John’s Folly

John’s Folly

The only thing that never changes is change.  So it is with plumbing and sink repair.  For those not familiar with plumbing history in days past there had been vast differences in the approach to keeping the sinks of the city flowing well.  In Paris, this had been approached as a Fee-For-Service program and Bill the businessman had embraced this approach and taken it to new highs.  In London they approached it as a Government Managed Sink Agency under the guidance of Mike the manager.  In Madrid they approached the problem as a Bundled Risk Benefit program and the work was contracted to Ernie the entrepreneur. 

There came from Toronto, John, a man whose family had a long history in Paris who returned to serve as the Mayor of Paris.  He had a sincere desire to improve the lot of the citizens of Paris.  He knew that for Paris to become a strong and vibrant community it had to have sinks that flowed well.  Being a thoughtful man he sought guidance on how the sink problem might be reformed.  Needless to say there was lots of guidance offered.  The good news was that there were those who made rational arguments for every possible approach. 

The old guard in Paris suggested that their approach which harnessed the power of the free market was the way a free people should get their services.  And since the people of Paris longed to be the free and independent people they knew themselves to be this was the right approach. 

The approach taken in London was that this was something of such import that it needed to have the stable hand of bureaucracy at the helm and could not be subject to the vagaries and shifting tides of free market.  To create a fair and equitable society this clearly should be under the purview of the government.

The approach taken in Madrid was that the risks and benefits of how plumbing care was delivered should be coupled.  This coupling encouraged and rewarded the creative energy of the private sector.

So it seemed there were proponents of every approach.  Coming from a more pragmatic background, John asked the following two questions:

• How many days a year did the average citizen have a clogged sink? 
• What was the percent of GDP spent on well flowing sinks?

In London they had fairly good data.  The data on days with a clogged sink were somewhat out of date because the agency charged with maintaining the data had been short staffed for a few years due to budget constraints (they have a balanced budget law in London you know).  The cost data were for the program, excluding any cost for the program office space or electricity since those were embedded in the general operational expenses for the city government and could not be extracted meaningfully.  For the last year the data were available (three years ago), they estimated the average citizen had 5 days per year with a clogged sink and approximately of 12% of their GDP was spent on their Managed Sink program.

In Madrid they had 3.1 days per year with a clogged sink and 9.3% of their GDP was spent on sink repairs.  These data on days with a clogged sink were as of yesterday since Ernie had real-time data so he could manage the process.  The costs were the complete costs and were known exactly because they were specified in the contract with Ernie.

In Paris no one had any good data but the estimates were that the average days with a clogged sink was around 3 days per year.  They had records of the total reimbursements.  Similar to London the cost of the governmental aspect of the program (processing claims and payments) were less easily extracted but could be estimated.  The best estimate was that around 18% of the GDP was spent on sinks.

John’s deliberations were brief.  The best performance was clearly that of Madrid and their data were the most reliable.  His decision was made.  Under his tenure they would reform clogged sinks and move to a Bundled Risk Benefit plan.

I will spare the reader the resistance that John encountered.  Arguments were that Paris didn’t need big government, that the individual freedom to choose a provider of plumbing service should not be taken away, and that reforms should be small and incremental to preserve the great things about the current system.  For example, in Paris people enjoyed more sink repairs than in any other city and this attempt to ration service would likely mean the formation of Clog Committees who would decide whose sink was worth being unclogged and whose was not.  Bill the business man was more circumspect in his comments.  He voiced unequivocal support for the spirit and intent of the reforms but that change needed to be undertaken with an appropriate degree of caution (as opposed to some inappropriate degree of caution we assume).

The resistance notwithstanding, John managed to implement his new program.  The city would conduct a competitive bid.  Under this bid the potential vendor would assume the responsibility for all of the sinks in the city and would propose a fixed cost per year for those services.  There were two bidders for the contract.  One was Ernie the entrepreneur and the other was Bill.  Ernie offered to perform the service as he had in Madrid for 9.3% of the GDP.  Bill offered to service the contract for 8.9%.  Bill was awarded the contract.

Alas, John was to be disappointed.  The city was able to reduce its cost of sink repairs to exactly the level of 8.9% since the costs were established ahead of time.   However there were complaints that frequently citizens were told that if their sinks were draining at all (albeit slower than in the past) that they did not qualify for repairs.  There were complaints that Bill had hired a number of Plumber Assistants who were not formally trained as plumbers but who he felt could do some tasks as well or perhaps even better than licensed plumbers.  There were complaints that if a sink became clogged after 11:00 AM on a Friday it would not be repaired until Monday (or as soon thereafter as they could get to it).

John asked Bill for the actual data on these complaints.  Bill initially indicated those data were not available.  When pressed he suggested that if John wanted additional services such as quality reporting he would be glad to present John with a contract amendment and cost for that service.

John shifted tactics and confronted Bill with instances of poor performance.  Bill’s legal team asked John where in the contract it indicated that sinks that were still draining were Bill’s problem.  Bill’s legal team asked where it stipulated that the work could only be done by licensed plumbers.  Bill’s legal team asked where the contract specified how long a sink could be allowed to be clogged before it was repaired.  Much to his chagrin, John acknowledged those items were not specified. 

Bill went on to say that John was being inappropriate.  John had wanted to reduce to costs from 18% of GDP to 8.9%.  Did he really expect that such a level of cost reduction would not have to be accompanied with some change in the actual service?  Get real.

John contacted his friend Mayor Mayer from Madrid and asked him how they addressed these problems.  Being a friend, Mayer told him the truth.  They hadn’t anticipated these problems either but that when they were first setting up the program, Ernie had come to them and suggested that it would be to everyone’s benefit to agree on what should be expected.  Ernie himself suggested that if the rate of clogged sinks was over a given level (they settled on 4 per citizen per year) that a penalty would be imposed that reduced payments to him.  He went on to propose that if the level persisted above that rate that his contract could be terminated.

At first John didn’t understand how that would help.  Mayer pointed out that if Ernie became aware that a citizen had a sink that was flowing slower than normal, Ernie would fix it so it never counted as a clog.  That Ernie did use some Plumbers Assistants but judiciously because if their performance was insufficient the penalty was greater than the cost savings over using licensed plumbers.  Ernie also provided repairs 24 hours a day so a clogged sink didn’t add any more than necessary to his performance metric.

John had become somewhat of a cynic and asked how Mayer would know if Ernie was performing up to standard.  Well that too was part of the service Ernie provided and was the lynch pin in the whole plan.  Ernie used an information system that captured every sink care event and made those data accessible to the city.  Ernie’s perspective was that his job was to provide excellent sink care that accountability was essential and the program could only be sustainable if there were data to objectively document the benefits.

John could see where they had failed.  The Bundled Risk Benefit model had to have a system of data for accountability and a well delineated level of performance that was meaningful.  They had adopted the model without these safeguards and now things were worse than ever.  Not because they model was flawed but because they didn’t have the required safeguards.  It seemed possible that Ernie had a more accurate moral compass than Bill but the real success for Madrid was based on verifiable data.  Trust but verify, just like they had with nuclear weapons.

Needless to say when John proposed such ideas to Bill the response was that such expectations were out of scope for the existing contract but in an effort to be a responsive contractor Bill would be glad to amend the contract to include them along with a cost adjustment to around 19% of GDP.  Otherwise when the current contract expired in six years that John could require that in his new competitive bid at that time.

Long before the expiration of that contract, the city of Paris began to see migration away from Paris.  It was said that people were voting with their feet.  As the people moved, businesses left with them.  Some clearly went to Madrid but some even went to London finding the bureaucracy and high taxes preferable to the dismal quality of sink care in Paris. By the time John came up for re-election all of the positive things he had done for the city were overwhelmed by the negative of John’s Folly as it was called.  His beloved Paris became a sad remnant of its glory days, unable to compete in a new global economy.

John’s Folly.  John’s Folly.  The phrase rang in his ears as he opened his eyes.  Much to his relief John realized it had just been a dream.  No not a dream, a nightmare.  He still had a chance.  He was to take office today.  He hadn’t yet fallen into the trap.  He could adopt the Bundled Risk Benefit plan but with the safeguards in place.  He need never hear that phrase.  It was a glorious morning.