to be consciously aware of is that there's this inexorable creep to find ways to hire more people in-house. And then one day you wake up and instead of having 50 employees you have 60, and then the next year you've got 70 employees, and so on. I think you have to resist that and stay true to the model. If you're going to go down this route and really make it work, avoid employment creep wherever you can.
In fact, over the last year this city has actually shrunk its workforce by about 20 percent, and we've added more efficient contract labor to replace some of that. I would caution everyone that it's a difficult place to get to, but once you get there, we're providing better services at a lower cost with a higher sense of satisfaction and more responsiveness.
Noon: I think that the city at one point in the past did start to creep, and we would think, "well, let's just hire someone." But when development in the city came to a screeching halt, we realized that we didn't need a huge planning and engineering staff. There was less for them to do.
So at one point we had wavered, but we realized that we needed to get back on track, and we did. In the current culture our employees do have to wear a lot of hats, because at any given time, one sector of your city could be booming and another could be dwindling. So you're a greater benefit to the organization if you can do more than one thing, or at least be willing to learn.
Danielson: The reduction in staffing wasn't done for financial reasons. It was really to get back to our core competencies. We are a great manager of contracts, and that's what we should be doing. I tell everybody that the days of single-purpose employees is over; it just doesn't work. Everyone that we have here today has multiple talents and skills.
Noon: And one of the biggest lessons we learned is that the contracts you write are the key to making this a success. We had a contract model for our planning department when we first started the city, and this was a contract that was not working well so we decided to bring it in-house. It may not have been as unsuccessful if we had written a different, better contract. I'd advise other places to go to cities that do contracts well and talk to them. There's no sense learning the hard way when you can learn from our experiences and other people that have done it. We don't want to give the impression that there hasn't been a bump anywhere or that we've always known exactly what we're doing. We've taken a few steps back and forth throughout this process, but what has come out of it is a better organization with a better process.
Danielson: I know this contract city system works. I see it every day, and I've been doing this for a lot of years. I've been in cities that don't do this, and I've been in a few cities that do it spectacularly well, and it's always better. Why other cities don't do it comes down to political courage and it comes down to difficulty—it's not an easier model but a tougher model in some ways. But it just works better.
Mayor Cathy Noon was elected as Centennial, Colorado's second mayor in 2009. As mayor she serves on many state, regional and local committees and boards. Important to Centennial's economic prosperity, Mayor Noon advances Centennial's identity with worldwide businesses continuing to locate to the City. Also important is creating unique places in Centennial, which was proven with the opening of the award–winning Centennial Center Park. Under Cathy's leadership the city's finances and fund balances are strong. Mayor Noon is a strong proponent of public-private partnerships, providing taxpayers the best value for their tax dollars.
Mayor Noon deems the emphasis placed on protecting property values, improving transportation and roads, and the vibrant community of great parks, open space, schools, businesses and neighborhoods earned Centennial Money Magazine’s 47th best place to live.
John Danielson is the City Manager of Centennial, Colorado. He has helped to create a high functioning core management team that requires only approximately 50 employees to provide outstanding services to more than 100,000 residents. Spanning a 25-year career in municipal management, Danielson has served as city manager in a wide variety of cities and special districts. During that time he has had the opportunity to create two new cities from their inception, based on the public-private partnership model, played an instrumental role in developing the infrastructure and municipal management models of three other new cities, and consulted with municipalities affected by complex financial and structural issues in need of critical resolution.
Other articles in Reason Foundation's Innovators in Action 2013 series are available online here.