Going private could give US employees a stake

In March, Constance Horner was sitting in her hotel room in London, watching the news -- and she got a lesson in strategy. ``The anchor reported that government employees were outraged at the delay in privatizing British Airways,'' recalls Ms. Horner, director of the United States government's Office of Personnel Management (OPM). ``Knowing how federal employees have used their political power with Congress and with federal agencies to delay the same kind of measures in the US, I couldn't believe it.''

But the British have given employees a stake in the new, private company, generally through options to buy shares at a discount. When British Telecom was spun off in 1984, 96 percent of the employees bought stock. It nearly doubled in value the first day.

Horner wanted to try the same strategy. Last month, she announced the ``Federal employee direct ownership opportunity plan.'' It's called ``Fed Co-op'' for short, but it could also be named ``Back-door Privatization.''

For three decades, a government rule has required agencies to compare the cost of doing certain services in-house with having them done by contractors. The rule, in Circular A-76, is routinely ignored. It affects about 600,000 government employees who do everything from automatic data processing to running a cafeteria.

Fed Co-op would give employees an incentive to contract out -- and reduce the cost to government -- because they would be the new contractors.

Say there are 30 employees running the cafeteria at the Department of Interior. The service costs the government $1 million a year. Employees now running the cafeteria would get a minority stake (up to 49 percent) of a newly formed private company. The other shares would go to the highest bidder, and the market would determine the price of the stock.

The new company would receive a sole-source contract for a fixed term. At the end, the company would have to bid for the contract again. Based on past experience, current contractors have a better than even chance of landing the contract again.

One incentive for employees is a large lump sum of money. Based on cost savings from previous A-76 contracts, the contracting firm could reduce costs by 30 percent. That savings would determine the value of the shares of stock the employees receive. In the cafeteria example, each employee would get $15,000 in shares over the life of the contract.

Horner says that ``there have been strong approving sounds from Congress and the administration'' on the plan. -- B. B.