State and local governments looking for ways to balance their budgets too often fall victim to the siren song of contracting out public services.  However, privatization’s promised short-term savings often result in higher costs, poorer service, increased opportunities for corruption and diminished flexibility, control and accountability.  Contracting out has been shown to compromise the security of personal information and public assets.  In addition, the local economy and tax base suffer as decent jobs with benefits are replaced with low-wage, no-benefit jobs and private companies exporting profits to other parts of the country or even overseas.

Innovative and responsible government leaders know that joint labor/management partnerships are the best way to truly improve service delivery. Public resources are most efficiently and effectively deployed when front-line workers and managers – who have a stake in their communities – work together for the public good.

Contracting out almost always costs more than advocates claim because indirect and hidden costs are ignored.  These include the cost of contract monitoring and administration, conversion costs, charges for "extra" work, and the contractor's use of public equipment and facilities.  The Government Finance Officers Association estimates that such costs can add up to 25 percent to the price of a contract.

The quality of service can deteriorate when profit is the prime motivation in service delivery.  The profit motive can be an incentive to "cut corners," especially when contract specifications are vague or poorly defined.  Flexibility erodes because public employees routinely perform tasks above and beyond their official job descriptions.  Those duties usually are not factored into contract specifications.

Dependence on contractors increases as in-house expertise and capacity is reduced or eliminated.  This loss of leverage can lead to price gouging by contractors in future contract negotiations.  When contractors "low ball" their initial bids, governments are especially vulnerable to increased costs in the future, when they have no place else to turn.

Finally, and maybe most importantly, public accountability is diminished because complaints from citizens cannot be directly and quickly addressed by the State or local government.  In addition, private companies are not subject to the same public scrutiny as government entities, which are required to operate in an open arena. These conditions create opportunities for corruption, such as bid-rigging, bribery and kickbacks.


STATE OF WISCONSIN CONTRACTING OUT - A few years ago, AFSCME led the effort to unmask the hidden costs of contracting out of State services.  An exhaustive review of State Department of Transportation contracts revealed the State was grossly overpaying for services, paying for redundant services and making payments far exceeding the estimate of the original contract.  Those revelations, along with information regarding State information technology projects and contracts that were coming in well beyond time and well above budget, led to a bi-partisan effort to review and reform the State contracting out process.

Wisconsin 2005 Act 89 implemented a system of Uniform Cost Benefit Analysis (UCBA) to be performed by all State agencies prior to entering into any contract that exceeds $25,000.  The legislation was intended to create a system that compared the actual real cost of contracting out, including oversight and administration, as well as the use of State resources on an apples to apples basis with having the same work done with public employees.

After ACT 89 was signed, AFSCME went to work with State agencies on developing systems that reflected the intent of the legislation.  While those systems are still a work in progress, reviews of UCBAs over the last couple of years have begun to shed light onto the problems with contracting out.

One of the most glaring problems at the State level is that many of the UCBAs state that the reason an agency ultimately pursued a contract was the lack of State employees or positions to do the work.  In some instances, it is apparent that it would be more cost conscious for State employees to do the work, but due to either previous cuts in State positions or the failure to create a position in advance of need, State employees are not readily available.  In these cases, time restrictions almost force the State to contract out for the service, even though a State employee would be more cost effective and provide higher quality.

As noted, UCBAs are still a work in progress and AFSCME is working to ensure that administrators properly account for all the costs of contracting out.  However, ACT 89 provided a significant first step, and has created a tool that we hope will be used by elected officials to not only save taxpayer dollars, but also to improve the quality of State services.


CONTRACTING OUT BY LOCAL GOVERNMENTS - While the centralized nature and scope of State government allows for a comprehensive approach to scrutinizing privatization schemes, the municipality-by-municipality and county-by-county nature of local government contracting makes analysis more difficult. However, it is clear that revenue caps combined with decreased State aid have left many local governments in Wisconsin looking for short term fixes from one budget to the next.

Legislators must be conscious of the impact their decisions are having on the quality of services that so many Wisconsinites rely upon from local governments.  Once local services are contracted, the competition for private vendors of public services is eliminated, turning those short term savings into even larger long term headaches.


ALTERNATIVES TO CONTRACTING OUT - Contracting out is a risky way to address the many demands and challenges facing State and local government.  As various jurisdictions have found, when committed managers and elected officials recognize that workers are a valuable resource — an asset to be developed rather than a cost to be cut — these demands and challenges can be met without introducing the risks of contracting out.

AFSCME encourages members to talk to candidates for the State legislature this fall and explain to them the dangers of contracting out.  Ask them to commit to keeping public services public, and ensure that the high level of service provided by public employees is maintained.
 

For more information, call the AFSCME Area Office at 608-836-6666.