Did outsourcing the custodians and groundskeepers at University of Wisconsin-Superior save the university money? Are the taxpayers better off?

As discussed in a prior article, say savings most likely came from the contractor paying less in wages and benefits. Cost reduction came on the backs of the workers and the local Superior economy. Was it worth it?

Does contracting-out save money?

Critics of outsourcing government activities say often there are no actual cost savings to taxpayers. Many studies have shown that contracting-out ultimately costs more.

Additional costs come from bait-and-switch low initial bids that escalate, costs of lower-quality work, costs of work not covered by the contract, contract monitoring and administration, contractor overhead and profit. There are many cases in Wisconsin and across the nation where outsourcing did not save taxpayers money.

One Wisconsin example involves outsourcing Department of Transportation engineers. A Legislative Audit Bureau report in 2009 concluded that the DOT could have saved $1.2 million by doing more of its engineering work internally. A more recent internal report says DOT can save $5.6 million annually by adding 180 in-house engineering and technical staff instead of using contractors.

At the national level, a Project on Government Oversight report says the federal government pays 83% more for contractors than in-house employees. Federal government employees were less expensive than contractors in 33 of the 35 occupations reviewed.

But in the current political climate, politicians must claim they are cutting government. The cost does not matter as long as they can claim fewer public employees. Fewer public employees is assumed to mean lower costs to taxpayers. But is this actually the case? Is UWS another example of faith-based outsourcing?

Intangible costs

Determining cost savings can be more complicated than simple arithmetic. Many costs are intangible and hard to quantify. Critics of outsourcing say employee dedication and connection to organizational goals are important to the overall quality of work. Happy employees are willing to go beyond the job description to give the best service to customers. Because dedication cannot be easily measured, it is not factored in as a cost.

Reduced quality of the work can be a problem
. Contractors make money by cutting corners and reducing costs. The contract janitorial industry typically has 200 to 300 % employee turnover rates. It is a highly competitive, low-margin industry. The potential for lower quality of work is another hard-to-measure cost.

Loss of direct control is another intangible. Even though the UWS Request for Proposal (RFP) contains many provisions and procedures addressing this issue, UWS management does not directly control contract employees.

Misbehavior or mistakes by the contractor or contract employees can impact on the university financially and through negative publicity. These costs are difficult to measure and are not factored into public statements on budget savings.

These hidden contract administration costs can wipe out any “savings.” Cost overruns, contract monitoring and paper shuffling can add up to 25% to the outsourcing contracts.

The University of Wisconsin-Superior request for bids was 100 pages long. Many UW staff are involved both in Superior and Madison. All of this has to be monitored and reviewed on a regular basis. There are costs to outsourcing. Only time will tell if these intangibles mattered.