Chapter 2: Competitive Government
Subject Outgoing Mail Services to Competition
Summary
Texas state agencies should open their outgoing mail services to competition with private vendors.
Background
Recently, the Comptroller’s office faced the need to replace outdated equipment used to process outgoing mail. The agency conducted an activity-based costing (ABC) analysis of its outgoing mail function to better understand the elements of its costs. Price quotes to replace current equipment exceeded $2 million, and maintenance agreements cost the agency $135,000 annually.[1] The agency sought an alternative to these capital expenditures for new equipment and the high costs associated with maintenance agreements.
With the volume of mail expected to rise, space also was becoming an issue for the agency, as more equipment seemed necessary. Agency staffing needs could be expected to increase concurrently with the volume of mail. Over the past few years, furthermore, the Comptroller’s office has created more complex mailings requiring multiple inserts beyond the capability of its current equipment. To process these jobs, the office would need to purchase new equipment with greater capacity, hire more staff, or outsource the work. In addition, the Comptroller’s office wanted to realize some economies of scale on its volume of mail and reduce its postage rates. After this analysis, the agency decided to seek competitive bids for outgoing mail services.
A request for proposals (RFP) released on March 17, 2000 solicited bids for processing the outgoing mail of the Comptroller’s office. This RFP marked the first time that Comptroller in-house staff competed directly with outside vendors for a contract, a process commonly called managed competition.
Opening the outgoing mail division to competition provided the Comptroller’s office with an opportunity to obtain the best possible price while improving the quality of service.
The Comptroller’s Outgoing Mail Division worked with the Support Services Division to develop a proposal in response to the RFP. The process of reengineering business processes by an in-house team is called creating a Most Efficient Organization (MEO). The MEO then is compared to the best offer received from outside vendors to evaluate which proposal to adopt.
After the bidding process was completed, the Comptroller’s office awarded the contract to a private vendor. The contract will save the agency more than $700,000 over the next two years. In addition, several recommendations made by the in-house team pertaining to other Comptroller processes may save the agency even more money.
The employees of the Outgoing Mail Division were moved to existing positions elsewhere in the agency.
Past Texas Performance Review reports have recommended the consolidation of state agency mail services to gain economies of scale and reduce postage and equipment costs. As a result of these recommendations, the General Services Commission (GSC) processes 4 million pieces of mail annually for 77 state agencies, consolidating it for delivery to a vendor that presorts it in a way that allows the state to earn lower postage rates from the US Postal Service. GSC collects outgoing mail during its daily rounds connected with the delivery of interagency mail.[2] In addition, other agencies, such as the Texas Department of Human Services, the Office of the Attorney General, and the Texas Department of Public Safety, deliver their outgoing mail directly to the presorting vendor.
Recommendation
All state agencies with outgoing mail divisions that handle 6 million or more pieces of mail annually should perform an activity-based costing (ABC) analysis to benchmark their costs against the costs of the Comptroller’s current contracted prices.
According to the General Services Commission (GSC), three state agencies—the Texas Department of Human Services, the Office of the Attorney General, and the Texas Department of Public Safety—handle more than 6 million pieces of outgoing mail each year.[3] These agencies should undertake the ABC analysis to learn whether further savings are possible.
Agencies with costs higher than the Comptroller’s contract price for outgoing mail should be required to conduct a managed competition to determine the most efficient method of delivering the service, or they should join the Comptroller’s contract. Upon request, the Comptroller’s office would assist agencies in creating the proper circumstances for a managed competition.
Agencies that do not meet the above criteria or that obtain presort services through the General Services Commission should perform a simple cost analysis to calculate their costs for processing mail. The Comptroller’s office can provide a guide for agencies to use in performing this analysis. These agencies should compare their costs for mail processing to GSC’s; if their costs are higher, they should outsource their operations to GSC or a private vendor.
Fiscal Impact
Without accurate costs for agency mail processing, the cost savings resulting from this recommendation cannot be estimated. The experience of the Comptroller’s office, which achieved savings of more than $357,000 annually, makes it reasonable to assume that substantial savings would result, particularly in operations involving complex processes such as sorting, stuffing, matching, and the shipment of larger items.
The savings identified can be used to offset any cost incurred by the ABC studies. The Comptroller’s office would be available upon request to assist in these ABC studies.
[1] Interview with Art Anguiano, manager, Outgoing Mail Division, Comptroller of Public Accounts, Austin, Texas, February 17, 2000.
[2] Telephone interview with Roxy Sauer, manager of the Mail Division, General Services Commission, Austin, Texas, July 17, 2000.
[3] Letter from Roxy Sauer, manager of the Mail Division, General Services Commission, July 28, 2000.
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