What Happened?
The city of Austin, Texas, recently completed an analysis of the costs to bring hundreds of workers in-house. The price was staggering.
So What?
As Gov1 has covered extensively, many cities are considering the privatization or outsourcing of certain services, and the savings are readily available. But rarely does a study become available that looks at the reverse: bringing contractors in-house. This study could be good fodder for cities looking to keep contractors off the full-time payroll.
The Goals and Process
The actual 132-page study was conducted to gather data on existing service contracts, and to revisit the rationale for utilizing contractors, instead of full-time employees of the city. The report analyzed contract prices, and compared them to the estimated costs of bringing the service in-house over a five-year period.
To do so, the study looked at 37 key contracts. To bring each contract in house, analysts had to estimate staffing costs—including wages, inflation, and benefits like health insurance—as well as commodities, fuel, maintenance, or other expenses that might be incurred. More importantly, the city had to calculate “startup costs,” which were often staggeringly expensive (the city’s financial staff assisted with pricing on items such as capital equipment). A transition plan that minimized service disruption was also priced out, and it was noted whether there were “facility limitations” that might impact whether insourcing merited consideration.
The Findings
According to the final report, the city determined that bringing the contracts in-house would required an additional $169 million, and 687.5 full-time equivalent positions.
Among the more interesting standouts:
- Vehicle Cleaning and Washing Services: The value of the city’s 2013 contract with a third-party provider is $113,000. To bring the service in-house, the city would expect to incur $7 million in startup costs, including “car wash equipment and the specialized buildings to house the car wash.” The city would then hire 20 FTEs, at a cost of about $1.4 million per year. At the end of five years, the city would expect to spend a whopping $13.3 million more by insourcing this service.
- Unarmed Uniformed Security Guard Services: The value of the city’s 2013 contract with a third-party provider is $1.5 million, which provides for 90,000 hours of guard services. To bring the service in-house, the city would expect to spend more than double that per year. Most of the cost would come from hiring 54 full-time equivalents; at the end of five years, the city would expect to have spent and extra $10.7 million insourcing guard services.
- Janitorial Services: The value of the city’s 2013 contract with a third-party provider is $883,000. To bring janitorial services in-house, the city would expect to spend closer to $1.5 million per year; it would hire 28 full-time equivalents, and spend an extra $3.3 million over the next five years.
- Construction and Repair of Sidewalks, Driveways, Bikeways: The value of the city’s 2013 contract with a third-party provider is $1.4 million. To bring the service in-house, the city would expect to incur $2 million in startup-costs—including light- and heavy-duty vehicles— then hire 11 staffers at a cost of about $2.3 million per year. At the end of five years, the city would expect to spend an additional $6.4 million to insource this service.
Extensive details for each contract were provided in the report.
Interestingly, of the 37 contracts analyzed, only two would have provided a cost savings to the city: management of a youth entertainment complex, and “vegetation control and debris removal.”
Next Steps
For municipal leaders asked to provide similar “insourcing” data, the report is an excellent template that can be used to assess costs such as startup costs, transition costs, hiring costs, benefit costs, and more.
If you’d like details on the process, or how the study was conducted, please consider contacting Austin City Council Member Mike Martinez, who was kind enough to provide Gov1 a copy of the original report.