City of Austin Releases Surprising Outsourcing Study
On October 1, 2012 the city of Austin, Texas released a surprising outsourcing study that is a must-read for anyone interested in comparing public and private service delivery. The city concluded that insourcing all of the 37 contracts studied would cost an additional $169 million over a five-year period and require 687.5 full-time equivalent positions (FTEs). City staff cite cost-effectiveness, concerns about facility limitations and other considerations in their recommendation to maintain outsourcing for 36 of the contracts.1
The report originated from a formal request by the Austin City Council, which passed Council Resolution No. 20120405-54 asking for staff to gather data and explain the rationale for utilizing a contractor to perform various non-professional services.2 According to the city:
The analysis in this report includes:
- The estimated city annual operating costs for five years,
- Start-up costs such as capital equipment,
- The number of full-time positions the city would need to hire,
- The estimated annual contract costs for five years,
- The difference between the city and the contract in additional cost or savings over the 5-year period.
There is also a factor for inflation applied in the out years to both the contract costs and the city’s projected costs. The analysis does not include the cost to buy land, build or rent additional facilities to house staff and equipment. If Council chooses to insource contracts with space needs, this significant impact will require a separate facility assessment.3
Of the 54 contracts selected for review, 37 of them were determined eligible for further analysis and were organized into 10 categories: fleet services, security services, janitorial/custodial, general facility maintenance, facility management, general construction services, temporary staffing services, landscaping/grounds keeping, line clearing/tree trimming, and light concrete/pavement work.4
To give an example of the savings, insourcing line clearing/tree trimming would have cost $11.9 million in start-up costs, an additional $44.8 million over the five-year comparison period and 222 FTEs.5 Insourcing fleet services would have cost $7.8 million in start-up costs, an additional $14.7 million over the five-year comparison period and 28 FTEs.6
City staff found that insourcing would only provide cost savings for two out of the 37 contracts. The two contracts in question are for the Watershed Protection Department’s contract with Texas Industries for Blind and Handicapped (TIBH) for vegetation control and debris removal, where insourcing was expected to save $1 million over five years; and the Parks And Recreation Department’s contract with SMG to manage the Millennium Youth Entertainment Complex (MYEC), where it was expected to save approximately $1.7 million over five years. Of these two, the city only suggests reconsidering the MYEC contract, but even that was qualified with the desire to see an independent examination conducted before the city council were to proceed.7
1 “City of Austin Report on Insourcing Select Service Contracts: Contract versus City Source,” (Austin, TX: Financial Services Department), p. i, October 1, 2012. http://www.austintexas.gov/edims/pio/document.cfm?id=176992
4 Ibid, pp. 3-4.
5 Ibid., p. 9.
6 Ibid., p. 6.
7 Ibid, p. 5.