Preventative Strategies – Stop it before it starts

It is widely recognized that the best defensive strategy against privatization is the outright prohibition of contracting out. While generally achieved through bargaining or through legislative action, prohibition may occasionally be achieved through litigation.

A second-best defensive strategy sets out cost and service-quality standards which severely restrict the ability of private contractors to low-ball initial bids, engage in sweetheart deals or provide inadequate services.

Both strategies are best utilized by taking advantage of "friendly" political environments and taking preemptive strikes against contracting out by bargaining prohibitive language, requiring advance warning or guaranteeing access to information and /or enacting protective legislation. While bargaining and legislative successes are very difficult to achieve, due to the tremendous bargaining resolve and/or enormous political influence required, these preemptive protections have huge future payoffs.

In addition, vigilance by union members is an important component in fighting privatization. Union members must be constantly aware of bids for contractual services and be prepared to prevent privatization in any form in any agency. Moreover, monitoring existing private providers and documenting poor services is important for fighting future public relations and legislative battles.

For example, PEF members employed by the Department of Transportation were instrumental in providing information on cost overruns and the shoddy work performed by private contractors. This information was essential to the public relations and legislative campaigns that ultimately compelled the state to hire additional state engineers rather than spend more on private contractors.

 

Bargaining

Unions bargaining for prohibitions or restrictions have achieved various levels of success. Typically, contractual language may:

(1) Prohibit contracting out, except in emergencies.

(2) Prohibit contracting out of unit work.

(3) Prohibit contracting out of work unless the work would require additional training of current employees and only when all employees on the recall list in the affected classifications are returned to work.

(4) Require the employer to notify the Union in writing as far in advance as feasible prior to contracting out work which has been customarily and routinely performed by unit members and meet with the union upon request to discuss alternatives.

Contractual language has also been adopted that protects current employees and raises the cost of contracting out. Contract clauses that guarantee jobs, protect pay and benefits or union representation have the added benefit of raising the cost of contracting out, restricting and even eliminating management’s ability to argue that contracting out will save money. Language has been negotiated that:

(1) Requires no layoff of existing employees due to contracting out;

(2) Requires no reduction in pay for existing employees;

(3) Requires the contractor to hire laid-off bargaining unit members at current wages and the employer to pay health insurance benefits;

(4) Requires that employees retain union protection.

(5) Requires an examination of the cost effectiveness or feasibility of contracting out.

(6) Requires advance notification.

(7) Bars contracting out unless costs are lowered and service quality is maintained.

(8) Requires the right to propose and have a union alternative considered in order to maintain the opportunity to keep work in-house.

An additional preventative measure involves public scrutiny. In order to ensure public scrutiny, contract language should require full disclosure of contractor bids; mandate access to information, including cost overruns, and provide reasonable advance notice.

Access to information should include staffing levels, titles, wages, benefits, service quality standards, and administrative costs. Some of the stronger language that has been negotiated requires 30 to 60 days notice in advance of final decisions on contracting out.

In the absence of contractual language mandating full disclosure and advance warning, it is of vital importance that the rank and file members are able to recognize the early warning signs. Their proximity to the workplace often provides them with access to relevant information and possibly advance notice of privatization initiatives.

 

Legislation

Prevention can also be achieved through legislation that prohibits, restricts, or raises the costs of privatization. States such as Maryland, California and Massachusetts passed laws that restricted the ability of state agencies to contract out services.

For example, in Maryland the law requires that, with a few exceptions, state employees perform all state functions within state-operated facilities in preference to contracting with the private sector. In addition, a finding of substantial cost savings is required prior to contracting out.

Perceived to have the strongest language is the California law requiring the following:

1. Cost savings cannot be based solely on lower contract pay rates.
2. Benefits and wages must be comparable to the industry’s level and may not significantly undercut state pay rates.
3. In addition, the contract may not result in the displacement of civil service employees. Displacement includes demotion and involuntary transfers to different title or location.
4. Savings must be large enough to account for private sector and state cost changes throughout the term.
5. There must be a publicized competitive bidding process.
6. The contract must contain a provision relating to the qualifications of the staff as well as assurances that the contractors’ hiring practices meet nondiscrimination and affirmative action standards.

Later, California established guidelines that required union involvement in the decision making process.

Less powerful legislation was passed in Maine in 1989. While the Maine legislation does not prevent privatization, it gives the union a voice in the privatization process. This legislation gives the union the right to review contracts, including documentation of cost savings, impact on quality of service and impacts on the civil service system.

Unfortunately, New York State has no legislation that prohibits privatization.

 

Litigation

Absent prohibitive contractual and/or legislative language, it may also be possible to stop privatization through litigation. States such as Washington, Ohio and Hawaii have used pre-existing laws to mount successful legal challenges to contracting out public services. In two of these states, the supreme courts ruled that contracting out public services violated civil service regulations or relevant state constitutions.

Unfortunately, the precedents set by New York State courts have made successful litigation more difficult. The New York courts, for the most part, have adopted a "bad faith" test. Under this test, privatization is unlawful only if the employer acts in bad faith or with intent to circumvent the civil service laws. In recent challenges, the courts have limited their focus to whether the contracts at issue are a subterfuge to mask a true employment relationship. With this focus, the courts apply a six-factor test to determine if the state actually controls the contractors’ employees, and only when it is determined that the state does in fact control the contractor’s employees will the contract be struck down.

To determine if the contract is a subterfuge to conceal an employer-employee relationship between the government and the contractor’s employees, and thus a violation of the merit and fitness requirement of Article V, §6 of the state Constitution, the courts have developed a very narrow test in which the following factors are examined:

1. whether the agency controls the salaries of the contractor’s employees,
2. whether the agency controls the hours of the contractor’s employees,
3. whether the agency controls the terms and conditions of employment,
4. whether the agency controls the hiring practices of the contractor,
5. whether the contractor supplies his/her own supervision, and
6. whether the contractor is responsible for payment of its employee’s taxes, insurance, pension, and welfare payments.

 

Summary

In summary, while difficult to achieve, preventative action achieved through bargaining, legislative, or legal action will have huge future payoffs. In the absence of such prohibitions, it is critical that the general membership be active and vigilant for signs of privatization. Moreover, absent blanket prohibitions to contracting out, it is of critical importance that PEF receives as much advance warning and as much detailed information as possible.