Outsourcing – Common Sense or Nonsense?

• By Mike Raible, Andrew LaRowe
• 01/01/18

PHOTO © VADIM RATNIKOV

Many school systems contract with a third party for essential and non-essential services. Some are quite successful, while others struggle to make the relationships work. Stories, both good and bad, abound in the industry about outsourcing. When does it make sense to outsource? When is it a mistake? What are the terms of some successful contracts?

The most frequent targets for outsourcing or privatization are the support activities of the school system—custodial, grounds, maintenance, transportation, and food services. These are often described as “non-core” activities, and therefore, thought to have less impact upon the organization’s performance than so-called “core” activities. These service activities also tend to use a substantial part of the budget for school systems and are considered by some to be “low hanging fruit” in the budget arena.

Although ancillary activities would seem to be likely candidates for outsourcing, Harvard professor and strategy expert, Michael Porter, believes that outsourcing is potentially risky for those activities because doing so limits modifications that might support your organization’s strategy. This is especially true for those activities that contribute to or can influence the organization’s strategic positioning. Outsourcing too many activities, Porter warns, reduces your flexibility to adjust activities to create a unique value proposition.

Rich Rosenthal used the analysis of several outside consultants and in-house experts to thoughtfully design the highly successful facility services outsourcing for Central Piedmont Community College (CPCC) in Charlotte, N.C. He says success is dependent upon the contract being both comprehensive and performance-based. CPCC has outsourced all of their facility services (custodial, grounds, and maintenance). He also adds that procuring the services during the downturn was a distinct advantage.

The CPCC Request for Proposals included the following:

Expectations of Performance — By specifying the results of performance rather than the specifics, the owner avoids the micromanagement of the contractor that is often so frustrating. It’s not about the number of times the grass should be cut, but instead about the well-groomed appearance of the campus. Related to this, a frustrated custodial supervisor in one district resorted to marking the toilet seats with an invisible, washable black light marker, just to make sure the bathrooms were cleaned the prescribed number of times.

Time — An extended period of time (CPCC used a three-year probationary period and seven one year renewals) gives the contractor an opportunity to amortize their investments. (CPCC required the contractor to purchase the existing equipment, including vehicles.) The one-year renewals provide an incentive for the contractor to concentrate on short term customer satisfaction. Quarterly review meetings and an on-site project manager ensure issues are addressed in a timely fashion and not put off until the traditional “annual review.”

Flexibility — Contract terms will change over the life of the agreement. The contract should specify how changes are to be made. Like many school districts, CPCC’s three million square foot inventory is constantly changing with new capital projects and renovated buildings taken in and out of service. Since the cost per square foot is the basis of compensation, the baseline square footage must be adjusted accordingly as changes are made. Also, the original contract included a provision that all repair and replacement work over $5,000 was the responsibility of the owner and all repairs and replacements under $5,000 were the contractor’s responsibility. From the owner’s perspective, it seemed that much of the work identified by the contractor in the first three years tended to exceed the threshold. In an effort to create a better working relationship and an equal distribution of pain, the threshold was lowered to $4,000 and each item included a contractor contribution for up to the $4,000 ceiling.

Repair and Replacement — Be clear about the options to do the work and how it will be handled if you choose to allow the outsourcing contractor to perform it. This is a purchasing issue as well as a contracting issue, so in addition to the facilities department both legal and purchasing must also agree about how this will be handled.

Transition — Bo Hightower, CPCC’s liaison to the contractor, states that the transition should be carefully planned. There are loyal employees that are facing big changes in their careers or possible job loss. Approach this situation with understanding and transparency. Talk details about how the transition will roll out, not “everything will be fine, don’t worry.” This will be a time of high anxiety for workers and supervisors alike.

“Even after six years, we still have some things to work out, like the hand-off when capital projects are completed, but in general we are pleased with the results of our outsourcing experience,” says Vicki Saville CPCC associate vice president for Facilities and Construction.

While the story at CPCC is exemplary and their monetary savings have lived up to potential, it is not uncommon for the savings in actual terms to be less than forecast. Think carefully about how the costs are reduced. Is the contractor simply going to pay their workers less than you were paying? Is that a living wage? If the reason you outsource is to acquire additional expertise, the salary that is paid may exceed that of your current workers. Will that be a source of trouble among your existing staff? Does the wage differential add issues to a plan for staff augmentation? The potential loss of control of key service elements could be problematic if unanticipated. (e.g. What happens if your contract drivers do not deliver your students to school on time or if your food service does not comply with USDA regulations?) If the contractor has access to sensitive information through your technology firewall, how will you be sure your information is secure? If the contractor is working in your buildings, have their employees met the background check standards of your existing employees?

Careful planning and the use of experienced consultants are critical during the procurement process to help you avoid the pitfalls of outsourcing and enjoy a successful experience. Be clear internally and externally about what is to be accomplished and work to incorporate those expectations into a mutually agreed upon contract. The rest is easy!

This article originally appeared in the School Planning & Management January 2018 issue of Spaces4Learning.