ISSUES

Control

• Security - In-house provides more control for security sensitive positions (such as custodians)
• Budget control and funding fluctuations - In-house provides more budget flexibility in the long term, as staff can be reduced, increased, or reassigned on short notice.
• Quality control - Generally, in-house provides more opportunity for quality control
• Retargeting (e.g. custodian who does grounds in summer or for a year) Not possible in contracting out under most circumstances.

  Summary:

Staff: higher control

Contract: less control

Cost saving (benchmarking), could go either way

Conventional wisdom provides this as the reason to change to contracting. Based on the experience of the past decade, whether this is true depends largely on the circumstances of what is to be contracted and what the available contracting or staff resources are.

Liability (can be shed)

Certain high-liability tasks lend themselves to contracting due to the high liability exposure of doing them in-house. These include tasks such as hazardous waste disposal, asbestos abatement, elevator maintenance, and so forth. However, the largest organizations sometimes staff these tasks in-house in order to assure adequate quality or even to save money.

Technical complexity and availability of employees vs. availability of vendors

Current ability to do the task vs. cost of establishing a program

Amount of work / definition of position (does it add up to a job?)

Relationship or importance of activity to mission

Does the task related to the core mission? How does it support that mission? Will outsourcing compromise that support? This issue is the reason why teaching, for example, is seldom outsourced.

Current satisfaction

Most organizations won’t outsource a function that they are currently satisfied with unless they are severely stressed by outside factors.

Bonding power, lower interest rates

Public agencies have access to inexpensive capital through sales of tax-free bonds. High capital activities that can take advantage of this, such as housing, are often provided at lower cost in-house.

Uncertainty about future need

Sometimes an organization is unsure about whether a task will be needed permanently, or at what level. If the uncertainty level can be matched to contract length, outsourcing provides many advantages, including an automatic review of need, avoidance of lay-offs, and so forth.

Community relationships

Especially in small communities, the school district is a major employer. It’s role as provider of steady, decent pay cannot be overstated. Despite any amount of possible financial efficiency in outsourcing, if the pain will be felt personally, locally, immediately, the political consequences can be very large.

Collective bargaining

If the task is currently being performed by a bargaining unit, what will the outcome of contracting out be? Do you want to include the bargaining unit in the discussions?

Cost vs. quality relationship

It’s important to know the desired outsome of a task being considered for contracting. Do you want to optimize cost at any expense of quality within legal constraints? Do you want to optimize quality at any cost? Do you want to compromise between these two extremes? Can you measure where you want to be in the cost/quality relationship?

Competition

In your area, can you get meaningful competition between contractors?

PROCESS

1. Identify: Clearly define activity or task under consideration.

2. Benchmark: How does your performance of this activity compare to other comparable institutions? Be sure that you are comparing apples to apples.

3. Evaluate issues and goals: What is your quality/cost goal? How important is this task to the mission? How much control is desirable?

4. Research: What are the alternatives to your present course?

5. Compare: How do these alternatives compare? What are the critical measures?

6. Decide: With the appropriate group, make a decision.

7. Track: Put a tickler in your calendar to evaluate the success of your decision after six months and after one year. Revisit the issue regularly to ensure continuous improvement.

Example #1 - custodians

You use in-house custodians, but you have been asked to reduce your maintenance budget by contracting with the local janitorial service.

1. Identify: The activity is daily cleaning, removal of trash, floor maintenance, window washing, restroom cleaning, routine re-lamping of lights, and so forth.

2. Benchmark: After a few calls, you find that you are paying about 5% to 10% more than many comparables that use in-house staff, and about 10% to 15% more than comparables that contract out. A little more research shows that the difference in some of these cases is because you are including supplies and the comparables are not, but you are still high on the cost scale. A quick informal survey of your users (students, parents, and teachers) reveals that they think quality is usually high, but there are a few problem areas.

3. Evaluate issues and goals: You meet with your site council to discuss what you have learned. They suggest adjusting the quality target to be closer to what is wanted, whether the task is outsourced or in-house. They say that a moderate level of quality is desired, but a high level of control is also needed so that staff can be re-targeted to cleaning after special events or taking care of emergencies without incurring extra cost.

4. Research: You get some preliminary cost information from the local contractor and from another from out of town who would like to get established in the area. You also get sample contracts from other districts who contract out At the site council, a teacher who previously was a human resources trainer suggests some management activities and staff training. The classified representative proposes giving the custodial staff an opportunity to become more competitive, and points out that an upcoming retirement may provide an opportunity to restructure the custodial functins. Another member asks whether outside users of the facility are paying their share of custodial costs.

5. Compare: At site council meeting, you create an evaluation matrix of the relevant issues. Control is the most important issue, followed by cost and then quality. The council notes that it is easy to change custodial functions from in-house to out-source, but not vice-versa.

6. Decide: You propose to the site council that you work with the custodial staff to target their efforts more closely and to broaden their individual responsibilities, allowing you to reduce cost over time. You will do this with a series of meetings with the custodial staff, regular inclusion of your head custodian in meetings of teaching staff, and careful monitoring of changes to quality and cost. You will also make sure that all non-school uses of the facility pay a facility fee high enough to cover operating costs, unless the site council agrees to waive it.

7. Track: You re-evaluate after one year. A survey shows that satisfaction is up. You appear to be saving about 10% or more in costs not counting the additional revenue from higher facility fees.

Example #2 - alarms and controls

1. Identify: The task is maintenance of security alarms and heating/cooling controls. The employee who has been doing this taks (in addition to a few others) just quit after six months on the job.

2. Benchmark: A few phone calls shows that most but not all comparable institutions contact out this function. Costs are all over the map, probably due to large differences in systems.

3. Evaluate issues and goals: At the site council, people agree that at least medium quality is needed. Because of the technical nature of the work, control is hard to impose (who knows how that stuff works?). For the security systems, personnel control is important. Cost is a real concern, but comes after quality.

4. Research: You make some calls, and learn that there are two firms nearby who maintain security systems, one of whom installed the security systems that you use. In a larger town 30 minutes away there are three firms who maintain heating and ventilating controls. It turns out that the current postion that maintains these systems in-house has a lot of turnover because most of the technicians who hold the job can make more money in the private sector, and don’t like doing some of the other maintenance tasks assigned to the position. You present to the site council two alternatives: 1) continue as before but redefine the position and increase pay; 2) contract out these two tasks under two separate contracts, and create a less-skilled, lower pay, half-time position to take on the other tasks that this technician is doing; 3) same as two, but you don’t take on staff to cover the other tasks.

5. Compare: You present to the site council your estimates for the range of costs under these three scenarios.

6. Decide: The site council can’t decide between the last two alternatives, so you agree give your maintance supervisor an opportunity to explain what the impact would be with the third alternative. He lists three possible outcomes of reduced maintenance, one of which is acceptable to the site council. The site council agrees to leave the position temporarily unfilled for a twelve month trial.

7. Track: After twelve months, you find that there are fewer maintenance calls on the contracted systems than you had expected, probably because the skill level is higher and the staffing more consistent. The site council agrees to make the change permanent.

RESOURCES

Slash Custodial Costs with Team Cleaning, School Planning and Management, August 1997. Describes how the Syracuse School District improved in-house custodial techniques and efficiency rather than outsourcing the task.