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Ins and Outs of Outsourcing

What you need to know before you take the plunge.

Privatizing. Contracting out. Out-tasking. Outsourcing. No matter what it's called, one thing is certain: Attempts to cut costs or improve efficiencies by hiring private companies to manage and perform your district's support services, from custodial and food service to transportation and substitute teachers, will likely face loud and swift opposition. After all, from the district employees whose jobs are in question, to the teachers' union representatives who oppose attempts to privatize the public school system, everyone has a stake in the decision and will fight to protect their positions- even if it means taking the district to court.

Before opening up districts to potential litigation, administrators and school board members must carefully weigh the pros and cons of outsourcing, which is often not as easy as it appears. Countless private vendors are clamoring for a piece of the $134 billion support services pie, according to the National Center for Education Statistics, and administrators must separate sales pitch fact from fiction.

Multiple Applications

"As an outsource service provider, it's really about custom designing the program to match the district's needs," says Steven Weiser, regional vice president of Aramark, which provides food service and facility support management services to more than 600 school districts nationwide. "That can range from short-term consulting services to a long-term, full outsourcing model where all the people, the resources and the budget are transferred to Aramark."

Some districts, like Murphy School District, a four-school district in Phoenix, Ariz., resist outsourcing basic support services because they want to remain in charge of the quality of work performed by the custodial, food services, maintenance and transportation departments, and they want to ensure the positions are filled by people in the community. But Murphy Superintendent Paul B. Mohr Jr. concedes he turns to private companies to find qualified personnel for hard-to fill positions, including school nurses and special education teachers who work with students with severe disabilities.

In the rapidly growing suburbs of northwest Chicago, transportation problems plague Community Unit School District 300 in Carpentersville, Ill. Six years ago, bus drivers picked up any students off the street and asked where they needed to go to school because the routes were so poorly managed. "It was almost like a private taxi service," recalls Superintendent Kenneth Arndt. "Another year, we sent out postcards saying, 'Your kid's going to be picked up at such-and-such location.' However, the postcards had no addresses. It was just a comedy of horrible management problems coupled with atrocious driver absenteeism."

"It was just a comedy of horrible management problems coupled with atrocious driver absenteeism."-Kenneth Arndt, superintendent of schools, Community Unit School District 300, Carpentersville, Ill.

Arndt hopes that fully outsourcing the transportation department this fall will improve the situation. "Our experience with trying to keep the employees as local employees with a private manager was not successful," he says. "Now the proof is going to be in the pudding this fall to see whether or not the outside vendor will be able to do a better job."

For Duval County Public Schools in Jacksonville, Fla., Kelly Educational Staffing proved to be the best solution to its substitute staffing problems. "We never had enough substitutes," according to Vicky Reynolds, chief human resource officer for Duval County schools. "We received a lot of complaints from the teachers' union because when we couldn't fill a position with a substitute, the other teachers would end up dividing the class and taking the kids, which they were never happy about. Our substitute teacher training was lacking, and we had complaints from principals."

After the district outsourced its substitute staffing two years ago, the situation improved, with more substitutes filling in for teachers. The substitutes also participate in a training program, and many of them exceed the district's minimum education requirements of 60 hours of college credit, with roughly 75 percent having a college degree.

Weighing Transportation Costs

Proponents of outsourcing, like Arndt and Weiser, often argue that since the school's primary job is to educate children, any task that distracts from that focus should be outsourced. But that can be a costly decision.

Keith Engelbert, a spokesman for Student Transportation of America (STA), asserts that private transportation providers have legitimate ways to achieve cost savings for districts, due in part to economies of scale and in part to technical knowledge and improved efficiencies. For instance, instead of purchasing new windshields and tires for one bus at a time, STA leverages its multidistrict purchasing power to buy in bulk at discounted rates.

"We have efficiencies in the way we do business every day," Engelbert says. "We have fleet programs, maintenance programs, routing programs-things that the school district doesn't have and has to go spend more money to get. We have historical data, and we're very good at forecasting. School districts are not. Our bid team factors that in, and generally, we have no surprises when we're halfway through a contract."

Roland Zullo, research scientist for the University of Michigan Institute for Labor and Industrial Relations, discovered that some private transportation vendors will negotiate a discounted rate to buy a district's fleet and manipulate the data to falsely show savings over the first few years of the contract or will show savings by subtly eliminating services, such as by cutting out routes close to the school and requiring more students to walk.

And once a cash-strapped district sells its fleet of buses, it will typically be too cost-prohibitive to in-source that service in the future, since the district won't have the necessary capital anymore to purchase new buses again.

To further cut costs, vendors will ask districts that receive a fuel tax break, like Santa Rosa County School District in Milton, Fla., to retain responsibility for purchasing fuel, since they can buy it at a lower price.

Plus, private companies do save money with lower labor costs since they do not offer the same caliber of benefits and wages, and they do not have to use the same formulas to calculate their manpower requirements as their government run counterparts.

Planning for Contingencies

But before making a decision about outsourcing, you need to account for the cost of all of the contingencies. These include transporting the students to and from sporting events and field trips and dispatching a bus to pick up or drop off students who missed the bus, as well as the cost of hiring a full-time in-house contract manager to assess the true cost of their outsourcing decision. "It's almost like when you buy a car. The base price is probably pretty reasonable, but then if you add in all the features, it tends to be really expensive," says Mark Cassell, associate professor of political science at Kent State University and author of Taking Them for a Ride: An Assessment of the Privatization of School Transportation in Ohio's Public School Districts.

But even with factoring in Illinois Community Unit School District 300's contingencies, including adding new routes to accommodate the area's rapid growth and meeting the transportation needs of private school students, which the district is required to provide, Arndt believes outsourcing will eliminate the district's annual $2 million transportation deficit in the coming school year.

"Our budget was completely shot based upon some contract language that, regrettably, the administration had bargained away years prior," Arndt says, "and as any superintendent knows, if you've bargained away a right and it's costing you considerable dollars, good luck trying to get it back. We truly feel that we're going to be able to make our budget this time by outsourcing."

"We received a lot of complaints from the teachers' union because when we couldn't fill a position ... the other teachers would end up dividing the class and taking the kids, which they were never happy about."-Vicky Reynolds, chief human resource officer, Duval County Public Schools, Jacksonville, Fla.

Although private companies must often allow district employees the option of staying on the district's payroll, they can cut their overhead by paying new hires according to the often cheaper pay and benefits scale provided by private companies. County or other government employees are generally eligible for added perks, such as retirement benefits, which are rarely, if at all, offered at private companies. Even health coverage at private companies often offers fewer benefits than in a county-bought plan.

And instead of downsizing, vendors often reduce their workforce by not replacing district employees lost through such avenues as attrition.

While the generally less desirable benefits package of private companies may discourage company employees from staying long-term, turnover can be a good thing in some cases, asserts Judson C. Crane, director of purchasing and contract administration for Santa Rosa County schools. For instance, a custodian should be an entry- level position, he says.

"You want turnover," Crane says. "What was happening on our side is we had career custodians. We would hire someone that was a young person, and we would get a lot of productivity out of them. However, at the end of 30 years, we would have an employee that had earned all the step and cost-of-living raises that everybody gets, yet their productivity would be way down because they were older and it's a very physically demanding job." Outsourcing the district's custodial services broke the cycle.

Making Outsourcing Work

Once you move forward with outsourcing a support service, ensure a smooth transition and a productive long-term relationship with the vendor by following these general guidelines:

- Get Specific. Start with a one-year renewable contract to give yourself an out, and spell out details of what you expect the vendor to do.

- Keep Communicating. "I have a person on my staff whose sole job is to administer that contract, and she talks to the Kelly [Educational Staffing] staff daily," says Reynolds of Duval County Public Schools. The principals also have a contact person at Kelly, and they can ask Reynolds about any unresolved problems with a substitute teacher.

- Designate a Media Contact. Work with the vendor when assigning a spokesperson, and create a plan to deal with the media, should a problem arise with a vendor's employee.

- Limit Your Liability. Lawyers should include hold-harmless agreements in contracts, which identify a vendor's responsibilities and limit a district's liability, should the contractor be negligent in performing its duties.

- Perform Due Diligence. The contract administrator should verify the vendor is performing the required employee screenings, from background checks to credit reports, in a timely manner. If not, it's an immediate deal-breaker. Several years ago, Cherry Hill Public Schools in New Jersey terminated its contract with a building maintenance services company when the vendor failed to conduct the state-required background checks on its employees.

- Run the Numbers. Each year, Crane of Santa Rosa County School District runs financial reports on the contracts he manages, in order to show cost savings. He factors in what it would cost for the same people to be paid as district employees and adds the extra workers that would be needed if the district staff ed its custodial department according to Florida's formula, instead of the vendor's guidelines.

- Check the Language. If your district used bonds or a special local option sales tax to purchase its buses, check the language to ensure the district has the right to sell those buses before turning them over to a transportation vendor. "They could still be managed by a management company," Crane says, but the buses may need to remain in the district's possession.

Alternate Solutions

For cash-strapped districts, the outsourcing sales pitch can seem like the answer for getting their books back in the black. But it's not a panacea. Other options, such as restructuring the support services department in-house, may work as well, if not better, at producing cost savings. In fact, U.S. public schools would save roughly $9 billion a year if districts combined a quarter of their non instructional costs with other districts, such as by merging billing and benefits administrative staff s or combining their maintenance departments to create one garage for the districts' buses, according to a 2005 report by the Reason Foundation and Deloitte Research. Zullo suggests that districts try a service integration approach to operate schools. By cross-training the non-teaching staff, a district can have people perform multiple roles during an eight- hour shift, such as driving a bus and working in the cafeteria during lunch.

But the decision to outsource isn't always about the money, says Crane, whose district went from principal-hired custodians to using a private vendor. Contracting out does not guarantee lower costs. "It's possible to contract out and have it cost more than what you could do yourself," Crane admits. "However, the plus should be that you have a more effective and efficient operation. If you don't, then contracting doesn't make sense."

Jennifer Maciejewski is a freelance writer based in Georgia.