Managed Services: An Insider's Perspective
- By Ellen Kollie
- August 1st, 2004
School Planning & Management recently asked Robert Sands, Jr., REFP, senior educational director for MHTN Architects in Salt Lake City, for his perspective on managed services. Why did we speak with someone who works for an architect? Because Sands previously served as executive director of Facilities at Texas’ Plano Independent School District. Plano is located just north of Dallas and serves 54,000 students on 70 campuses with 6,800 employees and a $450-million annual budget. Here’s what he had to say about managed services.
Why are you sharing your perspective on managed services with our readers?
SANDS: At MHTN, I consult with educational clients nationwide to help them understand their outsourcing needs effectively. Some of the outsourcing we did at Plano worked, and some of it did not. I want to make sure that other administrators understand what they’re getting into and have as much knowledge as they possibly can before they make that decision. A bad decision can really get you into a hole. And once in that hole, many districts will stay there just to save face.
Let’s start with construction program management. What is your experience with this as a managed service?
SANDS: When I started at Plano eight years ago, construction program management was outsourced and we were also in the middle of a transition period for outsourcing custodial services, while everything else was in-house.
The first thing we did was to remove the program management service for construction. The school board’s philosophy was that, since they had just brought me in as the senior educational facility professional, they could manage it in-house just as easily and inexpensively as the outsource firm. The outsourcing company was charging three percent of the bond program, and that was pretty much their standard rate. We ended up managing it through the last six years that I was there at 1.9 percent on a $398-million bond.
One of the reasons it worked so well is because the in-house staff of nine worked directly for the school district. Their dedication was to the district rather than to making a profit.
The in-house staff satisfied the program requested by the community, plus saved $53 million, which allowed us to do more than the program required. All the savings were reinvested into the deleted programs we couldn’t afford to do in the beginning.
Most school districts don’t want to mess with in-house construction program management. They would rather pay somebody the three percent to manage their budget, and that is okay because the worst thing a school district can do is try to manage it on its own with a maintenance director or others who are not skilled in the knowledge needed to be successful. Three percent becomes pretty cheap then.
You said that, when you started at Plano, the district was in the middle of outsourcing custodial services. How did that work out?
SANDS: This is a big outsource area; I see it as a trend. At Plano, I think contracting out custodians was a smart thing to do. Let me tell you why. Custodians are high-liability employees in terms of workers comp, sick days, retirement and medical insurance.
When you contract out that service, the liability is on the contractor. The responsibility to make sure that the buildings are maintained to the quality you expect and that the employees are there is the contractor’s. He covers the insurance. He covers the medical bills. Plus, the contractor owns all of the equipment, so you don’t have real public dollars tied up in aging equipment. Even though you’re going to pay more money for an outside contractor, you’re really not because you lose a huge liability and you don’t have to invest in all that equipment.
When I started at Plano, the district was in a fast-growth mode. As we opened new buildings, we supplied them with the contract service custodians. The existing buildings still kept the original custodians and, as they retired or quit, we replaced them with contract service custodians. It was a gradual transition, but it worked well because we did not have morale problems.
When we got down to the last 50 employees, we decided that the contract service company would own them and we would pay the difference in their salaries for two years. At the end of two years, they would fully become the contract service company’s employees. This gave the employees the understanding that they were still going to get the same amount of pay while working for the new guy and, in two years, they could decide to stay with that firm or be gone.
Did you also contract out grounds maintenance?
SANDS: The three highest liabilities that school districts have in the facilities business are custodial, grounds and transportation. When I first arrived at Plano, we owned grounds maintenance. We did choose to contract grounds maintenance to a landscaping firm.
It cost a little more money but, in the long run, there was never a school that didn’t maintain the quality of its presence. The contactor had the man-power and skills to maintain the quality expected by the community.
Our existing grounds employees accepted other open positions in the district. We only had to lay off four employees and, actually, they were employees that probably should have been gone anyway.
You mentioned that custodial, grounds and transportation are the three highest liabilities school districts have. Did you outsource transportation at Plano?
SANDS: Transportation is high liability and high maintenance because of all the vehicles. The sad part about contracting it out is that you’re most likely going to lose money because you already own the fleet plus the facility that houses it. If you can work a deal with the contract service firm, which seems to be working well these days, they will manage your facility and fleet and hire their own staff. During that time, there could be a transition where they buy your fleet.
Of all the contract services, this is probably the most difficult one. Once you sell your fleet, 99 percent of the time you will never go back to it because you will never have the money to make the transition back. So my suggestion is that, when you decide to do it, you do it and don’t ever look back. If you even think that you’re going to go backward, you need to have a consultant look at it.
We did two transportation RFQs while I was at Plano, and, because of the way we wrote them and our demand to secure our tax dollars in the transition, it just didn’t work financially for both the contractor and the district. He was not going to make money, and we weren’t going to lose money.
Still, I think every district should consider outsourcing transportation, especially rural districts that may have only 20 buses but have to travel hundreds of miles. For some districts, and probably for most districts, it gets rid of a lot of nightmares.
If you have an in-house transportation department, it better be well organized, well trained and responsive to the needs of the children.
Tell me about outsourcing the maintenance department.
SANDS: Here’s a trend I do not like. When I came to Plano, maintenance was one of my departments. We organized it, trimmed it down and made it work well. During that time, there was a contract service firm that would
periodically come in and talk with the superintendent and everybody but the facility guy about how wonderful they were and how they could manage the maintenance department.
Plano went through a negotiating process for almost an entire year,
and they finally hired a company to manage their facilities department.
The company claimed that they could save money by providing a work order
system that would increase productivity and manage the process, all to the tune of $1.5 million.
I reviewed the proposal, wrote a report and said I was not for it. After all the other contract services we had gone through, I did not think it was a good idea because we had already managed this department on a flat budget for the last four years and had built our own work order system.
What happened was, after two years, the contract service company still had the same amount of management criteria structure when they said they would cut five to six people out. Plus, they lost probably 15 of their best technicians because morale really went down. Their management philosophy was just different than ours.
So I calculated that the district is probably spending about $800,000 more per year than it was two years ago, with less professional help and still on the same flat budget.
Management of your employees by an outside firm is a difficult situation. If you really want to do it, then bring in a consultant to look at what you’ve got. Maybe the consultant can suggest ways to help you save money in-house. If he can’t, then his recommendation to the board might be to look at contracting. If you move forward with contracting, work with a consultant who has good experience on what to look for, what to write in the contract and what to require of the contractor.
We still have to discuss a commonly outsourced area — food service.
SANDS: Food service is one thing that was not contracted out while I was at Plano, but probably will be eventually.
Food service is like transportation in that you really need to investigate it because, when you make that transition, it is expensive.
There are two ways of outsourcing food services. The first is to hire a company to come in and use your kitchen with their employees. The second is to use subcontractors to fill a food court. You will still own the food service program and serve primary meals, but you also have secondary meals from providers like Pizza Hut, McDonald’s and Taco Bell.
Either way, you still have to make sure that the nutritional value of the food served meets state requirements. Sometimes contractors don’t meet these requirements, and then the district gets into trouble. Of course, the state doesn’t send the fine to the contractor, they send it to the owner.
A district that has never outsourced any program may want to outsource food service first, because little money is supplied by any state agency for food service. Of all the services, it’s really the only service in which the K-12 market has to at least break even.
How did you handle managed service contracts?
SANDS: The way we did every contract was to start by issuing an RFQ, a Request For Qualifications. We always hired on a three-year contract, with renewals up to two years. At the end of the fifth year, if we wanted to do another RFQ, we could. And normally, we did, which allowed us to make sure we had not overextended the finances that the public had given us. Also, by the time you get to the fifth year, you have modified the contract so many times that it’s probably a good idea to have a consultant review it and maybe rework your RFQ.
What is your number-one recommendation to any administrator considering a managed service program?
SANDS: Regardless of the size of your school district, get an independent analysis of your existing operations and compare it to what the contractor will provide. It levels the playing field because contractors, who are trying to make a profit, will woo school board members and superintendents until the world comes to an end. You need somebody who is neither a part of the district nor a contractor to give you a true analysis of how to maintain your public dollars and your employees.