Why is Haslam Outsourcing in the Shadows?

Nashville Scene, Dec. 22, 2016

By: Cari Wade Gervin

For almost a year-and-a-half, a small group of highly paid state executives has been regularly meeting in secret, determining the future of more than 3,000 state employees whose jobs could be outsourced.

From late August through November of this year, the group was joined by representatives of the company or companies — name and number unknown — that will bid on the contract to hire outside workers for physically laborious state jobs.

Officials issued a request for proposals, or RFP, on Dec. 1, with a timeline that will have the state accepting a bid in late March — and only companies that have been involved in the process so far are allowed to apply.

The unprecedented secrecy of the process has already led to questions about the results of an outside accounting review by KraftCPAs, a Nashville firm with strong ties to Gov. Bill Haslam’s administration. Now documents obtained by the Scenevia an open records request, along with the official request for proposals itself, show that the state’s claims that it will protect all current employees’ jobs and provide the same level of benefits are misleading at best — although critics of the plan use much harsher language.

“The governor is already breaking his own promises about outsourcing, and the proof is right there in the RFP,” says Thomas Walker, a spokesperson for United Campus Workers.

Haslam’s plan to outsource the jobs of custodial, maintenance and groundskeeping employees at college campuses, state prisons and other state office facilities has been in the works since 2015. An initial RFI, or request for information, from prospective companies interested in a future outsourcing bid was issued by the state’s central procurement office on Aug. 10, 2015. A few weeks later, the Facilities Management Steering Committee met for the first time to lay the groundwork for the rest of the process.

The steering committee now consists of 10 men, although only nine were on it at the start. (Since then, the University of Tennessee and the Board of Regents have swapped out their representatives, and the University of Memphis has added one.) The group is a subset of the state’s Strategies for Efficiency in Real Estate Management office, itself under the Office of Customer Focused Government, which also manages the “Transparent Tennessee” office.

Terry Cowles (salary: $150,000) is the director of the entire office and is also the chair of the steering committee. The other members include: Bob Oglesby, the commissioner of the Department of General Services (salary: $159,996); Mike Perry, the head of procurement in General Services (salary: $147,900); Larry Martin, the commissioner of the Department of Finance and Administration (salary: $190,260); Brock Hill, a deputy commissioner of the Department of Environment and Conservation (salary: $146,532); Russ Deaton, the deputy executive director of the Tennessee Higher Education Commission (salary: $155,004); Butch Peccolo, the retired CFO of the UT system (consulting at $140 an hour); Charles Burkett of the University of Memphis (salary: $175,044); Warren Nichols of the Board of Regents (salary: $212,777); and Jordan Young, the deputy chief of staff for outgoing Lt. Gov. Ron Ramsey (salary: $88,524).

Since September 2015, the group has been meeting about every other month to craft the “business justification” for the outsourcing, along with the details of the RFP itself and strategies to sell the public on the plan. None of these meetings have been publicly noticed, and none have been open to the public. Nor have any of them been recorded.

The office justifies this lack of transparency by saying the committee is not a statutory body and is thus not subject to the state’s open meetings laws.

“[The Office of Customer Focused Government] presents updates during legislative hearings which are open to the public, provides information on its website and has held public comment periods, and an additional feature to sign up to receive periodic updates,” says spokesperson Michelle Martin (salary: $100,008).

Haslam himself, when asked about the secrecy, couldn’t provide a reason for it.

“I honestly don’t know the answer to that. I don’t know why that decision [to keep the process secret] was made,” the governor told the Scene.

However, any documents created for the meetings are subject to open records laws, which the Scene requested. The PowerPoint documents presented at each meeting are somewhat vague and incomplete, but they do provide a sense of the process and the goals for the outcome. Despite making many qualifying statements about how nothing is set in stone until a contract is signed, it’s apparent that the steering committee itself is considering the outsourcing move a virtually done deal.

A slide from the April 19 meeting asks, “What actions should we consider if CPO is unable to negotiate a cost that is within the state budget — Alternate funding sources? — Spread across 2016 and 2017?”

A slide from the Oct. 26 meeting states, “THEC can serve a role in initial governance, especially by emphasizing: — Efficiency & Effectiveness — Lowering the costs for our students.” This is just one of many times public relations strategies are mentioned throughout the meetings.

A slide from the most recent meeting, held Dec. 13, notes future positions in the “Joint Management Team” — state and university employees who would work with the selected company to oversee the outsourcing process — and says, regarding “Initial Implementations,” that “The [Facilities Management Steering Committee] should start thinking about these, and then discuss in more detail at a later time.”

The process the state is using “vested” or “collaborative value development” procurement, is basically designed to result in a done deal. Under the process, which was created during a joint research project between UT and the U.S. Air Force a decade ago, the contractor is involved in creating the RFP to which it will respond in the hopes of getting a contract. It is a process that has been used by some large companies but is virtually untested in the public sector.

Meanwhile, the creators of this “vested” process to outsource custodial and maintenance work have been consulting for the Facilities Management office at a high cost to taxpayers. The director of facilities management, Mike Ledyard, is paid $222 an hour for about four days a week (around $369,000 a year, over $100,000 more than the highest-paid employee in Tennessee government), while Kate Vitasek receives $191 an hour for around two days a month.

Respondents to the request for information were given the opportunity to reply to an RFQ, or request for qualifications, that was issued April 11. Only the companies deemed qualified were allowed to participate in the vested creation of the RFP, which occurred during meetings every Thursday and Friday from Aug. 25 to Nov. 21, per PowerPoint slides from April and August steering committee meetings. And only those companies will be allowed to respond to the RFP itself.

How many companies are there? Is there even more than one company involved? Only the people involved in the process know, and they’ve all signed nondisclosure agreements. The entirety of the procurement process is sealed, per state law, from RFI issuance until bid acceptance, which is scheduled as of now for March 28, 2017, although that could still change.

But the state law governing procurement wasn’t set up for something like this — a massive, lucrative contract that has been designed with input from the bidding companies throughout the process. That’s not to mention that leaders of the UT system, the Board of Regents and other state university boards can choose to be exempt from using the Central Procurement Office — despite the fact that 72 percent of the outsourcing will be occurring on campuses.

Reports issued by the state estimate it will save $35 million each year by outsourcing the jobs of some of its lowest-paid employees. Haslam’s administration has emphasized repeatedly that none of those savings will come at the cost of those employees’ jobs, unlike prior outsourcing efforts in Nashville under real estate services firm Jones Lang LaSalle (which have shown repeated problems with oversight in multiple audits by the state comptroller’s office).

“We’ve also said we’re going to protect every employee that’s there,” Haslam says. “Everyone is guaranteed their job. … If their job is going to be taken over by somebody who’s now taking over that service, that job itself is moving, so that’s pretty good protection.”

However, a close examination of the 135-page RFP shows the only thing that’s guaranteed is that the outsourced jobs won’t provide nearly as good a deal as being a state employee.

First of all, not all current employees are guaranteed a job. To stay on with the company chosen to take over the state’s work, they must be nonseasonal employees with benefits, who work 30 or more hours a week and who have had the job for at least six months. Then they must pass “all standard applicable Contractor background checks, verification of work authorization, and drug testing.” Neither background checks nor drug tests are regularly required for employment with the state.

Assuming the employee meets all those qualifications, he or she then will be offered a position “at a Total Equitable Compensation rate mutually agreed upon by the Contractor and the State, but in no event less than the Transition Employee’s current total compensation.”

But it won’t necessarily be the same job the employee had.

Per the RFP, “The position must be located within a 50-mile radius of their existing employment location. The Contractor may also offer a different position outside of this threshold which employees, at their own discretion, may choose to accept such a position, but will not be required to do so as a condition of employment.” This means a UTK custodian could be offered a similar position at Roane State Community College, 43 miles away from the Knoxville campus. If that employee doesn’t have the transportation to get there, he or she no longer has a job.

"A 50-mile commute — in any direction from your workplace, no matter how far away you already live — cannot be thought of as comparable employment. It’s another tactic to try and drive employees off the rolls without having to fire them, which Haslam wants and needs to do in order to make this contract profitable for interested corporations,” says Walker of United Campus Workers. “Like the background checks, it’s a cynical and obvious move to get rid of people, and demonstrates just how little Gov. Haslam actually cares about the public servants.”

While the contractor is not allowed to lay off any “transition employees,” as the RFP refers to the workers, it’s also not required to maintain the same staffing levels as prior to the switchover. “The Contractor is not required to maintain a position if that open position results from promotion, attrition, etc. of a Transition Employee,” states the RFP.

Any new employees hired by the contractor will not have these protections, nor will they receive similar wages or benefits.

And about those benefits: They won’t be the same as before either. According to the RFP, “Total Equitable Compensation is defined to include: salary, defined benefit retirement (or equivalent), 401(k) matching, and health insurance with similar essential value and equivalent employer contributions. It is expected that salary will be adjusted to offset differences between the benefits previously received from the State and the benefits that will be received from the Contractor in order to make the total compensation equitable.”

Although the RFP states that education assistance must be offered “according to the current benefits” (which vary between campus systems and the state), it also notes, “Contractor may also offer their own educational assistance in place of this benefit,” which would require employees to pay for classes up front and get reimbursed “upon satisfactory completion of the course.”

Asked about this point, spokesperson Martin says, “The intention of this provision is that the potential Awarded Contractor might already have an educational benefit for their employees that exceeds the benefit offered by the various state entities. If that is the case, the Contractor could give the employees the better benefit.” But it’s not specifically what the RFP states, which deeply concerns UCW officials. For example, UTK offers employees the opportunity to take one class each semester for free; union leaders note most custodial employees couldn’t afford to pay for that class up front.

But all of these commitments — the promise of a similar job at similar pay, the guarantee of no layoffs, the educational benefits, etc. — are explicitly specified as running only through the end of the contract. The RFP states the contract will run for five years, with the option of extending it year by year for up to another five years; it also maintains provisions for early cancellation, with or without cause, by either side.

So what will happen to the transitioned employees when the contract ends — whether two or five or 10 years from now — and it’s re-bid? Will those protections carry over to the next contract, whether it’s with the same company or a new one? The state won’t say.

“I’m not going to speculate on a hypothetical situation. This RFP includes provisions that any contract will contain strict language requiring that the service provider employ facilities service state employees at a total equitable compensation level not less than a state employee’s current total compensation. The current RFP process also includes provisions prohibiting a provider from initiating any reduction in force at any time during the term of the contract,” Martin wrote in an email.

When it was pointed out that the end of the contract is a surety, not a hypothetical situation, Martin replied, “Since these events have not transpired, it is a hypothetical situation, to which I’m not going to speculate.” When pressed further, Martin wrote, “The answers provided are sufficient.”

But the ambiguity about the scope of a second contract and limited employment guarantees is why Democratic state Rep. John Ray Clemmons calls the RFP “inherently flawed.”

“The stated purpose of the RFP is to simultaneously improve services and lower costs,” Clemmons states via email. “This, as we know from our experience with privatized prisons and other outsourced ventures, is rarely, if ever, the end result of these types of contracts. As with privatized prisons, someone or something is going to suffer while the private company increases its profits.

“The only way for a private company to achieve its primary objective [of profit], especially with these types of government contracts, is to cut corners, limit certain aspects of services and quality control, eliminate jobs, pay employees less, and reduce or eliminate employees’ benefits. Each and every one of these tactics ultimately results in worse services, less accountability and oversight, and similar or even increased costs to taxpayers on the backend.

“If private companies can operate these public services more efficiently than the government, as some argue, then we should be spending our time and resources evaluating the way we currently operate public services and figure out how to be more efficient ourselves,” Clemmons says.

At this point, there’s not a way to stop the RFP process itself, but opponents of the plan aren’t giving up yet.

“What we hope to do is stop the state from signing a contract after the proposals are brought forward. Hopefully a combination of legislative, legal and media activities alongside deep mobilization of our members and allies can bring this to a halt,” says Walker of United Campus Workers.

If UCW’s effort fails, employees could be outsourced as soon as next summer.