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Chapter Summary

Sclar, Elliot 2000. Restructuring Work: The Relational Contract, Chapter 6 of You Dont Always Get What You Pay For: The Economics of Privatization. Ithaca, NY: Cornell University Press.

In the sixth chapter, Sclar examines a specific case study in order to illustrate a successful alliance between labor and management and to highlight the features of relational contracting. The author analyzes the attempted privatization of the Indianapolis Fleet Services [IFS] department, a division responsible for providing upkeep, fueling, procuring and disposing of all city vehicles. The department had previously been created by merging many different city departments fleet vehicle maintenance divisions including social services and fire departments. The merger, however, resulted in a bloated department that exceeded its budget and failed to provide timely maintenance for city vehicles.

The 1991 mayoral election signaled a turning point. The citizens of Indianapolis elected Stephen Goldsmith as new mayor, a candidate who had run on a privatization platform. The new mayor singled out IFS (then known as the Central Equipment Management Department -- CEMD) as his first privatization effort. However, three factors helped the CEMD fend off privatization: 1) due to years of internal management-labor conflicts, line workers had developed a sense of solidarity, 2) after the elections the manager stepped down and was replaced by a forward thinking division head, John McCorkhill and 3) a cooperative union President, Dominic Mangine, struck an alliance with management.

The internal alliance of workers and the new management convinced city hall to desist from immediately dissolving the division. Goldsmith received this combination of bold leadership and union support favorably. The mayor approved the following steps in order to give CEMD both the time and power to restructure itself: 1) to dismiss ineffectual managers, 2) to develop an implementation and reorganization plan, and 3) to allow CEMD to bid for the contract along with other private companies. An outside consulting firm requested bids for the city. The CEMD now as IFS was chosen.

In his conclusion, Sclar remarks that most would laud this case as an instance where the public sector was successfully forced to compete with the private sector, as a salutary example of competition (143). Sclar, however argues that the real lesson is about relational contracting. The genuinely constructive relationship that developed between city hall, CEMD management and line workers, he argues, facilitated the restructuring of the department and fostered an environment in which privatization was not a forgone conclusion. The alliance made trimming politically appointed managers possible , resolved internal worker-management conflicts and improved the quality of the service. Consequently, the CEMD, transformed into the IFS, became a financially viable business.