Outsourcing and Contracting Services

In the perpetual desire to get more money in the classroom, school officers around the country have looked to contracting out support services to private companies. The idea, taken right out of business books, is that districts need to focus on their core competencies in providing their students with a good education, while leaving their supporting services to professional firms to handle. An adequate amount of competition will keep costs low, while proper contract monitoring will ensure the district gets the quality it bargained for.

Indeed, my organization has tracked school support service contracting trends in surveys of Michigan school districts since 2001. We found that there has been a substantial and steady increase in districts using private sector vendors. Tracking three large non-instructional services — food, custodial and transportation — we found that contracting out for one or more leapt from 31.0 percent of districts in 2001 to 44.6 percent in 2009.

Although there is no national source for finding the level of contracting throughout the country, we pieced together the information that is available and found that, while the privatization of support services may be growing, there is a lot of variance in whether districts do this, and that’s likely a function of the different laws governing schools in each state.

Food service contracting is a regulated field. Most school districts participate in the National School Lunch Program, so their food service offerings are subject to regulation by the Department of Agriculture. This regulation includes the use of food service management companies.

In 2007, the Mackinac Center called each state to see how many of their districts contracted out for food services. Nationwide, 13.2 percent of districts contract out. But there are large differences among the states: Rhode Island leads the nation with 86.1 percent of its districts contracting out, while Delaware, Hawaii, Kentucky, North Dakota and West Virginia had no districts that contract out.

Nationally, contracting appears to be growing. The Centers for Disease Control surveyed districts in 2001 and 2007 in its School Health Policies and Programs Studies and included questions on the use of outside food service management companies. In 2001, 16.6 percent of schools used a food service manager. In 2007, this rose to 24.4 percent of all schools. This upward trend also appears in the Mackinac Center’s survey of Michigan school districts, which found that food service contracting had increased from 27.3 percent in 2003 to 29.4 percent in 2009.

For transportation services, an estimate performed by School Bus Fleet magazine pegged transportation contracting at 30 percent nationwide. This is similar to a figure from the survey in 2001 that found 31.8 percent of districts contracted out for this service. Periodic surveys of individual states have revealed wide variation in this service as well:
  • 62.2 percent in New Jersey in 1997,
  • 43 percent in Illinois in 2008,
  • 8.1 percent in Alabama in 2002,
  • 6.9 percent in Michigan in 2009,
  • 6.6 percent in Arizona in 2007,
  • 5.1 percent in Washington in 2001 and
  • 5.0 percent in Florida in 2007.
Interviews with officials in New Hampshire and Massachusetts suggest that New England districts tend to contract out for transportation at higher proportions. But contracting ranges from 62.2 percent to 5.0 percent in just these select states, suggesting that there are regional factors influencing contracting.

Unfortunately, there are no recent national estimates for districts that contract out custodial services. The survey mentioned above found that 8.2 percent of its respondents contracted out the service, and surveys of each state found a smaller range than in the other two services:
  • 20.1 percent in Michigan in 2009,
  • 18 percent in Florida in 2007,
  • 13 percent in Illinois in 2008,
  • 13 percent in Arizona in 2007 and
  • 9.4 percent in Virginia in 2000.
Of course, school districts play by much different rules than businesses. There’s no unifying profit motive guiding school decisions, but rather a complex mission of getting their students the best education possible.

Perhaps more importantly, the laws are different and affect districts’ ability and tendencies to contract out support services. For example, contractors are effectively prohibited from providing food services in Alabama and Louisiana.

Public-sector labor law is also a major factor. In Michigan, the district’s current employees and their unions are concerned when their employers contract out for non-instructional services and so oppose contracting efforts. Michigan and 34 other states have mandatory collective bargaining with organized public employees. Where present, public-sector unions provide organized opposition to districts that seek private vendors to provide services.

Because of union opposition, it might be expected that states without mandatory collective bargaining would have higher proportions of districts contracting out. But the food service figures and the individual state surveys on the other services show that they do not. There are reasons for this. In Michigan, the largest impetus for contracting is to save money on labor costs. In states where districts have the ability to nearly unilaterally control labor costs, a key driver for contracting is gone.

There are laws that are somewhat more subtle in how they affect contracting. For instance, Michigan prohibits bargaining with unions over contracting out. State law doesn’t mandate that districts contract out, but it keeps the option open. Districts’ ability to draft a Request for Proposals for companies to provide services is a powerful tool in contract negotiations.

It’s different in a state like Washington, where collective bargaining agreements (CBAs) may contain non-contracting clauses. While it is perfectly legal to contract out in the state, having non-contracting clauses makes it more difficult for districts to do so, since CBAs are renegotiated prior to their expiration.

The option to contract out helps districts control costs and gives them options for service delivery. But survey research we’ve performed and results from others that we’ve assembled show that privatization of school support services varies widely among the states. There are improvements that can be made to make the option available for districts around the country.

James Hohman is a fiscal policy analyst for the Mackinac Center for Public Policy. He manages the Mackinac Center’s annual survey of Michigan school districts. For more information, go to www.mackinac.org.

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