The vast majority of public fleet operations are an expense to the agency they serve, and therefore are an easy target for budget cuts or outsourcing. So what can you do to add more value to your department’s existence…INSOURCE!
It seems nearly every month you hear stories about public fleets insourcing work from other government agencies. We bring to the table specialized skills (such as fire equipment repair) that is not usually found in the private sector. While this is a very desirable trend because it increases our net-worth across several customers, it can be fraught with unintended and undesirable consequences if the insourcing inter-local agreement is not drafted properly.
Once you have entered into an insourcing agreement you have basically, for all intentional purposes, become a commercial supplier of maintenance services. And with that responsibility, comes the requirement to run your shop like a commercial business. The insourcing agreement should benefit your employer, because if it does not, why do it at all?
While it is a noble idea to help-out a nearby community, insourcing should accomplish at least one of the following objectives:
1. To increase staffing and service delivery for your fleet.
Because the other agency will not be financially burdened with the cost of operating a fleet facility, and its associated administrative personnel costs, you may be able increase your technician staff (providing you properly calculated the labor requirements to service the additional equipment). The increase should not only allow for the customers projected labor requirements but also provide additional labor hours to offset some of your maintenance requirements. In other words, you need to obtain enough additional staff that will not only service their fleet but also increase productivity in yours.
2. To realize a profit at the end of the fiscal year.
A properly computed fully burdened labor rate is only designed to recover (or charge-back) your total yearly operating budget and no more (unless you include forecasted capital expenditures). If you bill the external customer at your current labor rate, it may not be sufficient enough to turn a profit at the end of the year. The rate you charge your external customers should not be the same rate you charge your internal customers. Additionally, the parts, fuel, and sublet markups should adequately reflect the cost of procurement plus profit.
There are many more critical areas of concern when drafting your agreement. The Government Fleet “Public Fleet Audits Self-Assessment Checklist” contains an extensive listing of all the elements that should be contained in the agreement. If you decide that insourcing is right for you, talk to those who have done it for a few years to learn the about the potential pitfalls or rewards.
