Which is cheaper, contractors or state workers?

Which is cheaper—a contractor or a state worker?

This is a key point of contention between Gov. Arnold Schwarzenegger and some  public employees unions.

As the state struggles to cut costs, the Service Employees International Union (SEIU) Local 1000 has been pushing the governor to cut millions from what they say is $34.7 billion in current contracts with outside vendors.

SEIU Local 1000, which includes 8,000 information technology (IT) workers among its 95,000 members, claims the state could save at least $100 million by hiring state workers to do computer work now done by contractors. That money, in turn, could be used to lessen the impact on state employees.

“In the new budget, while it has a certain number for cuts in employee compensation, it does not specifically state that it has to be achieved by three furlough days,” said Jim Zamora, spokesman for SEIU Local 1000. “We would actually love to see that language revised that so that money would come from elsewhere, especially state contracts.”

The administration disputes these figures.

“No one has ever been able to cite the where they determined these numbers,” said the governor’s spokesman, Aaron McLear, who also said the figures were “months old.”

He added, “A lot of times it’s cheaper to use outside vendors.” The cost of hiring a state worker, he said, is inflated by the many benefits they receive, including “outlandish pensions.”

McLear also pointed to major actions taken by the administration. On June 8, the governor canceled all contracts for the fourth quarter of the last fiscal year, which ended on June 30. He also ordered all state departments to cut contracting costs by 15 percent in the coming fiscal year.

Eric Lamoureux, a spokesman for the Department of General Services (DGS), said that state law requires managers who want to outsource show the work could not be done in-house by current staff. DGS also must approve all contracts. The hourly rates for contracts quoted by the SEIU, he said, are “not to exceed” figures, saying the real rates are often 20 percent to 30 percent less.
The administration also has been at loggerheads with other public employee unions representing state science and technology workers. Last week, the administration sued the Professional Engineers in California Government (PECG), seeking to block their request for arbitration over the governor’s demand that state workers take unpaid furlough days to help balance the state’s budget.

As PECG noted in a press release, the administration used on outside law firm — Kronick, Moskovitz, Tiedemann & Girard — to file the lawsuit. PECG represents 13,000 engineers and “related professionals” who design and oversee highways, bridges, hospitals and other infrastructure.

PECG also has issues with the administration’s preference for using contractors. According the Bruce Blanning, the group’s executive director, an engineer employed by the state cost taxpayers an average of $103,000 a year—a figure he said includes salary, benefits and all pension contributions. A contract engineer, he said, costs $232,000 a year, partially due to lots of no-bid contracts offered by the state.

CalTrans, he said, is currently paying about 1,300 outside contract engineers. If you multiply this by the average cost difference, he said, you get a figure of about $150 million.

“That’s a $150 million that could have gone into construction,” Blanning said. “That’s just wasted money.”

These thoughts were echoed by Marie Harder, a project manager with the Department of Public Health and the shop steward for SEIU Local 1000’s 8,000 IT professional members. Outside programmers, analysts and project managers, she said, typically cost anywhere from $135 to $250 an hour. According to a research report SEIU Local 1000 released in May, the hourly rates for outside IT contractors are usually just over twice as much as the compensation for state workers doing the same work.

She also said the pension issue was overblown. Many of the contractors the state employs have experience with specialized software and older systems in use by government.

“State employees have for a long, long time, taken lower pay to get a better retirement,” Harder said. “Many of the contractors are [former] state employees who are already getting a pension or will qualify for pension. We’re already going to pay them.”

The number of state IT contracts more than doubled between 2003-04 and 2006-07, from about 1,500 to over 3,600. Harder said this reflects longstanding problems that also existed under Schwarzenegger’s predecessor, Democrat Gray Davis. It can easily take two or three years to get approval for a position and then fill it, she said. Meanwhile, many of the state tests for IT analyst and programmer positions were not even offered between 2003 and 2008. Faced with these difficulties, she said, many managers gave up and hired contractors just because it was easier to do administratively.  

According to the office of the state’s chief information officer (CIO), they see the question as a situational one.

“When state employees don’t have expertise in a needed area, a consultant may be used to get the project off the ground, but a knowledge transfer would be required so that state employees can support and maintain it after it is launched”,said Bill Maile, a spokesman for the CIO, Terri Takai.  Similarly, a large amount of staff may be required to launch a project, but afterwards, the number of staff that supports it can be greatly reduced. This might be a situation where a contractor is used.”

Unions and the administration also disagree about how good the disclosure is around contracts. All state contracts over $5,000 are listed on a database on the Department of General Services website and the administrations own “Transparency in Government” site.

The DGS site lists $25.5 billion in currently active projects, ranging from the last fiscal year out into future obligations. But this includes billions in payments to local cities and counties to cover healthcare costs, according to the administration, which puts the annual figure at closer to about $9 billion. The database includes $794 million for “IT goods” and another $801.5 million for IT services.

But the SIEU Local 1000’s Harder and Zamora claimed the “Transparency” site was incomplete and hard to search.

“We think that the money that the state is spending on consultants and contractors should be transparent,” Harder said.